Document:

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[MERRILL LYNCH LOGO]                        WCMA(R) LOAN AND SECURITY AGREEMENT
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WCMA LOAN AND SECURITY AGREEMENT NO. 637-07214 ("Loan Agreement") dated as of
August 23, 2002, between HEALTH FITNESS CORPORATION, a corporation organized and
existing under the laws of the State of Minnesota having its principal office at
3500 West 80th Street, Suite 130, Bloomington, MN 55431 ("Customer"), and
MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., a corporation organized and
existing under the laws of the State of Delaware having its principal office at
222 North LaSalle Street, Chicago, IL 60601 ("MLBFS").

Pursuant to that certain WORKING CAPITAL MANAGEMENT(R) ACCOUNT AGREEMENT NO.
637-07214 and the accompanying Program Description (as the same may be, or have
been, amended, modified or supplemented, the "WCMA Agreement") between Customer
and MLBFS' affiliate, MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
("MLPF&S"), Customer opened, or shall prior to the Activation Date open, a
Working Capital Management Account pursuant to the "WCMA Service" and the "WCMA
Program" described in the WCMA Agreement and any documents incorporated therein.
The WCMA Agreement is by this reference incorporated as a part hereof. In
conjunction therewith and as part of the WCMA Program, Customer has requested
that MLBFS provide, and subject to the terms and conditions herein set forth
MLBFS has agreed to provide, a commercial line of credit for Customer.

Accordingly, and in consideration of the premises and of the mutual covenants of
the parties hereto, Customer and MLBFS hereby agree as follows:

                             ARTICLE I. DEFINITIONS

1.1 SPECIFIC TERMS. In addition to terms defined elsewhere in this Loan
Agreement, when used herein the following terms shall have the following
meanings:

"Activation Date" shall mean the date upon which MLBFS shall cause the WCMA Line
of Credit to be fully activated under MLPF&S' computer system as part of the
WCMA Program.

"Bankruptcy Event" shall mean any of the following: (i) a proceeding under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
liquidation, winding up or receivership law or statute shall be commenced, filed
or consented to by any Credit Party; or (ii) any such proceeding shall be filed
against any Credit Party and shall not be dismissed or withdrawn within sixty
(60) days after filing; or (iii) any Credit Party shall make a general
assignment for the benefit of creditors; or (iv) any Credit Party shall
generally fail to pay or admit in writing its inability to pay its debts as they
become due; or (v) any Credit Party shall be adjudicated a bankrupt or
insolvent; or (vi) any Credit Party shall take advantage of any other law or
procedure for the relief of debtors or shall take any action for the purpose of
or with a view towards effecting any of the foregoing; or (vii) a receiver,
trustee, custodian, fiscal agent or similar official for any Credit Party or for
any substantial part of any of their respective property or assets shall be
sought by such Credit Party or appointed.

"Business Day" shall mean any day other than a Saturday, Sunday, federal holiday
or other day on which the New York Stock Exchange is regularly closed.

"Business Guarantor shall mean every Guarantor that is not a natural person.

"Certificate of Compliance" shall mean, as applicable, that duly executed
certificate, substantially the same form as Exhibit B attached hereto to the
extent such certificate shall be applicable, of the president, chief financial
officer or chief executive officer of Customer, certifying as to the matters set
forth in such certificate.

"Collateral" shall mean the WCMA Account, all Accounts, Chattel Paper, Contract
Rights, Inventory, Equipment, Fixtures, General Intangibles, Deposit Accounts,
Documents, Instruments, Investment Property and Financial Assets of Customer,
howsoever arising, whether now owned or existing or hereafter acquired or
arising, and wherever located; together with all parts thereof (including spare
parts), all accessories and accessions thereto, all books and records (including
computer records) directly related thereto, all proceeds thereof (including,
without limitation, proceeds in the form of Accounts and insurance proceeds),
and the additional collateral described in Section 3.6(b) hereof.

"Commitment Expiration Date" shall mean September 21, 2002.

"Credit Party" and "Credit Parties" shall mean, individually or collectively,
the Customer, all Guarantors and all Pledgors.

"Default" shall mean either an "Event of Default" as defined in Section 3.5
hereof, or an event which with the giving of notice, passage of time, or both,
would constitute such an Event of Default.

"Default Rate" shall mean an annual interest rate equal to the lesser of: (i)
two percentage points over the Interest Rate; or (ii) the highest interest rate
allowed by applicable law.

"Event of Loss" shall mean the occurrence whereby any tangible Collateral is
damaged beyond repair, lost, totally destroyed or confiscated.

"Excess Interest shall mean any amount or rate of interest (including the
Default Rate and, to the extent that they may be deemed to constitute interest,
any prepayment fees, late charges and other fees and charges) payable, charged
or received in connection with any of the Loan Documents which exceeds the
maximum amount or rate of interest permitted under applicable law.

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"GAAP" shall mean the generally accepted accounting principles in effect in the
United States of America from time to time.

"General Funding Conditions" shall mean each of the following conditions to any
WCMA Loan by MLBFS hereunder: (i) Customer shall have validly subscribed to and
continued to maintain the WCMA Account with MLPF&S, and the WCMA Account shall
then be reflected as an active "commercial" WCMA Account (i.e., one with line of
credit capabilities) on MLPF&S' WCMA computer system; (ii) no Default or Event
of Default shall have occurred and be continuing or would result from the making
of any WCMA Loan hereunder by MLBFS; (iii) there shall not have occurred and be
continuing any material adverse change in the business or financial condition of
any Credit Party; (iv) all representations and warranties of all of the Credit
Parties herein or in any of the Loan Documents shall then be true and correct in
all material respects; (v) MLBFS shall have received this Loan Agreement and all
of the other Loan Documents duly executed and filed or recorded where
applicable, all of which shall be in form and substance satisfactory to MLBFS;
(vi) MLBFS shall have received evidence satisfactory to it as to the ownership
of the Collateral and the perfection and priority of MLBFS' liens and security
interests thereon, as well as the ownership of and the perfection and priority
of MLBFS' liens and security interests on any other collateral for the
Obligations furnished pursuant to any of the Loan Documents; (vii) MLBFS shall
have received evidence satisfactory to it of the insurance required hereby or by
any of the Loan Documents; and (viii) any additional conditions specified in the
"WCMA Line of Credit Approval" letter executed by MLBFS with respect to the
transactions contemplated hereby shall have been met to the satisfaction of
MLBFS.

"Guarantor" shall mean each Person obligated under a guaranty, endorsement or
other undertaking by which such Person guarantees or assumes responsibility in
any capacity for the payment or performance of any of the Obligations.

"Initial Maturity Date" shall mean the first date upon which the WCMA Line of
Credit will expire (subject to renewal in accordance with the terms hereof); to
wit August 31, 2003.

"Individual Guarantor" shall mean each Guarantor who is a natural person.

"Interest Due Date" shall mean the first Business Day of each calendar month
during the term hereof.

"Interest Rate" shall mean a variable per annum rate of interest equal to the
sum of 2.35% plus the One-Month LIBOR. "One-Month LIBOR" shall mean, as of the
date of any determination, the interest rate then most recently published in the
"Money Rates" section of The Wall Street Journal as the one-month London
Interbank Offered Rate. The Interest Rate will change as of the date of
publication in The Wall Street Journal of a One-Month LIBOR that is different
from that published on the preceding Business Day. If more than one rate is
published, then the highest of such rates. In the event that The Wall Street
Journal shall, for any reason, fail or cease to publish the One-Month LIBOR,
MLBFS will choose a reasonably comparable index or source to use as the basis
for the Interest Rate.

"Line Fee" shall mean a fee of $6,250.00 payable periodically by Customer to
MLBFS in accordance with the provisions of Section 2.2 hereof.

"Loan Documents" shall mean this Loan Agreement, any indenture, any guaranty of
any of the Obligations and all other security and other instruments,
assignments, certificates, certifications and agreements of any kind relating to
any of the Obligations, whether obtained, authorized, authenticated, executed,
sent or received concurrently with or subsequent to this Loan Agreement, or
which evidence the creation, guaranty or collateralization of any of the
Obligations or the granting or perfection of liens or security interests upon
any Collateral or any other collateral for the Obligations, including any
modifications, amendments or restatements of the foregoing.

"Location of Tangible Collateral" shall mean the address of Customer set forth
at the beginning of this Loan Agreement, together with any other address or
addresses set forth on an exhibit hereto as being a Location of Tangible
Collateral.

"Maturity Date" shall mean the date of expiration of the WCMA Line of Credit

"Maximum WCMA Line of Credit" shall mean, as of any date of determination
thereof, an amount Equal to the lesser of: (A) $2,750,000.00, or (B) 80% of
Customer's Accounts and Chattel Paper, as shown on its regular books and records
(excluding Accounts over 90 days old, Accounts directly or indirectly due from
any person or entity not domiciled in the United States, or from any
shareholder, officer or employee of Customer or any affiliated entity).

"Obligations" shall mean all liabilities, indebtedness and other obligations of
Customer to MLBFS, howsoever created, arising or evidenced, whether now existing
or hereafter arising, whether direct or indirect, absolute or contingent, due or
to become due, primary or secondary or joint or several, and, without limiting
the generality of the foregoing, shall include principal, accrued interest
(including without limitation interest accruing after the filing of any petition
in bankruptcy), all advances made by or on behalf of MLBFS under the Loan
Documents, collection and other costs and expenses incurred by or on behalf of
MLBFS, whether incurred before or after judgment and all present and future
liabilities, indebtedness and obligations of Customer under this Loan Agreement.

"Permitted Liens" shall mean with respect to the Collateral: (i) liens for
current taxes not yet due and payable, other non-consensual liens arising in the
ordinary course of business for sums not due, and, if MLBFS' rights to and
interest in the Collateral are not materially aid adversely affected thereby,
any such liens for taxes or other non-consensual liens arising in the ordinary
course of business being contested in good faith by appropriate proceedings;
(ii) liens in favor of MLBFS; (iii) liens which will be discharged with the
proceeds of the initial WCMA Loan; and (iv) any other liens expressly permitted
in writing by MLBFS.

"Person" shall mean any natural person and any corporation, partnership
(general, limited or otherwise), limited liability company, trust association,
joint venture, governmental body or agency or other entity having legal status
of any kind.

"Pledgor" shall mean each Person who at any time provides collateral, or
otherwise now or hereinafter agrees to grant MLBFS a security interest in any
assets as security for Customers Obligations.

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"Renewal Year" shall mean and refer to the 12-month period immediately following
the Initial Maturity Date and each 12-month period thereafter.

"WCMA Account" shall mean and refer to the Working Capital Management Account of
Customer with MLPF&S identified as Account No. 637-07214 and any successor
Working Capital Management Account of Customer with MLPF&S.

"WCMA Line of Credit" shall mean a line of credit funded by MLBFS through the
WCMA Account.

 "WCMA Loan" shall mean each advance made by MLBFS pursuant to this
Loan Agreement.

"WCMA Loan Balance" shall mean an amount equal to the aggregate unpaid principal
amount of all WCMA Loans.

"UCC" shall mean the Uniform Commercial Code of Illinois as in effect in
Illinois from time to time.

1.2 OTHER TERMS. Except as otherwise defined herein: (i) all terms used in this
Loan Agreement which are defined in the UCC shall have the meanings set forth in
the UCC, and (ii) capitalized terms used herein which are defined in the WCMA
Agreement (including, without limitation, "Money Accounts", "Minimum Money
Accounts Balance", and "WCMA Directed Reserve Program") shall have the meanings
set forth in the WCMA Agreement, and (iii) accounting terms not defined herein
shall have the meaning ascribed to them in GAAP.

1.3 UCC FILING. Customer hereby authorizes MLBFS to file a record or records (as
defined or otherwise specified under the UCC), including, without limitation,
financing statements, in all jurisdictions and with all filing offices as MLBFS
may determine, in its sole discretion, are necessary or advisable to perfect the
security interest granted to MLBFS herein. Such financing statements may
describe the Collateral in the same manner as described herein or may contain an
indication or description of collateral that describes such property in any
other manner as MLBFS may determine, in its sole discretion, is necessary,
advisable or prudent to ensure the perfection of the security interest in the
Collateral granted to the MLBFS herein.

                       ARTICLE II. THE WCMA LINE OF CREDIT

2.1 WCMA PROMISSORY NOTE. FOR VALUE RECEIVED, Customer hereby promises to pay to
the order of MLBFS, at the times and in the manner set forth in this Loan
Agreement, or in such other manner and at such place as MLBFS may hereafter
designate in writing, the following: (a) on the Maturity Date, or if earlier, on
the date of termination of the WCMA Line of Credit, the WCMA Loan Balance; (b)
interest at the Interest Rate (or, if applicable, at the Default Rate) on the
outstanding WCMA Loan Balance, from and including the date on which the initial
WCMA Loan is made until the date of payment of all WCMA Loans in full; and (c)
on demand, all other sums payable pursuant to this Loan Agreement, including,
but not limited to, the periodic Line Fee. Except as otherwise expressly set
forth herein, Customer hereby waives presentment, demand for payment, protest
and notice of protest, notice of dishonor, notice of acceleration, notice of
intent to accelerate and all other notices and formalities in connection with
this WCMA Promissory Note and this Loan Agreement.

2.2 WCMA LOANS

(a) ACTIVATION DATE. Provided that: (i) the Commitment Expiration Date shall not
then have occurred, and (ii) Customer shall have subscribed to the WCMA Program
and its subscription to the WCMA Program shall then be in effect, the Activation
Date shall occur on or promptly after the date, following the acceptance of this
Loan Agreement by MLBFS at its office in Chicago, Illinois, upon which each of
the General Funding Conditions shall have been met or satisfied to the
reasonable satisfaction of MLBFS. No activation by MLBFS of the WCMA Line of
Credit for a nominal amount shall be deemed evidence of the satisfaction of any
of the conditions herein set forth, or a waiver of any of the terms or
conditions hereof. Customer hereby authorizes MLBFS to pay out of and charge to
Customer's WCMA Account on the Activation Date any and all amounts necessary to
fully pay off any bank or other financial institution having a lien upon any of
the Collateral other than a Permitted Lien.

(b) WCMA LOANS. Subject to the terms and conditions hereof, during the period
from and after the Activation Date to the first to occur of the Maturity Date or
the date of termination of the WCMA line of Credit pursuant to the terms hereof
and in addition to WCMA Loans automatically made to pay accrued interest, as
hereafter provided: (i) MLBFS will make WCMA Loans to Customer in such amounts
as Customer may from time to time request in accordance with the terms hereof,
up to an aggregate outstanding amount not to exceed the Maximum WCMA Line of
Credit, and (ii) Customer may repay any WCMA Loans in whole or in part at any
time, and request a re-borrowing of amounts repaid on a revolving basis.
Customer may request such WCMA Loans by use of WCMA Checks, FTS, Visa(R)
charges, wire transfers, or such other means of access to the WCMA Line of
Credit as may be permitted by MLBFS from time to time; it being understood that
so long as the WCMA Line of Credit shall be in effect, any charge or debit to
the WCMA Account which but for the WCMA Line of Credit would under the terms of
the WCMA Agreement result in an overdraft, shall be deemed a request by Customer
for a WCMA Loan.

(c) CONDITIONS OF WCMA LOANS. Notwithstanding the foregoing, MLBFS shall not be
obligated to make any WCMA Loan, and may without notice refuse to honor any such
request by Customer, if at the time of receipt by MLBFS of Customers request:
(i) the making of such WCMA Loan would cause the Maximum WCMA Line of Credit to
be exceeded; or (ii) the Maturity Date shall have occurred, or the WCMA Line of
Credit shall have otherwise been terminated in accordance with the terms hereof;
or (iii) Customer's subscription to the WCMA Program shall have been terminated;
or (iv) an event shall have occurred and be continuing which shall have caused
any of the General Funding Conditions to not then be met or satisfied to the
reasonable satisfaction of MLBFS. The making by MLBFS of any WCMA Loan at a time
when any one or more of said conditions shall not have been met shall not in any
event be construed as a waiver of said condition or conditions or of any
Default, and shall not prevent MLBFS at any time thereafter while any condition
shall not have been met from refusing to honor any request by Customer for a
WCMA Loan.

(d) LIMITATION OF LIABILITY. MLBFS shall not be responsible, and shall have no
liability to Customer or any other party, for any delay or failure of MLBFS to
honor any request of Customer for a WCMA Loan or any other act or omission of
MLBFS, MLPF&S or any of their affiliates due to or resulting from any system
failure, error or delay in posting or other clerical error, loss of power, fire,
Act of God or other cause beyond the reasonable control of MLBFS, MLPF&S or any
of their affiliates unless directly arising out of the willful wrongful act or
active gross negligence of MLBFS. In no event shall MLBFS be liable

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to Customer or any other party for any incidental or consequential damages
arising from any act or omission by MLBFS, MLPF&S or any of their affiliates in
connection with the WCMA Line of Credit or this Loan Agreement.

(e) INTEREST. (i) An amount equal to accrued interest on the daily WCMA Loan
Balance shall be payable by Customer monthly on each Interest Due Date,
commencing with the first Interest Due Date after the Activation Date. Unless
otherwise hereafter directed in writing by MLBFS on or after the first to occur
of the Maturity Date or the date of termination of the WCMA Line of Credit
pursuant to the terms hereof such interest will be automatically charged to the
WCMA Account on the applicable Interest Due Date, and, to the extent not paid
with free credit balances or the proceeds of sales of any Money Accounts then in
the WCMA Account, as hereafter provided, paid by a WCMA Loan and added to the
WCMA Loan Balance. All interest shall be computed for the actual number of days
elapsed on the basis of a year consisting of 360 days.

(ii) Upon the occurrence and during the continuance of any Default but without
limiting the rights and remedies otherwise available to MLBFS hereunder or
waiving such Default, the interest payable by Customer hereunder shall at the
option of MLBFS accrue and be payable at the Default Rate. The Default Rate,
once implemented, shall continue to apply to the Obligations under this Loan
Agreement and be payable by Customer until the date MLBFS gives written notice
that such Default has been cured to the satisfaction of MLBFS.

(iii) Notwithstanding any provision to the contrary in any of the Loan
Documents, no provision of any of the Loan Documents shall require the payment
or permit the collection of Excess Interest. If any Excess Interest is provided
for, or is adjudicated as being provided for, in any of the Loan Documents,
then: (A) Customer shall not be obligated to pay any Excess Interest; and (B)
any Excess Interest that MLBFS may have received hereunder or under any of the
Loan Documents shall, at the option of MLBFS, be either applied as a credit
against the then unpaid WCMA Loan Balance or refunded to the payor thereof.

(f) PAYMENTS. All payments required or permitted to be made pursuant to this
Loan Agreement shall be made in lawful money of the United States. Unless
otherwise directed by MLBFS, payments on account of the WCMA Loan Balance may be
made by the delivery of checks (other than WCMA Checks), or by means of FTS or
wire transfer of funds (other than funds from the WCMA Line of Credit) to MLPF&S
for credit to Customer's WCMA Account. Notwithstanding anything in the WCMA
Agreement to the contrary, Customer hereby irrevocably authorizes and directs
MLPF&S to apply available free credit balances in the WCMA Account to the
repayment of the WCMA Loan Balance prior to application for any other purpose.
Payments to MLBFS from funds in the WCMA Account shall be deemed to be made by
Customer upon the same basis and schedule as funds are made available for
investment in the Money Accounts in accordance with the terms of the WCMA
Agreement. All funds received by MLBFS from MLPF&S pursuant to the aforesaid
authorization shall be applied by MLBFS to repayment of the WCMA Loan Balance.
The acceptance by or on behalf of MLBFS of a check or other payment for a lesser
amount than shall be due from Customer, regardless of any endorsement or
statement thereon or transmitted therewith, shall not be deemed an accord and
satisfaction or anything other than a payment on account, and MLBFS or anyone
acting on behalf of MLBFS may accept such check or other payment without
prejudice to the rights of MLBFS to recover the balance actually due or to
pursue any other remedy under this Loan Agreement or applicable law for such
balance. All checks accepted by or on behalf of MLBFS in connection with the
WCMA Line of Credit are subject to final collection.

(g) IRREVOCABLE INSTRUCTIONS TO MLPF&S. In order to minimize the WCMA Loan
Balance, Customer hereby irrevocably authorizes and directs MLPF&S, effective on
the Activation Date and continuing thereafter so long as this Loan Agreement
shall be in effect: (i) to immediately and prior to application for any other
purpose pay to MLBFS to the extent of any WCMA Loan Balance or other amounts
payable by Customer hereunder all available free credit balances from time to
time in the WCMA Account; and (ii) if such available free credit balances are
insufficient to pay the WCMA Loan Balance and such other amounts, and there are
in the WCMA Account at any time any investments in Money Accounts (other than
any investments constituting any Minimum Money Accounts Balance under the WCMA
Directed Reserve Program), to immediately liquidate such investments and pay to
MLBFS to the extent of any WCMA Loan Balance and such other amounts the
available proceeds from the liquidation of any such Money Accounts.

(h) LATE CHARGE. Any payment or deposit required to be made by Customer pursuant
to the Loan Documents not paid or made within ten (10) days of the applicable
due date shall be subject to a late charge in an amount equal to the lesser oft
(a) 5% of the overdue amount, or (b) the maximum amount permitted by applicable
law. Such late charge shall be payable on demand, or, without demand, may in the
sole discretion of MLBFS be paid by a Subsequent WCMA Loan and added to the WCMA
Loan Balance in the same manner as provided herein for accrued interest with
respect to the WCMA Line of Credit.

(i) STATEMENTS. MLPF&S will include in each monthly statement it issues under
the WCMA Program information with respect to WCMA Loans and the WCMA Loan
Balance. Any questions that Customer may have with respect to such information
should be directed to MLBFS; and any questions with respect to any other matter
in such statements or about or affecting the WCMA Program should be directed to
MLPF&S.

(j) USE OF WCMA LOAN PROCEEDS. The proceeds of each WCMA Loan initiated by
Customer shall be used by Customer solely for working capital in the ordinary
course of its business, or, with the prior written consent of MLBFS, for other
lawful business purposes of Customer not prohibited hereby. CUSTOMER AGREES THAT
UNDER NO CIRCUMSTANCES WILL THE PROCEEDS OF ANY WCMA LOAN BE USED: (i) FOR
PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OF ANY PERSON WHATSOEVER, OR (ii) TO
PURCHASE, CARRY OR TRADE IN SECURITIES, OR REPAY DEBT INCURRED TO PURCHASE,
CARRY OR TRADE IN SECURITIES, WHETHER IN OR IN CONNECTION WITH THE WCMA ACCOUNT,
ANOTHER ACCOUNT OF CUSTOMER WITH MLPF&S OR AN ACCOUNT OF CUSTOMER AT ANY OTHER
BROKER OR DEALER IN SECURITIES, OR (iii) UNLESS OTHERWISE CONSENTED TO IN
WRITING BY MLBFS, TO PAY ANY AMOUNT TO MERRILL LYNCH AND CO., INC. OR ANY OF ITS
SUBSIDIARIES, OTHER THAN MERRILL LYNCH BANK USA, MERRILL LYNCH BANK & TRUST CO.
OR ANY SUBSIDIARY OF EITHER OF THEM (INCLUDING MLBFS AND MERRILL LYNCH CREDIT
CORPORATION).

(k) RENEWAL AT OPTION OF MLBFS; RIGHT OF CUSTOMER TO TERMINATE. MLBFS may at any
time, in its sole discretion and at its sole option, renew the WCMA Line of
Credit for one or more Renewal Years; it being understood, however, that no such
renewal shall be effective unless set forth in a writing executed by a duly
authorized representative of MLBFS and delivered to Customer. Unless any such
renewal is accompanied by a proposed change in the terms of the WCMA Line of
Credit (other than the extension of the Maturity Date), no such renewal shall
require Customer's approval. Customer shall, however, have the

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right to terminate the WCMA Line of Credit at any time upon written notice to
MLBFS. Concurrently with any such termination, Customer shall pay to MLBFS the
entire WCMA Loan Balance and all other Obligations.

(i) LINE FEES. (i) In consideration of the extension of the WCMA Line of Credit
by MLBFS to Customer during the period from the Activation Date to and including
the last day of August, 2003 (the "Initial Line Period"), Customer has paid or
shall pay the initial Line Fee to MLBFS. If the initial Line Fee has not
heretofore been paid by Customer, Customer hereby authorizes MLBFS, at its
option, to either cause the initial Line Fee to be paid on the Activation Date
with a WCMA Loan, or invoice Customer for such initial Line Fee (in which event
Customer shall pay said fee within 5 Business Days after receipt of such
invoice). No delay in the Activation Date, howsoever caused, shall entitle
Customer to any rebate or reduction in the Line Fee or to any extension of the
Initial Maturity Date.

(ii) Customer shall pay to MLBFS an additional Line Fee for each 12-month period
following the Initial Line Period to the Initial Maturity Date, and for each
Renewal Year. In connection therewith, Customer hereby authorizes MLBFS, at its
option, to either cause each such additional Line Fee to be paid with a WCMA
Loan on or at any time after the first Business Day of such 12-month period or
Renewal Year, as applicable, or invoiced to Customer at such time (in which
event Customer shall pay such Line Fee within 5 Business Days after receipt of
such invoice). Each Line Fee shall be deemed fully earned by MLBFS on the date
payable by Customer, and no termination of the WCMA Line of Credit, howsoever
caused, shall entitle Customer to any rebate or refund of any portion of such
Line Fee; provided, however, that if Customer shall terminate the WCMA Line of
Credit not later than 5 Business Days after the receipt by Customer of notice
from MLBFS of a renewal of the WCMA Line of Credit, Customer shall be entitled
to a refund of any Line Fee charged by MLBFS for the ensuing Renewal Year.

                         ARTICLE III. GENERAL PROVISIONS

3.1 REPRESENTATIONS AND WARRANTIES

Customer represents and warrants to MLBFS that:

(a) ORGANIZATION AND EXISTENCE. Customer is a corporation, duly organized and
validly existing in good standing under the laws of the State of Minnesota and
is qualified to do business and in good standing in each other state where the
nature of its business or the property owned by it make such qualification
necessary.

(b) EXECUTION, DELIVERY AND PERFORMANCE. Each Credit Party has the requisite
power and authority to enter into and perform the Loan Documents. The Customer
holds all necessary permits, licenses, certificates of occupancy and other
governmental authorizations and approvals required in order to own and operate
the Customer's business. The execution, delivery and performance by Customer of
this Loan Agreement and by each of the other Credit Parties of such of the other
Loan Documents to which it is a party: (i) have been duly authorized by all
requisite action, (ii) do not and will not violate or conflict with any law,
order or other governmental requirement, or any of the agreements, instruments
or documents which formed or govern any of the Credit Parties, and (iii) do not
and will not breach or violate any of the provisions of, and will not result in
a default by any of the Credit Parties under, any other agreement, instrument or
document to which it is a party or is subject.

(c) NOTICES AND APPROVALS. Except as may have been given or obtained, no notice
to or consent or approval of any governmental body or authority or other third
party whatsoever (including, without limitation, any other creditor) is required
in connection with the execution, delivery or performance by any Credit Party of
such of this Loan Agreement and the Loan Documents to which it is a party.

(d) ENFORCEABILITY. The Loan Documents to which any Credit Party is a party are
the respective legal, valid and binding obligations of such Credit Party,
enforceable against it or them, as the case may be, in accordance with their
respective terms, except as enforceability may be limited by bankruptcy and
other similar laws affecting the rights of creditors generally or by general
principles of equity.

(e) COLLATERAL. Except for priorities afforded to any Permitted Liens: (i)
Customer has good and marketable title to the Collateral, (ii) none of the
Collateral is subject to any lien, encumbrance or security interest, and (iii)
upon the filing of all Uniform Commercial Code financing statements
authenticated or otherwise authorized by Customer with respect to the Collateral
in the appropriate jurisdiction(s) and/or the completion of any other action
required by applicable law to perfect its liens and security interests, MLBFS
will have valid and perfected first liens and security interests upon all of the
Collateral.

(f) FINANCIAL STATEMENTS. Except as expressly set forth in Customer's or any
Business Guarantor's financial statements, all financial statements of Customer
and each Business Guarantor furnished to MLBFS have been prepared in conformity
with generally accepted accounting principles, consistently applied, are true
and correct in all material respects, and fairly present the financial condition
of it as at such dates and the results of its operations for the periods then
ended (subject, in the case of interim unaudited financial statements, to normal
year-end adjustments); and since the most recent date covered by such financial
statements, there has been no material adverse change in any such financial
condition or operation. All financial statements furnished to MLBFS of any
Guarantor other than a Business Guarantor are true and correct in all material
respects and fairly represent such Guarantor's financial condition as of the
date of such financial statements, and since the most recent date of such
financial statements, there has been no material adverse change in such
financial condition.

(g) LITIGATION; COMPLIANCE WITH ALL LAWS. No litigation, arbitration,
administrative or governmental proceedings are pending or, to the knowledge of
Customer, threatened against any Credit Party, which would, if adversely
determined, materially and adversely affect (i) such Credit Party's interest in
the Collateral or the liens and security interests of MLBFS hereunder or under
any of the Loan Documents, or (ii) the financial condition of any Credit Party
or its continued operations. Each Credit Party is in compliance in all material
respects with all laws, regulations, requirements and approvals applicable to
such Credit Party.

                                      -5-
<PAGE>

(h) TAX RETURNS. All federal, state and local tax returns, reports and
statements required to be filed by any Credit Party have been filed with the
appropriate governmental agencies and all taxes due and payable by any Credit
Party have been timely paid (except to the extent that any such failure to file
or pay will not materially and adversely affect (i) either the liens and
security interests of MLBPS hereunder or under any of the Loan Documents, (ii)
the financial condition of any Credit Party, or (iii) its continued operations).

(i) COLLATERAL LOCATION. All of the tangible Collateral is located at a Location
of Tangible Collateral.

(j) NO DEFAULT. No "Default" or "Event of Default" (each as defined in this Loan
Agreement or any of the other Loan Documents) has occurred and is continuing.

(k) NO OUTSIDE BROKER. Except for employees of MLBFS, MLPF&S or one of their
affiliates, Customer has not in connection with the transactions contemplated
hereby directly or indirectly engaged or dealt with, and was not introduced or
referred to MLBPS by, any broker or other loan arranger.

Each of the foregoing representations and warranties: (i) has been and will be
relied upon as an inducement to MLBFS to provide the WCMA Line of Credit, and
(ii) is continuing and shall be deemed remade by Customer concurrently with each
request for a WCMA Loan.

3.2 FINANCIAL AND OTHER INFORMATION

(a) Customer shall furnish or cause to be furnished to MLBFS during the term of
this Loan Agreement all of the following:

(i) QUARTERLY CERTIFICATE OF COMPLIANCE. Within 45 days after the close of each
calendar quarter, a Certificate of Compliance, duly executed by the president,
chief financial officer or chief executive officer of the Customer, in the form
of Exhibit B attached hereto, or such other form as reasonably required by MLBFS
from time to time;

(ii) A/R AGINGS. Within 15 days after the close of each fiscal month of
Customer, a copy of the Accounts Receivable Aging of Customer as of the end of
such fiscal month;

(iii) SEC REPORTS. Customer shall furnish or cause to be furnished to MLBFS not
later than 120 days after the date of filing with the Securities and Exchange
Commission ("SEC"), a copy of each 10-K and any other report required to be
filed with the SEC during the term hereof by Customer; and

(iv) SEC REPORTS. Customer shall furnish or cause to be furnished to MLBFS not
later than 45 days after the date of filing with the Securities and Exchange
Commission ("SEC"), a copy of each 10-Q and any other report required to be
filed with the SEC during the term hereof by Customer; and

(v) OTHER INFORMATION. Such other information as MLBFS may from time to time
reasonably request relating to Customer, any Credit Party or the Collateral.

(vi) GENERAL AGREEMENTS WITH RESPECT TO FINANCIAL INFORMATION. Customer agrees
that except as otherwise specified herein or otherwise agreed to in writing by
MLBFS: (i) all annual financial statements required to be furnished by Customer
to MLBFS hereunder will be prepared by either the current independent
accountants for Customer or other independent accountants reasonably acceptable
to MLBFS, and (ii) all other financial information required to be furnished by
Customer to MLBFS hereunder will be certified as correct in all material
respects by the party who has prepared such information, and, in the case of
internally prepared information with respect to Customer, certified as correct
by its chief financial officer.

3.3 OTHER COVENANTS

Customer further covenants and agrees during the term of this Loan Agreement
that:

(a) FINANCIAL RECORDS; INSPECTION. Each Credit Party (other than any Individual
Guarantor) will: (i) maintain at its principal place of business complete and
accurate books and records, and maintain all of its financial records in a
manner consistent with the financial statements heretofore furnished to MLBFS,
or prepared on such other basis as may be approved in writing by MLBFS; and (ii)
permit MLBFS or its duly authorized representatives, upon reasonable notice and
at reasonable times, to inspect its properties (both real and personal),
operations, books and records.

(b) TAXES. Each Credit Party will pay when due all of its respective taxes,
assessments and other governmental charges, howsoever designated, and all other
liabilities and obligations, except to the extent that any such failure to file
or pay will not materially and adversely affect either the liens and security
interests of MLBFS hereunder or under any of the Loan Documents, the financial
condition of any Credit Party or its continued operations.

(c) COMPLIANCE WITH LAWS AND AGREEMENTS. No Credit Party will violate (i) any
law, regulation or other governmental requirement, any judgment or order of any
court or governmental agency or authority; (ii) any agreement, instrument or
document which is material to its operations or to the operation or use of any
Collateral, in each case as contemplated by the Loan Documents; or (iii) any
agreement, instrument or document to which it is a party or by which it is
bound, if any such violation will materially and adversely affect either the
liens and security interests of MLBFS hereunder or under any of the Loan
Documents, the financial condition of any Credit Party, or its continued
operations.

(d) NO USE OF MERRILL LYNCH NAME. No Credit Party will directly or indirectly
publish, disclose or otherwise use in any advertising or promotional material,
or press release or interview, the name, logo or any trademark of MLBFS, MLPF&S,
Merrill Lynch and Co., Incorporated or any of their affiliates. Notwithstanding
the foregoing, MLBFS will consider one written request of Customer for a press
release provided it is clear MSBFS is the entity providing the financing and
that only financing is being provided, but MLBFS will be under no obligation to
approve such press release, and any such approval must be in writing.

                                      -6-
<PAGE>

(e) NOTIFICATION BY CUSTOMER. Customer shall provide MLBFS with prompt written
notification of: (i) any Default; (ii) any material adverse change in the
business, financial condition or operations of any Credit Party; (iii) any
information which indicates that any financial statements of any Credit Party
fail in any material respect to present fairly the financial condition and
results of operations purported to be presented in such statements; (iv) any
threatened or pending litigation involving any Credit Party; (v) any casualty
loss, attachment, lien, judicial process, encumbrance or claim affecting or
involving $25,000 or more of any Collateral; and (vi) any change in Customer's
outside accountants. Each notification by Customer pursuant hereto shall specify
the event or information causing such notification, and, to the extent
applicable, shall specify the steps being taken to rectify or remedy such event
or information.

(f) ENTITY ORGANIZATION. Each Credit Party which is an entity will (i) remain
(A) validly existing and in good standing in the state of its organization and
(B) qualified to do business and in good standing in each other state where the
nature of its business or the property owned by it make such qualification
necessary, and (ii) maintain all governmental permits, licenses and
authorizations. Customer shall give MLBFS not less than 30 days prior written
notice of any change in name (including any fictitious name) or chief executive
office, place of business, or as applicable, the principal residence of any
Credit Party.

(g) MERGER, CHANGE IN BUSINESS. Except upon the prior written consent of MLBFS
Customer shall not cause or permit any Credit Party to: (i) be a party to any
merger or consolidation with, or purchase or otherwise acquire all or
substantially all of the assets of, or any material stock, partnership, joint
venture or other equity interest in, any Person, or sell, transfer or lease all
or any substantial part of its assets; (ii) engage in any material business
substantially different from its business in effect as of the date of
application by Customer for credit from MLBFS, or cease operating any such
material business; or (iii) cause or permit any other Person to assume or
succeed to any material business or operations of such Credit Party.

(h) MINIMUM TANGIBLE NET WORTH. Customer's "Tangible Net Worth" shall at all
times exceed $1,500,000.00, as defined and calculated as set forth in Exhibit B
attached hereto.

(i) TOTAL LIABILITIES TO TANGIBLE NET WORTH. Customer's "Leverage Ratio" shall
not at any time exceed 3.25 to 1.00, as defined and calculated as set forth in
Exhibit B attached hereto.

(j) FIXED CHARGE COVERAGE. Customer's "Fixed Charge Coverage Ratio" shall at all
times exceed 2.0 to 1.00, as defined and calculated as set forth in Exhibit B
attached hereto.

3.4 COLLATERAL

(a) PLEDGE OF COLLATERAL. To secure payment and performance of the Obligations,
Customer hereby pledges, assigns, transfers and sets over to MLBFS, and grants
to MLBFS first liens and security interests in and upon all of the Collateral,
subject only to priorities afforded to Permitted Liens.

(b) LIENS. Except upon the prior written consent of MLBFS, Customer shall not
create or permit to exist any lien, encumbrance or security interest upon or
with respect to any Collateral now owned or hereafter acquired other than
Permitted Liens.

(c) PERFORMANCE OF OBLIGATIONS. Customer shall perform all of its obligations
owing on account of or with respect to the Collateral; it being understood that
nothing herein, and no action or inaction by MLBFS, under this Loan Agreement or
otherwise, shall be deemed an assumption by MLBFS of any of Customer's said
obligations.

(d) SALES AND COLLECTIONS. Customer shall not sell, transfer or otherwise
dispose of any Collateral, except that so long as no Event of Default shall have
occurred and be continuing, Customer may in the ordinary course of its business:
(i) sell any inventory normally held by Customer for sale, (ii) use or consume
any materials and supplies normally held by Customer for use or consumption, and
(iii) collect all of its Accounts.

(e) ACCOUNT SCHEDULES. Upon the request of MLBFS, which may be made from time to
time, Customer shall deliver to MLBFS, in addition to the other information
required hereunder, a schedule identifying, for each Account and all Chattel
Paper subject to MLBFS' security interests hereunder, each account debtor by
name and address and amount, invoice or contract number and date of each invoice
or contract. Customer shall furnish to MLBFS such additional information with
respect to the Collateral, and amounts received by Customer as proceeds of any
of the Collateral, as MLBFS may from time to time reasonably request.

(f) ALTERATIONS AND MAINTENANCE. Except upon the prior written consent of MLBFS,
Customer shall not make or permit any material alterations to any tangible
Collateral which might materially reduce or impair its market value or utility.
Customer shall at all times (i) keep the tangible Collateral in good condition
and repair, reasonable wear and tear excepted, (ii) protect the Collateral
against loss, damage or destruction and (iii) pay or cause to be paid all
obligations arising from the repair and maintenance of such Collateral, as well
as all obligations with respect to any Location of Tangible Collateral (e.g.,
all obligations under any lease, mortgage or bailment agreement), except for any
such obligations being contested by Customer in good faith by appropriate
proceedings.

(g) LOCATION. Except for movements required in the ordinary course of Customer's
business, Customer shall give MLBFS 30 days' prior written notice of the placing
at or movement of any tangible Collateral to any location other than a Location
of Tangible Collateral. In no event shall Customer cause or permit any material
tangible Collateral to be removed from the United States without the express
prior written consent of MLBFS. Customer will keep its books and records at its
principal office address specified in the first paragraph of this Loan
Agreement. Customer will not change the address where books and records are
kept, or change its name or taxpayer identification number. Customer will place
a legend acceptable to MLBFS on all Chattel Paper that is Collateral in the
possession or control of Customer from time to time indicating that MLBFS has a
security interest therein.

(h) INSURANCE. Customer shall insure all of the tangible Collateral under a
policy or policies of physical damage insurance for the full replacement value
thereof against such perils as MLBFS shall reasonably require and also providing
that losses will be payable to MLBFS as its interests may appear pursuant to a
lender's or mortgagee's long form loss payable endorsement and containing such
other provisions as may be reasonably required by MLBFS. Customer shall further
provide and maintain a policy or policies of commercial general liability
insurance naming MLBFS as an additional party insured. Customer and

                                      -7-
<PAGE>

each Business Guarantor shall maintain such other insurance as may be required
by law or is customarily maintained by companies in a similar business or
otherwise reasonably required by MLBFS. All such insurance policies shall
provide that MLBFS will receive not less than 10 days prior written notice of
any cancellation, and shall otherwise be in form and amount and with an insurer
or insurers reasonably acceptable to MLBFS. Customer shall furnish MLBFS with a
copy or certificate of each such policy or policies and, prior to any expiration
or cancellation, each renewal or replacement thereof.

(i) EVENT OF LOSS. Customer shall at its expense promptly repair all repairable
damage to any tangible Collateral. In the event that there is an Event of Loss
and the affected Collateral had a value prior to such Event of Loss of
$25,000.00 or more, then, on or before the first to occur of (i) 90 days after
the occurrence of such Event of Loss, or (ii) 10 Business Days after the date on
which either Customer or MLBFS shall receive any proceeds of insurance on
account of such Event of Loss, or any underwriter of insurance on such
Collateral shall advise either Customer or MLBFS that it disclaims liability in
respect of such Event of Loss, Customer shall, at Customer's option, either
replace the Collateral subject to such Event of Loss with comparable Collateral
free of all liens other than Permitted Liens (in which event Customer shall be
entitled to utilize the proceeds of insurance on account of such Event of Loss
for such purpose, and may retain any excess proceeds of such insurance), or
permanently prepay the Obligations by an amount equal to the actual cash value
of such Collateral as determined by either the insurance company's payment (plus
any applicable deductible) or, in absence of insurance company payment, as
reasonably determined by MLBFS; it being further understood that any such
permanent prepayment shall cause an immediate permanent reduction in the Maximum
WCMA Line of Credit in the amount of such prepayment and shall not reduce the
amount of any future reductions in the Maximum WCMA Line of Credit that may be
required hereunder. Notwithstanding the foregoing, if at the time of occurrence
of such Event of Loss or any time thereafter prior to replacement or line
reduction, as aforesaid, an Event of Default shall have occurred and be
continuing hereunder, then MLBFS may at its sole option, exercisable at any time
while such Event of Default shall be continuing, require Customer to either
replace such Collateral or prepay the Obligations and reduce the Maximum WCMA
Line of Credit, as aforesaid.

(j) NOTICE OF CERTAIN EVENTS. Customer shall give MLBFS immediate notice of any
attachment, lien, judicial process, encumbrance or claim affecting or involving
$25,000.00 or more of the Collateral.

(k) INDEMNIFICATION. Customer shall indemnify, defend and save MLBFS harmless
from and against any and all claims, liabilities, losses, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses) of any
nature whatsoever which may be asserted against or incurred by MLBFS arising out
of or in any manner occasioned by (i) the ownership, collection, possession, use
or operation of any Collateral, or (ii) any failure by Customer to perform any
of its obligations hereunder; excluding, however, from said indemnity any such
claims, liabilities, etc. arising directly out of the willful wrongful act or
active gross negligence of MLBFS. This indemnity shall survive the expiration or
termination of this Loan Agreement as to all matters arising or accruing prior
to such expiration or termination.

3.5 EVENTS OF DEFAULT

The occurrence of any of the following events shall constitute an "Event of
Default" under this Loan Agreement:

(a) EXCEEDING THE MAXIMUM WCMA LINE OF CREDIT. If the WCMA Loan Balance shall at
any time exceed the Maximum WCMA Line of Credit and Customer shall fail to
deposit sufficient funds into the WCMA Account to reduce the WCMA Loan Balance
below the Maximum WCMA Line of Credit within five (5) Business Days after
written notice thereof shall have been given by MLBFS to Customer.

(b) OTHER FAILURE TO PAY. Customer shall fail to pay to MLBFS or deposit into
the WCMA Account when due any other amount owing or required to be paid or
deposited by Customer under this Loan Agreement or any of the Loan Documents, or
shall fail to pay when due any other Obligations, and any such failure shall
continue for more than five (5) Business Days after written notice thereof shall
have been given by MLBFS to Customer.

(c) FAILURE TO PERFORM. Any Credit Party shall default in the performance or
observance of any covenant or agreement on its part to be performed or observed
under any of the Loan Documents (not constituting an Event of Default under any
other clause of this Section), and such default shall continue unremedied for
ten (10) Business Days (i) after written notice thereof shall have been given by
MLBFS to Customer, or (ii) from Customer's receipt of any notice or knowledge of
such default from any other source.

(d) BREACH OF WARRANTY. Any representation or warranty made by any Credit Party
contained in this Loan Agreement or any of the Loan Documents shall at any time
prove to have been incorrect in any material respect when made.

(e) DEFAULT UNDER OTHER ML AGREEMENT. A default or event of default by any
Credit Party shall occur under the terms of any other agreement instrument or
document with or intended for the benefit of MLBFS, MLPF&S or any of their
affiliates, and any required notice shall have been given and required passage
of time shall have elapsed, or the WCMA Agreement shall be terminated for any
reason.

(f) BANKRUPTCY EVENT. Any Bankruptcy Event shall occur.

(g) MATERIAL IMPAIRMENT. Any event shall occur which shall reasonably cause
MLBFS to in good faith believe that the prospect of full payment or performance
by the Credit Parties of any of their respective liabilities or obligations
under any of the Loan Documents has been materially impaired. The existence of
such a material impairment shall be determined in a manner consistent with the
intent of Section 1-208 of the UCC.

(h) DEFAULT UNDER OTHER AGREEMENTS. Any event shall occur which results in any
default of any material agreement involving any Credit Party or any agreement
evidencing any indebtedness of any Credit Party of $100,000.00 or more.

                                      -8-
<PAGE>

(i) COLLATERAL IMPAIRMENT. The loss, theft or destruction of any Collateral, the
occurrence of any material deterioration or impairment of any Collateral or any
material decline or depreciation in the value or market price thereof (whether
actual or reasonably anticipated), which causes any Collateral, in the sole
opinion of MLBFS, to become unsatisfactory as to value or character; or any
levy, attachment, seizure or confiscation of the Collateral which is not
released within ten (10) Business Days.

(j) CONTESTED OBLIGATION. (i) Any of the Loan Documents shall for any reason
cease to be, or are asserted by any Credit Party not to be a legal, valid and
binding obligations of any Credit Party, enforceable in accordance with their
terms; or (ii) the validity, perfection or priority of MLBFS' first lien and
security interest on any of the Collateral is contested by any Person; or (iii)
any Credit Party shall or shall attempt to repudiate, revoke, contest or
dispute, in whole or in part, such Credit Party's obligations under any Loan
Document.

(k) JUDGMENTS. A judgment shall be entered against any Credit Party in excess of
$25,000 and the judgment is not paid in full and discharged, or stayed and
bonded to the satisfaction of MLBFS.

(l) CHANGE IN CONTROL/CHANGE IN MANAGEMENT. (i) Any direct or indirect sale,
conveyance, assignment or other transfer of or grant of a security interest in
any ownership interest of any Credit Party which results, or if any rights
related thereto were exercised would result, in any change in the identity of
the individuals or entities in control of any Credit Party; or (ii) the owner(s)
of the controlling equity interest of any Credit Party on the date hereof shall
cease to own and control such Credit Party.

(m) WITHDRAWAL, DEATH, ETC. The incapacity, death, withdrawal, dissolution, or
the filing for dissolution of (i) any Credit Party; or (ii) any controlling
shareholder, partner, or member of any Credit Party.

3.6 REMEDIES

(a) REMEDIES UPON DEFAULT. Upon the occurrence and during the continuance of any
Event of Default, MLBFS may at its sole option do any one or more or all of the
following, at such time and in such order as MLBFS may in its sole discretion
choose:

(i) TERMINATION. MLBFS may without notice terminate the WCMA Line of Credit and
all obligations to extend any credit to or for the benefit of Customer (it being
understood, however, that upon the occurrence of any Bankruptcy Event all such
obligations shall automatically terminate without any action on the part of
MLBFS).

(ii) ACCELERATION. MLBFS may declare the principal of and interest on the WCMA
Loan Balance, and all other Obligations to be forthwith due and payable,
whereupon all such amounts shall be immediately due and payable, without
presentment, demand for payment, protest and notice of protest, notice of
dishonor, notice of acceleration, notice of intent to accelerate or other notice
or formality of any kind, all of which are hereby expressly waived; provided,
however, that upon the occurrence of any Bankruptcy Event all such principal,
interest and other Obligations shall automatically become due and payable
without any action on the part of MLBFS.

(iii) EXERCISE OTHER RIGHTS. MLBFS may exercise any or all of the remedies of a
secured party under applicable law and in equity, including, but not limited to,
the UCC, and any or all of its other rights and remedies under the Loan
Documents.

(iv) POSSESSION. MLBFS may require Customer to make the Collateral and the
records pertaining to the Collateral available to MLBFS at a place designated by
MLBFS which is reasonably convenient to Customer, or may take possession of the
Collateral and the records pertaining to the Collateral without the use of any
judicial process and without any prior notice to Customer.

(v) SALE. MLBFS may sell any or all of the Collateral at public or private sale
upon such terms and conditions as MLBFS may reasonably deem proper, whether for
cash, on credit or for future delivery, in bulk or in lots. MLBFS may purchase
any Collateral at any such sale free of Customer's right of redemption, if any,
which Customer expressly waives to the extent not prohibited by applicable law.
The net proceeds of any such public or private sale and all other amounts
actually collected or received by MLBFS pursuant hereto, after deducting all
costs and expenses incurred at any time in the collection of the Obligations and
in the protection, collection and sale of the Collateral, will be applied to the
payment of the Obligations, with any remaining proceeds paid to Customer or
whoever else may be entitled thereto, and with Customer and each Guarantor
remaining jointly and severally liable for any amount remaining unpaid after
such application.

(vi) DELIVERY OF CASH, CHECKS, ETC. MLBFS may require Customer to forthwith upon
receipt, transmit and deliver to MLBFS in the form received, all cash, checks,
drafts and other instruments for the payment of money (property endorsed, where
required, so that such items may be collected by MLBFS) which may be received by
Customer at any time in full or partial payment of any Collateral, and require
that Customer not commingle any such items which may be so received by Customer
with any other of its funds or property but instead hold them separate and apart
and in trust for MLBFS until delivery is made to MLBFS.

(vii) NOTIFICATION OF ACCOUNT DEBTORS. MLBFS may notify any account debtor that
its Account or Chattel Paper has been assigned to MLBFS and direct such account
debtor to make payment directly to MLBFS of all amounts due or becoming due with
respect to such Account or Chattel Paper: and MLBFS may enforce payment and
collect, by legal proceedings or otherwise, such Account or Chattel Paper.

(viii) CONTROL OF COLLATERAL. MLBFS may otherwise take control in any lawful
manner of any cash or non-cash items of payment or proceeds of Collateral and of
any rejected, returned, stopped in transit or repossessed goods included in the
Collateral and endorse Customer's name on any item of payment on or proceeds of
the Collateral.

                                      -9-
<PAGE>

(b) SET-OFF. MLBFS shall have the further right upon the occurrence and during
the continuance of an Event of Default to set-off, appropriate and apply toward
payment of any of the Obligations, in such order of application as MLBFS may
from time to time and at any time elect any cash, credit, deposits, accounts,
financial assets, investment property, securities and any other property of
Customer which is in transit to or in the possession, custody or control of
MLBFS, MLPF&S or any agent, bailee, or affiliate of MLBFS or MLPF&S. Customer
hereby collaterally assigns and grants to MLBFS a continuing security interest
in all such property as Collateral and as additional security for the
Obligations. Upon the occurrence and during the continuance of an Event of
Default, MLBFS shall have all rights in such property available to collateral
assignees and secured parties under all applicable laws, including, without
limitation, the UCC.

(c) POWER OF ATTORNEY. Effective upon the occurrence and during the continuance
of an Event of Default, Customer hereby irrevocably appoints MLBFS as its
attorney-in-fact with full power of substitution, in its place and stead and in
its name or in the name of MLBFS, to from time to time in MLBFS' sole discretion
take any action and to execute any instrument which MLBFS may deem necessary or
advisable to accomplish the purposes of this Loan Agreement and the other Loan
Documents, including, but not limited to, to receive, endorse and collect all
checks, drafts and other instruments for the payment of money made payable to
Customer included in the Collateral. The powers of attorney granted to MLBFS in
this Loan Agreement are coupled with an interest and are irrevocable until the
Obligations have been indefeasibly paid in full and fully satisfied and all
obligations of MLBFS under this Loan Agreement have been terminated.

(d) REMEDIES ARE SEVERABLE AND CUMULATIVE. All rights and remedies of MLBFS
herein are severable and cumulative and in addition to all other rights and
remedies available in the Loan Documents, at law or in equity, and any one or
more of such rights and remedies may be exercised simultaneously or
successively.

(e) NO MARSHALLING. MLBFS shall be under no duty or obligation to (i) preserve,
protect or marshall the Collateral; (ii) preserve or protect the rights of any
Credit Party or any other Person claiming an interest in the Collateral; (iii)
realize upon the Collateral in any particular order or manner, (iv) seek
repayment of any Obligations from any particular source; (v) proceed or not
proceed against any Credit Party pursuant to any guaranty or security agreement
or against any Credit Party under the Loan Documents, with or without also
realizing on the Collateral; (vi) permit any substitution or exchange of all or
any part of the Collateral; or (vii) release any part of the Collateral from the
Loan Agreement or any of the other Loan Documents, whether or not such
substitution or release would leave MLBFS adequately secured.

(f) NOTICES. To the fullest extent permitted by applicable law, Customer hereby
irrevocably waives and releases MLBFS of and from any and all liabilities and
penalties for failure of MLBFS to comply with any statutory or other requirement
imposed upon MLBFS relating to notices of sale, holding of sale or reporting of
any sale, and Customer waives all rights of redemption or reinstatement from any
such sale. Any notices required under applicable law shall be reasonably and
properly given to Customer if given by any of the methods provided herein at
least 5 Business Days prior to taking action. MLBFS shall have the right to
postpone or adjourn any sale or other disposition of Collateral at any time
without giving notice of any such postponed or adjourned date. In the event
MLBFS seeks to take possession of any or all of the Collateral by court process,
Customer further irrevocably waives to the fullest extent permitted by law any
bonds and any surety or security relating thereto required by any statute, court
rule or otherwise as an incident to such possession, and any demand for
possession prior to the commencement of any suit or action.

3.7 MISCELLANEOUS

(a) NON-WAIVER. No failure or delay on the part of MLBFS in exercising any
right, power or remedy pursuant to this Loan Agreement or any of the other Loan
Documents shall operate as a waiver thereof, and no single or partial exercise
of any such right, power or remedy shall preclude any other or further exercise
thereof, or the exercise of any other right, power or remedy. Neither any waiver
of any provision of any of the Loan Documents, nor any consent to any departure
by Customer therefrom, shall be effective unless the same shall be in writing
and signed by MLBFS. Any waiver of any provision of this Loan Agreement or any
of the other Loan Documents and any consent to any departure by Customer from
the terms of this Loan Agreement or any of the other Loan Documents shall be
effective only in the specific instance and for the specific purpose for which
given. Except as otherwise expressly provided herein, no notice to or demand on
Customer shall in any case entitle Customer to any other or further notice or
demand in similar or other circumstances.

(b) DISCLOSURE. Customer hereby irrevocably authorizes MLBFS and each of its
affiliates, including without limitation MLPF&S, to at any time (whether or not
an Event of Default shall have occurred) obtain from and disclose to each other
any and all financial and other information about Customer. In connection with
said authorization, the parties recognize that in order to provide a WCMA Line
of Credit certain information about Customer is required to be made available on
a computer network accessible by certain affiliates of MLBFS, including MLPF&S.
Customer further irrevocably authorizes MLBFS to contact, investigate, inquire
and obtain consumer reports, references and other information on Customer from
consumer reporting agencies and other credit reporting services, former or
current creditors, and other persons and sources (including, without limitation,
any Affiliate of MLBFS) and to provide to any references, consumer reporting
agencies, credit reporting services, creditors and other persons and sources
(including, without limitation, affiliates of MLBFS) all financial, credit and
other information obtained by MLBFS relating to the Customer.

(c) COMMUNICATIONS. Delivery of an agreement, instrument or other document may,
at the discretion of MLBFS, be by electronic transmission. Except as required by
law or otherwise provided herein or in a writing executed by the party to be
bound, all notices demands, requests, accountings, listings, statements, advices
or other communications to be given under the Loan Documents shall be in writing
and shall be served either personally, by deposit with a reputable overnight
courier with charges prepaid, or by deposit in the United States mail by
certified mail, return receipt required. Notices may be addressed to Customer as
set forth at its address shown in the preamble hereto, or to any office to which
billing or account statements are sent; to MLBFS at its address shown in the
preamble hereto, or at such other address designated in writing by MLBFS. Any
such communication shall be deemed to have been given upon, in the case of
personal delivery the date of delivery, one Business Day after deposit with an
overnight courier, two (2) Business Days after deposit in the United States by
certified mail (return receipt required), or receipt of electronic transmission
(which shall be presumed to be three hours after

                                      -10-
<PAGE>

the time of transmission unless an error message is received by the sender),
except that any notice of change of address shall not be effective until
actually received.

(d) FEES, EXPENSES AND TAXES. Customer shall pay or reimburse MLBFS for: (i) all
UCC, real property or other filing, recording, and search fees and expenses
incurred by MLBFS in connection with the verification, perfection or
preservation of MLBFS' rights hereunder or in any Collateral or any other
collateral for the Obligations; (ii) any and all stamp, transfer, mortgage,
intangible, document, filing, recording and other taxes and fees payable or
determined to be payable in connection with the borrowings hereunder or the
execution, delivery, filing and/or recording of the Loan Documents and any other
instruments or documents provided for herein or delivered or to be delivered
hereunder or in connection herewith; and (iii) all fees and out-of-pocket
expenses (including, attorneys' fees and legal expenses) incurred by MLBFS in
connection with the preparation, execution, administration, collection,
enforcement, protection, waiver or amendment of this Loan Agreement, the other
Loan Documents and such other instruments or documents, and the rights and
remedies of MLBFS thereunder and all other matters in connection therewith.
Customer hereby authorizes MLBFS, at its option, to either cause any and all
such fees, expenses and taxes to be paid with a WCMA Loan, or invoice Customer
therefore (in which event Customer shall pay all such fees, expenses and taxes
within 5 Business Days after receipt of such invoice). The obligations of
Customer under this paragraph shall survive the expiration or termination of
this Loan Agreement and the discharge of the other Obligations.

(e) RIGHT TO PERFORM OBLIGATIONS. If Customer shall fail to do any act or thing
which it has covenanted to do under any of the Loan Documents or any
representation or warranty on the part of Customer contained in the Loan
Documents shall be breached, MLBFS may, in its sole discretion, after 5 Business
Days written notice is sent to Customer (or such lesser notice, including no
notice, as is reasonable under the circumstances), do the same or cause it to be
done or remedy any such breach, and may expend its funds for such purpose. Any
and all reasonable amounts so expended by MLBFS shall be repayable to MLBFS by
Customer upon demand, with interest at the Interest Rate during the period from
and including the date funds are so expended by MLBFS to the date of repayment
and all such amounts shall be additional Obligations. The payment or performance
by MLBFS of any of Customer's obligations hereunder shall not relieve Customer
of said obligations or of the consequences of having failed to pay or perform
the same, and shall not waive or be deemed a cure of any Default.

(f) FURTHER ASSURANCES. Customer agrees to do such further acts and things and
to execute and deliver to MLBFS such additional agreements, instruments and
documents as MLBFS may reasonably require or deem advisable to effectuate the
purposes of the Loan Documents, to confirm the WCMA Loan Balance, or to
establish, perfect and maintain MLBFS' security interests and liens upon the
Collateral, including, but not limited to: (i) executing financing statements or
amendments thereto when and as reasonably requested by MLBFS; and (ii) if in the
reasonable judgment of MLBFS it is required by local law, causing the owners
and/or mortgagees of the real property on which any Collateral may be located to
execute and deliver to MLBFS waivers or subordinations reasonably satisfactory
to MLBFS with respect to any rights in such Collateral.

(g) BINDING EFFECT. This Loan Agreement and the Loan Documents shall be binding
upon, and shall inure to the benefit of MLBFS, Customer and their respective
successors and assigns. MLBFS reserves the right, at any time while the
Obligations remain outstanding, to sell, assign, syndicate or otherwise transfer
or dispose of any or all of MLBFS' rights and interests under the Loan
Documents. MLBFS also reserves the right at any time to pool the WCMA Loan with
one or more other loans originated by MLBFS or any other Person, and to
securitize or offer interests in such pool on whatever terms and conditions
MLBFS shall determine. Customer consents to MLBFS releasing financial and other
information regarding Credit Parties, the Collateral and the WCMA Loan in
connection with any such sale, pooling, securitization or other offering.
Customer shall not assign any of its rights or delegate any of its obligations
under this Loan Agreement or any of the Loan Documents without the prior written
consent of MLBFS. Unless otherwise expressly agreed to in a writing signed by
MLBFS, no such consent shall in any event relieve Customer of any of its
obligations under this Loan Agreement or the Loan Documents.

(h) INTERPRETATION; CONSTRUCTION. (i) Captions and section and paragraph
headings in this Loan Agreement are inserted only as a matter of convenience,
and shall not affect the interpretation hereof; (ii) no provision of this Loan
Agreement shall be construed against a particular Person or in favor of another
Person merely because of which Person (or its representative) drafted or
supplied the wording for such provision; and (iii) where the context requires:
(a) use of the singular or plural incorporates the other, and (b) pronouns and
modifiers in the masculine, feminine or neuter gender shall be deemed to refer
to or include the other genders.

(i) GOVERNING LAW. This Loan Agreement, and, unless otherwise expressly provided
therein, each of the Loan Documents, shall be governed in all respects by the
laws of the State of Illinois, not including its conflict of law provisions.

(j) SEVERABILITY OF PROVISIONS. Whenever possible, each provision of this Loan
Agreement and the other Loan Documents shall be interpreted in such manner as to
be effective and valid under applicable law. Any provision of this Loan
Agreement or any of the Loan Documents which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective only to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions of this Loan Agreement and the Loan Documents or affecting
the validity or enforceability of such provision in any other jurisdiction.

(k) TERM. This Loan Agreement shall become effective on the date accepted by
MLBFS at its office in Chicago, Illinois, and, subject to the terms hereof,
shall continue in effect so long thereafter as the WCMA Line of Credit shall be
in effect or there shall be any Obligations outstanding. Customer hereby waives
notice of acceptance of this Loan Agreement by MLBFS.

(l) EXHIBITS. The exhibits to this Loan Agreement are hereby incorporated and
made a part hereof and are an integral part of this Loan Agreement.

(m) COUNTERPARTS. This Loan Agreement may be executed in one or more
counterparts which, when taken together, constitute one and the same agreement.

(n) JURISDICTION; WAIVER. CUSTOMER ACKNOWLEDGES THAT THIS LOAN AGREEMENT IS
BEING ACCEPTED BY MLBFS IN PARTIAL CONSIDERATION OF MLBFS' RIGHT AND OPTION, IN
ITS SOLE DISCRETION, TO ENFORCE THIS LOAN AGREEMENT AND ALL OF THE LOAN
DOCUMENTS IN EITHER THE STATE OF ILLINOIS OR IN ANY OTHER

                                      -11-
<PAGE>

JURISDICTION WHERE CUSTOMER OR ANY COLLATERAL MAY BE LOCATED. CUSTOMER
IRREVOCABLY SUBMITS ITSELF TO JURISDICTION IN THE STATE OF ILLINOIS AND VENUE IN
ANY STATE OR FEDERAL COURT IN THE COUNTY OF COOK FOR SUCH PURPOSES, AND CUSTOMER
WAIVES ANY AND ALL RIGHTS TO CONTEST SAID JURISDICTION AND VENUE AND THE
CONVENIENCE OF ANY SUCH FORUM, AND ANY AND ALL RIGHTS TO REMOVE SUCH ACTION FROM
STATE TO FEDERAL COURT. CUSTOMER FURTHER WAIVES ANY RIGHTS TO COMMENCE ANY
ACTION AGAINST MLBFS IN ANY JURISDICTION EXCEPT IN THE COUNTY OF COOK AND STATE
OF ILLINOIS. CUSTOMER AGREES THAT ALL SUCH SERVICE OF PROCESS SHALL BE MADE BY
MAIL OR MESSENGER DIRECTED TO IT IN THE SAME MANNER AS PROVIDED FOR NOTICES TO
CUSTOMER IN THIS LOAN AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED TO BE
COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT OR THREE (3) DAYS AFTER THE SAME
SHALL HAVE BEEN POSTED TO CUSTOMER OR CUSTOMERS' AGENT. NOTHING CONTAINED HEREIN
SHALL AFFECT THE RIGHT OF MLBFS TO SERVE LEGAL PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR AFFECT THE RIGHT OF MLBFS TO BRING ANY ACTION OR PROCEEDING
AGAINST CUSTOMER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION.
CUSTOMER WAIVES, TO THE EXTENT PERMITTED BY LAW, ANY BOND OR SURETY OR SECURITY
UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF MLBFS. CUSTOMER
FURTHER WAIVES THE RIGHT TO BRING ANY NON-COMPULSORY COUNTERCLAIMS.

(o) JURY WAIVER. MLBFS AND CUSTOMER HEREBY EACH EXPRESSLY WAIVE ANY AND ALL
RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY
EITHER OF THE PARTIES AGAINST THE OTHER PARTY WITH RESPECT TO ANY MATTER
RELATING TO, ARISING OUT OF OR IN ANY WAY CONNECTED WITH THE WCMA LINE OF
CREDIT, THE OBLIGATIONS, THIS LOAN AGREEMENT, ANY OF THE LOAN DOCUMENTS AND/OR
ANY OF THE TRANSACTIONS WHICH ARE THE SUBJECT MATTER OF THIS LOAN AGREEMENT.

(p) INTEGRATION. THIS LOAN AGREEMENT, TOGETHER WITH THE OTHER LOAN DOCUMENTS,
CONSTITUTES THE ENTIRE UNDERSTANDING AND REPRESENTS THE FULL AND FINAL AGREEMENT
BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR WRITTEN AGREEMENTS OR PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS OF THE PARTIES. WITHOUT LIMITING THE FOREGOING, CUSTOMER ACKNOWLEDGES
THAT: (i) NO PROMISE OR COMMITMENT HAS BEEN MADE TO IT BY MLBFS, MLPF&S OR ANY
OF THEIR RESPECTIVE EMPLOYEES, AGENTS OR REPRESENTATIVES TO EXTEND THE
AVAILABILITY OF THE WCMA LINE OF CREDIT OR THE MATURITY DATE, OR TO INCREASE THE
MAXIMUM WCMA LINE OF CREDIT, OR TO MAKE ANY WCMA LOAN ON ANY TERMS OTHER THAN AS
EXPRESSLY SET FORTH HEREIN OR TO OTHERWISE EXTEND ANY OTHER CREDIT TO CUSTOMER
OR ANY OTHER PARTY; (ii) NO PURPORTED EXTENSION OF THE MATURITY DATE, INCREASE
IN THE MAXIMUM WCMA LINE OF CREDIT OR OTHER EXTENSION OR AGREEMENT TO EXTEND
CREDIT SHALL BE VALID OR BINDING UNLESS EXPRESSLY SET FORTH IN A WRITTEN
INSTRUMENT SIGNED BY MLBFS; AND (iii) THIS LOAN AGREEMENT SUPERSEDES AND
REPLACES ANY AND ALL PROPOSALS, LETTERS OF INTENT AND APPROVAL AND COMMITMENT
LETTERS FROM MLBFS TO CUSTOMER, NONE OF WHICH SHALL BE CONSIDERED A LOAN
DOCUMENT. NO AMENDMENT OR MODIFICATION OF ANY OF THE LOAN DOCUMENTS TO WHICH
CUSTOMER IS A PARTY SHALL BE EFFECTIVE UNLESS IN A WRITING SIGNED BY BOTH MLBFS
AND CUSTOMER.

(q) SURVIVAL. All representations, warranties, agreements and covenants
contained in the Loan Documents shall survive the signing and delivery of the
Loan Documents, and all of the waivers made and indemnification obligations
undertaken by Customer shall survive the termination, discharge or cancellation
of the Loan Documents.

(r) CUSTOMER'S ACKNOWLEDGMENTS. The Customer acknowledges that the Customer: (i)
has had ample opportunity to consult with counsel and such other parties as
deemed advisable prior to signing and delivering this Loan Agreement and the
other Loan Documents; (ii) understands the provisions of this Loan Agreement and
the other Loan Documents, including all waivers contained therein; and (iii)
signs and delivers this Loan Agreement and the other Loan Documents freely and
voluntarily, without duress or coercion.

THIS LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS ARE EXECUTED UNDER SEAL AND ARE
INTENDED TO TAKE EFFECT AS SEALED INSTRUMENTS.

IN WITNESS WHEREOF, this Loan Agreement has been executed as of the day and year
first above written.

HEALTH FITNESS CORPORATION

By: /s/ JERRY NOYCE              /s/ WESLEY W. WINNEKINS
    ----------------------------------------------------
       Signature (1)                    Signature (2)

        Jerry Noyce                  Wesley W. Winnekins
    ----------------------------------------------------
       Printed Name                     Printed Name

          CEO                                CFO
    ----------------------------------------------------
          Title                            Title

Accepted at Chicago, Illinois:
MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC.

By: /s/ Christie L. Foster
    ----------------------

                                      -12-

<PAGE>

                                    EXHIBIT A

ATTACHED TO AND HEREBY MADE A PART OF WCMA LOAN AND SECURITY AGREEMENT NO.
537-07214 BETWEEN MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. AND HEALTH
FITNESS CORPORATION
===============================================================================

ADDITIONAL LOCATIONS OF TANGIBLE COLLATERAL:

        Nothing in addition to the collateral previously disclosed.
<PAGE>

[MERRILL LYNCH LOGO]                                     COMPLIANCE CERTIFICATE
================================================================================

To:  Merrill Lynch Business Financial Services Inc. ("MLBFS")
     222 North LaSalle Street
     17th Floor
     Chicago, IL 60601

The undersigned, on behalf of HEALTH FITNESS CORPORATION ("Customer"), hereby
certifies to MLBFS that: (i) he/she is an officer authorized to execute and
deliver this certificate on behalf of Customer, and is familiar with the
business and financial condition of the Customer; (ii) the financial statements
delivered with this Certificate fairly present in all material respects the
results of operations and financial condition of Customer; and (iii) to the best
of my knowledge and belief, after reasonable investigation, each of the
following statements is true and correct as of the date hereof: (a) no Event of
Default, or event which with the giving of notice, passage of time, or both,
would constitute and Event of Default, has occurred or is continuing, (b) no
material adverse change in the financial condition of Customer has occurred or
is continuing, and (c) the attached annexations, which are hereby incorporated
herein by reference, are accurate, true and correct, and do not fail to state
any material fact known (or should have been known) to Customer which would, but
for the lapse of time, make any such settlement or calculation false in any
respect.

DATE: 10/15/02
      --------

/s/ WESLEY W. WINNEKINS
-----------------------
       Signature

Wesley W. Winnekins
-----------------------
     Printed Name

          CFO
-----------------------
         Title

INSTRUCTIONS: IN ACCORDANCE WITH THE TERMS OF THE LOAN AGREEMENT (TO WHICH THIS
ORIGINAL FORM OF COMPLIANCE CERTIFICATE IS ATTACHED AS EXHIBIT B), THIS
COMPLIANCE CERTIFICATE AND THE ATTACHED ANNEXATIONS MUST BE COMPLETED BY YOU
WITHIN 45 DAYS AFTER THE CLOSE OF EACH CALENDAR QUARTER. MLBFS EXPECTS YOU TO
MAKE COPIES OF THIS ORIGINAL FORM OF COMPLIANCE CERTIFICATE AND SEND THEM
QUARTERLY TO MLBFS WITHOUT NOTIFICATION OR REMINDER. ADDITIONAL COPIES WILL BE
PROVIDED TO YOU UPON REQUEST.

<PAGE>

                        MINIMUM TANGIBLE NET WORTH ANNEX
             TO COMPLIANCE CERTIFICATE (EXHIBIT B TO LOAN AGREEMENT)

Customer's "Tangible Net Worth" shall at all times exceed $1,500,000.00. For the
purposes hereof, the term "Tangible Net Worth" shall mean Customer's net worth
as shown on Customer's regular financial statements prepared in accordance with
GAAP, but excluding an amount equal to: (i) any Intangible Assets, and (ii) any
amounts now or hereafter directly or indirectly owing to Customer by officers,
shareholders or affiliates of Customer. "Intangible Assets" shall mean the total
amount of goodwill, patents, trade names, trade or service marks, copyrights,
experimental expense, organization expense, unamortized debt discount and
expense, the excess of cost of shares acquired over book value of related
assets, and such other assets as are properly classified as "intangible assets"
of the Customer determined in accordance with GAAP.

As of                     (insert Quarterly end date):
      -------------------

Beginning Total Net Worth                    $
                                              --------

Distributions/advances/loans to
Shareholders, officers and affiliates (-)    $
                                              --------

Intangible Assets (-)                        $
                                              --------

Tangible Net Worth (=)                       $
                                              --------

                             In Compliance? Yes / No

<PAGE>

                              LEVERAGE RATIO ANNEX
             TO COMPLIANCE CERTIFICATE (EXHIBIT B TO LOAN AGREEMENT)

     Customer's "Leverage Ratio" shall not at any time exceed 3.25 to 1.00. For
     purposes hereof, "Leverage Ratio" shall mean the ratio of Customer's total
     liabilities to Customer's Tangible Net Worth. The term "Tangible Net Worth"
     shall mean Customer's net worth as shown on Customer's regular financial
     statements prepared in accordance with GAAP, but excluding an amount equal
     to: (i) any Intangible Assets, and (ii) any amounts now or hereafter
     directly or indirectly owing to Customer by officers, shareholders or
     affiliates of Customer. "Intangible Assets" shall mean the total amount of
     goodwill, patents, trade names, trade or service marks, copyrights,
     experimental expense, organization expense, unamortized debt discount and
     expense, the excess of cost of shares acquired over book value of related
     assets, and such other assets as are properly classified as "intangible
     assets" of the Customer determined in accordance with GAAP.

     As of                (insert Quarterly end date):
           -------------

(a)  Total Liabilities                           $
                                                  ------------

     Beginning Total Net Worth                   $
                                                  ------------

     Distributions/advances/loans to
     Shareholders, officers and affiliates (-)   $
                                                  ------------

     Intangible Assets (-)                       $
                                                  ------------

(b)  Tangible Net Worth (=)                      $
                                                  ------------

     Leverage Ratio (a/b)                                  to 1.00
                                                  --------

                             In Compliance? Yes / No

<PAGE>

                        FIXED CHARGE COVERAGE RATIO ANNEX
             TO COMPLIANCE CERTIFICATE (EXHIBIT B TO LOAN AGREEMENT)

     Customer's "Fixed Charge Coverage Ratio" shall at all times exceed 2.0 to
     1.00. For purposes hereof, "Fixed Charge Coverage Ratio" shall mean the
     ratio of: (a) income before interest (including payments in the nature of
     interest under capital leases), taxes, depreciation, amortization, and
     other non-cash charges, minus any internally financed capital expenditures,
     to (b) the sum of the aggregate principal and interest paid or accrued, the
     aggregate rental under capital leases paid or accrued, any dividends and
     other distributions paid or payable to shareholders, and taxes paid in
     cash; all as determined on a trailing 12-month basis as set forth in
     Customer's regular quarter financial statements prepared in accordance with
     GAAP.

     As of                      (insert Quarterly end date):
           -------------------

     Net after-tax income                            $
                                                      ------------
     taxes (+)                                       $
                                                      ------------
     interest (+)                                    $
                                                      ------------
     depreciation (+)                                $
                                                      ------------
     amortization (+)                                $
                                                      ------------
     other non-cash charges (+)                      $
                                                      ------------
     internally financed capital expenditures (-)    $
                                                      ------------
 (a) Total EBITDA (=)                                $
                                                      ------------

     principal and interest                          $
                                                      ------------
     rents under capital leases (+)                  $
                                                      ------------
     div./dist. to owners (+)                        $
                                                      ------------
     taxes paid in cash (+)                          $
                                                      ------------
(b)  Total fixed charges (=)                         $
                                                      ------------

     Fixed Charge coverage Ratio (a/b)                     to 1.00
                                                      -----

                             In Compliance? Yes / No

<PAGE>

[MERRILL LYNCH LOGO]                                     SECRETARY'S CERTIFICATE
================================================================================

THE UNDERSIGNED HEREBY CERTIFIES TO MERRILL LYNCH BUSINESS FINANCIAL SERVICES
INC. that the undersigned is the duly appointed and acting Secretary (or
Assistant Secretary) of HEALTH FITNESS CORPORATION, a corporation duly
organized, validly existing and in good standing under the laws of the State of
Minnesota; and that the following is a true, accurate and compared transcript of
resolutions duly, validly and lawfully adopted on the _______ day of
____________________, 2002 by the Board of Directors of said Corporation acting
in accordance with the laws of the state of incorporation and the charter and
by- laws of said Corporation:

"RESOLVED, that this Corporation is authorized and empowered, now and from time
to time hereafter, to borrow and/or obtain credit from, and/or enter into other
financial arrangements with, MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
("MLBFS"), and in connection therewith to grant to MLBFS liens and security
interests on any or all property belonging to this Corporation; all such
transactions to be on such terms and conditions as may be mutually agreed from
time to time between this Corporation and MLBFS; and

"FURTHER RESOLVED, that the President, any Vice President, Treasurer, Secretary
or other officer of this Corporation, or any one or more of them, be and each of
them hereby is authorized and empowered to: (a) execute and deliver to MLBFS on
behalf of this Corporation any and all loan agreements, promissory notes,
security agreements, pledge agreements, financing statements, mortgages, deeds
of trust, leases and/or all other agreements, instruments and documents required
by MLBFS in connection therewith, and any present or future extensions,
amendments, supplements, modifications and restatements thereof; all in such
form as any such officer shall approve, as conclusively evidenced by his or her
signature thereon, and (b) do and perform all such acts and things deemed by any
such officer to be necessary or advisable to carry out and perform the
undertakings and agreements of this Corporation in connection therewith; and any
and all prior acts of each of said officers in these premises are hereby
ratified and confirmed in all respects; and

"FURTHER RESOLVED, that MLBFS is authorized to rely upon the foregoing
resolutions until it receives written notice of any change or revocation from an
authorized officer of this Corporation, which change or revocation shall not in
any event affect the obligations of this Corporation with respect to any
transaction conditionally agreed or committed to by MLBFS or having its
inception prior to the receipt of such notice by MLBFS."

THE UNDERSIGNED FURTHER CERTIFIES that: (a) the foregoing resolutions have not
been rescinded, modified or repealed in any manner, are not in conflict with any
agreement of said Corporation and are in full force and effect as of the date of
this Certificate, and (b) the following individuals are now the duly elected and
acting officers of said Corporation and THE SIGNATURES SET FORTH BELOW ARE THE
TRUE SIGNATURES OF SAID OFFICERS:

         CEO: /s/ JERRY NOYCE
              --------------------------------------

         Vice President
                        ----------------------------

         CFO: /s/ WESLEY W. WINNEKINS
              --------------------------------------

         Secretary: /s/ JEANNE CRAWFORD
                    --------------------------------

                              :
         ---------------------   --------------------------------------
         Additional Title:

IN WITNESS WHEREOF, the undersigned has executed this Certificate and has
affixed the seal of said Corporation hereto, pursuant to due authorization, all
as of this 24th day of October, 2002.

(Corporate Seal)                        /s/ JEANNE CRAWFORD
                                        -------------------
                                              Secretary

                         Printed Name:  Jeanne Crawford
                                        -------------------

<PAGE>

[MERRILL LYNCH LOGO]                          LANDLORD'S SUBORDINATION AGREEMENT
================================================================================

The undersigned LANDLORD is the record owner and lessor to HEALTH FITNESS
CORPORATION ("Tenant") of the real property commonly known as 3500 West 80th
Street, Suite 130 Bloomington, MN 55431 (the "Premises").

Landlord has been advised that MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
("MLBFS") has or is about to lend moneys to, extend or continue to extend credit
to or for the benefit of, or enter into another financial accommodation with,
Tenant, or for the benefit of a third party based upon the credit and/or
collateral of Tenant, and in connection therewith that Tenant has granted or is
about to grant to MLBFS a security interest in, among other collateral, the
following property of Tenant (\"MLBFS' Collateral\"); to wit:

          All equipment, inventory, removable trade fixtures and other tangible
          and intangible personal property now and hereafter owned by Tenant

Among other conditions thereof, MLBFS has required that Landlord execute and
deliver this Agreement. Accordingly, and for valuable consideration, the receipt
and sufficiency of which is hereby acknowledged. Landlord hereby agrees as
follows:

1. Landlord hereby subordinates for the benefit of MLBFS, and with respect to
all present and future obligations of or secured by Tenant to MLBFS, any right
or interest in MLBFS' Collateral which, but for this Agreement, would or might
be prior to the rights and/or security interests of MLBFS, as aforesaid; and
Landlord agrees so long as Tenant shall be obligated to MLBFS, it will not,
without the prior consent of MLBFS, exercise any right under local law to levy
or distrain upon any of MLBFS' Collateral.

2. Landlord further agrees that in the event That MLBFS shall at any time seek
to take possession of or remove all or any part of MLBFS' Collateral from the
Premises, Landlord will not hinder the same or interfere or object thereto, and
Landlord hereby consents to MLBFS' entry upon the Premises for such purposes;
provided, however, that: (i) any such removal shall be made during reasonable
business hours; (ii) MLBFS shall not, without the prior written consent of
Landlord, conduct any public or auction sale on the Premises; and (iii) MLBFS
shall promptly at its expense repair any damage to the Premises directly caused
by any such removal by MLBFS or its agents of MLBFS' Collateral from the
Premises.

This Agreement shall be binding upon and shall inure to the benefit of Landlord
and it successors, assigns, heirs and/or personal representatives, as
applicable, and MLBFS and its successors and assigns.

Dated as of October 21, 2002.

           Northland Center Limited Partnership,
LANDLORD:  A Minnesota Limited Partnership
           -------------------------------------

By:  /s/ EVA B. STEVENS
     -------------------------------------------
         (Signature 1           (Signature 2)

     Eva B. Stevens
     -------------------------------------------
       (Printed Name)           (Printed Name)

     Vice President
     -------------------------------------------
       (Title)                     (Title)

<PAGE>

                                                        Private Client Group

                                                        MERRILL LYNCH BUSINESS
                                                        FINANCIAL SERVICES INC.
                                                        222 North LaSalle Street
                                                        17th Floor
[MERRILL LYNCH LOGO]                                    Chicago, Illinois 60601
                                                        (312) 499-1385
                                                        FAX: (312)499-3254

                                                        October 2, 2002

Health Fitness Corporation
3500 West 80th Street, Suite 130
Bloomington, MN 55431

           RE: AMENDMENT TO LOAN DOCUMENTS

Ladies & Gentlemen:

This Letter Agreement will serve to confirm certain agreements of Merrill Lynch
Business Financial Services Inc. ("MLBFS") and Health Fitness Corporation
("Customer") with respect to: (i) that certain WCMA LOAN AND SECURITY AGREEMENT
NO. 673-07214 between MLBFS and Customer (including any previous amendments and
extensions thereof), and (ii) all other agreements between MLBFS and Customer or
any party who has guaranteed or provided collateral for Customer's obligations
to MLBFS (a "Guarantor") in Connection therewith (collectively, the "Loan
Documents"). Capitalized terms used herein and not defined herein shall have the
meaning set forth in the Loan Documents.

Subject to the terms hereof, effective as of the "Effective Date" (as defined
below), the Loan Documents are hereby amended as follows:

(a) Change in Control/Change in Management shall mean, (i) Any direct or
indirect sale, conveyance, assignment or other transfer of or grant of a
security interest in any ownership interest of any Credit Party which results,
or if any rights related thereto were exercised would result, in any change in
the identity of the individuals or entities in control of any Credit Party; or
(ii) the owner(s) of the controlling equity interest of the Customer on the date
hereof shall cease to own and control such Credit Party.

(b) Section 3.3 (d) shall be amended to include the following sentence:
Notwithstanding the foregoing, MLBFS will consider one written request of
Customer for a press release provided it is clear MLBFS is the entity providing
the financing and that only financing is being provided, but MLBFS will be under
no obligation to approve such press release, and any such approval must be in
writing.

(c) Section 3.1 (g) shall be amended and restated as follows: No litigation,
arbitration, administrative or governmental proceedings are pending or, to the
knowledge of Customer, threatened against any Credit Party, which would, if
adversely determined, materially and adversely affect (i) such Credit Party's
interest in the Collateral or the liens and security interests of MLBFS
hereunder or under any of the Loan Documents, or (ii) the financial condition of
any Credit Party or its continued operations, except for a lawsuit in which
Customer and others are a defendant with respect to an Agreement to Purchase
Assets dated May 14, 1999 among Customer and Heath Fitness Corporation and
others. Such lawsuit was originally filed against Customer in the United States
District Court for the District of Minnesota Fourth Division, #00-880MJD/JGL and

<PAGE>

                                  MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.

Health Fitness Corporation
October 2, 2002
Page No. 2

is now on appeal in the United States Court of Appeals for the Eighth Circuit,
No. 02-2726 (the "Lawsuit"). Each Credit Party is in compliance in all material
respects with all laws, regulations, requirements and approvals applicable to
such Credit Party.

(d) Section 3.5 shall be amended to include the following paragraph:

          (n) LAWSUIT. A judgment is entered against Customer in connection with
          the Lawsuit in the amount of $1,500,000 or more by the United States
          Court of Appeals for the Eighth Circuit.

Except as expressly amended hereby, the Loan Documents shall continue in full
force and effect upon all of their terms and conditions.

By their execution of this Letter Agreement, the below-named Guarantors hereby
consent to the foregoing modifications to the Loan Documents, and hereby agree
that the "Obligations" under their respective Unconditional Guaranty and/or
agreements providing collateral shall extend to and include the Obligations of
Customer under the Loan Documents, as amended hereby.

Customer and said Guarantors acknowledge, warrant and agree, as a primary
inducement to MLBFS to enter into this Agreement, that: (a) no Default or Event
of Default has occurred and is continuing under the Loan Documents; (b) each of
the warranties of Customer in the Loan Documents are true and correct as of the
date hereof and shall be deemed remade as of the date hereof; (c) neither
Customer nor any of said Guarantors have any claim against MLBFS or any of its
affiliates arising out of or in connection with the Loan Documents or any other
matter whatsoever; and (d) neither Customer nor any of said Guarantors have any
defense to payment of any amounts owing, or any right of counterclaim for any
reason under, the Loan Documents.

Provided that no Event of Default, or event which with the giving of notice,
passage of time, or both, would constitute an Event of Default, shall then have
occurred and be continuing under the terms of the Loan Documents, the amendments
and agreements in this Letter Agreement will become effective on the date (the
"Effective Date") upon which: (a) Customer and the Guarantors shall have
executed and returned the duplicate copy of this Letter Agreement enclosed
herewith; and (b) an officer of MLBFS shall have reviewed and approved this
Letter Agreement as being consistent in all respects with the original internal
authorization hereof.

Notwithstanding the foregoing, if Customer and the Guarantors do not execute and
return the duplicate copy of this Letter Agreement within 14 days from the date
hereof, or if for any other reason (other than the sole fault of MLBFS) the
Effective Date shall not occur within said 14-day period, then all of said
amendments and agreements will, at the sole option of MLBFS, be void.

Very truly yours,

MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.

By: /s/ MATTHEW WILLIAMS
    --------------------
    Matthew Williams
    Sr. Credit Manager

<PAGE>

                                  MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.

Health Fitness Corporation
October 2, 2002
Page No. 3

Accepted:

HEALTH FITNESS CORPORATION

By: /s/ JERRY NOYCE
    -------------------------------
Printed Name: Jerry Noyce
              ---------------------
Title: CEO
       ----------------------------

Approved:

<PAGE>

                                                       Private Client Group

                                                       MERRILL LYNCH BUSINESS
                                                       FINANCIAL SERVICES INC.
                                                       222 North LaSalle Street
                                                       17th Floor
                                                       Chicago, Illinois 60601
                                                       (312) 269-1385
[MERRILL LYNCH LOGO]                                   FAX: (312) 499-3254

                                                       October 31, 2002

Mr. Wesley W. Winnekins
Chief Financial Officer
Health Fitness Corporation
3500 West 80th Street, Suite 130
Bloomington, MN 55431

           Re: Partial Activation of WCMA Line of Credit No. 673-07214
               Side Letter Agreement between Customer and MLBFS

Dear Mr. Winnekins,

In connection with our approval of a WCMA Line of Credit for Health Fitness
Corporation ("Customer"), we have been requested by Customer to partially
activate the line of credit with an initial Maximum WCMA Line of Credit of
$2,750,000.00 in spite of the fact that all of the conditions of our approval
have not been satisfied. Subject to the terms and conditions hereinafter set
forth, we are willing to comply with Customer's request for such a partial
activation, effective upon the "Effective Date" (as hereafter defined).

As of the date hereof, the following condition of our approval has not been
satisfied:

Receipt of a satisfactory payoff letter from Coast Business Credit.

Coast Business Credit has requested that MLBFS provide an indemnification to it
for a period of 30 days in the aggregate amount of $100,000.00, i.e., through
and including November 30, 2002. (See the payoff letter dated October 31, 2002
from Coast Business Credit, attached hereto and made a part hereof.) Customer
has requested MLBFS to provide such indemnification to Coast Business Credit
using the proceeds of the WCMA Line of Credit for reserves to the extent Coast
Business Credit exercising its rights under the indemnification so provided by
MLBFS.

By its execution of this Letter Agreement, Customer acknowledges and agrees that
MLBFS shall provide such indemnification to Coast Business Credit for a period
up to and including November 30, 2002 (the "Indemnification Period"), and MLBFS
shall set aside $100,000.00 of the Line of Credit for purposes of reserves as
described above (the "Reserves"). Customer further acknowledges and agrees that
although the Reserves shall not be available for use by Customer during the
Indemnification Period, such use or lack of use by Customer shall not otherwise
effect the obligations of Customer under the Loan Agreement. Further, for the
period of time effective the date hereof through and including the duration of
the Indemnification Period only, the term "Maximum WCMA Line of Credit" shall
mean, as of any date of determination thereof, an amount equal to the lesser of:
(A) $2,750,000.00, including the Reserves, or (B) 80% of Customer's Accounts and
Chattel Paper, as shown on its regular books and records (excluding Accounts
over 90 days old, Accounts directly or indirectly due from any person or entity
not domiciled in the United States, or from any shareholder, officer or employee
of Customer or any

<PAGE>

                                  MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.

October 31, 2002
Page No. 2

affiliated entity), inclusive of the Reserves. Effective the first Business Day
following the termination or end of the Indemnification Period, the definitions
of the Loan Agreement shall control over those set forth in this Letter
Agreement.

Customer unconditionally agrees to pay to MLBFS as to any amounts due under the
Reserves or claims drawn under or made in connection with any of the Reserves
during the Indemnification Period, all amounts paid or payable by MLBFS under,
pursuant to or in connection with such Reserves or indemnification by MLBFS in
favor of Coast Business Credit;) all fees and charges of MLBFS in connection
with such indemnification and/or the Reserves or payments thereof, which fees
and charges shall be in such amount or at such rate as MLBFS shall determine in
its sole discretion; and any and all expenses, obligations or charges paid or
incurred by MLBFS in connection with such Reserves, the indemnification and/or
the Loan Agreement.

Customer agrees that MLBFS shall not be responsible for, and Customer's
obligation to pay and/or reimburse MLBFS shall not be affected by and MLBFS
shall have no duty to inquire into: (i) the existence of any disputes or
controversies between Customer and Coast Business Credit or any other person, or
(ii) the truth, accuracy or occurrence of any fact or event referred to in any
certificate or other demand for indemnification by Coast Business Credit
presented under or in connection with any of the Reserves; (iii) acts or
omissions of any other person, including without limitation Coast Business
Credit, (iv) breach of contract between Customer and Coast Business Credit or
any other party; (v) consequences of compliance with laws, orders, regulations
or customs in effect in places of negotiation or payment of any Reserves.

Nothing in this letter shall be deemed a waiver by us of any of the terms and
conditions of the agreements between Customer and us (the "Loan Documents") or
entitle Customer to any rebate or reduction in the WCMA Line Fee or any other
fees set forth in the Loan Documents. Except as expressly amended hereby, the
Loan Documents shall continue in full force and effect upon all of their terms
and conditions.

Provided that no Event of Default, or event which with the giving of notice,
passage of time, or both, would constitute an Event of Default, shall then have
occurred and be continuing under the terms of the Loan Documents, the agreements
in this Letter Agreement will become effective on the date (the "Effective
Date") upon which: (i) Customer shall have executed and returned the duplicate
copy of this Letter Agreement enclosed herewith; and (ii) an officer of MLBFS
shall have reviewed and approved this Letter Agreement as being consistent in
all respects with the original internal authorization hereof. Notwithstanding
the foregoing, if Customer does not execute and return the duplicate copy of
this Letter Agreement within 14 days from the date hereof, or if for any other
reason (other than the sole fault of MLBFS) the Effective Date shall not occur
within said 14-day period, then this Letter Agreement will, at the sole option
of MLBFS, be void.

If you have any questions, please call the undersigned at (312) 269-1385.

<PAGE>

                                  MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.

October 31, 2002
Page No. 3

Very truly yours,

MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.

By: /s/ MATTHEW C. WILLIAMS
    -------------------------------
    Matthew C. Williams
    Senior Credit Manager

Accepted:

HEALTH FITNESS CORPORATION

By: /s/ WESLEY W. WINNEKINS
    -------------------------------
Printed Name: WESLEY W. WINNEKINS
              ---------------------
Title: CFO
       ----------------------------

CC: RICH BURTON<PAGE>

                                                                   EXHIBIT 10.1

                          HOME INTERIORS & GIFTS, INC.

                             2002 STOCK OPTION PLAN
                                FOR KEY EMPLOYEES

1.  Purpose.

    Home Interiors & Gifts, Inc., a Texas corporation (herein, together with its
successors, referred to as the "Company"), by means of this 2002 Stock Option
Plan for Key Employees (the "Plan"), desires to afford certain key employees of
the Company and any direct or indirect subsidiary or parent corporation thereof
now existing or hereafter formed or acquired (such corporations sometimes
referred to herein as "Related Entities") who are responsible for the continued
growth of the Company an opportunity to acquire a proprietary interest in the
Company, and thus to create in such persons an increased interest in and a
greater concern for the welfare of the Company and any Related Entities.
Capitalized terms used but not otherwise defined are defined in Section 18 of
this Plan.

    The stock options described in Section 6 (the "Options"), and the shares of
Common Stock acquired pursuant to the exercise of such Options, are a matter of
separate inducement and are not in lieu of any salary or other compensation for
services. As used in the Plan, the terms "parent corporation" and "subsidiary
corporation" shall have the meanings contained in Sections 424(e) and 424(f),
respectively, of the Internal Revenue Code of 1986, as amended (the "Code").

2.  Administration.

    The Plan shall be administered by the Option Committee, or any successor
thereto, of the Board of Directors of the Company (the "Board of Directors"), or
by any other committee appointed by the Board of Directors to administer the
Plan (the "Committee"); provided, that the entire Board of Directors may act as
the Committee if it chooses to do so; and provided, further, that (i) for
purposes of determining any Performance-Based Options applicable to Key
Employees who constitute "covered employees" within the meaning of Section
162(m) of the Code, "Committee" shall mean the members of the Option Committee
of the Board of Directors who qualify as "outside directors" within the meaning
of Section 162(m) of the Code, and such Performance-Based Options shall be
subject to ratification by unanimous approval of the members of the Board of
Directors, and (ii) for so long as the Company has a class of equity securities
registered pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the Committee shall be composed solely of two (or
such number as may be required under the Exchange Act) "Non-Employee Directors"
as defined in Rule 16b-3, as amended ("Rule 16b-3"), promulgated thereunder;
provided, that,

<PAGE>

alternatively, for purposes of granting Options other than Performance-Based
Options hereunder, the Board of Directors may authorize such grants and may take
any other action permitted pursuant to Section 162(m) of the Code, Rule 16b-3
and applicable law and regulations.

    The number of individuals that shall constitute the Committee shall be
determined from time to time by a majority of all the members of the Board of
Directors, and, unless that majority of the Board of Directors determines
otherwise, shall be no less than two individuals. A majority of the Committee
shall constitute a quorum (or if the Committee consists of only two members,
then both members shall constitute a quorum), and subject to the provisions of
Section 5, the acts of a majority of the members present at any meeting at which
a quorum is present, or acts approved in writing by all members of the
Committee, shall be the acts of the Committee. Whenever the Company shall have a
class of equity securities registered pursuant to Section 12 of the Exchange
Act, the Committee shall administer the Plan so as (i) to comply at all times
with the Exchange Act and (ii) to ensure that compensation attributable to
Options granted under the Plan to Key Employees who constitute "covered
employees" within the meaning of Section 162(m) of the Code shall (A) meet the
deduction limitation imposed by Section 162(m) of the Code, or (B) qualify as
"performance-based compensation" as such term is used in Section 162(m) of the
Code and the regulations promulgated thereunder and thus be exempt from the
deduction limitation imposed by Section 162(m) of the Code.

    The members of the Committee shall serve at the pleasure of the Board of
Directors, which shall have the power, at any time and from time to time, to
remove members from or add members to the Committee. Removal from the Committee
may be with or without cause. Any individual serving as a member of the
Committee shall have the right to resign from membership on the Committee by
written notice to the Board of Directors. The Board of Directors, and not the
remaining members of the Committee, shall have the power and authority to fill
vacancies on the Committee, however caused. The Board of Directors shall
promptly fill any vacancy that causes the number of members of the Committee to
be less than two or, if the Company has a class of equity securities registered
pursuant to Section 12 of the Exchange Act, any other number that Rule 16b-3 or
other applicable rules under Section 16(b) of the Exchange Act, Section 162(m)
of the Code, or any successor or analogous rules or laws may require from time
to time.

    In connection with the acquisition of any business by the Company or any
Related Entity, any outstanding grants, awards or sales of options or other
similar rights pertaining to such business may be assumed or replaced by Options
under the Plan upon such terms and conditions as the Board of Directors
determines. The date of any such grant or award shall relate back to the date of
the initial grant or award being assumed or replaced, and service with the
acquired business shall constitute service with the Company and its Affiliates
for purposes of such grant or award. Any Shares underlying any grant or award or
sale pursuant to any such acquisition shall be disregarded for purposes of
applying and shall not reduce the number of Shares available under this Section
3.

                                       2

<PAGE>

3.  Shares Available and Maximum Individual Grants.

    Subject to the adjustments provided in Section 10, the maximum aggregate
number of shares of common stock, par value $0.10 per share, of the Company
("Common Stock") in respect of which Options may be granted for all purposes
under the Plan shall be 6,000,000 shares. If, for any reason, any shares as to
which Options have been granted cease to be subject to purchase thereunder,
including the expiration of any such Option, the termination of any such Option
prior to exercise, or the forfeiture of any such Option, such shares shall
thereafter be available for grants under the Plan. Options granted under the
Plan may be fulfilled in accordance with the terms of the Plan with (i)
authorized and unissued shares of the Common Stock, (ii) issued shares of such
Common Stock held in the Company's treasury or (iii) issued shares of Common
Stock reacquired by the Company from time to time.

    The maximum aggregate number of shares of Common Stock underlying all
Options that may be granted to any single Key Employee during the Term of the
Plan shall be 2,000,000 shares, subject to the adjustments provided in Section
10. For purposes of the preceding sentence, such Options that are cancelled or
repriced shall continue to be counted in determining such maximum aggregate
number of shares of Common Stock that may be granted to any single Key Employee
during the Term of the Plan.

4.  Eligibility and Bases of Participation.

    Grants of Incentive Options and Non-Qualified Options may be made under the
Plan to Key Employees subject to and in accordance with Section 6 and/or, if
applicable, Section 7. As used herein, the term "Key Employee" shall mean any
employee of the Company or any Related Entity, including officers and directors
of the Company or any Related Entity who are also employees of the Company or
any Related Entity, who are regularly employed on a salaried basis and who are
so employed on the date of such grant, whom the Committee identifies as having a
direct and significant effect on the performance of the Company or any Related
Entity.

    The adoption of the Plan shall not be deemed to give any individual, firm,
company, corporation, partnership, trust, or other entity (collectively, a
"Person") a right to be granted any Options.

5.  Authority of Committee.

    Subject to and not inconsistent with the express provisions of the Plan, the
Code and, if applicable, Rule 16b-3 and Section 162(m) of the Code, the
Committee shall have plenary authority to:

    a.   determine the Key Employees to whom Options shall be granted, the time
         when such Options shall be granted, the number of Options, the purchase
         price or exercise price of each Option, the period(s) during which such
         Options shall be exercisable (whether in whole or in part, including
         whether such Options shall become immediately exercisable on a Change
         of Control), the restrictions to be applicable to Options and all other
         terms and provisions thereof (which need not be identical);

                                       3

<PAGE>

    b.   amend the performance goals and targets set forth in any individual
         option agreements with Key Employees to reflect changes in the
         Company's business, including, without limitation, to reflect the
         acquisition or divestiture of a Related Entity) or for such other
         reasons as it deems appropriate;

    c.   require, as a condition to the granting of any Option, that the Person
         receiving such Option agree not to sell or otherwise dispose of such
         Option, any Common Stock acquired pursuant to such Option, or any other
         "derivative security" (as defined by Rule 16a-1(c) under the Exchange
         Act) of the Company for a period of six months following the later of
         (i) the date of the grant of such Option or (ii) the date when the
         exercise price of such Option is fixed if such exercise price is not
         fixed at the date of grant of such Option, or for such other period as
         the Committee may determine;

    d.   provide an arrangement through registered broker-dealers whereby
         temporary financing may be made available to an optionee by the
         broker-dealer, under the rules and regulations of the Board of
         Governors of the Federal Reserve, for the purpose of assisting the
         optionee in the exercise of an Option, such authority to include the
         payment by the Company of the commissions of the broker-dealer;

    e.   provide the establishment of procedures for an optionee (i) to have
         withheld from the total number of shares of Common Stock to be acquired
         upon the exercise of an Option that number of shares having a Fair
         Market Value which, together with such cash as shall be paid in respect
         of fractional shares, shall equal the aggregate exercise price under
         such Option for the number of shares then being acquired (including the
         shares to be so withheld), and (ii) to exercise a portion of an Option
         by delivering that number of shares of Common Stock already owned by
         such optionee having an aggregate Fair Market Value which shall equal
         the partial Option exercise price and to deliver the shares thus
         acquired by such optionee in payment of shares to be received pursuant
         to the exercise of additional portions of such Option, the effect of
         which shall be that such optionee can in sequence utilize such newly
         acquired shares in payment of the exercise price of the entire Option,
         together with such cash as shall be paid in respect of fractional
         shares; provided, however, that in the case of an Incentive Option, no
         shares shall be used to pay the exercise price under this paragraph
         unless (A) such shares were not acquired through the exercise of an
         Incentive Option, or (B) if so acquired, (x) such shares have been held
         for more than two years since the grant of such Incentive Option and
         for more than one year since the exercise of such Incentive Option (the
         "Holding Period"), or (y) if such shares do not meet the Holding
         Period, the optionee elects in writing to use such shares to pay the
         exercise price under this paragraph;

                                       4

<PAGE>

    f.   provide (in accordance with Section 13 or otherwise) the establishment
         of a procedure whereby a number of shares of Common Stock or other
         securities may be withheld from the total number of shares of Common
         Stock or other securities to be issued upon exercise of an Option to
         meet the obligation of withholding for income, social security and
         other taxes incurred by an optionee upon such exercise or required to
         be withheld by the Company or a Related Entity in connection with such
         exercise unless, as determined by the Committee in the exercise of its
         discretion, such procedure is not permitted by applicable law;

    g.   prescribe, amend, modify and rescind rules and regulations relating to
         the Plan; and

    h.   make all determinations permitted or deemed necessary, appropriate or
         advisable for the administration of the Plan, interpret any Plan or
         Option provision, perform all other acts, exercise all other powers,
         and establish any other procedures determined by the Committee to be
         necessary, appropriate, or advisable in administering the Plan or for
         the conduct of the Committee's business. Any act of the Committee,
         including interpretations of the provisions of the Plan or any Option
         and determinations under the Plan or any Option, made in good faith,
         shall be final, conclusive and binding on all parties.

    The Committee may delegate to one or more of its members, or to one or more
agents, such administrative duties as it may deem advisable, and the Committee
or any Person to whom it has delegated duties as aforesaid may employ one or
more Persons to render advice with respect to any responsibility the Committee
or such Person may have under the Plan; provided, however, that any such
delegation shall be in writing and that whenever the Company has a class of
equity securities registered under Section 12 of the Exchange Act, the Committee
may not delegate any duties to a member of the Board of Directors who, if
elected to serve on the Committee, would not qualify as a "Non-Employee
Director" to administer the Plan as contemplated by Rule 16b-3, as amended, or
other applicable rules under the Exchange Act. The Committee may employ
attorneys, consultants, accountants, or other Persons and the Committee, the
Company, and its officers and directors shall be entitled to rely upon the
advice, opinions, or valuations of any such Persons. No member or agent of the
Committee shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan and all members and
agents of the Committee shall be fully protected by the Company in respect of
any such action, determination or interpretation.

6.  Stock Option Grants to Key Employees.

    Subject to the express provisions of the Plan, the Committee shall have the
authority to grant incentive stock options pursuant to Section 422 of the Code
("Incentive

                                       5

<PAGE>

Options"), to grant non-qualified stock options (options which do not qualify
under Section 422 of the Code) ("Non-Qualified Options"), and to grant both
types of Options to Key Employees. No Incentive Option shall be granted pursuant
to the Plan after the earlier of ten years from the date of adoption of the Plan
or ten years from the date of approval of the Plan by the shareholders of the
Company. The terms and conditions of the Options granted under this Section 6
shall be determined from time to time by the Committee; provided, however, that
the Options granted under this Section 6 shall be subject to all terms and
provisions of the Plan, including the following:

    a.   Option Exercise Price. Subject to Section 5, the Committee shall
         establish the Option exercise price at the time any Option is granted
         to a Key Employee at such amount as the Committee shall determine;
         provided, that, in the case of an Incentive Option, such price shall
         not be less than the Fair Market Value per share of Common Stock at the
         date the Option is granted; and provided, further, that in the case of
         an Incentive Option granted to a person who, at the time such Incentive
         Option is granted, owns shares of the Company or any Related Entity
         which possess more than 10% of the total combined voting power of all
         classes of shares of the Company or of any Related Entity, the option
         exercise price shall not be less than 110% of the Fair Market Value per
         share of Common Stock at the date the Option is granted. The Option
         exercise price shall be subject to adjustment in accordance with the
         provisions of Section 10 of the Plan.

    b.   Payment. The price per share of Common Stock with respect to each
         Option exercise by a Key Employee shall be payable at the time of such
         exercise. Such price shall be payable in cash or by any other means
         acceptable to the Committee, including by the delivery to the Company
         of shares of Common Stock owned by the optionee or by the delivery or
         withholding of shares pursuant to a procedure created pursuant to
         subsection 5(e) of the Plan (but, with respect to Incentive Options,
         subject to the limitations described in such subsection 5(e)). Shares
         delivered to or withheld by the Company in payment of the Option
         exercise price shall be valued at the Fair Market Value of the Common
         Stock on the day preceding the date of the exercise of the Option.

    c.   Exercisability of Stock Option. Unless otherwise determined by the
         Committee at the time of grant, and subject to the provisions of
         subsections 6(d), (e), (f), (g) and (i) below, stock options granted to
         Key Employees hereunder shall vest and become exercisable according to
         the vesting schedule set forth below:

         one-fifth of the shares of Common Stock underlying the stock option
         grant shall vest and become exercisable on the first anniversary of the
         date of grant and remain exercisable until the stock option expires;
         and

         an additional one-fifth of the shares of Common Stock underlying the
         stock option grant shall vest and become exercisable on the second
         anniversary of the date of grant and remain exercisable until the stock
         option expires; and

                                       6

<PAGE>

         an additional one-fifth of the shares of Common Stock underlying the
         stock option grant shall vest and become exercisable on the third
         anniversary of the date of grant and remain exercisable until the stock
         option expires; and

         an additional one-fifth of the shares of Common Stock underlying the
         stock option grant shall vest and become exercisable on the fourth
         anniversary of the date of grant and remain exercisable until the stock
         option expires; and

         the final one-fifth of the shares of Common Stock underlying the stock
         option grant shall vest and become exercisable on the fifth anniversary
         of the date of grant and remain exercisable until the stock option
         expires;

         No Option by its terms shall be exercisable after the expiration of 10
         years from the date of grant of the Option, unless, as to any
         Non-Qualified Option, otherwise expressly provided in such Option;
         provided, however, that no Incentive Option granted to a person who, at
         the time such Option is granted, owns stock of the Company, or any
         Related Entity, possessing more than 10% of the total combined voting
         power of all classes of stock of the Company, or any Related Entity,
         shall be exercisable after the expiration of five years from the date
         such Option is granted.

    d.   Death. If an optionee's employment with the Company or a Related Entity
         terminates due to the death of such optionee, the estate of such
         optionee, or a Person who acquired the right to exercise such Option by
         bequest or inheritance or by reason of the death of the optionee, shall
         have the right to exercise the vested portion of such Option in
         accordance with its terms at any time and from time to time within 180
         days after the date of death unless a longer or shorter period is
         expressly provided in such Option or established by the Committee
         pursuant to Section 8 (but in no event after the expiration date of
         such Option), and thereafter such Option shall lapse and no longer be
         exercisable.

    e.   Disability. If the employment of an optionee terminates because of his
         or her Disability, such optionee or his or her legal representative
         shall have the right to exercise the vested portion of such Option in
         accordance with its terms at any time and from time to time within 180
         days after the date of such termination unless a longer or shorter
         period is expressly provided in such Option or established by the
         Committee pursuant to Section 8 (but in no event after the expiration
         date of the Option), and thereafter such Option shall lapse and no
         longer be exercisable; provided, however, that in the case of an
         Incentive Option, the optionee or his or her legal representative shall
         in any event be required to exercise the vested portion of such
         Incentive Option within one year after termination of the optionee's
         employment due to his or her Disability.

                                       7

<PAGE>

    f.   Termination for Good Cause; Voluntary Termination. Unless an optionee's
         Option expressly provides otherwise, such optionee shall immediately
         forfeit all rights under his or her Option, except as to the shares of
         stock already purchased thereunder, if the employment of such optionee
         with the Company or a Related Entity is terminated by the Company or
         any Related Entity for Good Cause or if such Optionee voluntarily
         terminates employment without the consent of the Company or any Related
         Entity. The determination that there exists Good Cause for termination
         shall be made by the Committee (unless otherwise agreed to in writing
         by the Company and the optionee).

    g.   Other Termination of Employment. If the employment of an optionee with
         the Company or a Related Entity terminates for any reason other than
         those specified in subsections 6(d), (e) or (f) above, such optionee
         shall have the right to exercise the vested portion of his or her
         Option in accordance with its terms, within 30 days after the date of
         such termination, unless a longer or shorter period is expressly
         provided in such Option or established by the Committee pursuant to
         Section 8 (but in no event after the expiration date of the Option),
         and thereafter such Option shall lapse and no longer be exercisable;
         provided, that (i) no Incentive Option shall be exercisable more than
         three months after such termination, and (ii) the Committee may, in the
         exercise of its discretion, extend the exercise date of any Option upon
         termination of employment for a period not to exceed six months plus
         one day (but in no event after the expiration date of the Option) if
         the Committee determines that the stated exercise date will have an
         inequitable result under Section 16(b) of the Exchange Act.

    h.   Maximum Exercise. To the extent that the aggregate Fair Market Value of
         Common Stock (determined at the time of the grant of the Option) with
         respect to which Incentive Options are exercisable for the first time
         by an optionee during any calendar year under all plans of the Company
         and any Related Entity exceeds $100,000, such Incentive Options shall
         be treated as Non-Qualified Options.

    i.   Continuation of Employment. Each Incentive Option shall require the
         optionee to have been continuously employed by the Company or any
         Related Entity from the date of grant of the Incentive Option until his
         or her employment termination.

    j.   Interpretation of Plan. Any termination of employment of an optionee
         with the Company or any Related Entity shall in no way change or amend
         the Company's at-will termination policy.

                                       8

<PAGE>

7.  Performance-Based Options

    The Committee, in its sole discretion, may designate and design Options
granted under the Plan as Performance-Based Options, which Performance-Based
Options shall be designed to comply with the requirements of this Section 7, if
the Committee determines that compensation attributable to such Options might
not otherwise be tax deductible by the Company due to the deduction limitation
imposed by Section 162(m) of the Code. Accordingly, Options granted under the
Plan may be granted in such a manner that the compensation attributable to such
Options is intended by the Committee to qualify as "performance-based
compensation" as such term is used in Section 162(m) of the Code and the
regulations promulgated thereunder and thus be exempt from the deduction
limitation imposed by Section 162(m) of the Code ("Performance-Based Options").

    Options granted under the Plan to Key Employees who constitute "covered
employees" within the meaning of Section 162(m) of the Code shall be deemed to
qualify as Performance-Based Options only if:

    a.   The Option exercise price is not less than the Fair Market Value per
         share of Common Stock at the date the Option is granted; provided, that
         in the case of an Incentive Option, such price is subject to the
         limitations described in subsection 6(a); provided, further, that the
         Option exercise price shall be subject to adjustment in accordance with
         the provisions of Section 10 of the Plan; or

    b.   With respect to a Non-Qualified Option granted at an exercise price
         that is below the Fair Market Value per share of the Common Stock on
         the date of grant, such Option satisfies the following requirements:

         (i)      the granting or vesting of such Non-Qualified Option is
                  subject to the achievement of a performance goal or goals
                  based on one or more of the following performance measures
                  (either individually or in any combination): net sales;
                  pre-tax income before allocation of corporate overhead and
                  bonus; budget; cash flow; earnings per share; net income;
                  division, group or corporate financial goals; return on
                  stockholders' equity; return on assets; attainment of
                  strategic and operational initiatives; appreciation in and/or
                  maintenance of the price of the Common Stock or any other
                  publicly-traded securities of the Company; market share; gross
                  profits; earnings before interest and taxes; earnings before
                  interest, taxes, depreciation and amortization; economic
                  value-added models; comparisons with various stock market
                  indices; increase in number of customers; and/or reductions in
                  costs;

         (ii)     the Committee establishes in writing (A) the objective
                  performance-based goals applicable to a given performance
                  period, and (B) the individual employees or class of employees
                  to which

                                       9

<PAGE>

                  such performance-based goals apply no later than ninety days
                  after the commencement of such performance period (but in no
                  event after twenty-five percent of such performance period has
                  elapsed);

         (iii)    no compensation attributable to Performance-Based Options will
                  be paid to or otherwise received by a Key Employee who
                  constitutes a "covered employee" within the meaning of Section
                  162(m) of the Code until the Committee certifies in writing
                  that the performance goal or goals (and any other material
                  terms) applicable to such performance period have been
                  satisfied;

         (iv)     after the establishment of a performance goal, the Committee
                  shall not revise such performance goal (unless such revision
                  will not disqualify compensation attributable to the
                  Performance-Based Options as "performance-based compensation"
                  under Section 162(m) of the Code) or increase the amount of
                  compensation payable with respect to such Performance-Based
                  Options upon the attainment of such performance goal; and

         (v)      as required by the regulations promulgated under Section
                  162(m) of the Code, the material terms of performance goals as
                  described in subsection 7(b)(i) shall be disclosed to and
                  reapproved by the Company's shareholders no later than the
                  first shareholder meeting that occurs in the fifth year
                  following the year in which the Company's shareholders
                  previously approved such performance goals.

8.  Change of Control.

    If (i) a Change of Control shall occur, (ii) the Company shall enter into an
agreement providing for a Change of Control, or (iii) any member of the HMC
Group shall enter into an agreement providing for a Change of Control, then the
Board of Directors may declare any or all Options outstanding under the Plan to
be exercisable in full at such time or times as the Committee shall determine,
notwithstanding the express provisions of such Options. Each Option accelerated
pursuant to the preceding sentence shall terminate, notwithstanding any express
provision thereof or any other provision of the Plan, on such date (not later
than the stated exercise date) as the Committee shall determine.

9.  Purchase Option.

    a.   Except as otherwise expressly provided in any particular Option, if (i)
         any optionee's employment with the Company or a Related Entity
         terminates for any reason at any time or (ii) a Change of Control
         occurs, the Company and/or its designee(s) shall have the option (the
         "Purchase Option") to purchase, and if the option is exercised, the
         optionee (or, with respect to Common Stock acquired pursuant to the
         exercise of an Option,

                                       10

<PAGE>

         the optionee's assignee, or the optionee's executor or the
         administrator of the optionee's estate, in the event of the optionee's
         death, or the optionee's legal representative in the event of the
         optionee's incapacity (hereinafter, collectively with such optionee,
         the "Grantor")) shall sell to the Company and/or its assignee(s), all
         or any portion (at the Company's option) of the shares of Common Stock
         and/or Options held by the Grantor (such shares of Common Stock and
         Options collectively being referred to as the "Purchasable Shares").

    b.   The Company shall give notice in writing to the Grantor of the exercise
         of the Purchase Option within one year after the earlier of the date of
         the termination of the optionee's employment or such Change of Control.
         Such notice shall state the number of Purchasable Shares to be
         purchased and the purchase price of such Purchasable Shares. If no
         notice is given within the time limit specified above, the Purchase
         Option shall terminate.

    c.   The purchase price to be paid for the Purchasable Shares purchased
         pursuant to the Purchase Option shall be, in the case of any Common
         Stock, the Fair Market Value per share as of the date of the notice of
         exercise of the Purchase Option times the number of shares being
         purchased, and in the case of any Option, the Fair Market Value per
         share times the number of vested shares (including by acceleration)
         subject to such Option which are being purchased, less the applicable
         per share Option exercise price. The purchase price shall be paid in
         cash. The closing of such purchase shall take place at the Company's
         principal executive offices within ten days after the purchase price
         has been determined. At such closing, the Grantor shall deliver to the
         purchaser(s) the certificates or instruments evidencing the Purchasable
         Shares being purchased, duly endorsed (or accompanied by duly executed
         stock powers) and otherwise in good form for delivery, against payment
         of the purchase price by check of the purchaser(s). In the event that,
         notwithstanding the foregoing, the Grantor shall have failed to obtain
         the release of any pledge or other encumbrance on any Purchasable
         Shares by the scheduled closing date, at the option of the purchaser(s)
         the closing shall nevertheless occur on such scheduled closing date,
         with the cash purchase price being reduced to the extent of, and paid
         to the holder of, all unpaid indebtedness for which such Purchasable
         Shares are then pledged or encumbered.

    d.   To assure the enforceability of the Company's rights under this Section
         9, each certificate or instrument representing Common Stock or an
         Option held by him or it shall bear a conspicuous legend in
         substantially the following form:

                                       11

<PAGE>

    "THE SHARES [REPRESENTED BY THIS CERTIFICATE] [ISSUABLE PURSUANT TO THIS
    AGREEMENT] ARE SUBJECT TO AN OPTION TO REPURCHASE PROVIDED UNDER THE
    PROVISIONS OF THE COMPANY'S 2002 STOCK OPTION PLAN FOR KEY EMPLOYEES AND A
    STOCK OPTION AGREEMENT ENTERED INTO PURSUANT THERETO. A COPY OF SUCH OPTION
    PLAN AND OPTION AGREEMENT ARE AVAILABLE UPON WRITTEN REQUEST TO THE COMPANY
    AT ITS PRINCIPAL EXECUTIVE OFFICES."

    The Company's rights under this Section 9 shall terminate upon the
consummation of a Qualifying Public Offering.

10. Adjustment of Shares and Price.

    Unless otherwise expressly provided in a particular Option, in the event
that, by reason of any merger, consolidation, combination, liquidation,
recapitalization, stock dividend, stock split, split-up, split-off, spin-off,
combination of shares, exchange of shares or other like change in capital
structure of the Company (collectively, an "Adjustment Event"), the Common Stock
is substituted, combined, or changed into any cash, property, or other
securities, or the shares of Common Stock are changed into a greater or lesser
number of shares of Common Stock, the number and/or kind of shares and/or
interests subject to the Plan or an Option granted hereunder (and the per share
price or value thereof) shall be appropriately and equitably adjusted by the
Committee to give appropriate effect to such Adjustment Event. Any fractional
shares or interests resulting from such adjustment shall be eliminated.
Notwithstanding the foregoing, (i) each such adjustment with respect to an
Incentive Option shall comply with the rules of Section 424(a) of the Code to an
Incentive Option, and (ii) in no event shall any adjustment be made which would
render any Incentive Option granted hereunder other than an "incentive stock
option" for purposes of Section 422 of the Code.

    In the event the Company is not the surviving entity of an Adjustment Event
and, following such Adjustment Event, any optionee will hold Options issued
pursuant to the Plan which have not been exercised, cancelled, or terminated in
connection therewith, the Company shall cause such Options to be assumed (or
cancelled and replacement Options issued) by the surviving entity or a Related
Entity.

11. Assignment or Transfer.

    Except as otherwise expressly provided in any Non-Qualified Option, no
Option granted under the Plan or any rights or interests therein shall be
assignable or transferable by an optionee except by will or the laws of descent
and distribution, and during the lifetime of an optionee, Options granted to him
or her hereunder shall be exercisable only by the optionee or, in the event that
a legal representative has been appointed in connection with the Disability of
an optionee, such legal representative.

12. Compliance with Securities Laws.

    The Company shall not in any event be obligated to file any registration
statement under the Securities Act of 1933, as amended (the "Securities Act"),
or any applicable state securities laws, to permit exercise of any Option or to
issue any Common Stock in violation of the Securities Act or any applicable
state securities laws. Each optionee (or,

                                       12

<PAGE>

in the event of his or her death or, in the event a legal representative has
been appointed in connection with his or her Disability, the Person exercising
the Option) shall, as a condition to his or her right to exercise any Option,
deliver to the Company an agreement or certificate containing such
representations, warranties and covenants as the Company may deem necessary or
appropriate to ensure that the issuance of shares of Common Stock pursuant to
such exercise is not required to be registered under the Securities Act or any
applicable state securities laws.

    Certificates for shares of Common Stock, when issued, may have substantially
the following legend, or statements of other applicable restrictions, endorsed
thereon, and may not be immediately transferable:

         "THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
         REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
         SECURITIES LAWS. THE SHARES MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED,
         TRANSFERRED OR OTHERWISE DISPOSED OF UNTIL THE HOLDER HEREOF PROVIDES
         EVIDENCE SATISFACTORY TO THE ISSUER (WHICH, IN THE DISCRETION OF THE
         ISSUER, MAY INCLUDE AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER)
         THAT SUCH OFFER, SALE, PLEDGE, TRANSFER OR OTHER DISPOSITION WILL NOT
         VIOLATE APPLICABLE FEDERAL OR STATE LAWS."

    This legend shall not be required for shares of Common Stock issued pursuant
to an effective registration statement under the Securities Act and in
accordance with applicable state securities laws.

13. Withholding Taxes.

    By acceptance of the Option, the optionee will be deemed to (i) agree to
reimburse the Company or any Related Entity by which the optionee is employed
for any federal, state, or local taxes required by any government to be withheld
or otherwise deducted by such corporation in respect of the optionee's exercise
of all or a portion of the Option; (ii) authorize the Company or any Related
Entity by which the optionee is employed to withhold from any cash compensation
paid to the optionee or on the optionee's behalf, an amount sufficient to
discharge any federal, state, and local taxes imposed on the Company or the
Related Entity by which the optionee is employed, and which otherwise has not
been reimbursed by the optionee, in respect of the optionee's exercise of all or
a portion of the Option; and (iii) agree that the Company may, in its
discretion, hold the stock certificate to which the optionee is entitled upon
exercise of the Option as security for the payment of the aforementioned
withholding tax liability, until cash sufficient to pay that liability has been
accumulated, and may, in its discretion, effect such withholding by retaining
shares issuable upon the exercise of the Option having a Fair Market Value on
the date of exercise which is equal to the amount to be withheld.

                                       13

<PAGE>

14. Costs and Expenses.

    The costs and expenses of administering the Plan shall be borne by the
Company and shall not be charged against any Option nor to any employee
receiving an Option.

15. Funding of Plan.

    The Plan shall be unfunded. The Company shall not be required to make any
segregation of assets to assure the payment of any Option under the Plan.

16. Other Incentive Plans.

    The adoption of the Plan does not affect any existing incentive plans or
preclude the adoption by appropriate means of any other incentive plan for
employees.

17. Effect on Employment.

    Nothing contained in the Plan or any agreement related hereto or referred to
herein shall affect, or be construed as affecting, the terms of employment of
any Key Employee except to the extent specifically provided herein or therein.
Nothing contained in the Plan or any agreement related hereto or referred to
herein shall impose, or be construed as imposing, an obligation on (i) the
Company or any Related Entity to continue the employment of any Key Employee,
and (ii) any Key Employee to remain in the employ of the Company or any Related
Entity.

18. Definitions.

    In addition to the terms specifically defined elsewhere in the Plan, as used
in the Plan, the following terms shall have the respective meanings indicated:

    "Adjustment Event" shall have the meaning set forth in Section 10 hereof.

    "Affiliate" shall mean, as to any Person, a Person that directly, or
    indirectly through one or more intermediaries, controls, or is controlled
    by, or is under common control with, such Person.

    "Board of Directors" shall have the meaning set forth in Section 2 hereof.

    "Change of Control" shall mean the first to occur of the following events:
    (i) any sale, lease, exchange, or other transfer (in one transaction or
    series of related transactions) of all or substantially all of the assets of
    the Company to any Person or Group, other than one or more members of the
    HMC Group, (ii) a majority of the Board of Directors of the Company shall
    consist of Persons who are not Continuing Directors; or (iii) the
    acquisition by any Person or Group other than one or more members of the HMC
    Group of the power, directly or indirectly, to vote or direct the voting of
    securities having more than 50% of the ordinary voting power for the
    election of directors of the Company.

                                       14

<PAGE>

    "Code" shall have the meaning set forth in Section 1 hereof.

    "Committee" shall have the meaning set forth in Section 2 hereof.

    "Common Stock" shall have the meaning set forth in Section 3 hereof.

    "Company" shall have the meaning set forth in Section 1 hereof.

    "Continuing Director" shall mean, as of the date of determination, any
    Person who (i) was a member of the Board of Directors of the Company on the
    date of adoption of the Plan, (ii) was nominated for election or elected to
    the Board of Directors of the Company with the affirmative vote of a
    majority of the Continuing Directors who were members of such Board of
    Directors at the time of such nomination or election, or (iii) is a member
    of the HMC Group.

    "Disability" shall mean (i) permanent disability as defined under the
    appropriate provisions of the applicable long-term disability plan
    maintained for the benefit of employees of the Company or any Related Entity
    who are regularly employed on a salaried basis or (ii) if no such long-term
    disability plan exists, an inability to perform a participant's employment
    duties and responsibilities by reason of any physical or mental condition
    for a period of 26 consecutive weeks or a period of 26 weeks during any
    12-month period in connection with the same physical or mental condition or
    (iii) another meaning agreed to in writing by the Committee and the
    optionee; provided, however, that in the case of the optionee holding an
    Incentive Option "disability" shall have the meaning specified in Section
    22(e)(3) of the Code.

    "Exchange Act" shall have the meaning set forth in Section 2 hereof.

    "Fair Market Value" shall, as it relates to the Common Stock, mean the
    average of the daily market prices of such Common Stock as reported on the
    principal national securities exchange on which the shares of Common Stock
    are then listed for each day during the ten consecutive trading days prior
    to the date of determination, or if such Common Stock is not listed on a
    national securities exchange, the last reported bid price in the
    over-the-counter market, or if such shares are not traded in the
    over-the-counter market, the per share cash price for which all of the
    outstanding Common Stock could be sold to a willing purchaser in an
    arm's-length transaction (without regard to minority discount, absence of
    liquidity, or transfer restrictions imposed by any applicable law or
    agreement) at the date of the event giving rise to a need for a
    determination. Except as may be otherwise expressly provided in a particular
    Option, Fair Market Value shall be determined in good faith by the
    Committee.

    "Good Cause", with respect to any Key Employee, shall mean (i) the
    optionee's conviction of, or plea of nolo contendere (or similar plea) to, a
    felony or other crime which adversely affects, or may adversely affect, the
    reputation, goodwill or business position of the Company or which involves
    Company funds or assets, (ii) any intentional material damage to property or
    business of the Company,

                                       15

<PAGE>

    (iii) the optionee's conviction of theft, embezzlement, fraud or
    misappropriation of Company property, (iv) the willful failure of the
    optionee to carry out his duties as an employee for a reason other than
    mental or physical disability, (v) the optionee's willful commission of
    material mismanagement in the conduct of his duties as assigned to him by
    the Board of Directors or his supervising officers, if any, (vi) the
    optionee's breach of his obligations under this Agreement, or (vii)
    substance abuse or addiction on the part of the optionee.

    "Grantor" has the meaning set forth in Section 9 hereof.

    "Group" shall have the meaning given such term in Section 13(d) of the
    Exchange Act and the rules and regulations and interpretations thereunder.

    "HMC Group" shall mean Hicks, Muse, Tate & Furst Incorporated, its
    Affiliates, and their respective employees, officers, partners and directors
    (and members of their respective families and trusts for the primary benefit
    of such family members).

    "Holding Period" shall have the meaning set forth in subsection 5(e) hereof.

    "Incentive Options" shall have the meaning set forth in Section 6 hereof.

    The term "including" when used herein shall mean "including, but not limited
    to."

    "Key Employee" shall have the meaning set forth in Section 4 hereof.

    "Non-Qualified Options" shall have the meaning set forth in Section 6
    hereof.

    "Options" shall have the meaning set forth in Section 1 hereof.

    "Performance-Based Options" shall have the meaning set forth in Section 7
    hereof.

    "Person" shall have the meaning set forth in Section 4 hereof.

    "Plan" shall have the meaning set forth in Section 1 hereof.

    "Purchasable Shares" shall have the meaning set forth in Section 9 hereof.

    "Purchase Option" shall have the meaning set forth in Section 9 hereof.

    "Qualifying Public Offering" shall mean a firm commitment underwritten
    public offering of Common Stock the result of which is that the HMC Group
    shall own less than 10% of the fully diluted Common Stock of the Company.

    "Related Entities" shall have the meaning set forth in Section 1 hereof.

    "Rule 16b-3" shall have the meaning set forth in Section 2 hereof.

                                       16

<PAGE>

    "Securities Act" shall have the meaning set forth in Section 12 hereof.

    "Term" shall have the meaning set forth in Section 20 hereof.

19. Amendment of Plan.

    The Board of Directors shall have the right to amend, modify, suspend or
terminate the Plan at any time; provided, that no amendment shall be made which
shall increase the total number of shares of the Common Stock which may be
issued and sold pursuant to Options granted under the Plan or decrease the
minimum Option exercise price in the case of an Incentive Option, or modify the
provisions of the Plan relating to eligibility with respect to Incentive Options
or increase the Term of the Plan unless such amendment is made by or with the
approval of the shareholders. The Board of Directors shall be authorized to
amend the Plan and the Options granted thereunder, without the consent or
joinder of any optionee or other Person, in such manner as may be deemed
necessary or appropriate by the Board of Directors in order to cause the Plan
and the Options granted thereunder (i) to qualify as "incentive stock options"
within the meaning of Section 422 of the Code, (ii) to comply with Rule 16b-3
(or any successor rule) under the Exchange Act (or any successor law) and the
regulations (including any temporary regulations) promulgated thereunder or
(iii) to comply with Section 162(m) of the Code (or any successor section) and
any regulations (including any temporary regulations) promulgated thereunder.
Except as provided above, no amendment, modification, suspension or termination
of the Plan shall materially impair the value of any Options previously granted
under the Plan, without the consent of the holder thereof.

20. Effective Date.

    The Plan shall be effective as of August 14, 2002, and shall be void
retroactively as to any Incentive Option if not approved by the shareholders of
the Company within twelve months thereafter. The Plan shall terminate on the
tenth anniversary of the date of adoption of the Plan or the date of approval of
the Plan by the shareholders of the Company, whichever is earlier, unless sooner
terminated by the Board of Directors (the "Term").

                                       17

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