Document:

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                                                                     EXHIBIT 4.1

                              NEOTHERAPEUTICS, INC.

                          EMPLOYEE STOCK PURCHASE PLAN

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                              NEOTHERAPEUTICS, INC.

                          EMPLOYEE STOCK PURCHASE PLAN

                                TABLE OF CONTENTS

                                                                           PAGE
                                                                           ----
1.  Definitions...........................................................   1

2.  Stock Subject to the Plan.............................................   3

3.  Grant of Options......................................................   3

4.  Exercise of Options; Option Price.....................................   5

5.  Withdrawal from the Plan..............................................   6

6.  Termination of Employment.............................................   6

7.  Restriction upon Assignment...........................................   7

8.  No Rights of Stockholders until Shares Issued.........................   7

9.  Changes in the Stock and Corporate Events; Adjustment of Options......   7

10. Use of Funds; No Interest Paid........................................   9

11. Dividends.............................................................   9

12. Amendment, Suspension or Termination of the Plan......................   9

13. Administration by Committee; Rules and Regulations...................    9

14. Designation of Subsidiary Corporations...............................   10

15. No Rights as an Employee.............................................   10

16. Term; Approval by Stockholders.......................................   11

17. Effect upon Other Plans..............................................   11

18. Conditions to Issuance of Stock Certificates.........................   11

19. Notification of Disposition..........................................   11

20. Notices..............................................................   12

21. Additional Restrictions of Rule 16b-3................................   12

22. Equal Rights and Privileges..........................................   12

23. Headings.............................................................   12

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                            THE NEOTHERAPEUTICS, INC.

                          EMPLOYEE STOCK PURCHASE PLAN

         NeoTherapeutics, Inc., a Delaware corporation (the "Company"), hereby
adopts the NeoTherapeutics, Inc. Employee Stock Purchase Plan (the "Plan"),
effective as of January 26, 2001.

         The purposes of the Plan are as follows:

                  (1) To assist eligible employees of the Company and its
         Designated Subsidiaries (as defined below) in acquiring stock ownership
         in the Company pursuant to a plan which is intended to qualify as an
         "employee stock purchase plan," within the meaning of Section 423(b) of
         the Code (as defined below).

                  (2) To help such employees provide for their future security
         and to encourage them to remain in the employment of the Company and
         its Subsidiary Corporations.

         1. DEFINITIONS. Whenever any of the following terms is used in the Plan
with the first letter or letters capitalized, it shall have the following
meaning unless context clearly indicates to the contrary (such definitions to be
equally applicable to both the singular and the plural forms of the terms
defined):

            (a) "ACCOUNT" shall mean the account established for a Participant
under the Plan with respect to an Offering Period.

            (b) "AGENT" shall mean the brokerage firm, bank or other financial
institution, entity or person(s), if any, engaged, retained, appointed or
authorized to act as the agent of the Company or an Employee with regard to the
Plan.

            (c) "AUTHORIZATION" shall mean a Participant's payroll deduction
authorization with respect to an Offering Period provided by such Participant in
accordance with Section 3(b).

            (d) "COMPENSATION" of an Employee shall mean all compensation
received by such Employee from the Company or any Designated Subsidiary on each
Payday as compensation for services to the Company or any Designated Subsidiary,
including all salary, wages (including amounts elected to be deferred by the
Employee, but would otherwise have been paid, under any cash or deferred
arrangement established by the Company or a Designated Subsidiary), overtime
pay, sales commissions, bonuses, and other remuneration paid directly to the
Employee; but excluding the cost of employee benefits paid by the Company or a
Designated Subsidiary, education or tuition reimbursements, imputed income
arising under any Company or Designated Subsidiary group insurance or benefit
program, travel expenses, business and moving reimbursements, income received in
connection with stock options, contributions made by the Company or a Designated
Subsidiary under any employee benefit plan, and similar items of compensation.

            (e) "BOARD" means the Board of Directors of the Company.

            (f) "CODE" means the Internal Revenue Code of 1986, as amended.

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            (g) "COMMITTEE" means the committee of the Board appointed to
administer the Plan pursuant to Section 13.

            (h) "COMPANY" means NeoTherapeutics, Inc., a Delaware corporation.

            (i) "DATE OF EXERCISE" of any Option means the date on which such
Option is exercised, which shall be the last Trading Day of the Offering Period
with respect to which the Option was granted, in accordance with Section 4(a)
(except as provided in Section 9).

            (j) "DATE OF GRANT" of any Option means the date on which such
Option is granted, which shall be the first Trading Day of the Offering Period
with respect to which the Option was granted, in accordance with Section 3(a).

            (k) "DESIGNATED SUBSIDIARY" means any Subsidiary Corporation
designated by the Board in accordance with Section 14.

            (l) "ELIGIBLE EMPLOYEE" means an Employee of the Company or any
Designated Subsidiary Corporation who does not, immediately after the Option is
granted, own (directly or through attribution) stock possessing five percent
(5%) or more of the total combined voting power or value of all classes of Stock
or other stock of the Company, a Parent Corporation or a Subsidiary Corporation
(as determined under Section 423(b)(3) of the Code). For purposes of the
foregoing, the rules of Section 424(d) of the Code with regard to the
attribution of stock ownership shall apply in determining the stock ownership of
an individual, and stock which an Employee may purchase under outstanding
options shall be treated as stock owned by the Employee.

            (m) "EMPLOYEE" shall mean an individual who renders services to the
Company or a Subsidiary Corporation in the status of an "employee," within the
meaning of Code Section 3401(c). During a leave of absence meeting the
requirements of Treasury Regulation Section 1.421-7(h)(2), an individual shall
be treated as an Employee of the Company or Subsidiary Corporation employing
such individual immediately prior to such leave. "Employee" shall not include
any director of the Company or a Subsidiary Corporation who does not render
services to the Company or a Subsidiary Corporation in the status of an
"employee," within the meaning of Code Section 3401(c).

            (n) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

            (o) "OFFERING PERIOD" shall mean each six-month period commencing on
(1) any June 21 and ending on the subsequent December 20, or (2) commencing on
any December 21 and ending on the subsequent June 20; provided, however, that
the first Offering Period shall commence on January 26, 2001 and end June 20,
2001. Options shall be granted on the Date of Grant and exercised on the Date of
Exercise, as provided in Sections 3(a) and 4(a), respectively.

            (p) "OPTION" means an option to purchase shares of Stock granted
under the Plan to a Participant in accordance with Section 3(a).

            (q) "OPTION PRICE" means the option price per share of Stock
determined in accordance with Section 4(b).

            (r) "PARENT CORPORATION" means any corporation, other than the
Company, in an unbroken chain of corporations ending with the Company if, at the
time of the granting of the Option, each of the corporations other than the
Company owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.

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            (s) "PARTICIPANT" means an Eligible Employee who has elected to
participate in the Plan, in accordance with the provisions of Section 3(b).

            (t) "PAYDAY" means the regular and recurring established day for
payment of Compensation to an Employee of the Company or any Subsidiary
Corporation.

            (u) "PLAN" means the NeoTherapeutics, Inc. Employee Stock Purchase
Plan.

            (v) "STOCK" means the shares of the Company's Common Stock, $.001
par value.

            (w) "SUBSIDIARY CORPORATION" means any corporation, other than the
Company, in an unbroken chain of corporations beginning with the Company if, at
the time of the granting of the Option, each of the corporations other than the
last corporation in an unbroken chain owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.

            (x) "TRADING DAY" means a day on which the National Stock Exchanges
and the National Association of Securities Dealers Automated Quotation (NASDAQ)
System are open for trading.

         2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 9
hereof (relating to adjustments upon changes in the Stock) and Section 12 hereof
(relating to amendments of the Plan), the Stock that may be sold pursuant to
Options granted under the Plan shall not exceed in the aggregate Three Hundred
Thousand (300,000) shares of Stock. The shares of Stock sold pursuant to Options
granted under the Plan may be unissued shares or treasury shares of Stock, or
shares reacquired in private transactions or open market purchases. If and to
the extent that any right to purchase reserved shares shall not be exercised by
any Participant for any reason, or if such right to purchase shall terminate as
provided herein, shares that have not been so purchased hereunder shall again
become available for the purposes of this Plan, unless this Plan shall have been
terminated, but all shares sold under this Plan, regardless of source, shall be
counted against the limitation set forth above.

         3. GRANT OF OPTIONS.

            (a) Option Grants. The Company shall grant Options under the Plan to
all Participants in successive Offering Periods until the earlier of: (i) the
date on which the number of shares of Stock available under the Plan have been
sold, or (ii) the date on which the Plan is suspended or terminates. Each
Participant shall be granted an Option with respect to an Offering Period on the
Date of Grant. Each Option shall expire on the Date of Exercise immediately
after the automatic exercise of the Option in accordance with Section 4(a),
unless such Option terminates earlier in accordance with Section 5, 6 or 9. The
number of shares of Stock subject to a Participant's Option shall equal the
cumulative payroll deductions authorized by such Participant in accordance with
subsection (b) for the Option Period (if any), divided by the Option Price;
provided, however, that the number of shares of Stock subject to such Option
shall not exceed Five Thousand (5,000) shares; and, provided, further, that the
number of shares of Stock subject to such Option shall not exceed the number
determined in accordance with subsection (c). The Company shall not grant an
Option with respect to an Offering Period to any Participant who is not an
Eligible Employee on the first day of such Offering Period.

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            (b) Election to Participate; Payroll Deduction Authorization. Except
as provided in subsection (e), an Eligible Employee shall become a Participant
in the Plan only by means of payroll deduction. Each such Participant who elects
to participate in the Plan with respect to an Offering Period shall deliver to
the Company, not later than fifteen (15) days before the first day of the
Offering Period, a completed and executed written payroll deduction
authorization in a form prepared by the Committee (the "AUTHORIZATION")
provided, however, that for the first Offering Period under the Plan, such
Authorization shall be delivered to the Company no later than the first day of
such Offering Period. Each Participant's Authorization shall give notice of such
Participant's election to participate in the Plan for the next following
Offering Period (and subsequent Offering Periods) and shall designate a whole
percentage of such Participant's Compensation to be withheld by the Company or
the Designated Subsidiary employing such Participant on each Payday during the
Offering Period. A Participant may designate any whole percentage of
Compensation which is not be less than one percent (1%) and not more than
fifteen percent (15%). A Participant's Compensation payable during an Offering
Period shall be reduced each Payday through payroll deduction in an amount equal
to the percentage specified in the Authorization, and such amount shall be
credited to such Participant's Account under the Plan. A Participant may
increase or decrease the percentage of Compensation designated in the
Authorization, subject to the limits of this subsection (b), or may suspend the
Authorization, up to two times during an Offering Period, provided, that any
such change or suspension must be made no later than three (3) business days
before the end of a payroll period for such change or suspension to apply with
respect to the payday for such payroll period. Any Authorization shall remain in
effect for each subsequent Offering Period, unless the Participant submits a new
Authorization pursuant to this subsection (b), withdraws from the Plan pursuant
to Section 5, ceases to be an Eligible Employee as defined in Section 1(l) or
terminates employment as provided in Section 6. Notwithstanding the foregoing,
to the extent necessary to comply with Section 423(b)(8) of the Code and
Sections 3(a), (c) and (d) of the Plan, the Company may reduce a Participant's
rate of payroll deductions to zero at such time during any Offering Period.
Payroll deductions will recommence at the rate provided by the Participant in
his or her payroll deduction authorization to the extent such payroll deductions
may be applied to purchase shares of Stock in accordance with Code Section
423(b)(8) and Sections 3(a), (c) and (d) of the Plan, unless terminated by the
Participant as provided in Section 5 of the Plan.

            (c) $25,000 Limitation. No Participant shall be granted an Option
under the Plan which permits his rights to purchase shares of Stock under the
Plan, together with other options to purchase shares of Stock or other stock
under all other employee stock purchase plans of the Company, any Parent
Corporation or any Subsidiary Corporation subject to the Section 423, to accrue
at a rate which exceeds $25,000 of fair market value of such shares of Stock or
other stock (determined at the time the Option or other option is granted) for
each calendar year in which the Option is outstanding. For purpose of the
limitation imposed by this subsection, (i) the right to purchase shares of Stock
or other stock under an Option or other option accrues when the Option or other
option (or any portion thereof) first becomes exercisable during the calendar
year, (ii) the right to purchase shares of Stock or other stock under an Option
or other option accrues at the rate provided in the Option or other option, but
in no case may such rate exceed $25,000 of the fair market value of such Stock
or other stock (determined at the time such Option or other option is granted)
for any one calendar year, and (iii) a right to purchase Stock or other stock
which has accrued under an Option or other option may not be carried over to any
other Option or other option. This limitation shall be applied in accordance
with Section 423(b)(8) of the Code and the Treasury Regulations thereunder.

            (d) 5 Percent Holders. No Employee will be granted an option under
this Plan if immediately after the grant, such Employee (or any other person
whose stock would be attributed to such Employee pursuant to Section 424(d) of
the Code) would own stock and/or hold outstanding options to purchase stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Subsidiary Corporation or
Parent Corporation.

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         4. EXERCISE OF OPTIONS; OPTION PRICE.

            (a) Option Exercise. Each Participant automatically and without any
act on such Participant's part shall be deemed to have exercised such
Participant's Option on the Date of Exercise to the extent that the balance then
in the Participant's Account is sufficient to purchase, at the Option Price,
shares of the Stock subject to the Option, provided, however, that any balance
that is insufficient to purchase full shares of Stock shall be carried over to
the next Offering Period and shall remain credited to Participant.

            (b) Option Price Defined. The option price per share of Stock (the
"Option Price") to be paid by a Participant upon the exercise of the
Participant's Option shall be equal to 85% of the lesser of: (i) the Fair Market
Value of a share of Stock on the Date of Exercise and (ii) the Fair Market Value
of a share of Stock on the Date of Grant. The Fair Market Value of a share of
Stock as of a given date shall be: (A) the closing price of a share of Stock on
the principal exchange on which the Stock is then trading, if any, on such date
(or, if shares of Stock were not traded on such date, then on the next preceding
trading day during which a sale occurred); (B) if the Stock is not traded on an
exchange, but is quoted on Nasdaq or a successor quotation system, (I) the last
sales price (if the Stock is then listed as a National Market Issue under the
NASD National Market System), or (II) the mean between the closing
representative bid and asked prices (in all other cases) for a share of Stock on
such date (or, if shares of Stock were not traded on such date, then on the next
preceding trading day during which a sale occurred) as reported by Nasdaq or
such successor quotation system; (iii) if the Stock is not publicly traded on an
exchange and not quoted on Nasdaq or a successor quotation system, the mean
between the closing bid and asked prices for a share of Stock on such date (or,
if shares of Stock were not traded on such date, then on the next preceding
trading day during which a sale occurred), as determined in good faith by the
Committee; or (iv) if the Stock is not publicly traded, the fair market value of
a share of Stock established by the Committee acting in good faith.

            (c) Book Entry/Share Certificates. As soon as practicable after the
purchase of shares of Stock upon the exercise of an Option by a Participant, the
Company shall issue the shares of Stock to such Participant and such shares
shall be held in the custody of the Company, or if applicable, the Agent, for
the benefit of the Participant. The Company or the Agent shall make an entry on
its books and records indicating that the shares of Stock purchased in
connection with such exercise (including any partial share) have been duly
issued as of that date to such Participant. A Participant shall have the right
at any time to request in writing a certificate or certificates for all or a
portion of the whole shares of Stock purchased hereunder. Upon receipt of a
Participant's written request for any such certificate, the Company shall (or
shall cause the Agent to), within ten (10) days after the date of such receipt,
deliver any such certificate to the Participant; provided, however, that no
certificate shall be issued to a Participant with respect to Stock purchased
hereunder until the expiration of two (2) years from the Date of Grant of the
underlying Option exercised to purchase such Stock. Nothing in this subsection
(c) shall prohibit the sale or other disposition by a Participant of shares of
Stock purchased hereunder. In the event the Company is required to obtain
authority from any commission or agency to issue any certificate or certificates
for all or a portion of the whole shares of Stock purchased hereunder, the
Company shall seek to obtain such authority as soon as reasonably practicable.

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            (d) Pro Rata Allocations. If the total number of shares of Stock for
which Options are to be exercised on any date exceeds the number of shares of
Stock remaining unsold under the Plan (after deduction for all shares of Stock
for which Options have theretofore been exercised), the Committee shall make a
pro rata allocation of the available remaining shares of Stock in as nearly a
uniform manner as shall be practicable and the balance of the amount credited to
the Account of each Participant which has not been applied to the purchase of
shares of Stock shall be paid to such Employee in one lump sum in cash within
thirty (30) days after the Date of Exercise, without any interest thereon.

            (e) Information Statement. The Company shall provide each
Participant whose Option is exercised with an information statement in
accordance with Section 6039(a) of the Code and the Treasury Regulations
thereunder. The Company shall maintain a procedure for identifying certificates
of shares of Stock sold upon the exercise of Options in accordance with Section
6039(b) of the Code.

         5. WITHDRAWAL FROM THE PLAN.

            (a) Withdrawal Election. A Participant may withdraw from
participation under the Plan at any time, except that a Participant may not
withdraw during the last ten (10) days of any Option Period. A Participant
electing to withdraw from the Plan must deliver to the Company a notice of
withdrawal in a form prepared by the Committee (the "Withdrawal Election"), not
later than ten (10) days prior to the Date of Exercise for such Option Period.
Upon receipt of a Participant's Withdrawal Election, the Company or Subsidiary
Corporation employing the Participant shall pay to the Participant the amount
credited to the Participant's Account in one lump sum payment in cash, without
any interest thereon, and subject to Section 4(c), the Company shall (or shall
cause the Agent to) deliver to the Participant certificates for any whole shares
of Stock previously purchased by the Participant, in either case within thirty
(30) days of receipt of the Participant's Withdrawal Election. Upon receipt of a
Participant's Withdrawal Election by the Company, the Participant shall cease to
participate in the Plan and the Participant's Option for such Option Period
shall terminate.

            (b) Eligibility following Withdrawal. A Participant who withdraws
from the Plan with respect to an Option Period, and who is still an Eligible
Employee, may elect to participate again in the Plan for any subsequent Offering
Period by delivering to the Company an Authorization pursuant to Section 3(b).

         6. TERMINATION OF EMPLOYMENT.

            (a) Termination of Employment Other than by Death. If the employment
of a Participant with the Company or a Designated Subsidiary terminates other
than by death, the Participant's participation in the Plan automatically and
without any act on the Participant's part shall terminate as of the date of the
termination of the Participant's employment. As soon as practicable after such a
termination of employment, the Company or Designated Subsidiary employing the
Participant shall pay to the Participant the amount credited to the
Participant's Account in one lump sum payment in cash, without any interest
thereon, and subject to Section 4(c), the Company shall (or shall cause the
Agent to) deliver to the Participant certificates for any whole shares of Stock
previously purchased by the Participant. Upon a Participant's termination of
employment covered by this subsection, the Participant's Authorization and
Option under the Plan shall terminate.

            (b) Termination by Death. If the employment of a Participant is
terminated by the Participant's death, the executor of the Participant's will or
the administrator of the Participant's estate, by written notice to the Company,
may request payment of the balance in the Participant's Account, in which event
the Company or Designated Subsidiary employing the Participant shall pay the
amount credited to the Participant's Account in one lump sum payment in cash,
without

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any interest thereon, and subject to Section 4(c), the Company shall (or shall
cause the Agent to) deliver to the Participant certificates for any whole shares
of Stock previously purchased by the Participant as soon as practicable after
receiving such notice. Upon receipt of such notice, the Participant's
Authorization and Option under the Plan shall terminate. If the Company does not
receive such notice prior to the next Date of Exercise, the Participant's Option
shall be deemed to have been exercised on such Date of Exercise.

         7. RESTRICTION UPON ASSIGNMENT. An Option granted under the Plan shall
not be transferable other than by will or the laws of descent and distribution,
and is exercisable during the Participant's lifetime only by the Participant.
Except as provided in Section 6(b) hereof, an Option may not be exercised to any
extent except by the Participant. The Company shall not recognize and shall be
under no duty to recognize any assignment or alienation of the Participant's
interest in the Plan, the Participant's Option or any rights under the
Participant's Option.

         8. NO RIGHTS OF STOCKHOLDERS UNTIL SHARES ISSUED. With respect to
shares of Stock subject to an Option, a Participant shall not be deemed to be a
stockholder of the Company, and the Participant shall not have any of the rights
or privileges of a stockholder, until such shares have been issued to the
Participant following exercise of the Participant's Option. No adjustments shall
be made for dividends (ordinary or extraordinary, whether in cash securities, or
other property) or distribution or other rights for which the record date occurs
prior to the date of such issuance, except as otherwise expressly provided
herein.

         9. CHANGES IN THE STOCK AND CORPORATE EVENTS; ADJUSTMENT OF OPTIONS.

            (a) Subject to Section 9(c), in the event that the Committee, in its
sole discretion, determines that any dividend or other distribution (whether in
the form of cash, Stock, other securities, or other property), recapitalization,
reclassification, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, liquidation,
dissolution, or sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company, or exchange of Stock or other
securities of the Company, issuance of warrants or other rights to purchase
Stock or other securities of the Company, or other similar corporate transaction
or event, affects the Stock such that an adjustment is appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan or with respect to an Option, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of:

                (i)   the number and kind of shares of Stock (or other
                      securities or property) with respect to which Options may
                      be granted (including, but not limited to, adjustments of
                      the limitation in Section 3(a) on the maximum number of
                      shares of Stock which may be purchased),

                (ii)  the number and kind of shares of Stock (or other
                      securities or property) subject to outstanding Options,
                      and

                (iii) the exercise price with respect to any Option.

            (b) Subject to Section 9(c), in the event of any transaction or
event described in Section 9(a) or any unusual or nonrecurring transactions or
events affecting the Company, any affiliate of the Company, or the financial
statements of the Company or any affiliate, or of changes in applicable laws,
regulations, or accounting principles, the Committee, in its sole discretion,
and on such terms and conditions as it deems appropriate, either by the terms of
the Option or by action taken prior to the occurrence of such transaction or
event and either

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automatically or upon the Participant's request, is hereby authorized to take
any one or more of the following actions whenever the Committee determines that
such action is appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan or
with respect to any Option under the Plan, to facilitate such transactions or
events or to give effect to such changes in laws, regulations or principles:

                (i)   To provide that all Options outstanding shall terminate
                      without being exercised on such date as the Committee
                      determines in its sole discretion;

                (ii)  To provide that all Options outstanding shall be exercised
                      prior to the Date of Exercise of such Options on such date
                      as the Committee determines in its sole discretion and
                      such Options shall terminate immediately after such
                      exercises.

                (iii) To provide for either the purchase of any Option
                      outstanding for an amount of cash equal to the amount that
                      could have been obtained upon the exercise of such Option
                      had such Option been currently exercisable, or the
                      replacement of such Option with other rights or property
                      selected by the Committee in its sole discretion;

                (iv)  To provide that such Option be assumed by the successor or
                      survivor corporation, or a parent or subsidiary thereof,
                      or shall be substituted for by similar options, covering
                      the stock of the successor or survivor corporation, or a
                      parent or subsidiary thereof, with appropriate adjustments
                      as to the number and kind of shares and prices; and

                (v)   To make adjustments in the number and type of shares of
                      Stock (or other securities or property) subject to
                      outstanding Options, or in the terms and conditions of
                      outstanding Options, or Options which may be granted in
                      the future.

            (c) No adjustment or action described in this Section 9 or in any
other provision of the Plan shall be authorized to the extent that such
adjustment or action would cause the Plan to fail to satisfy the requirements of
Section 423 of the Code. Furthermore, no such adjustment or action shall be
authorized to the extent such adjustment or action would result in short-swing
profits liability under Section 16 of the Exchange Act, or violate the exemptive
conditions of Rule 16b-3 unless the Committee determines that the Option is not
to comply with such exemptive conditions. The number of shares of Common Stock
subject to any Option shall always be rounded to the next whole number.

            (d) The existence of the Plan and the Options granted hereunder
shall not affect or restrict in any way the right or power of the Company or the
stockholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's capital
structure or its business, any merger or consolidation of the Company, any issue
of stock or of options, warrants or rights to purchase stock or of bonds,
debentures, preferred or prior preference stocks whose rights are superior to or
affect the Stock or the rights thereof of which are convertible into or
exchangeable for Stock, or the dissolution or liquidation of the Company, or any
sale or transfer of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character or otherwise.

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         10. USE OF FUNDS; NO INTEREST PAID. All funds received or held by the
Company under the Plan shall be included in the general funds of the Company
free of any trust or other restriction and may be used for any corporate
purpose. No interest will be paid to any Participant or credited to any
Participant's Account with respect to such funds.

         11. DIVIDENDS.

            (a) Cash dividends and other cash distributions received by the
Company, or if applicable, the Agent, with respect to Stock held in its custody
hereunder will be credited to each Participant's Account in accordance with such
Participant's interests in such Stock, and shall be applied, as soon as
practicable after the receipt thereof, to the purchase in the open market at
prevailing market prices of the number of whole shares of Stock that may be
purchased with such funds (after deductions of any bank service fees, brokerage
charges, transfer taxes, and any other transaction fee, expense or cost payable
in connection with the purchase of such shares of Stock and not otherwise paid
by the Employer.)

            (b) All purchases of shares of Stock made pursuant to this Section
11 will be made in the name of the Company, or if applicable, the Agent or its
nominee, and shall be transferred and credited to the Account(s) of the
Participants to which such dividends or other distributions were credited.
Dividends paid in the form of shares of Stock will be allocated by the Company,
or if applicable, the Agent, as and when received, with respect to Stock held in
its custody hereunder to the Account of each Participant in accordance with such
Participant's interests in such Stock. Property, other than Stock or cash,
received by the Company, or if applicable, the Agent as a distribution on Stock
held in its custody hereunder, shall be sold for the accounts of Participants,
and the Company, or if applicable, the Agent shall treat the proceeds of such
sale in the same manner as cash dividends received by the Company or Agent on
Stock held in its custody hereunder.

         12. AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN. The Board may
amend, suspend, or terminate the Plan at any time and from time to time,
provided that approval by a vote of the holders of the outstanding shares of the
Company's capital stock entitled to vote shall be required to amend the Plan:
(a) to increase the number of shares of Stock that may be sold pursuant to
Options under the Plan, or (b) in any manner that would cause the Plan to no
longer be an "employee stock purchase plan" within the meaning of Section 423(b)
of the Code.

         13. ADMINISTRATION BY COMMITTEE; RULES AND REGULATIONS.

            (a) Appointment of Committee. The Plan shall be administered by the
Committee, which shall be composed of not less than two members of the Board,
each of whom shall be a "non-employee director" within the meaning of Rule 16b-3
which has been adopted by the Securities and Exchange Commission under the
Exchange Act. Each member of the Committee shall serve for a term commencing on
a date specified by the Board and continuing until the member dies, resigns or
is removed from office by the Board. The Committee at its option may utilize the
services of an agent to assist in the administration of the Plan, including
establishing and maintaining an individual securities account under the Plan for
each Participant.

            (b) Duties and Powers of Committee. It shall be the duty of the
Committee to conduct the general administration of the Plan in accordance with
the provisions of the Plan. The Committee shall have the power to interpret the
Plan and the terms of the Options and to adopt such rules for the
administration, interpretation, and application of the Plan as are consistent
therewith and to interpret, amend or revoke any such rules. In its absolute
discretion, the Board may at any time and from time to time exercise any and all
rights and duties of the Committee under the Plan.

                                       9
<PAGE>   12

            (c) Majority Rule. The Committee shall act by a majority of its
members in office. The Committee may act either by vote at a meeting or by a
memorandum or other written instrument signed by a majority of the Committee.

            (d) Compensation; Professional Assistance; Good Faith Actions. All
expenses and liabilities incurred by members of the Committee in connection with
the administration of the Plan shall be borne by the Company. The Committee may,
with the approval of the Board, employ attorneys, consultants, accountants,
appraisers, brokers or other persons. The Committee, the Company and its
officers and directors shall be entitled to rely upon the advice, opinions or
valuations of any such persons. All actions taken and all interpretations and
determinations made by the Committee in good faith shall be final and binding
upon all Participants, the Company and all other interested persons. No member
of the Committee shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or the Options, and
all members of the Committee shall be fully protected by the Company in respect
to any such action, determination, or interpretation.

         14. DESIGNATION OF SUBSIDIARY CORPORATIONS. The Board shall designate
from among the Subsidiary Corporations, as determined from time to time, the
Subsidiary Corporation or Subsidiary Corporations whose Employees shall be
eligible to be granted Options under the Plan. The Board may designate a
Subsidiary Corporation, or terminate the designation of a Subsidiary
Corporation, without the approval of the stockholders of the Company.

         15. NO RIGHTS AS AN EMPLOYEE. Nothing in the Plan shall be construed to
give any person (including any Participant) the right to remain in the employ of
the Company, a Parent Corporation or a Subsidiary Corporation or to affect the
right of the Company, any Parent Corporation or any Subsidiary Corporation to
terminate the employment of any person (including any Participant) at any time,
with or without cause.

                                       10
<PAGE>   13

         16. TERM; APPROVAL BY STOCKHOLDERS. Subject to approval by the
stockholders of the Company in accordance with this Section, the Plan shall be
in effect until December 20, 2010, unless sooner terminated in accordance with
Section 12. No Option may be granted during any period of suspension of the Plan
or after termination of the Plan. The Plan shall be submitted for the approval
of the Company's stockholders within twelve (12) months after the date of the
adoption of the Plan by the Board. Options may be granted prior to such
stockholder approval; provided, however, that such Options shall not be
exercisable prior to the time when the Plan is approved by the Company's
stockholders; and, provided, further, that if such approval has not been
obtained by the end of said 12-month period, all Options previously granted
under the Plan shall thereupon terminate without being exercised.

         17. EFFECT UPON OTHER PLANS. The adoption of the Plan shall not affect
any other compensation or incentive plans in effect for the Company, any Parent
Corporation or any Subsidiary Corporation. Nothing in this Plan shall be
construed to limit the right of the Company, any Parent Corporation or any
Subsidiary Corporation to: (a) establish any other forms of incentives or
compensation for employees of the Company, any Parent Corporation or any
Subsidiary Corporation or (b) grant or assume options otherwise than under the
Plan in connection with any proper corporate purpose, including, but not by way
of limitation, the grant or assumption of options in connection with the
acquisition, by purchase, lease, merger, consolidation or otherwise, of the
business, stock or assets of any corporation, firm or association.

         18. CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES. The Company shall not
be required to issue or deliver any certificate or certificates for shares of
Stock purchased upon the exercise of Options prior to fulfillment of all the
following conditions:

            (a) The admission of such shares to listing on all stock exchanges,
if any, on which is then listed; and

            (b) The completion of any registration or other qualification of
such shares under any state or federal law or under the rulings or regulations
of the Securities and Exchange Commission or any other governmental regulatory
body, which the Committee shall, in its absolute discretion, deem necessary or
advisable; and

            (c) The obtaining of any approval or other clearance from any state
or federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable; and

            (d) The payment to the Company of all amounts which it is required
to withhold under federal, state or local law upon exercise of the Option; and

            (e) The lapse of such reasonable period of time following the
exercise of the Option as the Committee may from time to time establish for
reasons of administrative convenience.

        19. NOTIFICATION OF DISPOSITION. Each Participant shall give prompt
notice to the Company of any disposition or other transfer of any shares of
Stock purchased upon exercise of an Option if such disposition or transfer is
made: (a) within two (2) years from the Date of Grant of the Option, or (b)
within one (1) year after the transfer of such shares of Stock to such
Participant upon exercise of such Option. Such notice shall specify the date of
such disposition or other transfer and the amount realized, in cash, other
property, assumption of indebtedness or other consideration, by the Participant
in such disposition or other transfer.

                                       11
<PAGE>   14

        20. NOTICES. Any notice to be given under the terms of the Plan to the
Company shall be addressed to the Company in care of its Secretary and any
notice to be given to any Participant shall be addressed to such Participant at
such Participant's last address as reflected in the Company's records. By a
notice given pursuant to this Section, either party may designate a different
address for notices to be given to it, him or her. Any notice which is required
to be given to a Participant shall, if the Participant is then deceased, be
given to the Participant's personal representative if such representative has
previously informed the Company of his status and address by written notice
under this Section. Any notice shall have been deemed duly given if enclosed in
a properly sealed envelope or wrapper addressed as aforesaid at the time it is
deposited (with postage prepaid) in a post office or branch post office
regularly maintained by the United States Postal Service.

         21. ADDITIONAL RESTRICTIONS OF RULE 16b-3. The terms and conditions of
options granted hereunder to, and the purchase of shares by, persons subject to
Section 16 of the Exchange Act will comply with the applicable provisions of
Rule 16b-3. This Plan will be deemed to contain, and such options will contain,
and the shares issued upon exercise thereof will be subject to, such additional
conditions and restrictions as may be required by Rule 16b-3 to qualify for the
maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.

         22. EQUAL RIGHTS AND PRIVILEGES. All Eligible Employees of the Company
(or of any Designated Subsidiary) will have equal rights and privileges under
this Plan so that this Plan qualifies as an "employee stock purchase plan"
within the meaning of Section 423 of the Code or applicable Treasury regulations
thereunder. Any provision of this Plan that is inconsistent with Section 423 or
applicable Treasury regulations will, without further act or amendment by the
Company or the Board, be reformed to comply with the equal rights and privileges
requirement of Section 423 or applicable Treasury regulations.

         23. HEADINGS. Headings are provided herein for convenience only and are
not to serve as a basis for interpretation or construction of the Plan.

                                       12THIS  AGREEMENT  is made  between  Paragon  Capital  LLC  (hereinafter,
"Paragon" or "Lender"),  a Delaware limited liability company with its principal
executive  offices at Hillsite  Office  Building,  75 Second Avenue,  Suite 400,
Needham,  Massachusetts  02494  and The  Right  Start,  Inc.  (hereinafter,  the
"Borrower"),  a California  corporation with its principal  executive offices at
5388 Sterling Center Drive, Westlake Village, California 91361, in consideration
of the mutual covenants contained herein and benefits to be derived herefrom,

                                   WITNESSETH:

ARTICLE 1 - THE REVOLVING CREDIT

         1-1.     Establishment of Revolving Credit.

                  (a) The Lender  establishes  a  revolving  line of credit (the
"Revolving  Credit")  in the  Borrower's  favor  pursuant  to which the  Lender,
subject  to,  and in  accordance  with,  this  Agreement,  shall  make loans and
advances and otherwise provide  financial  accommodations to and for the account
of the Borrower as provided herein.  The amount of the Revolving Credit shall be
determined  by the Lender by reference to  Availability,  as  determined  by the
Lender  from time to time  hereafter.  All loans made by the  Lender  under this
Agreement,  and all of the Borrower's  other  Liabilities to the Lender under or
pursuant to this Agreement, are payable as provided herein.

                  (b) The Lender agrees,  subject to the terms and conditions of
this  Agreement,  to make loans to the Borrower in an amount  outstanding not to
exceed Availability at any one time.

                  (c)   Availability   shall  be  based  upon   Borrowing   Base
Certificates furnished as provided in Section 9-4, below.

                  (d)  Anything  to  the   contrary  in  Section   1-1(b)  above
notwithstanding,  Lender, in the exercise of its discretion,  may reduce Advance
Rates,  maximum  Effective Advance Rates or create Reserves without declaring an
Event of Default if it determines that (i) there has occurred a Material Adverse
Change;  or (ii)  Borrower  is not in  compliance  with  covenants  set forth in
EXHIBIT 9-11.

                  (e) The  proceeds of loans and  advances  under the  Revolving
Credit shall be used solely in  accordance  with the  Business  Plan for working
capital purposes of the Borrower and for its Capital Expenditures, all solely to
the extent permitted by this Agreement.

         1-2. Availability.  The Lender does not have any obligation to make any
loan or  advance,  or  otherwise  to provide  any credit for the  benefit of the
Borrower such that the outstanding principal balance of the Loan Account exceeds
Availability.  The making of loans,  advances,  and credits and the providing of
financial  accommodations  in excess of  Availability  is for the benefit of the
Borrower and does not affect the  obligations  of the Borrower  hereunder;  such
<PAGE>

loans, advances,  credits, and financial accommodations  constitute Liabilities.
The  making of any such  loans,  advances,  and  credits  and the  providing  of
financial accommodations, on any one occasion such that Availability is exceeded
shall not obligate the Lender to make any such loans, credits, or advances or to
provide any  financial  accommodation  on any other  occasion nor to permit such
loans, credits, or advances to remain outstanding.

         1-3.  Risks of Value of  Inventory.  The Lender's  reference to a given
asset in  connection  with the making of loans and advances and the providing of
financial  accommodations  under the Revolving  Credit and/or the  monitoring of
compliance with the provisions hereof shall not be deemed a determination by the
Lender  relative  to the  actual  value of the  asset  in  question.  All  risks
concerning  the  saleability  of the Inventory are and remain upon the Borrower.
All Collateral  secures the prompt,  punctual,  and faithful  performance of the
Liabilities  whether or not relied  upon by the  Lender in  connection  with the
making  of  loans,   credits,  and  advances  and  the  providing  of  financial
accommodations under the Revolving Credit.

         1-4.     Procedures Under Revolving Credit.

                  (a) The  Borrower  may request  loans and  advances  under the
Revolving  Credit,  each in an amount of not less  than Ten  Thousand  ($10,000)
Dollars.  Each such request  shall be in such manner as may from time to time be
reasonably acceptable to the Lender.

                  (b) The Lender,  subject to the terms and  conditions  of this
Agreement,  will provide the Borrower with the loan or advance so requested,  if
such request is received by 1:00 P.M.,  Boston time on a Banking Day, by the end
of business on that Banking Day; otherwise,  by the end of the then next Banking
Day. The Lender may revise such schedule, from time to time, by giving notice to
Borrower at least one day in advance.

                  (c)  Provided  that  Availability  will not be  exceeded  (but
subject,  however, to Subsection 1-4(i), below (which deals with the effect of a
Suspension Event)), a loan or advance under the Revolving Credit so requested by
the  Borrower  shall be made by the  transfer  of the  proceeds  of such loan or
advance to the Funding Account.

                  (d) A loan or advance  shall be deemed to have been made under
the Revolving Credit upon:

                           (i)   The Lender's  initiation of the transfer of the
proceeds of such loan or advance in accordance with the Borrower's  instructions
(if such loan or advance is of funds requested by the Borrower).

                           (ii)  The  charging  of the  amount  of such  loan or
advance to the Loan Account (in all other circumstances).

                  (e)      There shall not be any recourse to, nor liability of,
the Lender on account of:

                                        2
<PAGE>

                           (i)   Any delay in the making of any loan or  advance
requested under the Revolving Credit.

                           (ii)  Any delay in the proceeds of  any  such loan or
advance constituting collected funds.

                           (iii) Any delay in the  receipt,  and/or any loss, of
funds which  constitute a loan or advance under the Revolving  Credit,  the wire
transfer  of  which  was  initiated  by  the  Lender  in  accordance  with  wire
instructions provided to the Lender by the Borrower.

                  (f) The Lender may rely on any  request  for a loan or advance
or financial  accommodation  which the Lender,  in good faith,  believes to have
been made by a person duly  authorized  to act on behalf of the Borrower and may
decline  to make any such  requested  loan or  advance  or to  provide  any such
financial  accommodation  until the Lender is furnished with such  documentation
concerning that Person's authority to act as may be satisfactory to the Lender.

                  (g) A  request  by the  Borrower  for any loan or  advance  or
financial  accommodation under the Revolving Credit or of the issuance of an L/C
shall be irrevocable and shall constitute  certification by the Borrower that as
of the date of such request, each of the following is true and correct:

                           (i)      There has been no Material Adverse Change.

                           (ii)     The Borrower is in compliance  with, and has
not breached any of, its covenants  contained in this Agreement.

                           (iii)    Each representation  which is made herein or
in any of the Loan Documents is then true and complete as of and as  if  made on
the date of such request.

                           (iv)     No Suspension Event is then in existence.

                  (h) The  Borrower  shall  immediately  become  indebted to the
Lender  for the  amount  of each  loan or  advance  under  or  pursuant  to this
Agreement when such loan or advance is deemed to have been made.

                  (i) Upon the  occurrence  from time to time of any  Suspension
Event, the Lender may suspend the Revolving Credit  immediately and shall not be
obligated, during such suspension, to make any loan or advance or to provide any
financial accommodation hereunder.

                  (j)      The Borrower may request that  the Lender  cause  the
issuance of L/C's for the account of the Borrower.

                           (i)      Each such request shall be in such manner as
may from time to time be reasonably  acceptable to the Lender.

                                        3
<PAGE>

                           (ii)     The   Lender  will  endeavor  to  cause  the
issuance of any L/C so requested by the  Borrower,  provided  that the requested
L/C is in form reasonably satisfactory to the Lender and if so issued:

                                    (A)     The  aggregate  Stated Amount of all
                                            L/C's  then  outstanding,  does  not
                                            exceed Two  Million  ($2,000,000.00)
                                            Dollars.

                                    (B)     The  expiry  of the L/C is not later
                                            than the earlier of thirty (30) days
                                            prior  to the  Maturity  Date or the
                                            following:

                                            (I)  L/C's  other  than  Documentary
L/C's: One (1) year from initial issuance.

                                            (II) Documentary L/C's:  forty  five
(45) days from issuance; and

                                    (C)     Availability would not be exceeded.

                           (iii)    The     Borrower    shall    execute    such
documentation to apply for and support the issuance of an L/C as may be required
by the Issuer.

                           (iv)     There  shall  not  be  any  recourse to, nor
liability of, the Lender on account of:

                                    (A) Any  delay or  refusal  by an  Issuer to
issue an L/C.

                                    (B) Any action or  inaction  of an Issuer on
account of or in respect to, any L/C.

                           (v)      The  Borrower  shall  reimburse  the Issuer,
immediately  upon the drawing under any L/C, for the amount of such drawing.  In
the event that the  Borrower  fails to so  reimburse  the Issuer,  the  Borrower
immediately  shall  reimburse the Lender for the amount of such drawing.  To the
extent which the Borrower  fails to so reimburse  the Issuer or the Lender,  the
Lender,  without the request of the  Borrower,  may advance  under the Revolving
Credit any amount which the Borrower is so obligated to pay to the Lender or the
Issuer,  or for which the Borrower,  the Issuer, or the Lender becomes obligated
on account of, or in respect to, any L/C.  Such advance shall be made whether or
not a Suspension  Event is then in  existence  or such  advance  would result in
Availability  being  exceeded.  Such action shall not constitute a waiver of the
Lender's rights under Section 1-7(b), below.

         1-5.     The Loan Account.

                  (a) An account ("Loan  Account")  shall be opened on the books
of the Lender in which Loan Account Lender shall keep an accurate  record of all
loans made under or pursuant to this Agreement and of all payments thereon.

                                        4
<PAGE>

                  (b) The  Lender  may also  keep a record  (either  in the Loan
Account  or  elsewhere,  as the  Lender  may  from  time to time  elect)  of all
interest,  fees,  service charges,  costs,  expenses,  and other debits owed the
Lender on account of the  Liabilities and of all credits against such amounts so
owed.

                  (c) All credits against the  Liabilities  shall be conditional
upon final payment to the Lender of the items giving rise to such  credits.  The
amount of any item  credited  against  the  Liabilities  which is  charged  back
against  the Lender for any  reason or is not so paid shall be a  Liability  and
shall be added to the Loan  Account,  whether or not the item so charged back or
not so paid is returned.

                  (d) Except as otherwise  provided  herein,  all fees,  service
charges,  costs, and expenses for which the Borrower is obligated  hereunder are
payable on demand.  In the  determination of  Availability,  the Lender may deem
fees,  service  charges,  accrued  interest,  and other  payments or deposits as
having been advanced under the Revolving Credit if such amounts are then due and
payable  inclusive of deposits for fees whether  incurred at the time of deposit
or as duly accounted for in accordance with the terms set forth herein.

                  (e) The  Lender,  without  the  request of the  Borrower,  may
advance under the Revolving Credit any interest,  fee, service charge,  or other
payment to which the Lender is entitled  from the Borrower  pursuant  hereto and
may  charge the same to the Loan  Account  notwithstanding  that such  amount so
advanced  may result in an  Overadvance.  Such  action on the part of the Lender
shall not  constitute a waiver of the  Lender's  rights  under  Section  1-7(b),
below. Any amount which is added to the principal balance of the Loan Account as
provided in this Section  shall bear  interest at the interest  rate  applicable
from time to time to the unpaid principal balance of the Loan Account.

                  (f) Any  statement  rendered  by the  Lender  to the  Borrower
concerning  the  Liabilities  shall be  considered  correct and  accepted by the
Borrower and shall be conclusively binding upon the Borrower unless the Borrower
provides the Lender with written  objection thereto within twenty (20) days from
the mailing of such statement,  which written  objection  shall  indicate,  with
particularity,  the reason for such objection. The Loan Account and the Lender's
books and records  concerning the loan arrangement  contemplated  herein and the
Liabilities shall be prima facie evidence of the items described therein.

         1-6. The Master Note.  The obligation to repay loans and advances under
the Revolving  Credit,  with interest as provided herein,  may be evidenced by a
note (the "Master Note") in the form of EXHIBIT 1-6, annexed hereto, executed by
the  Borrower.  Neither  the  original  nor a copy of the  Master  Note shall be
required,  however,  to establish or prove any Liability.  In the event that the
Master Note is ever lost, mutilated, or destroyed,  the Borrower shall execute a
replacement thereof and deliver such replacement to the Lender.

         1-7.     Payment of Loan Account.

                  (a) The Borrower may repay all or any portion of the principal
balance of the Loan Account from time to time until the Termination Date.

                                        5
<PAGE>

                  (b) The  Borrower,  without  notice or demand from the Lender,
shall pay the Lender that amount,  from time to time, which is necessary so that
the balance of the Loan Account does not exceed Availability.

                  (c) The Borrower  shall pay the then entire unpaid  balance of
the Loan Account and all other Liabilities on the Termination Date.

         1-8.     Interest.

                  (a) The unpaid  principal  balance of the Loan  Account  shall
bear  interest,  until repaid  (calculated  based upon a 360-day year and actual
days elapsed), with respect to advances under the:

                           (i)      Standard  Line  at  the rate  of interest of
                                    the  aggregate of  Base plus three  quarters
                                    of one (.75%) percent per annum; and

                           (ii)     Special  Subline at the rate of  interest of
                                    the  aggregate of Base plus one and one half
                                    (1.5%) percent;  provided,  however, that in
                                    the event that the Borrower  achieves EBITDA
                                    for the period  ending  February  2, 2002 of
                                    not less than ninety  (90%)  percent of that
                                    set  forth on  EXHIBIT  9-10,  such  rate of
                                    interest  shall be reduced to the  aggregate
                                    of Base plus one (1%) percent;

but in no event shall any rate of interest payable  hereunder be less than eight
(8%) percent per annum or in excess of the maximum rate  permitted by applicable
law.

                  (b)  Following  the  occurrence  of any Event of Default  (and
whether or not the Lender  exercises  any of the  Lender's  rights on account of
such Event of Default),  all loans and advances made under the Revolving  Credit
shall bear  interest,  through the End Date, at a rate which is the aggregate of
that provided for in Section 1-8(a), above, plus four (4%) percent per annum.

                  (c)      Accrued interest shall be payable:

                           (i)      Monthly  in  arrears on the first day of the
month next following that during which such interest accrued.

                           (ii)     On the Termination Date.

                             (iii) On the End Date.

         1-9.     Fees.    Borrower shall pay to the Lender the following fees:

                  (a) Annual  Facility Fee. On each  anniversary  of the Closing
Date hereof,  a facility fee in an amount equal to three  quarters of one (.75%)
percent of the  Special  Subline  amount  (which  shall be fully  earned at each
anniversary date of execution hereof), shall be due and payable.

                                        6
<PAGE>

                  (b) Loan  Maintenance Fee. On the Closing Date and on the same
day of each subsequent  month that Borrower has  outstanding  balances under the
Standard  Line a  Loan  Maintenance  Fee  in an  amount  equal  to Two  Thousand
($2,000.00)  Dollars; and in addition (i) during any month that Lender makes any
Advances under the Special  Subline,  an additional loan maintenance fee of Four
Thousand  ($4,000.00)  Dollars,  and (ii) during any month in which Lender makes
any Advances in excess of $2,000,000  under the Special  Subline,  an additional
monthly loan maintenance fee of Four Thousand ($4,000.00) Dollars.

                  (c)      Unused Line Fee.  Intentionally deleted.

                  (d)      Commitment  Fee.  On the Closing Date,  a  commitment
fee of one and one quarter  (1.25%) percent of the Credit Limit or  One  Hundred
Twenty-Five Thousand ($125,000.00) Dollars.

                  (e) Financial Examination, Legal Investigation, Documentation,
and Appraisal Fees.  Subject to the provisions of Article 9-10,  Lender's actual
charges paid or incurred for each  financial  analysis  and  examination  (i.e.,
audits) of Borrower performed by personnel  employed by Lender;  Lender's actual
charges  paid or incurred  for each  appraisal  of the  Collateral  performed by
personnel employed by Lender; and, the actual charges paid or incurred by Lender
if it elects to employ  the  services  of one or more  third  Persons to perform
legal  investigation,  documentation  financial analysis and examinations (i.e.,
audits)  of  Borrower  or  to  appraise  the  Collateral.   Notwithstanding  the
aforesaid,  absent the occurrence of an Event of Default hereunder, Lender shall
limit the number of audits and  appraisals to three (3) each per year based upon
fees of Nine  Hundred  ($900.00)  Dollars  per day per person for audits and One
Thousand  ($1,000.00)  Dollars per day per person for appraisals plus reasonable
actual out-of-pocket expenses in conducting such audits and appraisals.

                  (f) In addition to any other right to which the Lender is then
entitled on account thereof, the Lender may assess an additional  reasonable fee
payable  by the  Borrower  on  account  of the  accommodation  of  Lender to the
Borrower's  request that the Lender  depart or dispense  with one or more of the
administrative  provisions of this Agreement  and/or the  Borrower's  failure to
comply with any of such provisions.

                           (i)      By way of non-exclusive example,  the Lender
may assess a reasonable fee on account of any of the following:

                                    (A)     The  Borrower's  failure to pay that
                                            amount  which is  necessary  so that
                                            the  principal  balance  of the Loan
                                            Account does not exceed Availability
                                            (as required  under Section  1-7(b),
                                            above).

                                    (B)     The  providing  of a loan or advance
                                            under the Revolving Credit such that
                                            Availability would be exceeded.

                                    (C)     The  providing of a same Banking Day
                                            loan  requested  after  the time set
                                            forth in Section 1-4(b)(i), above.

                                        7
<PAGE>

                           (ii)     The inclusion of the foregoing  right on the
part of the Lender to assess a fee does not  constitute  an  obligation,  on the
part of the  Lender,  to  waive  any  provision  of  this  Agreement  under  any
circumstances.  The  assessment of any such fee in any  particular  circumstance
shall not  constitute  the  Lender's  waiver of any breach of this  Agreement on
account  of which  such fee was  assessed  nor a course  of  action on which the
Borrower may rely.

                  (g) The Borrower  shall not be entitled to any credit,  rebate
or repayment of any Annual Facility Fee, Loan Maintenance  Fee,  Commitment Fee,
or  other  fee  previously  earned  by  the  Lender  pursuant  to  this  Section
notwithstanding  any  termination of this Agreement or suspension or termination
of the Lender's obligation to make loans and advances hereunder.

         1-10.    Lender's Discretion.

                  (a) Each  reference  in the Loan  Documents to the exercise of
discretion or the like by the Lender shall be to that  Lender's  exercise of its
judgement,  in good faith (which shall be  presumed),  based upon that  Lender's
consideration of any such factor as the Lender,  taking into account information
of which that Lender then has actual knowledge, believes:

                           (i)      Will  or  reasonably  could  be  expected to
affect the value of the Collateral,  the enforceability of the Lender's security
and collateral  interests  therein,  or the amount which the Lender would likely
realize  therefrom (taking into account delays which may possibly be encountered
in the Lender's realizing upon the Collateral and likely Costs of Collection).

                           (ii)     Indicates   that  any  report  or  financial
information  delivered  to  the  Lender  by or on  behalf  of  the  Borrower  is
incomplete, inaccurate, or misleading in any material manner or was not prepared
in accordance with the requirements of this Agreement.

                           (iii)    Suggests  a   substantial  increase  in  the
likelihood  that  the  Borrower  will  become  the  subject  of  a bankruptcy or
insolvency proceeding.

                           (iv)     Constitutes a Suspension Event.

                  (b) In the  exercise  of such  judgement,  the Lender also may
take into account any of the following factors:

                           (i)      Those  included   in,  or  tested   by,  the
definitions of "Acceptable Inventory", "Retail",  and "Cost".

                           (ii)     The current  financial and  business climate
of the industry in which the Borrower competes (having regard for the Borrower's
position in that industry).

                           (iii)  General  economic   conditions  which  have  a
material effect on cost structure.

                           (iv)     Material  changes  in  or  to the mix of the
Borrower's Inventory.

                                        8
<PAGE>

                           (v)      Seasonality  with respect to the  Borrower's
Inventory  and  pattern of the  Borrower's  retail  sales  versus that which was
projected.

                           (vi)     Material changes in Availability versus that
which was projected.

                           (vii)    Such other factors as the Lender  determines
as having a material  bearing on credit risks  associated  with the providing of
loans and financial accommodations to the Borrower.

                  (c) The burden of  establishing  the  failure of the Lender to
have acted in a reasonable  manner in such Lender's exercise of discretion shall
be the Borrower's.

         1-11.    Fees for L/C's.

                  (a)  Borrower  shall pay to the Lender a monthly  fee for each
outstanding  L/C equal to ten (10) Basis Points times the Stated  Amount of that
L/C (based upon the  average  amount of all issued and  outstanding  L/Cs in any
particular month).

                  (b)  In  addition  to  the  fee  to be  paid  as  provided  in
Subsection  1-11(a),  above,  the  Borrower  shall pay to the  Lender (or to the
Issuer,  if so requested by the Lender),  on demand,  all  reasonable  issuance,
processing,  negotiation,  amendment,  and administrative fees and other amounts
charged by the Issuer on account of, or in respect to, any L/C.

         1-12.    Concerning L/C's.

                  (a) None of the Issuer,  the Issuer's  correspondents,  or any
advising,  negotiating,  or  paying  bank  with  respect  to any  L/C  shall  be
responsible in any way for:

                           (i)      The performance by any beneficiary under any
L/C of that beneficiary's obligations to the Borrower.

                           (ii)     The    form,    sufficiency,    correctness,
genuineness, authority of any person signing; falsification; or the legal effect
of;  any  documents  called  for under any L/C if such  documents  on their face
appear to be in order.

                  (b) The Issuer may honor,  as complying  with the terms of any
L/C and of any drawing  thereunder,  any drafts or other documents  otherwise in
order, but signed or issued by an administrator,  executor, conservator, trustee
in  bankruptcy,  debtor in  possession,  assignee for the benefit of  creditors,
liquidator,  receiver,  or other legal  representative  of the party  authorized
under such L/C to draw or issue such drafts or other documents.

                  (c)      Unless  otherwise  agreed  to,  in   the   particular
instance, the Borrower hereby authorizes any Issuer to:

                                        9
<PAGE>

                           (i)      Select an advising bank, if any.

                           (ii)     Select a paying bank, if any.

                           (iii)    Select a negotiating bank.

                  (d) As among the  Borrower,  the  Issuer and the  Lender,  all
directions,  correspondence,  and funds transfers relating to any L/C are at the
risk of the Borrower.  The Issuer shall have discharged the Issuer's obligations
under any L/C which, or the drawing under which,  includes payment instructions,
by the  initiation  of the  method of payment  called for in, and in  accordance
with, such instructions (or by any other commercially  reasonable and comparable
method). Neither the Lender nor the Issuer shall have any responsibility for any
inaccuracy,  interruption,  error, or delay in transmission or delivery by post,
telegraph or cable, or for any inaccuracy of translation.

                  (e) The Lender's and the Issuer's rights,  powers,  privileges
and  immunities  specified in or arising under this Agreement are in addition to
any heretofore or at any time hereafter otherwise created or arising, whether by
statute or rule of law or contract.

                  (f)  Except  to  the  extent  otherwise   expressly   provided
hereunder or agreed to in writing by the Issuer and the  Borrower,  the L/C will
be governed by the Uniform  Customs and Practice for  Documentary  Credits (1993
Revision),  International  Chamber of  Commerce,  Publication  No. 500,  and any
subsequent revisions thereof.

                  (g) If any change in any law,  executive  order or regulation,
or any directive of any administrative or governmental authority (whether or not
having  the  force of law),  or in the  interpretation  thereof  by any court or
administrative  or  governmental   authority  charged  with  the  administration
thereof, shall either:

                           (i)      Impose,  modify  or   deem   applicable  any
reserve,  special  deposit or  similar  requirements  against  letters of credit
heretofore or hereafter issued by any Issuer or with respect to which the Lender
or any Issuer has an obligation to lend to fund drawings under any L/C; or

                           (ii)     Impose on any Issuer any other condition or
requirements relating to any such letters of credit;

                  The result of any event  referred to in Section  1-12(g)(i) or
Section  1-12(g)(ii),  above,  shall be to  increase  the cost to any  Issuer of
issuing or  maintaining  any L/C (which  increase in cost shall be the result of
such  Issuer's  reasonable  allocation  among  that  Issuer's  letter  of credit
customers of the aggregate of such cost  increases  resulting from such events),
then,  upon demand by the Lender and delivery by the Lender to the Borrower of a
certificate of an officer of the subject Issuer  describing  such change in law,
executive order, regulation, directive, or interpretation thereof, its effect on
such  Issuer,  and the  basis for  determining  such  increased  costs and their
allocation,  the Borrower shall immediately pay to the Lender, from time to time
as specified by the Lender,  such amounts as shall be  sufficient  to compensate
such Issuer for such increased cost. Any Issuer's determination of costs

                                       10
<PAGE>

incurred under Section 1-12(g)(i) or 1-12(g)(ii),  above, and the allocation, if
any, of such costs among the Borrower  and other  letter of credit  customers of
such  Issuer,  if done in good  faith  and  made on an  equitable  basis  and in
accordance  with the officer's  certificate,  shall be conclusive and binding on
the Borrower.

                  (h) The  obligations of the Borrower under this Agreement with
respect  to L/C's are  absolute,  unconditional,  and  irrevocable  and shall be
performed  strictly in accordance with the terms hereof under all  circumstances
whatsoever including, without limitation, the following:

                           (i)      Any lack of validity  or  enforceability  or
restriction,  restraint, or stay in the enforcement of this Agreement,  any L/C,
or any other agreement or instrument relating thereto.

                           (ii)     Any  amendment  or waiver of, or  consent to
the departure from, any L/C.

                           (iii)    The   existence   of   any claim,   set-off,
defense,  or other right  which the  Borrower  may have at any time  against the
beneficiary of any L/C.

                           (iv)     Any  honoring  of  a drawing  under any L/C,
which  drawing   possibly  could  have  been  dishonored  based  upon  a  strict
construction of the terms of the L/C.

                           (v)      The  Borrower shall not present to Lender or
cause the  amendment of an L/C without  satisfactory  evidence of one or more of
the following:  (a) change in delivery  date; (b) Borrower's  receipt of partial
shipment;  or (c) change to  original  order  reflected  in OTB (open to buy) or
other information which may be so reasonably requested by the Lender.

(i) In no event,  shall  Lender or Issuer have any  obligation  to honor any L/C
presented  for payment  after its  expiration.  In the event no payment has been
made  after  expiration,  the  Stated  Amount of such L/C shall  continue  to be
deducted from  Availability  for thirty (30) business days beyond  expiration of
said L/C.

ARTICLE 2 - GRANT OF SECURITY INTEREST

         2-1.  Grant of  Security  Interest.  To secure the  Borrower's  prompt,
punctual,  and  faithful  performance  of all and each of the  Liabilities,  the
Borrower hereby grants to the Lender a continuing  security  interest in and to,
and assigns to the Lender,  the  following,  and each item thereof,  whether now
owned or now  due,  or in which  the  Borrower  has an  interest,  or  hereafter
acquired,  arising,  or to become  due,  or in which  the  Borrower  obtains  an
interest (all of which, together with any other property in which the Lender may
in the future be  granted a  security  interest,  is  referred  to herein as the
"Collateral"):

                  (a)      All Inventory.

                  (b) All Accounts,  accounts  receivable,  contracts,  contract
rights, notes, bills, drafts, acceptances, General Intangibles, Instruments,

                                       11
<PAGE>

Documents, Document of Title, Chattel Paper, securities,  Security Entitlements,
Security Accounts,  Investment Property,  choses in action, and all other debts,
obligations and liabilities in whatever form, owing to Borrower from any Person,
firm or corporation or any other legal entity, whether now existing or hereafter
arising,  now or hereafter  received by or  belonging or owing to Borrower,  for
goods sold by it or for services  rendered by it, or however  otherwise same may
have been established or created,  all guarantees and securities  therefor,  all
right,  title and interest of Borrower in the merchandise or services which gave
rise thereto,  including the rights of reclamation and stoppage in transit,  all
rights to replevy  goods,  and all rights of an unpaid seller of  merchandise or
services.

                  (c) All machinery, Equipment, Fixtures and other Goods whether
now owned or  hereafter  acquired by the  Borrower  and  wherever  located,  all
replacements and substitutions  therefor or accessions  thereto and all proceeds
thereof.

                  (d)      Leasehold Interests and rights of occupancy,  to  the
extent permissible under the applicable leases.

                  (e)      Real Estate.

                  (f) All proceeds, products, substitutions and accessions of or
to  any  of the  foregoing  in any  form,  including,  without  limitation,  all
proceeds,  refunds and premium rebates of credit,  fire or other insurance,  and
also  including,  without  limitation,  rents  and  profits  resulting  from the
temporary use of any of the foregoing.

         2-2. Extent and Duration of Security Interest. This grant of a security
interest  is  in  addition  to,  and  supplemental  of,  any  security  interest
previously  granted by the  Borrower  to the Lender and shall  continue  in full
force and effect  applicable to all Liabilities  until all Liabilities have been
paid  and/or  satisfied  in full and the  security  interest  granted  herein is
specifically terminated in writing by a duly authorized officer of the Lender.

ARTICLE 3 - DEFINITIONS

         All  capitalized  terms used in this agreement  which are not otherwise
defined herein or in the UCC shall have the meanings assigned to them in EXHIBIT
3, annexed hereto.

ARTICLE 4 - CONDITIONS PRECEDENT

         The effectiveness of this Agreement, the establishment of the Revolving
Credit,  and the  making  of the  first  loan  under the  Revolving  Credit,  is
conditioned upon the delivery to Lender of the documents  described below,  each
in form and substance  satisfactory to the Lender,  and the  satisfaction of the
conditions described below:

         4-1.     Corporate Due Diligence.

                  (a) A Certificate of legal  existence and good standing issued
by the  Secretary  of  State  or  other  governing  authority  of the  State  of
Borrower's legal formation.

                                       12
<PAGE>

                  (b)  Certificates  of due  qualification  and  good  standing,
issued by the Secretary(ies) of State or other governing authority of each state
in which the nature of the Borrower's  business  conducted or assets owned could
require such qualification.

                  (c) A  Certificate  of  the  Borrower's  secretary,  clerk  or
otherwise  authorized  officer or other Person  attesting  to the due  adoption,
continued  effectiveness,  and setting  forth the texts of, each  resolution  or
authorization   adopted  in  connection  with  the  establishment  of  the  loan
arrangement  contemplated  by the  Loan  Documents  and  attesting  to the  true
signatures  of  each  Person  authorized  as a  signatory  to any  of  the  Loan
Documents.

         4-2.     Opinion.  An  opinion  of  counsel to the Borrower in form and
substance  satisfactory  to  Lender  and Lender's  counsel.  Such opinion may be
submitted in two separate opinions, one as to due authority and a second opinion
as to the  enforceability of the Loan Documents and perfection of  the  Lender's
security interest in the Collateral.

         4-3.  Cash  Management  and  Additional   Documents.   Such  additional
instruments and documents  including,  without limitation,  an agreement for the
Blocked  Account  executed  by the  Borrower,  Lender and the  applicable  bank,
agreements  with Borrower's  credit card processors  and/or other credit service
providers  executed by the Borrower,  Lender and each such  processor or service
provider,  and any other notices or agreements  required under Article 7 hereof,
as the Lender or its counsel reasonably may require or request,  in each case in
form and substance reasonably satisfactory to Lender and its counsel.

         4-4.     Key Life Policies.  Intentionally deleted.

         4-5. Officers' Certificates.  Certificates executed by the president or
chief  executive  officer and the chief  financial  officer of the  Borrower and
stating  that the  representations  and  warranties  made by the Borrower to the
Lender  in the  Loan  Documents  are true  and  complete  as of the date of such
Certificate,  and that no event has occurred which is or which,  solely with the
giving of notice or passage of time (or both) would be an Event of Default.

         4-6.  Representations and Warranties.  Each of the representations made
by or on behalf of the  Borrower in this  Agreement  or in any of the other Loan
Documents or in any other report, statement,  document, or paper provided by and
or on behalf of the Borrower shall, in the aggregate with all documents provided
in  connection  herewith,  be true and  complete as of the date as of which such
representation or warranty was made.

         4-7. Initial Minimum Excess  Availability.  Availability,  after giving
effect to the first loans and  advances to be made under the  Revolving  Credit;
any charges to the Loan Account made in connection with the establishment of the
credit facility  contemplated  hereby; and L/C's to be issued at, or immediately
subsequent to, the  establishment of such Revolving Credit, is not less than Two
Million Five Hundred Thousand ($2,500,000.00) Dollars.

         4-8.     No  Event of  Default.  No  event  shall   have  occurred,  or
failed  to  occur,  which  occurrence  or which  failure constitutes, or  which,
solely with the passage  of  time  or  the  giving  of  notice  (or both)  would
constitute, an Event of Default.

                                       13
<PAGE>

         4-9.     No Material Adverse Change.   No  Material  Adverse Change has
occurred.

         4-10.    Delivery of Warrants.  Intentionally deleted.

         4-11.  Landlord Waivers and "Access  Agreements".  Such agreements from
landlords  (in  Landlord  Lien States) and  warehousemen,  bailees and any other
third parties who may control any premises  upon which any of the  Collateral is
located as Lender may in its discretion reasonably require in form and substance
satisfactory to Lender.

         4-12.  Delivery of Documents.  No document shall be deemed delivered to
the Lender  until  received  and  accepted by the Lender at its head  offices in
Needham,  Massachusetts.  Under no circumstances will this Agreement take effect
until executed and accepted by the Lender at said head office. In the event that
Lender agrees to make the initial advance or any subsequent  advance  hereunder,
prior to Borrower's  delivery of any documents  required under this Article 4 or
otherwise  by this  Agreement,  an  additional  fee,  equal  to the  greater  of
one-tenth  of one  (0.1%)  percent  of the then  outstanding  amount of the Loan
Account or Five Hundred ($500) Dollars shall be payable weekly on Thursday until
such time as all such documents are provided.

ARTICLE 5 - GENERAL REPRESENTATIONS. WARRANTIES AND COVENANTS

         To induce the Lender to  establish  the loan  arrangement  contemplated
herein and to make loans and  advances and to provide  financial  accommodations
under the  Revolving  Credit  (each of which  loans shall be deemed to have been
made  in  reliance   thereupon)   the   Borrower,   in  addition  to  all  other
representations,  warranties,  and  covenants  made by the Borrower in any other
Loan Document, makes those representations,  warranties,  and covenants included
in this Agreement.

         5-1.  Payment and  Performance of  Liabilities.  The Borrower shall pay
each  Liability  due  Lender  when due (or  promptly  upon  demand if payable on
demand)  and shall  promptly,  punctually,  and  faithfully  perform  each other
Liability due Lender and pay each  obligation due others in accordance  with its
current  custom and  practice.  If Borrower has any dispute with any Person with
respect to any Liability or other obligation material to its business,  Borrower
shall give Lender notice of said dispute.

         5-2.     Due Organization - Authorization - No Conflicts.

                  (a) The Borrower  presently is and shall  hereafter  remain in
good  standing as a legal entity in the state in which it is legally  formed and
is and shall hereafter remain duly qualified and in good standing in every other
state in which, by reason of the nature or location of the Borrower's  assets or
operation of the  Borrower's  business,  such  qualification  may be  reasonably
necessary.

                  (b) Each  Related  Entity is listed on  EXHIBIT  5-2,  annexed
hereto.  Each Related Entity is and shall  hereafter  remain in good standing in
the  state in which  legally  formed  and is and  shall  hereafter  remain  duly
qualified in every other state in which, by reason of the nature and location of
that entity's assets or the operation of such entity's business, such

                                       14
<PAGE>

qualification may be reasonably necessary. The Borrower shall provide the Lender
with prior  written  notice of any entity's  becoming or ceasing to be a Related
Entity.

                  (c) The Borrower has all legal  corporate  power and authority
to execute and deliver all and each of the Loan  Documents to which the Borrower
is a party and has and will  hereafter  retain  all  requisite  legal  power and
authority to perform any and all of the Liabilities.

                  (d) The  execution  and  delivery by the Borrower of each Loan
Document to which it is a party; the Borrower's consummation of the transactions
contemplated by such Loan Documents (including, without limitation, the creation
of security  interests by the Borrower as contemplated  hereby);  the Borrower's
performance  under  those of the  Loan  Documents  to  which it is a party;  the
borrowings hereunder; and the use of the proceeds thereof:

                           (i)      Have  been  duly authorized by all necessary
legal action.

                           (ii)     Do  not, and  will  not,  contravene  in any
material  respect any provision of any  Requirement of Law
or obligation of the Borrower.

                           (iii)    Will   not   result  in   the  creation   or
imposition of, or the obligation to create or impose,  any Encumbrance  upon any
assets of the Borrower pursuant to any Requirement of Law or obligation,  except
pursuant to the Loan Documents.

                  (e) The Loan  Documents  have been duly executed and delivered
by Borrower and are the legal,  valid and binding  obligations  of the Borrower,
enforceable  against the Borrower in  accordance  with their  respective  terms,
except as may be limited by bankruptcy, insolvency, reorganization,  moratorium,
or other similar laws and equitable  principles  affecting  the  enforcement  of
rights of creditors generally.

         5-3.     Trade Names.

                  (a) EXHIBIT 5-3, annexed hereto, is a listing of:

                           (i)      All   names   under   which   the   Borrower
conducts  its  business,  all  trademark  and  service  mark  registrations  and
applications  with  respect  to any  trademark  or  service  mark  owned  by the
Borrower;  and all licenses  pursuant to which Borrower has the right to use any
trademark or service mark other than licenses  granted in the ordinary course of
business.

                           (ii)     All  entities  and/or Persons  with whom the
Borrower ever consolidated or merged, or from whom the Borrower ever acquired in
a single transaction or in a series of related transactions substantially all of
Person's assets.

                  (b) Except (i) upon not less than twenty-one (21) days or such
shorter time period as is  reasonable  under the  circumstances,  prior  written
notice given the Lender,  and (ii) in  compliance  with all other  provisions of
this  Agreement,  the Borrower  will not  undertake  or commit to undertake  any
action such that the results of that action,  if undertaken prior to the date of
this Agreement, would have been reflected on EXHIBIT 5-3.

                                       15
<PAGE>

                  (c) The Borrower owns and  possesses,  or has the right to use
all patents,  industrial designs,  trademarks,  trade names, trade styles, brand
names, service marks, logos, copyrights,  trade secrets, know-how,  confidential
information,  and other intellectual or proprietary property of any third Person
necessary for the Borrower's conduct of the Borrower's business.

                  (d) The  conduct by the  Borrower of the  Borrower's  business
does not infringe on the patents, industrial designs,  trademarks,  trade names,
trade styles,  brand names,  service marks,  logos,  copyrights,  trade secrets,
know-how,   confidential  information,  or  other  intellectual  or  proprietary
property of any third Person.

         5-4.     Location, Landlord's Consents, Waivers.

                  (a) The  Collateral,  and the  books,  records,  and papers of
Borrower  pertaining  thereto,  are kept and maintained solely at the Borrower's
chief  executive  offices as set forth at the beginning of this Agreement and at
those  locations  which are listed on EXHIBIT 5-4,  annexed hereto as updated by
Borrower  from time to time,  which  exhibit  includes all service  bureaus with
which any such records are maintained and the names and addresses of each of the
Borrower's  landlords.  Except  (i) to  accomplish  sales  of  Inventory  in the
ordinary  course of business  or (ii) to utilize  such of the  Collateral  as is
removed from such  locations in the ordinary  course of business  (such as motor
vehicles),  the  Borrower  shall not  remove  any  Collateral  from  said  chief
executive  offices  or those  locations  listed on  EXHIBIT  5-4 as  updated  by
Borrower from time to time.

                  (b) The  Borrower  shall  obtain  and  deliver to the Lender a
consent, waiver and subordination (reasonably satisfactory to the Lender) by the
landlord for:

                           (i)      All     of    Borrower's    warehouse    and
distribution  center  locations and such store locations as are available upon a
good faith effort from Borrower to obtain upon or before execution hereof.

                           (ii)     For  the  balance  of store locations within
thirty (30) days  of  the  date of  execution  hereof, to  the extent reasonably
possible.

                  (c) Lender may, in its  discretion,  establish an Availability
Reserve for up to thirty (30) days rent for each of the Borrower's  locations in
a Landlord Lien State or in a One Turn State for which a  satisfactory  consent,
waiver and subordination has not been received. Such Availability Reserve may be
reduced or eliminated  but only if no  Suspension  Event is then in existence or
has not  theretofore  occurred,  upon the furnishing to the Lender of a consent,
waiver and subordination (in form reasonably  satisfactory to the Lender) by the
landlord for the subject location.

                  (d) Without duplication of any Availability  Reserve described
above,  the Lender may establish an  Availability  Reserve for unpaid rent up to
the amount of such rent.

                                       16
<PAGE>

                  (e)      The Borrower will not:

                           (i)      Execute,  alter, modify, or amend any Lease,
except for  Borrower's  benefit  and with at least ten (10) days  prior  written
notice to Lender and except as may occur in Subordination,  Non-Disturbance  and
Attornment Agreements executed in the ordinary course of business.

                           (ii)     Commit to, or open or close any  location at
which the Borrower maintains,  offers for sale, or stores any of the Collateral,
except  (x)  Borrower  may open up new store  locations  but only to the  extent
provided  in the  Business  Plan (as  revised  from time to time),  approved  by
Borrower's  Board of Directors and with at least fifteen (15) days prior written
notice to Lender and (y) Borrower may close existing store locations but only to
the  extent  provided  for in the  Business  Plan or as a result  of a  landlord
election not to renew a lease.

                  (f) Except as  otherwise  disclosed  on EXHIBIT 5-4 as amended
from time to time, no tangible  personal property of the Borrower is in the care
or  custody  of any third  party or stored or  entrusted  with a bailee or other
third  party and none  shall  hereafter  be placed  under  such  care,  custody,
storage, or entrustment. Borrower shall obtain and deliver a consent, waiver and
subordination  (in form reasonably  satisfactory to the Lender) from each bailee
disclosed on EXHIBIT 5-4 on or prior to the date of execution hereof.

         5-5.     Title to Assets.

                  (a) The Borrower is, and shall hereafter remain,  the owner of
the  Collateral  free and clear of all  Encumbrances  with the exceptions of the
following:

                           (i)      The security interest created herein.

                           (ii)     Those   Encumbrances   (if  any)  listed  on
EXHIBIT 5-5,  annexed  hereto and  Collateral  permitted to be disposed of under
Section 5.11.

                  (b)      The  Borrower does  not and shall not have possession
of any property on consignment to the Borrower.

         5-6.     Indebtedness.  The  Borrower  does not and shall not hereafter
have any Indebtedness with the exceptions of:

                  (a)      Any Indebtedness to the Lender.

                  (b)      The  Indebtedness  (if any)  listed  on  EXHIBIT 5-6,
annexed hereto.

                  (c) Capital Leases, not to exceed aggregate annual payments of
One Million Five Hundred  Thousand  ($1,500,000.00)  Dollars per year,  provided
Lender is given prompt  written  notice of any Capital  Lease and no lien on the
Collateral arises as a result thereof.

                                       17
<PAGE>

         5-7.     Insurance Policies.

                  (a) EXHIBIT 5-7 as amended from time to time,  annexed hereto,
is a schedule of all insurance policies owned by the Borrower or under which the
Borrower  is the  named  insured.  Each of such  policies  is in full  force and
effect.  Neither the issuer of any such policy nor the Borrower is in default or
violation of any such policy.

                  (b)  The  Borrower  shall  have  and  maintain  at  all  times
insurance  covering such risks, in such amounts,  containing such terms, in such
form,  for such  periods,  and written by such  companies  as may be  reasonably
satisfactory  to the  Lender  except to the  extent  that  failure  to  maintain
policies would not result in a Material  Adverse  Change if the uninsured  event
were to occur.  The coverage  reflected on EXHIBIT 5-7  presently  satisfies the
foregoing requirements,  it being recognized by the Borrower, however, that such
requirements  may  change  hereafter  to  reflect  changing  circumstances.  All
insurance  carried by the  Borrower  shall  provide for a minimum of twenty (20)
days' written notice of  cancellation to the Lender and all such insurance which
covers the Collateral shall include an endorsement in favor of the Lender, which
endorsement  shall  provide  that the  insurance,  to the extent of the Lender's
interest therein, shall not be impaired or invalidated,  in whole or in part, by
reason of any act or neglect of the  Borrower or by the failure of the  Borrower
to comply with any warranty or condition of the policy,  except where failure to
so provide for  endorsements  would not materially  impact  Lender's  ability to
realize  on the  Collateral.  In the event of the  failure  by the  Borrower  to
maintain  insurance as required herein,  the Lender,  at its option,  may obtain
such  insurance,  provided,  however,  the Lender's  obtaining of such insurance
shall not constitute a cure or waiver of any Event of Default  occasioned by the
Borrower's failure to have maintained such insurance. The Borrower shall furnish
to  the  Lender  upon  request   certificates   or  other  evidence   reasonably
satisfactory  to the  Lender  regarding  compliance  by the  Borrower  with  the
foregoing insurance provisions.

                  (c) The  Borrower  shall  advise  the  Lender of each claim in
excess of Ten Thousand  ($10,000)  Dollars made by the Borrower under any policy
of insurance  which  covers the  Collateral  and will permit the Lender,  at the
Lender's option in each instance,  to the exclusion of the Borrower,  to conduct
the adjustment of each such claim (and of all claims following the occurrence of
any Suspension Event). The Borrower hereby appoints the Lender as the Borrower's
attorney in fact to obtain,  adjust,  settle, and cancel any insurance described
in this  section  and to  endorse  in favor of the Lender any and all drafts and
other  instruments  with  respect to such  insurance.  This  appointment,  being
coupled with an interest, is irrevocable until this Agreement is terminated by a
written  instrument  executed by a duly  authorized  officer of the Lender.  The
Lender  shall not be liable on account of any  exercise  pursuant  to said power
except for any exercise in actual  willful  misconduct or bad faith.  The Lender
may apply any proceeds of such insurance against the Liabilities, whether or not
such have matured, in such order of application as the Lender may determine.

                  (d) The Borrower shall maintain at all times those policies of
insurance  obtained by the  Borrower  and  assigned to the Lender as required by
Section  4-4,  above,  if  applicable,  except to the extent that  failure to so
maintain policies would not result in a Material Adverse Change if the uninsured
event were to occur.

                                       18
<PAGE>

         5-8.     Licenses.   Each   license,  distributorship,  franchise,  and
similar agreement, which  is  material  to Borrower's business, issued to, or to
which the Borrower is a party is in full force and effect.  No party to any such
license or agreement is in material default or material violation  thereof.  The
Borrower has not  received  any notice or threat of  cancellation  of  any  such
license or agreement.

         5-9. Leases.  EXHIBIT 5-9 as amended from time to time, annexed hereto,
is a schedule of all presently effective Leases and Capital Leases. Each of such
Leases  and  Capital  Leases is in full force and  effect.  No party to any such
Lease or Capital Lease is in material default or material  violation of any such
Lease or Capital Lease and the Borrower has not received any notice or threat of
cancellation of any such Lease or Capital Lease. The Borrower hereby  authorizes
the  Lender at any time and from time to time to contact  any of the  Borrower's
landlords in order to confirm the Borrower's continued compliance with the terms
and  conditions  of the Lease(s)  between the Borrower and that  landlord and to
discuss such issues, concerning the Borrower's occupancy under such Lease(s), as
the Lender may determine.

         5-10. Requirements of Law. The Borrower is in material compliance with,
and shall hereafter comply with and use its assets in material  compliance with,
all  Requirements  of Law.  The  Borrower  has not  received  any  notice of any
material  violation of any  Requirement of Law (whether or not such violation is
material), which violation has not been cured or otherwise remedied.

         5-11.    Maintain Properties. The Borrower shall:

                  (a)      Keep  the  Collateral   in  good  order  and   repair
(ordinary  reasonable  wear and tear and  insured  casualty excepted).

                  (b)      Not suffer or cause the waste or destruction  of  any
material part of the Collateral.

                  (c) Not use any of the  Collateral  in violation of any policy
of  insurance  thereon  except to the extent that  failure to maintain  policies
would not result in a Material  Adverse  Change if the  uninsured  event were to
occur.

                  (d)  Not  sell,  lease,  or  otherwise  dispose  of any of the
Collateral,  other than the following, in each case, subject to the turning over
to the Lender of all Receipts with respect to the same as provided herein,

                           (i)      The  sale  of  Inventory  in compliance with
this Agreement.

                           (ii)     The disposal of Equipment which is obsolete,
worn out, or damaged  beyond repair,  which  Equipment is replaced to the extent
reasonably  necessary  to preserve or improve the  operating  efficiency  of the
Borrower.

                           (iii)    The sale of Equipment in connection with any
store closing.

                                       19
<PAGE>

         5-12.    Pay Taxes.

                  (a) The federal  income tax returns of the Borrower  have been
filed for all fiscal years  through and including  the  Borrower's  taxable year
referenced  on EXHIBIT 5-12 as amended from time to time,  annexed  hereto,  the
Borrower  is  not  currently   subject  to  any  audits  and  all  deficiencies,
assessments,  and other amounts  asserted as a result of examinations  have been
fully paid or settled.  No agreement is in existence which waives or extends any
statute of limitations  applicable to the right of the Internal  Revenue Service
to assert a  deficiency  or make any other  claim for or in  respect  to federal
income taxes. No issue has been raised in any such examination  which reasonably
could be expected to result in the assertion of a deficiency for any fiscal year
open for examination, assessment, or claim by the Internal Revenue Service.

                  (b) All returns of the  Borrower  for state and local  income,
excise,  sales,  and other  taxes have been  audited  (or  closed by  applicable
statutes) for all fiscal years through and including the Borrower's taxable year
referenced on EXHIBIT 5-12 as amended from time to time, annexed hereto, and all
deficiencies,  assessments,  and  other  amounts  asserted  as a result  of such
examinations have been fully paid or settled. No agreement is in existence which
waives or extends  any  statute of  limitations  applicable  to the right of any
state taxing  authority to assert a deficiency or make any other claim for or in
respect  to any  such  state  taxes.  No  issue  has  been  raised  in any  such
examination  which  reasonably could be expected to result in the assertion of a
deficiency for any fiscal year open for examination, assessment, or claim by any
state or local taxing authority.

                  (c) Except as  disclosed  on said EXHIBIT 5-12 as amended from
time to time,  there are no  examinations  of or with  respect  to the  Borrower
presently  being  conducted by the Internal  Revenue Service or any state taxing
authority.

                  (d) The Borrower has, and hereafter shall: pay, as they become
due and payable,  all taxes and unemployment  contributions and other charges of
any kind or nature  levied,  assessed  or claimed  against  the  Borrower or the
Collateral  by any Person or entity whose claim could  result in an  Encumbrance
upon any  asset  of the  Borrower  or by any  governmental  authority;  properly
exercise  any trust  responsibilities  imposed  upon the  Borrower  by reason of
withholding  from  employees'  pay;  timely  make all  contributions  and  other
payments  as may be  required  pursuant  to any  Employee  Benefit  Plan  now or
hereafter established by the Borrower; and timely file all tax and other returns
and other  reports  with each  governmental  authority  to whom the  Borrower is
obligated  to so file  except,  in each case under this  Subsection  (d), to the
extent that failure to take the  described  action would not  materially  impact
Lender's rights in the Collateral.

                  (e) At its option,  the Lender may, but shall not be obligated
to, pay any taxes,  unemployment  contributions,  and any and all other  charges
levied or assessed  upon the Borrower or the  Collateral by any Person or entity
or  governmental  authority,  and make any  contributions  or other  payments on
account of the Borrower's  Employee Benefit Plan as the Lender,  in the Lender's
discretion,  may deem necessary or desirable,  to protect,  maintain,  preserve,
collect,  or realize upon any or all of the  Collateral  or the value thereof or
any right or remedy pertaining thereto,  provided,  however, the Lender's making
of any such  payment  shall  not  constitute  a cure or  waiver  of any Event of
Default occasioned by the Borrower's failure to have made such payment.

                                       20
<PAGE>

         5-13. No Margin  Stock.  The Borrower is not engaged in the business of
extending  credit for the purpose of  purchasing  or carrying  any margin  stock
(within the meaning of  Regulations G, U, T, and X, of the Board of Governors of
the Federal Reserve System of the United States). No part of the proceeds of any
borrowing  hereunder  will be used at any time to  purchase  or  carry  any such
margin  stock or to extend  credit to others for the  purpose of  purchasing  or
carrying any such margin stock.

         5-14.    ERISA. Neither the Borrower nor any ERISA Affiliate  ever  has
or hereafter shall:

                  (a)  Violate  or  fail  to  be in  full  compliance  with  the
Borrower's  Employee Benefit Plan,  except Borrower's ESOP, which Borrower is in
the process of  terminating  and which event could not reasonably be expected to
result in a Material Adverse Change (the "Terminating ESOP").

                  (b) Fail timely to file all  reports  and filings  required by
ERISA to be filed by the Borrower except with respect to the Terminating ESOP.

                  (c) Engage in any  "prohibited  transactions"  or  "reportable
events"  (respectively  as  described  in  ERISA)  except  with  respect  to the
Terminating ESOP.

                  (d) Engage  in, or commit,  any act such that a tax or penalty
could be imposed on account thereof pursuant to ERISA except with respect to the
Terminating ESOP.

                  (e) Accumulate  any  material  funding  deficiency  within the
meaning of ERISA.

                  (f) Terminate any Employee Benefit Plan such that a lien could
be asserted  against the  Borrower on account  thereof  pursuant to ERISA except
Borrower's ESOP which Borrower is in the process of terminating.

                  (g) Be a member  of,  contribute  to,  or have any  obligation
under any Employee Benefit Plan which is a multiemployer plan within the meaning
of Section  4001(a) of ERISA except  employee  benefit plans shared  between the
Borrower and RightStart.com (".Com").

         5-15.    Hazardous Materials.

                  (a)      The Borrower has never:

                           (i)      Been legally responsible for any release  or
threat of release of any Hazardous Material.

                           (ii)     Received   notification  of  any  release or
threat of release of any Hazardous Material from any site or vessel  occupied or

                                       21
<PAGE>

operated  by the  Borrower  and/or of the  incurrence  of any expense or loss in
connection with the assessment, containment, or removal of any release or threat
of release of any Hazardous Material from any such site or vessel.

                  (b)      The Borrower shall:

                           (i)      Dispose of any Hazardous  Material  only  in
compliance with all Environmental Laws.

                           (ii)     Not store on any site or vessel  occupied or
operated by the Borrower and not  transport or arrange for the  transport of any
Hazardous  Material,  except if such  storage or  transport  is in the  ordinary
course of the Borrower's  business and is in compliance  with all  Environmental
Laws.

                  (c) The Borrower  shall provide the Lender with written notice
upon the Borrower's obtaining knowledge of any incurrence of any expense or loss
by any governmental authority or other Person in connection with the assessment,
containment, or removal of any Hazardous Material, for which expense or loss the
Borrower may be liable.

         5-16.  Litigation.  There is not presently  pending or threatened by or
against the Borrower any suit, action,  proceeding,  or investigation  which, if
determined adversely to the Borrower,  would have a material adverse effect upon
the  Borrower's  financial  condition or ability to conduct its business as such
business is  presently  conducted  or is  contemplated  to be  conducted  in the
foreseeable future.

         5-17.    Dividends or Investments. The Borrower shall not:

                  (a) Pay any cash  dividend or make any other  distribution  in
respect of any class of the Borrower's capital stock,  except for dividends paid
on Series D stock and provided that after giving  effect to any such  dividends,
Borrower has  sufficient  availability  and cash flow to operate its business in
accordance with the Business Plan.

                  (b) Own,  redeem,  retire,  purchase,  or  acquire  any of the
Borrower's capital stock except for mandatory redemption of Series A stock.

                  (c) Invest in or purchase any stock or securities or rights to
purchase any stock or securities  of any  corporation  or other  entity,  except
 .Com.

                  (d) Merge or consolidate or be merged or consolidated  with or
into any other  corporation  or other entity  except .Com and provided that such
merger or consolidation does not require the payment of cash by the Borrower.

                  (e) Consolidate any of the Borrower's operations with those of
any other corporation or other entity except .Com.

                  (f) Organize or create any Related Entity.

                                       22
<PAGE>

                  (g) Subordinate any debts or obligations  owed to the Borrower
by any third  party to any other  debts  owed by such  third  party to any other
Person.

         5-18.    Loans.  The  Borrower shall not make any loans or Advances to,
nor acquire the  Indebtedness of, any Person,  provided, however,  the foregoing
does not prohibit any of the following:

                  (a)  Advance payments made to the Borrower's suppliers in  the
ordinary course.

                  (b)  Advances  to  the  Borrower's  officers,  employees,  and
salespersons  with  respect  to  reasonable  expenses  to be  incurred  by  such
officers,  employees,  and salespersons  for the benefit of the Borrower,  which
expenses  are  properly  substantiated  by the Person  seeking  such Advance and
properly reimbursable by the Borrower.

         5-19. Protection of Assets. The Lender, in the Lender's discretion, and
from  time  to  time,  may  discharge  any  tax  or  Encumbrance  on  any of the
Collateral,  or take any other  action  that the  Lender may deem  necessary  or
desirable to repair, insure, maintain, preserve, collect, or realize upon any of
the Collateral. The Lender shall not have any obligation to undertake any of the
foregoing  and shall have no  liability  on account of any action so  undertaken
except where there is a specific finding in a judicial  proceeding (in which the
Lender has had an opportunity to be heard), from which finding no further appeal
is  available,  that the  Lender  had acted in actual  bad faith or in a grossly
negligent  manner.  The  Borrower  shall pay to the  Lender,  on demand,  or the
Lender, in its discretion,  may add to the Loan Account,  all amounts reasonably
paid or incurred by the Lender  pursuant to this section.  The obligation of the
Borrower to pay such amounts is a Liability.

         5-20. Line of  Business.  The Borrower shall not engage in any business
other  than  the  business  in  which  it  is  currently  engaged  or a business
reasonably related thereto.

         5-21. Affiliate Transactions.  The Borrower shall not make any payment,
nor give any  value to any  Related  Entity  except  as  disclosed  in its Proxy
Statement  for  fiscal  2000 and the  ordinary  continuation  of such  disclosed
agreements  and  understandings  and  except  as set  forth  in  any  management
agreements  between the Borrower  and .Com or any Related  Entity and except for
goods and  services  actually  purchased by the  Borrower  from,  or sold by the
Borrower to, such Related Entity for a price which shall:

                  (a) Be  competitive  and fully  deductible as an "ordinary and
necessary  business expense" and/or fully depreciable under the Internal Revenue
Code of 1986 and the Treasury Regulations,  each as amended, except as disclosed
in its last 10 K/A report; and

                  (b) Not differ from that which  would have been  charged in an
arms length transaction.

                                       23
<PAGE>

         5-22.    Executive Pay.

                  (a)  The  only  Executive  Officers  of the  Borrower,  at the
execution of this Agreement,  are those individuals referenced in the definition
of "Executive Officers".

                  (b) Prior to the  execution  of this  Agreement,  the Borrower
furnished  the  Lender  with  copies of all  written  Executive  Agreements  and
outlines  of the salient  features of all  unwritten  Executive  Agreements  (as
amended  to date)  then in  existence.  There  are no  unwritten  agreements  or
understandings  between the Borrower and any  Executive  Officer which relate to
Executive Pay, written disclosure of which has not been made to the Lender.

                  (c) The Borrower will not:

                           (i)     Enter  into any  agreement  not  existing  as
of the date of execution of this  Agreement,  except as approved by the Board of
Directors  and as set forth in the Business  Plan,  with prompt notice to Lender
following the execution of any such Executive Agreement(s).

                           (ii)     Alter,   amend,  supplement,  or   otherwise
change any Executive Agreement in any material respect except as approved by the
Board of Directors and with notice to Lender.

                           (iii)    Pay, provide,  or  facilitate  any Executive
Pay other than as provided in an  Executive  Agreement  or, if not covered by an
Executive Agreement, as permitted pursuant to Section 5-21, above or as approved
by the Board of Directors.

         5-23.    Additional Assurances.

                  (a) The  Borrower is not on the Closing Date the owner of, nor
has it any  interest  in, any  property  or asset  which,  immediately  upon the
satisfaction  of the  conditions  precedent to the  effectiveness  of the credit
facility  contemplated  hereby  (Article  4) will not be subject to a  perfected
security interest in favor of the Lender (subject only to those Encumbrances (if
any)  described  on  EXHIBIT  5-5,  annexed  hereto as  amended)  to secure  the
Liabilities.

                  (b) The  Borrower  will not after the Closing Date acquire any
asset or any interest in property which is not,  reasonably  promptly  following
such acquisition,  subject to such a perfected security interest in favor of the
Lender  to  secure  the  Liabilities  (subject  only to  Encumbrances  (if  any)
permitted pursuant to Section 5-5, above, as may be amended from time to time).

                  (c) The Borrower  shall execute and deliver to the Lender on a
timely  basis such  instruments,  documents,  and papers,  and shall do all such
things  from time to time  hereafter  as the  Lender  may  request to carry into
effect the provisions and intent of this  Agreement;  to protect and perfect the
Lender's security interests in the Collateral; and to comply with all applicable
statutes and laws, and facilitate the collection of any Receivables  Collateral.
The Borrower shall execute all such instruments as may be required by the Lender
with respect to the  recordation  and/or  perfection  of the security  interests
created herein.

                                       24
<PAGE>

                  (d) A  carbon,  photographic,  or other  reproduction  of this
Agreement or of any financing statement or other instrument executed pursuant to
this  Section  5-23  shall be  sufficient  for filing to  perfect  the  security
interests granted herein.

         5-24.    Adequacy of Disclosure.

                  (a) All  financial  statements  furnished to the Lender by the
Borrower  have been prepared in accordance  with GAAP  consistently  applied and
present  fairly the  condition  of the  Borrower at the date(s)  thereof and the
results of  operations  and cash  flows for the  period(s)  covered,  subject to
year-end  adjustments.  There  has been no change  in the  financial  condition,
results of  operations,  or cash flows of the Borrower since the date(s) of such
financial  statements,  other than changes in the  ordinary  course of business,
which  changes have not been  materially  adverse,  either  singularly or in the
aggregate.

                  (b) The Borrower does not have any  contingent  obligations or
obligation under any Lease or Capital lease which is not noted in the Borrower's
financial  statements  furnished  to the Lender  prior to the  execution of this
Agreement.

                  (c)  No  document,  instrument,  agreement,  or  paper  now or
hereafter  given the Lender by or on behalf of the Borrower or any  guarantor of
the Liabilities in connection with the execution of this Agreement by the Lender
contains or will contain in the aggregate  when  considered  with all such other
documents,  instruments,  agreements  or  papers  given  to  Lender  any  untrue
statement  of a  material  fact or omits or will omit to state a  material  fact
necessary in order to make the statements  therein not  misleading.  There is no
fact known to the Borrower which has, or which, in the foreseeable  future could
have, a material  adverse  effect on the financial  condition of the Borrower or
any such guarantor which has not been disclosed in writing to the Lender.

         5-25.    Minimum Excess Availability.  Intentionally deleted.

         5-26.    No Material Adverse Change.   There  has  not  been a Material
Adverse Change.

         5-27.    Other  Covenants.  The Borrower  shall not  indirectly  do  or
cause to be done any act which,  if done directly by the Borrower, would  breach
any covenant contained in this Agreement.

ARTICLE 6 - USE AND COLLECTION OF COLLATERAL

         6-1.     Use of Inventory Collateral.

                  (a) The Borrower shall not engage in any sale of the Inventory
other than for fair  consideration in the conduct of the Borrower's  business in
the  ordinary  course  and shall not  engage in sales or other  dispositions  to
creditors;  sales  or  other  dispositions  in  bulk;  and any use of any of the
Inventory  in breach of any  provision  of this  Agreement,  except for employee
discounts in the ordinary course of business.

                                       25
<PAGE>

                  (b) No sale of Inventory shall be on consignment, approval, or
under any other  circumstances  such that,  with the exception of the Borrower's
customary return policy  applicable to the return of Inventory  purchased by the
Borrower's  retail  customers  in the ordinary  course,  such  Inventory  may be
returned to the Borrower without the consent of the Lender.

         6-2. Inventory  Quality.   All  Inventory   now  owned   or   hereafter
acquired  by the  Borrower  is and will be of good and merchantable quality  and
free from defects (other than defects within customary trade tolerances).

         6-3. Adjustments and Allowances. The Borrower may grant such allowances
or other adjustments to the Borrower's  Account Debtors  (exclusive of extending
the time for  payment of any Account or Account  Receivable,  which shall not be
done  without  first  obtaining  the  Lender's  prior  written  consent  in each
instance)  as the  Borrower may  reasonably  deem to accord with sound  business
practice, provided, however, the authority granted the Borrower pursuant to this
Section  6-3 may be  limited  or  terminated  by the  Lender  at any time in the
Lender's discretion.

         6-4.     Validity of Accounts.

                  (a) Except as adjusted in the ordinary  course of  bookkeeping
the amount of each  Account  shown on the books,  records,  and  invoices of the
Borrower  represented as owing by each Account Debtor is and will be the correct
amount actually owing by such Account Debtor and shall have been fully earned by
performance by the Borrower.

                  (b) The Borrower has no  knowledge  of any  impairment  of the
validity or collectibility of any of the Accounts and shall notify the Lender of
any such fact immediately after Borrower becomes aware of any such impairment.

                  (c) The  Borrower  shall  not post  any  bond,  except  in the
ordinary  course of business and except as related to any  litigation  affecting
Borrower, to secure the Borrower's  performance under any agreement to which the
Borrower  is a party nor cause  any  surety,  guarantor,  or other  third  party
obligee to become liable to perform any  obligation of the Borrower  (other than
to the Lender) in the event of the Borrower's failure so to perform.

         6-5.     Notification to Account Debtors.   The  Lender  shall have the
right at any time  (whether or not an Event of Default has occurred)  to  notify
any of the  Borrower's  Account Debtors to make  payment  directly to the Lender
and to collect all amounts due on account of the Collateral.

ARTICLE 7 - CASH MANAGEMENT

         7-1.     Depository Accounts.

                  (a)  Annexed  hereto as EXHIBIT  7-1 as  amended  from time to
time, is a Schedule of all present DDA's, which Schedule includes,  with respect
to each depository (i) the name and address of that depository; (ii) the account
number(s) of the account(s)  maintained  with such  depository;  (iii) a contact
Person at such depository; and (iv) the telephone number of the contact Person.

                                       26
<PAGE>

                  (b)  The Borrower shall,  as  a condition to the effectiveness
of this Agreement:

                           (i)      Establish an account in the name of, for the
benefit of and under the  control  of,  Lender  into which all Receipts shall be
deposited (the "Blocked Account")

                           (ii)     Deliver to Lender proof of the  mailing,  to
each  depository  institution  with which any DDA is maintained  (other than the
Funding Account or any Local DDA) of notification  (in form  satisfactory to the
Lender)  of the  Lender's  interest  in such  DDA.  In the event  that  Agent or
Borrower  shall receive  notice that any depository at which a DDA is maintained
on the  date  hereof,  or is  subsequently  established  as  contemplated  under
paragraph  (c)  below,  refuses  to accept  and  comply  with the  notifications
delivered  by the  Borrower  to  such  depository  institution  of the  Lender's
interest in such DDA,  Borrower will immediately  close all DDAs maintained with
such depository institution and establish new DDAs with depository  institutions
which accept and agree to such notifications.

                           (iii)    Deliver  to  Lender  an  agreement  (in form
satisfactory  to the Lender) with any  depository institution at which a Blocked
Account is maintained.

                  (c) The Borrower will not  establish any DDA hereafter  (other
than a Local DDA) unless Borrower,  contemporaneous with such establishment, the
Borrower  delivers  to the Lender  proof of mailing to any such  institution,  a
notification  (in form  satisfactory to the Lender) of the Lender's  interest in
such DDA.

                  (d) The Borrower will establish and maintain separate accounts
exclusively for purposes of payroll and payroll tax deposits and payments.

                  (e) The  contents  of  each  DDA  constitutes  Collateral  and
Proceeds of Collateral.

         7-2.     Credit Card Receipts.

                  (a)  Annexed  hereto as EXHIBIT  7-2 as  amended  from time to
time, is a Schedule which describes all Credit Card Processors, which term shall
include any "instant credit"  providers and any other  arrangements to which the
Borrower is a party with  respect to the payment to the Borrower of the proceeds
of all credit card charges for sales by the Borrower.

                  (b) The  Borrower  shall  deliver to the  Lender  the  written
acknowledgment  and consent of each of the Credit Card Processors to a notice in
form  satisfactory  to the Lender,  which  notice  provides  that payment of all
credit card  charges  submitted  by the  Borrower to that Credit Card  Processor
payable to the Borrower by such Credit Card  Processor  shall be directed to the
Blocked  Account.  The Borrower  shall not change such  direction or designation
except upon and with the prior written consent of the Lender.

                                       27
<PAGE>

         7-3.     The Concentration Account, the Blocked Account and the Funding
Accounts.

                  (a) The following  accounts  have been or will be  established
(and are so referred to herein):

                           (i)      The Concentration Account:   Established  by
the Lender with The Chase Manhattan Bank, N.A.

                           (ii)     The  Funding Account:   Established  by  the
Borrower with Bank One.

                           (iii)    The  Blocked Account:   Established  by  the
Borrower with Wells Fargo Bank.

                  (b) The  contents  of  all  DDA's  and  the   Blocked  Account
constitute Collateral and Proceeds of Collateral.

                  (c) The  Borrower  shall  pay all fees  and  charges  of,  and
maintain such impressed balances as may be required by the Lender or by any bank
in which any  account  is opened as  required  hereby  (even if such  account is
opened by the Lender).

         7-4.     Proceeds and Collection of Accounts.

                  (a)  All  Receipts  constitute   Collateral  and  proceeds  of
Collateral and shall be held in trust by the Borrower for the Lender;  shall not
be commingled  with any of the  Borrower's  other funds;  and shall be deposited
and/or transferred only to the Blocked Account.

                  (b) The Borrower  shall cause the ACH or wire  transfer to the
Blocked  Account,  no less  frequently  than weekly (and whether or not there is
then an outstanding balance in the Loan Account) provided,  however, that Lender
reserve the right to require ACH or wire  transfers to the Blocked  Account more
frequently  than once a week if the activity  level of deposits into  Borrower's
DDA warrants more frequent transfers to the Blocked Account of:

                           (i)      The then  contents  of each DDA  (other than
(A) any Local DDA and (B) the Funding Account),  each such transfer to be net of
any minimum balance,  not to exceed Two Thousand  ($2,000.00) Dollars, as may be
required  to be  maintained  in the subject DDA by the bank at which such DDA is
maintained.

                           (ii)     The proceeds of all credit card charges  not
otherwise provided for pursuant hereto.

                  (c) Whether or not any Liabilities are then  outstanding,  the
Borrower shall cause the ACH or wire transfer to the Concentration  Account,  no
less  frequently  than daily,  of the entire  previous  day's closing  collected
balance of the Blocked Account.

                  (d) In the event that,  notwithstanding the provisions of this
Section 7-4, the Borrower  receives or otherwise has dominion and control of any

                                       28
<PAGE>

Receipts,  or any proceeds or  collections  of any  Collateral,  such  Receipts,
proceeds,  and collections shall be held in trust by the Borrower for the Lender
and shall not be commingled with any of the Borrower's  other funds or deposited
in any account of the Borrower other than as instructed by the Lender.

         7-5.     Payment of Liabilities.

                  (a) On each  Banking Day,  upon receipt by Lender,  the Lender
may  apply  towards  the  Liabilities,   the  then  collected   balance  of  the
Concentration  Account (net of fees charged,  and of such impressed  balances as
may be required by the bank at which the  Concentration  Account is maintained),
provided,  however,  for purposes of the  calculation  of interest on the unpaid
principal balance of the Loan Account, such payment shall be deemed to have been
made one (1) Banking Day after such transfer.

                  (b) The Lender  shall  transfer  to the  Funding  Account  any
surplus in excess of the Liabilities in the Concentration  Account (attributable
to Borrower) remaining after the application towards the Liabilities referred to
in Section  7-5(a),  above  (less those  amounts  which are to be netted out, as
provided  therein)  provided,  however,  in the event that both (i) a Suspension
Event has occurred and (ii) one or more L/C's are then  outstanding,  the Lender
may  establish a funded  reserve of up to one hundred ten (110%)  percent of the
aggregate Stated Amounts of such L/C's.

         7-6.  The Funding  Account.  All checks  shall be drawn by the Borrower
upon,  and other  disbursements  made by the Borrower  solely from,  the Funding
Account or the payroll  account,  accounts  payable  account or customer  refund
account funded from the Funding Account;  provided that any amounts remaining in
the payroll account, accounts payable account and customer refund account at the
end of a day shall be returned to the Funding Account.

         7-7.  Capital  Infusions,  Etc. The proceeds of any  investment  in the
Borrower from any source, including without limitation, proceeds of the issuance
or sale of any capital  stock or debt  instruments,  shall be  deposited  by the
purchaser  thereof  directly into the Blocked  Account.  In addition,  any funds
received by Borrower  other than from ordinary  business  operations,  including
without limitation,  proceeds or payments under any contracts for liquidation of
any  Collateral,  tax  refunds,  insurance  or  condemnation  proceeds or damage
awards, shall be deposited directly into the Blocked Account.

ARTICLE 8 - LENDER AS BORROWER'S ATTORNEY-IN-FACT

         8-1. Appointment as  Attorney-In-Fact.  The Borrower hereby irrevocably
constitutes and appoints the Lender as the Borrower's true and lawful  attorney,
with full power of substitution, to convert the Collateral into cash at the sole
risk, cost, and expense of the Borrower, but for the sole benefit of the Lender.
The rights and powers granted the Lender by this  appointment  shall not (except
for  subsection  (c) below) be exercised by Lender  absent the  occurrence of an
Event of Default  hereunder,  but shall include but are not limited to the right
and power to:

                  (a) Prosecute,  defend,  compromise,  or  release  any  action
relating to the Collateral.

                                       29
<PAGE>

                  (b) Sign  change of  address  forms to change  the  address to
which the  Borrower's  mail is to be sent to such  address as the  Lender  shall
designate;  receive  and  open  the  Borrower's  mail;  remove  any  Receivables
Collateral  and Proceeds of  Collateral  therefrom  and turn over the balance of
such mail  either to the  Borrower or to any  trustee in  bankruptcy,  receiver,
assignee  for  the  benefit  of  creditors  of  the  Borrower,  or  other  legal
representative  of the Borrower whom the Lender determines to be the appropriate
Person to whom to so turn over such mail.

                  (c)  Endorse  the name of the  Borrower in favor of the Lender
upon  any  and all  checks,  drafts,  notes,  acceptances,  or  other  items  or
instruments;  sign and  endorse  the name of the  Borrower  on,  and  receive as
secured party,  any of the  Collateral,  any invoices,  schedules of Collateral,
freight or express receipts,  or bills of lading,  storage  receipts,  warehouse
receipts, or other documents of title respectively relating to the Collateral.

                  (d)  Sign  the  name  of the  Borrower  on any  notice  to the
Borrower's Account Debtors or verification of the Receivables  Collateral;  sign
the Borrower's name on any Proof of Claim in Bankruptcy against Account Debtors,
and on notices of lien,  claims of mechanic's  liens, or assignments or releases
of mechanic's liens securing the Accounts.

                  (e) Take all such  action as may be  necessary  to obtain  the
payment of any letter of credit and/or banker's acceptance of which the Borrower
is a beneficiary.

                  (f) Repair, manufacture, assemble, complete, package, deliver,
alter or supply  goods,  if any,  necessary  to  fulfill in whole or in part the
purchase order of any customer of the Borrower.

                  (g) Use, license or transfer any or all General Intangibles of
the Borrower.

                  (h) Sign and file or record any financing or other  statements
in order to perfect or protect the Lender's security interest in the Collateral.

         8-2. No  Obligation to Act. The Lender shall not be obligated to do any
of the acts or to exercise any of the powers  authorized  by Section 8-1 herein,
but if the Lender  elects to do any such act or to exercise  any of such powers,
it shall not be  accountable  for more than it actually  receives as a result of
such exercise of power, and shall not be responsible to the Borrower for any act
or  omission to act except for any act or omission to act as to which there is a
final  determination  made in a judicial  proceeding  (in which  proceeding  the
Lender  has had an  opportunity  to be heard)  which  determination  includes  a
specific  finding  that the  subject  act or  omission  to act had been  grossly
negligent or in actual bad faith.

ARTICLE 9 - FINANCIAL AND OTHER REPORTING REQUIREMENTS/FINANCIAL COVENANTS

         9-1.     Maintain Records. The Borrower shall:

                                       30
<PAGE>

                  (a) At all times, keep proper books of account, in which full,
true, and accurate entries shall be made of all of the Borrower's  transactions,
all in accordance  with GAAP applied  consistently  with prior periods to fairly
reflect the financial condition of the Borrower at the close of, and its results
of operations for, the periods in question.

                  (b) Timely  provide the Lender with those  financial  reports,
statements, and schedules required by this Article 9 or otherwise, each of which
reports,  statements and schedules shall be prepared,  to the extent applicable,
in  accordance  with GAAP  applied  consistently  with  prior  periods to fairly
reflect the financial condition of the Borrower at the close of, and its results
of operations for, the period(s) covered therein.

                  (c) At all times, keep substantially  accurate current records
of the Collateral including,  without limitation,  accurate current stock, cost,
and sales records of its Inventory,  accurately and  sufficiently  itemizing and
describing  the kinds,  types,  and  quantities  of  Inventory  and the cost and
selling prices thereof.

                  (d)  At  all  times,   retain  independent   certified  public
accountants  who are  reasonably  satisfactory  to the Lender and instruct  such
accountants to fully  cooperate with, and be available to, the Lender to discuss
the Borrower's financial  performance,  financial condition,  operating results,
controls,  and such other  matters,  within the scope of the  retention  of such
accountants, as may be raised by the Lender.

                  (e)      Not change the Borrower's fiscal year.

(f)      Not change the Borrower's taxpayer identification number.

         9-2.     Access to Records.

                  (a) The  Borrower  shall  accord the  Lender and the  Lender's
representatives   with  access  from  time  to  time  as  the  Lender  and  such
representatives  may  require  to all  properties  owned  by or over  which  the
Borrower has control. The Lender and the Lender's representatives shall have the
right,  and the Borrower  will permit the Lender and such  representatives  from
time to time as the Lender and such  representatives  may  request,  to examine,
inspect,  copy,  and make  extracts  from any and all of the  Borrower's  books,
records,  electronically stored data, papers, and files. The Borrower shall make
all of the Borrower's copying facilities available to the Lender.

                  (b)      The  Borrower  hereby  authorizes  the Lender and the
Lender's representatives to:

                           (i)      Inspect, copy, duplicate, review,  cause  to
be  reduced to hard  copy,  run off,  draw off,  and  otherwise  use any and all
computer  or  electronically  stored  information  or data which  relates to the
Borrower, or any service bureau,  contractor,  accountant,  or other Person, and
directs any such service bureau,  contractor,  accountant, or other Person fully
to  cooperate  with the Lender and the  Lender's  representatives  with  respect
thereto.

                                       31
<PAGE>

                           (ii)     Verify at any  time  the  Collateral  or any
portion thereof,  including  verification with Account Debtors,  and/or with the
Borrower's computer billing companies,  collection agencies, and accountants and
to sign the name of the Borrower on any notice to the Borrower's Account Debtors
or verification of the Collateral.

         9-3.     Immediate Notice to Lender.

                  (a) The Borrower  shall provide the Lender with written notice
promptly  after the  occurrence  of any of the following  events,  which written
notice shall be with reasonable  particularity as to the facts and circumstances
in respect of which such notice is being given:

                           (i)      Any  change  in  the  Borrower's   Executive
Officers, officers, directors, controllers or key employees.

                           (ii)     The  completion of any physical count of the
Borrower's  Inventory  (together  with a copy of the  certified  or  such  other
results as may then be available thereof).

                           (iii)    Any  ceasing  of  the  Borrower's  making of
payment, in the ordinary course, to any of its creditors  (including the ceasing
of the  making  of such  payments  on  account  of a  dispute  with the  subject
creditor).

                           (iv)     Any  failure  by the  Borrower  to pay  rent
at any of the Borrower's locations,  which failure continues for more than three
(3) days  following  the day on which such rent first came due. If Borrower  has
any dispute  with any Landlord  with  respect to rent payable or other  matters,
Borrower shall give Lender written notice of said dispute.

                           (v)      Any   failure  by  Borrower   to  pay  trade
liabilities or other expense  liabilities in accordance  with  its past business
practices.

                           (vi)     Any    material   change   in  the business,
operations, or financial affairs of the Borrower.

                           (vii)    The occurrence of any Suspension Event.

                           (viii)   Any  intention  on the  part of the Borrower
to discharge the Borrower's present independent accountants or any withdrawal or
resignation by such  independent  accountants from their acting in such capacity
(as to which, see Subsection 9-1(d)).

                           (ix)     Any   litigation   which,   if    determined
adversely  to the  Borrower,  could  reasonably  be  expected to have a material
adverse effect on the financial condition of the Borrower.

                           (x)      The    reduction   by  any  of    Borrower's
material  vendors in the amount of trade credit or terms provided by such vendor
to Borrower on the date of execution hereof.

                                       32
<PAGE>

                           (xi)     The  engagement  or  employment  by Borrower
of  any  bankruptcy,   restructuring  or  "turn-around" professionals.

                  (b)      The Borrower shall:

                           (i)      Provide  the  Lender, when  so  distributed,
with  copies  of any  materials distributed  to the shareholders of the Borrower
(qua such shareholders).

                           (ii)     Add  the  Lender  as  an  addressee  on  all
mailing lists maintained by or for the Borrower.

                           (iii)    At the request of the Lender,  from time  to
time, provide the Lender with copies of all advertising (including copies of all
print advertising and duplicate tapes of all video and radio such advertising).

                           (iv)     Provide  the   Lender,  substantially   when
received  by the  Borrower,  with a copy of any  management  letter  or  similar
communications from any accountant of the Borrower.

         9-4. Borrowing Base Certificate.  The Borrower shall provide the Lender
daily with a  Borrowing  Base  Certificate  (in the form of EXHIBIT  9-4 annexed
hereto,  as such  form  may be  revised  from  time to  time by the  Lender,  in
accordance with this  Agreement).  Such Certificate may be sent to the Lender by
facsimile  transmission,  provided that the original thereof is forwarded to the
Lender on the date of such  transmission  at its request.  No adjustments to the
Borrowing Base  Certificate may be made without support  documentation  and such
other documentation as may reasonably be requested by Lender from time to time.

         9-5.  Weekly Reports.    Weekly,  not  later  than  Wednesday  for  the
immediately preceding fiscal week:

                  See EXHIBIT 9-R.

In the event that  Availability  equals Two Hundred  Fifty  Thousand  ($250,000)
Dollars or less for seven (7)  consecutive  days,  then  Borrower  shall provide
Lender with weekly cash flow reports in form and content satisfactory to Lender.
Failure on not more than two  occasions  to provide  such  reports by  Wednesday
shall not  constitute  an Event of Default  under  Section  10.3;  provided such
reports are provided by Friday of such week.

         9-6.     Monthly Reports.

                  (a)  Monthly,  the  Borrower  shall  provide  the Lender  with
original  counterparts of (each in such form as the Lender from time to time may
specify):

                           (i)      Within fifteen (15) days of  the  end of the
previous month:

                                    See EXHIBIT 9-R

                                       33
<PAGE>

                           (ii)     Within thirty (30) days of the  end  of  the
previous month:
                                    Statement of Gross Margin (Paragon format)

                                    See EXHIBIT 9-R

                  Failure on not more than two occasions to provide such reports
by the time  specified  shall not  constitute  an Event of Default under Section
10.3;  provided  such  reports  are  provided  within  five (5) days of the time
specified.

                  (b) For  purposes  of  Section  9-6(a)(i),  above,  the  first
"previous month" in respect of which the items required by that Section shall be
provided shall be December, 2000 and for purposes of Section 9-6(a)(ii),  above,
the first  "previous  month" in  respect  of which  the items  required  by that
Section shall be provided shall be December, 2000. For purposes of this section,
reports  for the month of January  shall be due no later than  thirty  (30) days
after the execution of this Agreement.

         9-7.     Annual Reports.

                  (a) In addition to the monthly reports  required under Article
9-6, annually, within sixty (60) days following the end of the Borrower's fiscal
year,  the Borrower  shall  furnish the Lender with draft  financial  statements
certified  by the Chief  Financial  Officer  of  Borrower  that,  to the best of
his/her  knowledge,  such  financial  statements  fairly  present the  financial
condition of the Borrower, and annually within one hundred and twenty (120) days
following the end of the Borrower's  fiscal year an original signed  counterpart
of the Borrower's  annual financial  statement,  which statement shall have been
prepared by, and bearing the unqualified opinion of, the Borrower's  independent
certified public  accountants  (i.e. said statement shall be "certified" by such
accountants).   Such  annual  statement  shall  include,   at  a  minimum  (with
comparative  information for the then prior fiscal year) a balance sheet, income
statement, statement of changes in shareholders' equity, and cash flows.

                  (b)  Each  annual  statement  shall  be  accompanied  by  such
accountant's   certificate  indicating  that  to  the  best  knowledge  of  such
accountant,  no event has occurred which is or which, solely with the passage of
time or the giving of notice (or both) would be, an Event of Default.

                  (c) Borrower  shall  provide  interim  draft annual  financial
statements  (inclusive  of subsequent  periods,  until year end  statements  are
delivered) within thirty (30) days of each year end.

         9-8.     Officers' Certificates.   The   Borrower   shall   cause   the
Borrower's  Chief  Financial  Officer to provide such Person's Certificate  with
those monthly, quarterly, and annual statements to be furnished pursuant to this
Agreement, which Certificate shall:

                  (a)  Indicate  that the  subject  statement  was  prepared  in
accordance  with GAAP  consistently  applied,  and presents fairly the financial
condition of the Borrower at the close of, and the results of the Borrower's

                                       34
<PAGE>

operations and cash flows for, the period(s) covered, subject, however (with the
exception of the Certificate  which  accompanies such annual statement) to usual
year end adjustments.

                  (b) Indicate either that (i) no Suspension  Event has occurred
or (ii) if such an event has occurred, its nature (in reasonable detail) and the
steps  (if any)  being  taken or  contemplated  by the  Borrower  to be taken on
account thereof.

                  (c) Include calculations  concerning the Borrower's compliance
(or  failure to comply) at the date of the  subject  statement  with each of the
financial  performance  covenants  included in Section 9-11 (and Exhibit 9-11) ,
below.

                  (d)  Indicate  that all taxes  (broken down by type and taxing
authority) have or have not been paid.

                  (e) Indicate that all rent and additional rent (broken down by
store location) due pursuant to any store lease have or have not been paid.

         9-9.     Inventories. Appraisals. and Audits.

                  (a)  The  Lender,   at  the  expense  of  the  Borrower,   may
participate in and/or observe each physical count and/or inventory of so much of
the  Collateral  as consists of Inventory  which is  undertaken on behalf of the
Borrower.

                  (b) Upon the Lender's  request from time to time, the Borrower
shall  obtain,  or shall  permit  the Lender to obtain  (in all  events,  at the
Borrower's expense) financial or SKU based physical counts and/or inventories of
the   Collateral,   conducted  by  such  inventory   takers  as  are  reasonably
satisfactory  to the Lender and following such  methodology as reasonably may be
required by the Lender,  each of which physical  counts and/or  financial or SKU
based  inventories shall be observed by the Borrower's  accountants.  The Lender
will  require the  Borrower to conduct  two (2) such counts  and/or  inventories
during each twelve (12) month period  during which this  Agreement is in effect,
but in its  discretion,  may  undertake  additional  such counts or  inventories
during such period.  The draft or unaudited results of all inventories or counts
shall be furnished to Lender promptly  thereafter and final,  reconciled results
within ten (10) business days of the taking of such  inventories or counts.  The
Borrower agrees that the Lender is entitled to request and receive directly from
the  inventory  taker the  unaudited or draft  results of any such  inventory or
audit.

                  (c) Upon the Lender's  request from time to time, the Borrower
shall permit the Lender to obtain  appraisals (in all events,  at the Borrower's
expense)  conducted by such  appraisers as are  reasonably  satisfactory  to the
Lender.

                  (d) The Lender  contemplates  conducting  three (3) commercial
finance  audits (in each event,  at the  Borrower's  expense) of the  Borrower's
books and  records  during  any  twelve  (12)  month  period  during  which this
Agreement is in effect,  but in its  discretion,  may undertake  additional such
audits during such period.

                                       35
<PAGE>

                  (e)  The  Lender  from  time to time  (in all  events,  at the
Borrower's  expense) may undertake "mystery shopping"  (so-called) visits to all
or any of the  Borrower's  business  premises.  The  Lender  shall  provide  the
Borrower  with a copy of any  non-company  confidential  results of such mystery
shopping upon Borrower's written request.

         9-10.    Additional Financial Information.

                  (a)  In  addition  to all  other  information  required  to be
provided  pursuant to this Article 9, the Borrower  promptly  shall  provide the
Lender with such other and  additional  information  concerning the Borrower and
any  guarantor  of  the  Liabilities,  the  Collateral,  the  operation  of  the
Borrower's business, and the Borrower's financial condition,  including original
counterparts of financial reports and statements, as the Lender may from time to
time request from the Borrower.

                  (b) The  Borrower  has  provided  the Lender  with its current
Business  Plan, a copy of which is annexed  hereto as EXHIBIT 9-10. The Borrower
may provide the  Lender,  from time to time  hereafter,  with  updated  Business
Plans. In all events, the Borrower,  not later than sixty (60) days prior to the
end of each of the  Borrower's  fiscal  years,  shall furnish the Lender with an
updated and extended  Business  Plan which shall go out at least through the end
of the then next fiscal year and the final  Business  Plan within  fifteen  (15)
days prior to the end of Borrower's fiscal year. In each event, such updated and
extended  Business Plans shall be prepared  pursuant to a methodology  and shall
include such assumptions as are reasonably satisfactory to the Lender. Routinely
throughout  the year,  the Lender,  following the receipt of any of such revised
forecast  which  reflects  a  material  adverse  change in  Borrower's  business
performance, may, but shall not be under any obligation to, revise the financial
performance covenants included on EXHIBIT 9-11, annexed hereto.

         9-11.    Financial   Performance    and   Inventory    Covenants.   The
Borrower  shall  observe  and  comply   with  those  financial  performance  and
inventory covenants set forth on EXHIBIT 9-11 annexed hereto.

         9-12.  Electronic  Reporting.  At Lender's  option all  information and
reports  required  to be supplied  to Lender by  Borrower  shall,  to the extent
readily  available,  be  transmitted  electronically  pursuant to an  electronic
transmitting  reporting system and shall be in a record layout format designated
by Lender from time to time.

ARTICLE 10 - EVENTS OF DEFAULT

         The occurrence of any event  described in this Article 10  respectively
shall constitute an "Event of Default" herein.  Upon the occurrence of any Event
of Default  described in Section 10-11, any and all Liabilities shall become due
and  payable  without  any  further  act on the  part of the  Lender.  Upon  the
occurrence of any other Event of Default,  any and all Liabilities  shall become
immediately  due and payable,  at the option of the Lender and without notice or
demand.  The occurrence of any Event of Default shall also  constitute,  without
notice or demand,  a default under all other  agreements  between the Lender and
the  Borrower  and  instruments  and papers  given the  Lender by the  Borrower,
whether such agreements, instruments, or papers now exist or hereafter arise.

                                       36
<PAGE>

         10-1.    Failure to Pay Revolving Credit. The failure by  the  Borrower
to pay any amount when due under the Revolving Credit.

         10-2.    Failure To Make Other  Payments.  The failure by the  Borrower
to pay within ten (10) days of the date when due (or upon demand, if payable  on
demand) any payment Liability other than under the Revolving Credit.

         10-3.  Failure to Perform Covenant or Liability (No Grace Period).  The
failure by the Borrower to promptly, punctually,  faithfully and timely perform,
discharge,  or comply with any covenant or Liability not otherwise  described in
section  10-1 or section  10-2,  above,  and  included  in any of the  following
provisions hereof:

                           Section Relates to:

                           5-4              Location of Collateral
                           5-5              Title to Assets
                           5-6              Indebtedness
                           5-7              Insurance Policies
                           5-12             Pay Taxes
                           5-21             Affiliate Transactions
                           5-23             Additional Assurances
                           Article 7        Cash Management
                           Article 9        Financial Reporting Requirements and
                                            Officer's Certificates

         10-4.  Failure to Perform  Covenant or Liability  (Grace  Period).  The
failure by the Borrower to  promptly,  punctually  and  faithfully  perform,  or
observe any term,  covenant or agreement on its part to be performed or observed
pursuant to any of the provisions of this Agreement,  other than those described
in Sections 10-1,  10-2 or 10-3, or in any other  agreement with Lender which is
not remedied  within the earlier of twenty (20) days after (i) notice thereof by
Lender to  Borrower,  or (ii) the date  Borrower  was required to give notice to
Lender pursuant to Section 9-3(a)(vi) hereof.

         10-5.    Misrepresentation.  The determination by the Lender  that  any
material  representation or warranty at any time made by  the  Borrower  to  the
Lender was not true or complete in all material respects when given.

         10-6.    Acceleration of Other Debt.  Breach of Lease.   The occurrence
of any event such that any Indebtedness of the  Borrower to any  creditor  other
than the Lender in excess of $100,000.00 is accelerated.

         10-7.  Default Under Other  Agreements.  The occurrence of any material
breach or material  default  under any  agreement  (other  than this  Agreement)
between the Lender and the Borrower or  instrument  or paper given the Lender by
the  Borrower,  whether  such  agreement,  instrument,  or paper  now  exists or
hereafter  arises  (notwithstanding  that the Lender may not have  exercised its
rights upon default under any such other agreement, instrument or paper).

                                       37
<PAGE>

         10-8.    Casualty Loss.  Non-Ordinary  Course Sales.  The occurrence of
any (a) uninsured loss,  theft,  damage, or  destruction  of  or to any material
portion of the Collateral, or (b) sale (other than sales in the  ordinary course
of business) of any material portion of the Collateral.

         10-9.    Judgment. Restraint of Business.

                  (a) The service of process upon the Lender or any  Participant
seeking to attach,  by trustee,  mesne, or other process,  any of the Borrower's
funds on deposit  with,  or assets of the  Borrower  in the  possession  of, the
Lender or such Participant in excess of $100,000.00.

                  (b) The entry of any judgment against the Borrower,  in excess
of $100,000.00 which judgment is not satisfied (if a money judgment) or appealed
from (with  execution or similar  process stayed) within thirty (30) days of its
entry.

                  (c) The  entry of any  order or the  imposition  of any  other
process  having  the force of law,  the  effect of which is to  restrain  in any
material way the conduct by the Borrower of its business in the ordinary course.

         10-10.  Business  Failure.  Any act by,  against,  or  relating  to the
Borrower,  or its property or assets, which act constitutes the application for,
consent to, or sufferance of the  appointment of a receiver,  trustee,  or other
Person,  pursuant  to court  action or  otherwise,  over all, or any part of the
Borrower's  property;  the  granting of any trust  mortgage or  execution  of an
assignment  for the benefit of the creditors of the Borrower,  or the occurrence
of any other voluntary or involuntary liquidation or extension of debt agreement
for the  Borrower;  or the  offering by or entering  into by the Borrower of any
composition,  extension,  or  any  other  arrangement  seeking  relief  from  or
extension of the debts of the Borrower,  or the initiation of any other judicial
or non-judicial  proceeding or agreement by, against,  or including the Borrower
which  seeks or intends to  accomplish  a  reorganization  or  arrangement  with
creditors.

         10-11.  Bankruptcy.  The failure by the Borrower to  generally  pay the
debts of the Borrower as they mature; the filing of any complaint,  application,
or  petition  by or  against  the  Borrower  initiating  any matter in which the
Borrower is or may be granted any relief from the debts of the Borrower pursuant
to the Bankruptcy Code or any other insolvency statute or procedure.

         10-12.  Insecurity.  The occurrence of any event or  circumstance  with
respect to the Borrower  such that Lender  shall  believe in good faith that the
prospect of payment of all or any part of the  Liabilities or the performance by
the Borrower under this Agreement or any other agreement  between the Lender and
the Borrower is materially  impaired and it is unlikely  that Borrower  would be
able to cure such event or circumstance.

         10-13. Default by Guarantor or Related Entity. The occurrence of any of
the  foregoing   Events  of  Default  with  respect  to  any  guarantor  of  the
Liabilities,  or the  occurrence of any of the foregoing  Events of Default with
respect to any parent (if the Borrower is a corporation), subsidiary, or Related
Entity,  as if such  guarantor,  parent,  or Related  Entity were the "Borrower"
described therein. For purposes of this Agreement .Com shall not be considered a
"Related Entity".

                                       38
<PAGE>

         10-14.  Indictment - Forfeiture.  The  indictment of, or institution of
any legal process or proceeding against, the Borrower,  any Executive Officer or
any guarantor of the Liabilities under any federal, state, municipal,  and other
civil or criminal statute, rule, regulation,  order, or other requirement having
the force of law where the relief,  penalties,  or remedies  sought or available
include the forfeiture of any property of the Borrower  and/or the imposition of
any  stay or other  order,  the  effect  of which  could be to  restrain  in any
material way the conduct by the Borrower of its business in the ordinary course.

         10-15.   Termination  of  Guaranty.    The   termination  or  attempted
termination  of any  guaranty  by any  guarantor  of the Liabilities.

         10-16.   Challenge to Loan Documents.

                  (a) Any  challenge  by or on  behalf  of the  Borrower  or any
guarantor  of the  Liabilities  to the  validity  of any  Loan  Document  or the
applicability or enforceability of any Loan Document strictly in accordance with
the subject  Loan  Document's  terms or which seeks to void,  avoid,  limit,  or
otherwise  adversely  affect  any  security  interest  created by or in any Loan
Document or any payment made pursuant thereto.

                  (b) Any  determination  by any court or any other  judicial or
government  authority  that any Loan  Document  is not  enforceable  strictly in
accordance  with the  subject  Loan  Document's  terms or which  voids,  avoids,
limits, or otherwise adversely affects any security interest created by any Loan
Document or any payment made pursuant thereto.

         10-17.   Executive Management.   The  death, disability,  or failure of
any  two  of the following Persons:   Jerry R. Welch,   Raymond P. Springer  and
Marilyn  Platfoot at any time to exercise  that authority  and  discharge  those
management  responsibilities  with respect to the Borrower as  are exercised and
discharged  by  such  Person  at  the  execution of this  Agreement  unless such
Person(s) is replaced within sixty (60) days of the operative event  with  a new
Person(s) charged with exercising such management responsibilities.

         10-18.  Change in Control.  Any change in the  ownership of the capital
stock of the Borrower  such that Control of the Borrower is no longer  vested in
parties,  individually  or  collectively  with  other  such  parties,  that were
reported as beneficial owners on the Company's Annual Report on Form 10K/A filed
May 12, 2000.

         10-19.  Material Adverse Change. If there is a Material Adverse Change.

ARTICLE 11 - RIGHTS AND REMEDIES UPON DEFAULT

         In addition to all of the rights,  remedies,  powers,  privileges,  and
discretions  which the Lender is provided prior to the occurrence of an Event of
Default,  the Lender  shall have the  following  rights  and  remedies  upon the
occurrence  of any Event of Default  and at any time  thereafter.  No stay which
otherwise might be imposed pursuant to the Bankruptcy Code or otherwise shall

                                       39
<PAGE>

stay, limit, prevent, hinder, delay, restrict, or otherwise prevent the Lender's
exercise of any of such rights and remedies.

         11-1.    Rights of  Enforcement.   The  Lender shall  have all  of  the
rights and remedies of a secured  party upon default  under the UCC, in addition
to which the  Lender  shall  have  all  and  each  of  the  following rights and
remedies:

                  (a)      To collect the Receivables Collateral with or without
the taking of possession of any of  the Collateral.

                  (b)      To  take  possession  of  all  or  any portion of the
Collateral.

                  (c) To sell,  lease, or otherwise dispose of any or all of the
Collateral, in its then condition or following such preparation or processing as
the Lender deems  advisable  and with or without the taking of possession of any
of the Collateral.

                  (d) To  conduct  one or  more  going  out of  business  sales,
strategic  sales or other sales which include the sale or other  disposition  of
the Collateral.

                  (e)      To apply the  Receivables  Collateral or the proceeds
of the  Collateral  towards (but not  necessarily  in complete  satisfaction of)
the Liabilities.

                  (f)      To  exercise  all  or  any  of  the rights, remedies,
powers, privileges, and discretions under all or any of the Loan Documents.

         11-2.    Sale of Collateral.

                  (a) Any sale or other  disposition of the Collateral may be at
public or private  sale upon such terms and in such  manner as the Lender  deems
advisable,  having due regard to compliance with any statute or regulation which
might affect, limit, or apply to the Lender's disposition of the Collateral.

                  (b) The Lender,  in the  exercise of the  Lender's  rights and
remedies upon default,  may conduct one or more going out of business  sales, in
the  Lender's own right or by one or more agents and  contractors.  Such sale(s)
may be conducted upon any premises owned,  leased,  or occupied by the Borrower.
To the extent permitted by law, the Lender and any such agent or contractor,  in
conjunction  with any such sale, may augment the Inventory with other goods (all
of which other goods shall remain the sole  property of the Lender or such agent
or  contractor).  Any  amounts  realized  from  the  sale  of such  goods  which
constitute  augmentations  to the  Inventory  (net of an allocable  share of the
costs and expenses incurred in their  disposition) shall be the sole property of
the Lender or such agent or  contractor  and neither the Borrower nor any Person
claiming under or in right of the Borrower shall have any interest therein.

                  (c)  Unless the  Collateral  is  perishable  or  threatens  to
decline  speedily in value,  or is of a type  customarily  sold on a  recognized
market (in which event the Lender shall provide the Borrower with such notice as
may be practicable under the circumstances),  the Lender shall give the Borrower
at least five (5) days prior written notice of the date, time, and place of any

                                       40
<PAGE>

proposed  public  sale,  and of the date after which any  private  sale or other
disposition of the Collateral may be made. The Borrower agrees that such written
notice  shall  satisfy all  requirements  for notice to the  Borrower  which are
imposed  under the UCC or other  applicable  law with respect to the exercise of
the Lender's rights and remedies upon default.

                  (d) The Lender may purchase the Collateral,  or any portion of
it at any sale held under this Article.

                  (e) The Lender shall apply the proceeds of any exercise of the
Lender's  Rights and Remedies  under this Article 11 towards the  Liabilities in
such manner, and with such frequency, as the Lender determines.

         11-3.  Occupation of Business Location. In connection with the Lender's
exercise  of the  Lender's  rights  under this  Article 11, the Lender may enter
upon,  occupy,  and use any premises owned or occupied by the Borrower,  and may
exclude the Borrower from such  premises or portion  thereof as may have been so
entered upon, occupied,  or used by the Lender. The Lender shall not be required
to remove any of the Collateral  from any such premises upon the Lender's taking
possession thereof,  and may render any Collateral unusable to the Borrower.  In
no event shall the Lender be liable to the  Borrower for use or occupancy by the
Lender of any premises  pursuant to this Article 11, nor for any charge (such as
wages for the Borrower's  employees and utilities)  incurred in connection  with
the Lender's exercise of the Lender's Rights and Remedies.

         11-4. Grant of Nonexclusive  License. The Borrower hereby grants to the
Lender a royalty free nonexclusive  irrevocable license to use, apply, and affix
any  trademark,  tradename,  logo,  or the like in  which  the  Borrower  now or
hereafter has rights,  such license being with respect to the Lender's  exercise
of the rights hereunder  including,  without limitation,  in connection with any
completion  of the  manufacture  of  Inventory or sale or other  disposition  of
Inventory.

         11-5.  Assembly of  Collateral.  The Lender may require the Borrower to
assemble the  Collateral  and make it available to the Lender at the  Borrower's
sole risk and expense at a place or places which  are reasonably  convenient  to
both the Lender and Borrower.

         11-6. Rights and Remedies. The rights,  remedies,  powers,  privileges,
and  discretions  of the Lender  hereunder  (herein,  the  "Lender's  Rights and
Remedies") shall be cumulative and not exclusive of any rights or remedies which
it would  otherwise  have.  No delay or omission by the Lender in  exercising or
enforcing  any  of the  Lender's  Rights  and  Remedies  shall  operate  as,  or
constitute, a waiver thereof. No waiver by the Lender of any Event of Default or
of any default under any other  agreement shall operate as a waiver of any other
default hereunder or under any other agreement. No single or partial exercise of
any of the Lender's Rights or Remedies,  and no express or implied  agreement or
transaction  of whatever  nature entered into between the Lender and any Person,
at any time, shall preclude the other or further exercise of the Lender's Rights
and Remedies. No waiver by the Lender of any of the Lender's Rights and Remedies
on any one occasion  shall be deemed a waiver on any  subsequent  occasion,  nor
shall it be deemed a continuing  waiver. All of the Lender's Rights and Remedies
and all of the Lender's rights, remedies,  powers,  privileges,  and discretions
under any other agreement or transaction are cumulative, and not alternative or

                                       41
<PAGE>

exclusive,  and may be exercised by the Lender at such time or times and in such
order of  preference as the Lender in its sole  discretion  may  determine.  The
Lender's  Rights and Remedies may be exercised  without  resort or regard to any
other source of satisfaction of the Liabilities.

ARTICLE 12 - NOTICES

         12-1. Notice Addresses. All notices,  demands, and other communications
made in respect of this Agreement (other than a request for a loan or advance or
other financial  accommodation  under the Revolving Credit) shall be made to the
following  addresses,  each of which may be changed  upon seven (7) days written
notice to all others given by certified mail, return receipt requested:

         If to the Lender:           Paragon Capital LLC
                                     Hillsite Office Building
                                     75 Second Avenue, Suite 400
                                     Needham, Massachusetts 02494
                                     Attention:  Andrew H. Moser, President
                                     Phone: (781) 707-2100
                                     Fax:   (781) 707-2107

         With a copy to:             Mary Ellen Welch Rogers, Esq.
                                     Brian T. Garrity, Esq.
                                     Shapiro, Israel & Weiner, P.C.
                                     100 North Washington Street
                                     Boston, Massachusetts 02114
                                     Phone: (617) 742-4200
                                     Fax:   (617) 742-2355

         If to the Borrower:         The Right Start, Inc.
                                     5388 Sterling Center Drive
                                     Westlake Village, California 91361
                                     Attention:  Jerry R. Welch/Legal
                                     Phone:   (818) 707-7100
                                     Fax:     (818) 707-7132

         12-2.    Notice Given.

                  (a) Except as otherwise  specifically provided herein, notices
shall be deemed made and  correspondence  received,  as follows (all times being
local to the place of delivery or receipt):

                           (i)      By  mail:   the  sooner  of  when   actually
received or three (3) days following deposit in the United States mail,  postage
prepaid.

                           (ii)     By recognized  overnight  express  delivery:
the Banking Day following the day when sent.

                                       42
<PAGE>

                           (iii)    By hand:  If  delivered  on  a  Banking  Day
after 9:00 A.M. and no  later  than  three (3)  hours  prior  to  the  close  of
customary business hours of the  recipient, when  delivered.  Otherwise,  at the
opening of the then next Banking Day.

                           (iv)     By  facsimile   transmission   (which   must
include a header indicating the party sending such  transmission):  If sent on a
Banking Day after 9:00 A.M. and no later than Three (3) hours prior to the close
of customary  business  hours of the  recipient,  one (1) hour after being sent.
Otherwise, at the opening of the then next Banking Day.

                  (b)  Rejection or refusal to accept  delivery and inability to
deliver because of a changed address or facsimile number for which no due notice
was given shall each be deemed receipt of the notice sent.

ARTICLE 13 - TERM

         13-1.  Termination  of  Revolving  Credit.  This  Agreement  is, and is
intended to be, a continuing agreement and shall remain in full force and effect
for an initial term ending on the Maturity  Date,  and thereafter for successive
twelve-month  periods,  each  beginning  on the 23rd day of January  (commencing
January 23, 2006) of each year and ending on January 22nd of the following  year
(each such twelve-month period is hereinafter  referred to as a "renewal term");
provided,  however, that either party may terminate this Agreement as of the end
of the initial  term or any  subsequent  renewal  term by giving the other party
notice to terminate  in writing at least one hundred  twenty (120) days prior to
the end of any such period  whereupon at the end of such period all  Liabilities
shall be due and payable in full without presentation, demand, or further notice
of any kind,  whether or not all or any part of the Liabilities is otherwise due
and payable pursuant to the agreement or instrument  evidencing same. Lender may
terminate this Agreement  immediately  and without notice upon the occurrence of
an Event of Default. Notwithstanding the foregoing or anything in this Agreement
or  elsewhere  to the  contrary,  the  security  interest,  Lender's  rights and
remedies  hereunder and Borrower's  obligations and liabilities  hereunder shall
survive any  termination  of this  Agreement  and shall remain in full force and
effect until all of the Liabilities outstanding,  or contracted or committed for
(whether or not outstanding),  before the receipt of such notice by Lender,  and
any extensions or renewals thereof (whether made before or after receipt of such
notice),  together with interest  accruing  thereon after such notice,  shall be
finally  and  irrevocably  paid in full.  No  Collateral  shall be  released  or
financing statement  terminated until such final and irrevocable payment in full
of the Liabilities, as described in the preceding sentence.

         13-2. Effect of Termination.  Upon the termination of Revolving Credit,
the  Borrower  shall pay the Lender  (whether or not then due),  in  immediately
available funds, all then Liabilities including,  without limitation: the entire
balance of the Loan Account;  any then remaining  installments of the Commitment
Fee; any then remaining balances of the Annual Facility Fee and Loan Maintenance
Fee;  any accrued and unpaid  Unused Line Fee;  any  Prepayment  Premium and all
unreimbursed  costs  and  expenses  of the  Lender  for which  the  Borrower  is
responsible,  and  shall  make  such  arrangements  concerning  any  L/C's  then
outstanding are reasonably  satisfactory to the Lender.  Until such payment, all
provisions  of this  Agreement,  other than those  contained  in Article 1 which
place an  obligation  on the Lender to make any loans or  advances or to provide
financial accommodations under the Revolving Credit or otherwise, shall remain

                                       43
<PAGE>

in full force and effect until all Liabilities shall have been paid in full. The
release  by the  Lender of the  security  interests  granted  the  Lender by the
Borrower  hereunder  may be upon such  conditions  and  indemnifications  as the
Lender may require.

         13-3.  Prepayment  Premium.  If  (A)  Borrower  pays  in  full  all  or
substantially  all of the  Liabilities  prior to the end of the initial  term of
this  Agreement (or any renewal  term),  other than (i)  temporarily  from funds
internally  generated in the ordinary  course of business or (ii) as a result of
the Borrower obtaining a larger credit facility from Lender from time to time or
(iii) as a result of  payment in full made in the last  ninety  (90) days of the
initial  term of this  Agreement  (or any renewal  term) or (iv) payment in full
within  sixty (60) days after  Lender adds  Availability  Reserves of a type not
included in the Borrowing Base  Certificate at Closing in an aggregate amount in
excess of $250,000.00 (in which event one-half of the then applicable prepayment
premium shall be due and payable) or (B) following an  acceleration by Lender of
the Liabilities  pursuant to Article 10 hereof, at the time of such payment,  or
upon  acceleration  as the  case may be,  Borrower  shall  also pay to  Lender a
prepayment  premium in an amount  equal to (i) three (3%)  percent of the Credit
Limit if prepaid during the first year after the Closing Date of this Agreement;
provided,  however,  in the event that  during the first year after the  Closing
Date of this Agreement only (a) Borrower obtains an equity injection of at least
$10,000,000.00  and pays off Lender in full,  provided Lender is granted a right
of first option to provide any new debt  financing  which the Borrower  seeks to
obtain  at that  time or (b) if the  Lender  is paid in full  due to the sale or
acquisition  of the  Borrower  then such fee will be reduced to one and one half
(1.5%)  percent  of the  Credit  Limit;  or (ii) one (1%)  percent of the Credit
Limit, if prepaid after the first anniversary of the Closing Date.

                  Such prepayment  premium shall be paid to Lender as liquidated
damages for the loss of the bargain by Lender and not as a penalty.

ARTICLE 14 - GENERAL

         14-1.  Protection  of  Collateral.  The  Lender  has no  duty as to the
collection or protection  of the  Collateral  beyond the safe custody of such of
the  Collateral as may come into the  possession of the Lender and shall have no
duty as to the  preservation of rights against prior parties or any other rights
pertaining  thereto.  The Lender may include  reference to the Borrower (and may
utilize any logo or other  distinctive  symbol  associated with the Borrower) in
connection  with any  advertising,  promotion,  or marketing  undertaken  by the
Lender,  provided  Lender shall use and display symbols and notices of ownership
of the Borrower's marks clearly and sufficiently  indicating ownership status of
the marks (if known by Lender) and in accordance with  applicable  trademark law
and practice.  Lender shall use all reasonable efforts to insure that Borrower's
marks are not  impaired  and that  Lender  does not  damage the  reputation  for
quality  inherent  in the  marks.  When using the  marks,  Lender  shall use all
reasonable efforts not to create any composite or unitary marks.

         14-2.  Successors and Assigns. This Agreement shall be binding upon the
Borrower and the Borrower's  representatives,  successors, and assigns and shall
enure to the  benefit of the  Lender and the  Lender's  successors  and  assigns
provided,  however,  no trustee or other fiduciary appointed with respect to the
Borrower shall have any rights  hereunder.  In the event that the Lender assigns
or transfers its rights under this Agreement, the assignee shall thereupon

                                       44
<PAGE>

succeed to and become vested with all rights, powers,  privileges, and duties of
the Lender  hereunder and the Lender shall  thereupon be discharged and relieved
from its duties and obligations hereunder.

         14-3.  Severability.  Any  determination  that  any  provision  of this
Agreement or any application  thereof is invalid,  illegal,  or unenforceable in
any  respect  in any  instance  shall not  affect  the  validity,  legality,  or
enforceability  of  such  provision  in any  other  instance,  or the  validity,
legality, or enforceability of any other provision of this Agreement.

         14-4.    Amendments. Course of Dealing.

                  (a) This  Agreement and the other Loan  Documents  incorporate
all discussions  and  negotiations  between the Borrower and the Lender,  either
express or implied,  concerning  the matters  included  herein and in such other
instruments,   any  custom,  usage,  or  course  of  dealings  to  the  contrary
notwithstanding. No such discussions,  negotiations, custom, usage, or course of
dealings shall limit,  modify,  or otherwise affect the provisions  thereof.  No
failure by the Lender to give notice to the  Borrower of the  Borrower's  having
failed to observe and comply with any warranty or covenant  included in any Loan
Document shall constitute a waiver of such warranty or covenant or the amendment
of the  subject  Loan  Document.  No change  made by the Lender in the manner by
which  Availability  is  determined  shall  obligate  the Lender to  continue to
determine Availability in that manner.

                  (b) The Borrower may undertake any action otherwise prohibited
hereby, and may omit to take any action otherwise required hereby, upon and with
the  express  prior  written  consent of the Lender.  No consent,  modification,
amendment,  or waiver of any provision of any Loan  Document  shall be effective
unless  executed in writing by or on behalf of the party to be charged with such
modification,  amendment,  or waiver (and if such party is the Lender, then by a
duly  authorized  officer  thereof).  Any  modification,  amendment,  or  waiver
provided  by the  Lender  shall  be in  reliance  upon all  representations  and
warranties  theretofore  made to the Lender by or on behalf of the Borrower (and
any guarantor,  endorser,  or surety of the Liabilities) and consequently may be
rescinded in the event that any of such  representations  or warranties  was not
true and complete in all material respects when given.

         14-5.  Power of  Attorney.  In  connection  with all powers of attorney
included in this  Agreement,  the  Borrower  hereby  grants unto the Lender full
power to do any and all things  necessary or appropriate in connection  with the
exercise of such powers as fully and  effectually as the Borrower might or could
do,  hereby  ratifying  all that said  attorney  shall do or cause to be done by
virtue of this Agreement. No power of attorney set forth in this Agreement shall
be affected by any  disability or  incapacity  suffered by the Borrower and each
shall survive the same. All powers  conferred upon the Lender by this Agreement,
being coupled with an interest,  shall be  irrevocable  until this  Agreement is
terminated by a written instrument  executed by a duly authorized officer of the
Lender.

         14-6. Application of Proceeds. The proceeds of any collection, sale, or
disposition  of the  Collateral,  or of any other payments  received  hereunder,
shall be applied  towards the Liabilities in such order and manner as the Lender
determines  in its sole  discretion.  The Borrower  shall remain  liable for any
deficiency remaining following such application.

                                       45
<PAGE>

         14-7. Lender's Costs and Expenses. The Borrower shall pay on demand all
Costs of Collection and all reasonable expenses of the Lender in connection with
the preparation, execution, and delivery of this Agreement and of any other Loan
Documents,  whether now existing or hereafter arising,  and all other reasonable
expenses which may be incurred by the Lender in monitoring  compliance with this
Agreement and in preparing or amending this Agreement and all other  agreements,
instruments,  and documents related thereto,  or otherwise incurred with respect
to the Liabilities, including, without limiting the generality of the foregoing,
any  counsel  fees  or  expenses   incurred  in  any  bankruptcy  or  insolvency
proceedings.  The Borrower  specifically  authorizes  the Lender to pay all such
fees and expenses and in the Lender's discretion,  to add such fees and expenses
to the Loan  Account.  Borrower  shall be  obligated,  from time to time, to pay
Lender's  fees,  including  reasonable  attorneys'  fees  and  expenses  for the
preparation,  negotiation,  amendment and  interpretation  of this Agreement and
related documents.

         14-8.  Copies and  Facsimiles.  This Agreement and all documents  which
relate thereto,  which have been or may be hereinafter  furnished the Lender may
be reproduced by the Lender by any photographic, microfilm, xerographic, digital
imaging,  or  other  process,  and  the  Lender  may  destroy  any  document  so
reproduced.  Any  such  reproduction  shall be  admissible  in  evidence  as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence  and whether or not such  reproduction  was made in the
regular  course of business).  Any facsimile  which bears proof of  transmission
shall be binding on the party  which or on whose  behalf such  transmission  was
initiated and likewise  shall be so admissible in evidence as if the original of
such  facsimile  had been  delivered  to the party which or on whose behalf such
transmission was received.

         14-9.    Massachusetts   Law.   This  Agreement  and   all  rights  and
obligations  hereunder,  including   matters  of   construction,  validity,  and
performance, shall be governed by the laws of The Commonwealth of Massachusetts.

         14-10.   Consent to Jurisdiction.

                  (a) The  Borrower  agrees that any legal  action,  proceeding,
case, or controversy  against the Borrower with respect to any Loan Document may
be brought in the Superior Court of Middlesex  County,  Massachusetts  or in the
United States  District  Court,  District of  Massachusetts,  sitting in Boston,
Massachusetts,  as the  Lender may elect in the  Lender's  sole  discretion.  By
execution  and  delivery  of this  Agreement,  the  Borrower,  for itself and in
respect  of  its  property,   accepts,   submits,  and  consents  generally  and
unconditionally, to the jurisdiction of the aforesaid courts.

                  (b)  Nothing  herein  shall  affect the right of the Lender to
bring legal actions or proceedings in any other competent jurisdiction.

                  (c) The  Borrower  agrees  that any  action  commenced  by the
Borrower asserting any claim or counterclaim arising under or in connection with
this  Agreement  or any  other  Loan  Document  shall be  brought  solely in the
Superior  Court of  Middlesex  County,  Massachusetts  or in the  United  States
District Court, District of Massachusetts, sitting in Boston, Massachusetts, and

                                       46
<PAGE>

that such Courts  shall have  exclusive  jurisdiction  with  respect to any such
action.

         14-11. Indemnification.  The Borrower shall indemnify, defend, and hold
the  Lender  and any  employee,  officer,  or  agent  of the  Lender  (each,  an
"Indemnified  Person")  harmless of and from any damages,  losses,  obligations,
liabilities,  claims, actions or causes of action, including without limitation,
with respect to taxes and interest and penalties with respect  thereto,  brought
or threatened against any Indemnified  Person by the Borrower,  any guarantor or
endorser of the  Liabilities,  or any other  Person (as well as from  attorneys'
reasonable  fees  and  expenses  in  connection  therewith)  on  account  of the
relationship  of the Borrower or of any guarantor or endorser of the Liabilities
with the  Lender or any other  Indemnified  Person(each  of which  claims may be
defended,  compromised,  settled,  or pursued  by the  Indemnified  Person  with
counsel of the Lender's  selection,  but at the expense of the  Borrower)  other
than  any  claim  as to  which a  final  determination  is  made  in a  judicial
proceeding  (in which the  Lender  and any other  Indemnified  Person has had an
opportunity to be heard),  which determination  includes a specific finding that
the Indemnified Person seeking  indemnification had acted in a grossly negligent
manner or in actual bad faith. This indemnification shall survive payment of the
Liabilities and/or any termination, release, or discharge executed by the Lender
in favor of the Borrower.

         14-12. Right of Set-Off. Any and all deposits or other sums at any time
credited by or due to the undersigned from the Lender or from any participant (a
"Participant")  with the Lender in the credit facility  contemplated  hereby and
any cash,  securities,  instruments or other property of the  undersigned in the
possession  of the  Lender  or  any  Participant,  whether  for  safekeeping  or
otherwise  (regardless of the reason such Person had received the same) shall at
all  times  constitute  security  for  all  Liabilities  and  for  any  and  all
obligations  of the  undersigned to the Lender and any  Participant,  and may be
applied or set off against the Liabilities  and against such  obligations at any
time,  whether or not such are then due and whether or not other  collateral  is
then available to the Lender or any Participant.

         14-13.  Usury Savings Clause. It is the intention of the parties hereto
to  comply   strictly  with   applicable   usury  laws,  if  any;   accordingly,
notwithstanding  any  provisions to the contrary in this  Agreement or any other
Loan Documents,  in no event shall this Agreement or such Loan Document  require
or permit the payment, taking, reserving,  receiving,  collecting or charging of
any sums  constituting  interest under  applicable laws which exceed the maximum
amount  permitted  by such laws.  If any such  excess  interest  is called  for,
contracted  for,  charged,  paid,  taken,  reserved,  collected  or  received in
connection with the Liabilities or in any  communication  by Lender or any other
Person to the Borrower or any other  Person,  or in the event all or part of the
principal  of  the   Liabilities  or  interest   thereon  shall  be  prepaid  or
accelerated,  so that  under  any of  such  circumstances  or  under  any  other
circumstance  whatsoever the amount of interest contracted for, charged,  taken,
collected, reserved, or received on the amount of principal actually outstanding
from time to time under  this  Agreement  shall  exceed  the  maximum  amount of
interest  permitted by applicable  usury laws, if any, then in any such event it
is agreed as follows:  (i) the  provisions  of this  paragraph  shall govern and
control,  (ii)  neither  the  Borrower  nor any other  Person  or entity  now or
hereafter  liable for the payment of the  Liabilities  shall be obligated to pay
the amount of such  interest  to the extent  such  interest  is in excess of the
maximum amount of interest permitted by applicable usury laws, if any, (iii) any
such excess which is or has been received  notwithstanding  this paragraph shall
be credited against the then unpaid principal balance hereof or, if the

                                       47
<PAGE>

Liabilities  have been or would be paid in full by such credit,  refunded to the
Borrower,  and  (iv)  the  provisions  of  this  Agreement  and the  other  Loan
Documents,  and any  communication to the Borrower,  shall immediately be deemed
reformed and such excess  interest  reduced,  without the necessity of executing
any other document,  to the maximum lawful rate allowed under applicable laws as
now or hereafter  construed  by courts  having  jurisdiction  hereof or thereof.
Without  limiting  the  foregoing,  all  calculations  of the  rate of  interest
contracted for, charged, taken,  collected,  reserved, or received in connection
herewith which are made for the purpose of determining whether such rate exceeds
the maximum lawful rate shall be made to the extent permitted by applicable laws
by amortizing, prorating, allocating and spreading during the period of the full
term of the  Liabilities,  including  all  prior  and  subsequent  renewals  and
extensions,  all interest at any time contracted for, charged, taken, collected,
reserved  or  received.  The  terms  of this  paragraph  shall be  deemed  to be
incorporated  in  every  Loan  Document  and   communication   relating  to  the
Liabilities.

         14-14.   Waivers.

                  (a) The Borrower and each and every guarantor,  endorser,  and
surety  of the  Liabilities)  makes  each of the  waivers  included  in  Section
14-14(b), below, knowingly, voluntarily, and intentionally, and understands that
the Lender, in entering into the financial arrangements  contemplated hereby and
in providing loans and other financial  accommodations  to or for the account of
the  Borrower as provided  herein,  whether not or in the future,  is relying on
such waivers.

                  (b)      THE BORROWER, AND EACH SUCH GUARANTOR, ENDORSER,  AND
SURETY RESPECTIVELY WAIVES THE FOLLOWING.

                           (i)      Except as  otherwise  specifically  required
in this Agreement, notice of non-payment,  demand, presentment,  protest and all
forms of  demand  and  notice,  both with  respect  to the  Liabilities  and the
Collateral.

                           (ii)     Except as  otherwise  specifically  required
in this  Agreement,  the right to notice  and/or  hearing  prior to the Lender's
 exercising of the Lender's rights upon default.

                           (iii)    THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE
OR  CONTROVERSY  IN WHICH THE LENDER IS OR BECOMES A PARTY (WHETHER SUCH CASE OR
CONTROVERSY  IS  INITIATED  BY OR  AGAINST  THE LENDER OR IN WHICH THE LENDER IS
JOINED AS A PARTY  LITIGANT),  WHICH CASE OR CONTROVERSY  ARISES OUT OF OR IS IN
RESPECT OF, ANY RELATIONSHIP AMONGST OR BETWEEN THE BORROWER OR ANY OTHER PERSON
AND THE LENDER (AND THE LENDER  LIKEWISE WAIVES THE RIGHT TO A JURY IN ANY TRIAL
OF ANY SUCH CASE OR CONTROVERSY).

                           (iv)     Intentionally deleted.

                           (v)      Any    defense,   counterclaim,     set-off,
recoupment,  or other basis on which the amount of any  Liability,  as stated on
the books and records of the Lender, could be reduced or claimed to be paid

                                       48
<PAGE>

otherwise  than  in  accordance  with the tenor of and  written  terms  of  such
Liability.

                           (vi)     Any  claim  to  consequential,   special, or
punitive damages.

         14-15.   Confidentiality.  This  Agreement  and  the  terms  hereof are
confidential,  and neither the contents of this Agreement or the details of this
Agreement may be shown or  disclosed  by  the  Borrower  to  any  bank,  finance
company or other lender  without the prior written consent of the Lender.

         14-16.   Right to Publish  Notice.  Lender may, at Lender's  discretion
and  expense,   publicize  or   otherwise  advertise  by  so-called  "tombstone"
advertising or otherwise Lender's and any  Participant's  financing  transaction
with the Borrower.

         14-17.  Entities Related to Lender.  Borrower  acknowledges notice that
Lender is affiliated with The Ozer Group, LLC ("Ozer"), Ozer Valuation Services,
Inc. ("Ozer Valuation"),  Ozer Wholesale Services,  Inc. ("OWS") and Ozer Retail
Services LLC ("ORS"). Ozer, Ozer Valuation,  OWS, ORS and other entities related
to  Lender  may,  from  time to time act as a  merchant  consultant  or  provide
merchant  services,  appraisal  services or other  services  (including  without
limitation, observation of physical inventories conducted in the ordinary course
or in  connection  with store  closings)  to Lender  with  respect to  Borrower.
Borrower  agrees that none of Lender,  Ozer,  Ozer  Valuation,  OWS, ORS nor any
other related entities shall have any liability to Borrower, and Borrower agrees
that  Borrower  shall have no claim against any of such  entities,  based on the
existence of such relationship.

         14-18.  Credit  Inquiries.  Borrower  authorizes  Lender to  (provided,
however,  Lender shall incur no liability  for the failure to) respond to credit
inquiries  concerning  Borrower in accordance with Lender's normal and customary
practices.  Borrower hereby indemnifies and holds Lender harmless for any action
taken by Lender in reliance upon the foregoing authorization.

         Executed as a sealed instrument this 23rd day of January 2001.

                                    THE RIGHT START, INC.
                                   (BORROWER)

                                    By:/s/ Jerry R. Welch
                                    Print Name: Jerry R. Welch
                                    Title: President and Chief Executive Officer

                                    PARAGON CAPITAL LLC
                                    (LENDER)

                                    By:/s/ Andrew H. Moser
                                    Print Name: Andrew H. Moser
                                    Title: President & COO

                                       49
<PAGE>

                   EXHIBIT 1-6 TO LOAN AND SECURITY AGREEMENT

                                   MASTER NOTE
                                   (REVOLVING)

$10,000,000.00                                            Needham, Massachusetts
                                                             _____________, 2001

         For  value  received,  the  undersigned,   The  Right  Start,  Inc.,  a
California corporation (the "Borrower"),  hereby promises to pay on the Maturity
Date (as defined in the Loan  Agreement) to the order of Paragon  Capital LLC, a
Delaware  limited  liability  company  (the  "Lender"),  at its main  office  in
Needham,  Massachusetts,  or at any other  place  designated  at any time by the
holder  hereof,  in  lawful  money  of  the  United  States  of  America  and in
immediately  available funds, the principal sum of Ten Million  ($10,000,000.00)
Dollars or, if less, the aggregate  unpaid principal amount of all advances made
by the Lender to the Borrower hereunder, together with interest on the principal
amount hereunder  remaining  unpaid from time to time,  computed on the basis of
the actual number of days elapsed and a 360-day year, from the date hereof until
this Note is fully  paid at the rate from time to time in effect  under the Loan
and  Security  Agreement of even date  herewith  (the "Loan  Agreement")  by and
between the Lender and the Borrower.  The principal hereof and interest accruing
thereon  shall be due and payable as provided in the Loan  Agreement.  This Note
may be prepaid only in accordance with the Loan Agreement.

         This Note is issued  pursuant,  and is subject,  to the Loan Agreement,
which provides,  among other things, for acceleration  hereof.  This Note is the
Master Note referred to in the Loan Agreement.

         This  Note  is  secured,  among  other  things,  pursuant  to the  Loan
Agreement  and may now or  hereafter  be secured  by one or more other  security
agreements,  mortgages,  deeds of trust,  assignments  or other  instruments  or
agreements.

         The Borrower  hereby agrees to pay all costs of  collection,  including
attorneys'  fees and legal expenses in the event this Note is not paid when due,
whether or not legal proceedings are commenced.

         Presentment or other demand for payment, notice of dishonor and protest
are expressly waived.

         This Note shall be deemed to be under seal.

                                       THE RIGHT START, INC.

                                       By:______________________________________

                                       50
<PAGE>

                                    EXHIBIT 3

         "Acceptable  Inventory":  Such  of the  Borrower's  Inventory,  at such
locations,  and of such types,  character,  qualities  and  quantities,  (net of
Inventory Reserves), as to which Inventory,  the Lender has a perfected security
interest  which is prior and superior to all  security  interests,  claims,  and
Encumbrances.

         "Account Debtor": Has the meaning given that term in the UCC.

         "Accounts  Receivable"  include,  without  limitation,   "accounts"  as
defined in the UCC.

         "ACH": Automated clearing house.

         "Advances": Means funds advanced to Borrower or otherwise in accordance
with this Agreement.

         "Advance  Rates":  Means the  percentage(s)  of the Cost of  Acceptable
Inventory or Net Retail Liquidation  Value used to calculate the Borrowing Base.

         "Affiliate":  With respect to any two Persons,  a relationship in which
(a) one holds,  directly or indirectly,  not less than twenty-five (25%) percent
of the capital stock,  beneficial  interests,  partnership  interests,  or other
equity interests of the other; or (b) one has,  directly or indirectly,  Control
of the other; or (c) not less than twenty-five (25%) percent of their respective
ownership is directly or indirectly held by the same third Person.

         "Annual Facility Fee": Is defined in Section 1-9(a).

         "Availability":  Means at any time of  determination an amount equal to
the lesser of the Borrowing Base and the Credit Limit in either case,  minus (i)
the then  unpaid  principal  balance  of the Loan  Account,  minus (ii) the then
aggregate  of such  Reserves  (other than  Inventory  Reserves) as may have been
established  by  Lender,  minus  (iii) one  hundred  (100%)  percent of the then
outstanding  Stated Amount of all standby  L/C's;  minus (iv) the greater of (x)
thirty (30%) percent or (y) the  reciprocal of the  applicable  Advance Rate for
the Standard Line of the then Stated Amount of all Documentary  L/C's,  plus all
freight and duty charges applicable thereto

         "Availability Reserves":  Such reserves as the Lender from time to time
determines in the Lender's reasonable discretion as being appropriate to reflect
impediments  to the Lender's  ability to realize upon the  Collateral  as of the
Closing Date or any increase in such impediments subsequent to the Closing Date.
Without  limiting the  generality of the  foregoing,  Availability  Reserves may
include (but are not limited to) reserves based on (but in each case not greater
than) the following:

                  (a)  Rent  (in the  amount  of past  due  rent and in which no
landlord's waiver,  acceptable to the Lender, has been received by the Lender in
accordance with Section 5.4).

                                       51
<PAGE>

                  (b)  In store customer credits and gift certificates.

                  (c)  Payables  (based  upon  payables  which   are   past  due
normal trade terms).

                  (d)  Taxes  and  other  governmental  charges,  including,  ad
valorem,  personal  property,  and other taxes which may have  priority over the
security interests of the Lender in the Collateral.

                  (e)  Held or post-dated checks.

         "Average Unused Portion of the Credit Limit":  Means, as of any date of
determination,  (a) the Credit Limit, minus (b) the sum of (i) the average daily
balance of  advances  that were  outstanding  during the  immediately  preceding
month,  plus,  (ii) the average daily  balance of the undrawn L/C's  outstanding
during the immediately preceding month.

         "Banking Day": Any day other than (a) a Saturday,  Sunday;  (b) any day
on which banks in Boston,  Massachusetts  are not open to the general public for
the purpose of conducting commercial banking business; or (c) a day on which the
Lender is not open to the general public to conduct business.

         "Bankruptcy Code": Title 11, U.S.C., as amended from time to time.

         "Base":  The Base Rate announced from time to time by Wells Fargo Bank,
N.A. (or any successor in interest to Wells Fargo Bank,  N.A). In the event that
said bank (or any such successor)  ceases to announce such a rate,  "Base" shall
refer to that  rate or index  announced  or  published  from time to time as the
Lender,  in good faith,  designates  as the  functional  equivalent to said Base
Rate. Any change in "Base" shall be effective,  for purposes of the  calculation
of interest due hereunder,  when such change is made effective  generally by the
bank on whose rate or index "Base" is being set.

         "Basis  Point(s)":  An  amount  which  is  equal to 1/100th of one (1%)
percent.  For example, one and one-half (1.5%)  percent equals 150 basis points.

         "Blocked Account": Is defined in Article 7-1(b)(i).

         "Borrower": Is defined in the Preamble.

         "Borrowing  Base":  Means amounts up to the lesser of (i) the aggregate
of the  Standard  Line and the Special  Subline of the Cost value of  Acceptable
Inventory (as described in subsection  (i) of the  definition of each such term)
and (ii) one hundred (100%) percent of the Net Retail Liquidation Value.

         "Borrowing  Base  Certificate":  Means the certificate in the same form
attached as EXHIBIT 9-4,  provided to Lender in connection  with any request for
advances and/or L/C's, setting forth, among other things, Availability.

                                       52
<PAGE>

         "Business Plan": The Borrower's business plan annexed hereto as EXHIBIT
9-10 and any revision,  amendment,  or update of such business plan to which the
Lender has provided its written sign-off.

         "Capital  Expenditures":  The  expenditure  of funds or the  incurrence
of  liabilities  which may be capitalized in accordance with GAAP.

         "Capital Lease": Any lease which may be capitalized in accordance  with
GAAP.

         "Chattel Paper": Has the meaning given that term in the UCC.

         "Closing Date": means the date of the first to occur of the  making  of
the initial Advance or the issuance of the initial L/C.

         "Collateral": Is defined in Section 2-1.

         "Concentration Account": Is defined in Section 7-3.

         "Control":  The  direct  or  indirect  power to  direct  or  cause  the
direction of the  management  and policies of another  Person,  whether  through
ownership of voting securities,  by contract, or otherwise.  Included among such
powers, with respect to a corporation,  are power to cause any of following: (a)
the  election  of a majority  of its Board of  Directors;  (b) the  issuance  of
additional  shares of its common  stock;  (c) the  issuance and  designation  of
rights and shares of its  preferred  stock (if any);  (d) the  distribution  and
timing of dividends; (e) the award of performance bonuses to its management; (f)
the  termination or severance of officers or key  employees;  and (g) all or any
similar matters.

         "Cost":  The calculated cost of purchases,  as determined from invoices
received by the Borrower, the Borrower's Purchase Journal or Stock Ledger, based
upon the Borrower's accounting  practices,  known to the Lender, which practices
are in effect on the date on which this Agreement was executed.  "Cost" does not
include any inventory  capitalization  costs inclusive of  advertising,  but may
include other charges used in the Borrower's determination of cost of goods sold
and  bringing  goods to  market,  all within  Lender's  sole  discretion  and in
accordance with GAAP.

         "Cost  Factor":  The result of 1 minus the Borrower's  then  cumulative
markup percent derived from the Borrower's  purchase journal on a rolling twelve
(12) month basis.

         "Costs of Collection":  includes,  without  limitation,  all attorneys'
reasonable fees and reasonable  out-of-pocket  expenses incurred by the Lender's
attorneys, and all reasonable costs incurred by the Lender in the administration
of the Liabilities  and/or the Loan Documents,  including,  without  limitation,
reasonable  costs and expenses  associated  with travel on behalf of the Lender,
which costs and expenses are directly or indirectly  related to or in respect of
the Lender's:  administration  and management of the  Liabilities;  negotiation,
documentation,  and  amendment  of any Loan  Document;  or efforts to  preserve,
protect,  collect,  or  enforce  the  Collateral,  the  Liabilities,  and/or the
Lender's  Rights and  Remedies  and/or any of the  Lender's  rights and remedies
against or in respect of any guarantor or other Lender liable in respect of the

                                       53
<PAGE>

Liabilities (whether or not suit is instituted in connection with such efforts).
The Costs of Collection  are  Liabilities,  and at the Lender's  option may bear
interest  at the  highest  post-default  rate  which the  Lender  may charge the
Borrower  hereunder  as if such had been lent,  advanced,  and  credited  by the
Lender to, or for the benefit of, the Borrower.

         "Credit Card  Processor":  Means any Person which acts as a credit card
clearinghouse  or processor of credit card  payments accepted by Borrower.

         "Credit Limit": Means Ten Million ($10,000,000.00) Dollars.

         "DDA": Any checking or other demand daily depository account maintained
by the Borrower.

         "Documentary  L/C":  Means a  documentary  L/C  issued to  support  the
purchase by Borrower of Inventory prior to its transport to a location set forth
on EXHIBIT 5-4 that provides that all draws thereunder must require presentation
of customary  documentation  (including,  if  applicable,  commercial  invoices,
packing lists,  certificate of origin,  bill of lading, an airway bill,  customs
clearance documents, quota statement,  certificate,  beneficiaries statement and
bill of exchange,  bills of lading,  dock  warrants,  dock  receipts,  warehouse
receipts  or  other  documents  of  title),  in form  and  substance  reasonably
satisfactory  to Lender and  reflecting  passage to  Borrower  of title to first
quality Inventory conforming to Borrower's contract with the seller thereof.

         "Duly  Authorized  Person":  Means any  individual  authorized  by  the
Borrower to request  loans or financial  accommodations
and/or sign reports to Lender.

         "EBITDA":  Means the  Borrower's  earnings from  continuing  operations
(excluding  extraordinary  items),  before  interest,  taxes,  depreciation  and
amortization, each as determined in accordance with GAAP.

         "Effective Advance Rate": Means the percentage obtained by dividing the
sum of the then  existing  balance of the Loan Account plus the Stated Amount of
outstanding L/C's by the then Cost value of Acceptable Inventory.

         "Employee Benefit Plan": As defined in ERISA.

         "Encumbrance": Each of the following:

                  (a) security interest, mortgage, pledge, hypothecation,  lien,
         attachment,  or charge of any kind (including any agreement to give any
         of the  foregoing);  the  interest of a lessor  under a Capital  Lease;
         conditional sale or other title retention  agreement;  sale of accounts
         receivable or chattel paper; or other arrangement pursuant to which any
         Person is entitled to any  preference  or priority  with respect to the
         property  or assets of another  Person or the income or profits of such
         other Person or which  constitutes an interest in property to secure an
         obligation;  each of the foregoing whether  consensual or nonconsensual
         and  whether  arising  by way of  agreement,  operation  of law,  legal
         process or otherwise.

                                       54
<PAGE>

                  (b) The filing of any financing  statement under  the  UCC  or
         comparable law of any jurisdiction.

         "End Date": The date upon which both (a) all Liabilities have been paid
in full and (b) all  obligations of the Lender to make loans and advances and to
provide other financial accommodations to the Borrower hereunder shall have been
irrevocably terminated.

         "Environmental  Laws":  (a)  Any  and  all  federal,  state,  local  or
municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees
or  requirements  which  regulates  or relates  to, or imposes  any  standard of
conduct or  liability  on account of or in respect to  environmental  protection
matters,  including,  without  limitation,  Hazardous  Materials,  as is  now or
hereafter  in effect;  and (b) the common law  relating  to damage to Persons or
property from Hazardous Materials.

         "ERISA": The Employee Retirement Security Act of 1974, as amended.

         "ERISA  Affiliate":  Any Person which is under common  control with the
Borrower within the meaning of Section 4001 of ERISA or is part of a group which
includes  the  Borrower  and which would be treated as a single  employer  under
Section 414 of the Internal Revenue Code of 1986, as amended.

         "Events of Default": Is defined in Article 10.

         "Executive  Agreement":  Any agreement or understanding (whether or not
written) to which the Borrower is a party or by which the Borrower may be bound,
which agreement or understanding relates to Executive Pay.

         "Executive  Officer":  Each of Jerry R. Welch,  Raymond P. Springer and
Marilyn  Platfoot  and any other  Person  who  (without  regard to title) is the
successor to such  individuals(s)  appointed  within sixty (60) days of the date
when such  individuals(s)  is/are no longer an Executive Officer for any reason,
and who is reasonably satisfactory to Lender.

         "Executive  Pay":  All salary,  bonuses,  and other  value  directly or
indirectly provided by or on behalf of the Borrower to or for the benefit of any
Executive  Officer or any Affiliate,  spouse,  parent, or child of any Executive
Officer.

         "Funding Account": Is defined in Section 7-6.

         "GAAP":  Principles  which are  consistent  with those  promulgated  or
adopted by the Financial  Accounting  Standards Board and its  predecessors  (or
successors)  in effect and  applicable to that  accounting  period in respect of
which reference to GAAP is being made.

         "General   Intangibles":   Includes,   without   limitation,   "general
intangibles"  as defined in the UCC; and also all:  rights to payment for credit
extended;  deposits;  amounts due to the Borrower;  credit memoranda in favor of
the Borrower; warranty claims; tax refunds and abatements; insurance refunds and
premium  rebates;  all  Investment  Property  and  all  means  and  vehicles  of
investment or hedging, including, without limitation, options, warrants, and

                                       55
<PAGE>

futures contracts;  records;  customer lists; mailing lists;  telephone numbers;
goodwill;  causes of action;  judgments;  payments under any settlement or other
agreement;  literary rights;  rights to performance;  royalties;  license and/or
franchise fees; rights of admission;  licenses;  franchises; license agreements,
including all rights of the Borrower to enforce same;  permits,  certificates of
convenience  and  necessity,  and  similar  rights  granted by any  governmental
authority; patents, patent applications, patents pending, and other intellectual
property; Internet addresses and domain names; developmental ideas and concepts;
proprietary processes;  blueprints, drawings, designs, diagrams, plans, reports,
and charts;  catalogs;  manuals;  technical  data;  computer  software  programs
(including the source and object codes  therefor),  computer  records,  computer
software,  rights of access to computer record service  bureaus,  service bureau
computer contracts,  and computer data; tapes, disks,  semiconductors  chips and
printouts; trade secrets rights, copyrights, mask work rights and interests, and
derivative works and interests; user, technical reference, and other manuals and
materials;  trade names,  trademarks,  service marks, and all good will relating
thereto;  applications for registration of the foregoing;  and all other general
intangible  property  of the  Borrower in the nature of  intellectual  property;
proposals;  cost estimates, and reproductions on paper, or otherwise, of any and
all concepts or ideas, and any matter related to, or connected with, the design,
development,  manufacture,  sale,  marketing,  leasing,  or  use  of  any or all
property  produced,  sold,  or leased,  by the  Borrower  or credit  extended or
services performed, by the Borrower, whether intended for an individual customer
or the general  business of the Borrower,  or used or useful in connection  with
research by the Borrower.

         "Gross  Margin":  With respect to  the  subject  accounting  period for
which being  calculated, the following  (determined  in accordance with the cost
method of accounting):

Sales (Minus) Cost of Goods Sold
Sales

         "Hazardous  Materials":  Any (a) hazardous materials,  hazardous waste,
hazardous  or toxic  substances,  petroleum  products,  which  (as to any of the
foregoing)  are defined or  regulated  as a  hazardous  material in or under any
Environmental  Law and (b) oil in any physical  state other than,  in each case,
cleaning materials in ordinary amounts used in the ordinary course of Borrower's
business.

         "Indebtedness":  All  indebtedness  and  obligations of or  assumed  by
any  Person on account of or in respect to any of the following:

                  (a) In respect of money borrowed  (including any  indebtedness
         which is non-recourse to the credit of such Person but which is secured
         by an Encumbrance on any asset of such Person) whether or not evidenced
         by a promissory  note, bond,  debenture or other written  obligation to
         pay money.

                  (b) For the payment of the purchase price of goods or services
         deferred for more than thirty (30) days beyond then current trade terms
         provided to such Person by the supplier of such goods or services.

                                       56
<PAGE>

                  (c) In  connection  with any  letter of  credit or  acceptance
         transaction  (including,  without  limitation,  the face  amount of all
         letters of credit and acceptances issued for the account of such Person
         or reimbursement on account of which such Person would be obligated).

                  (d)      In connection with the sale or discount of accounts
         receivable or chattel paper of such Person.

                  (e)      On account of deposits or advances.

                  (f)      As lessee under Capital Leases.

         "Indebtedness" of any Person shall also include:

                  (a)  Indebtedness  of others  secured by an Encumbrance on any
         asset of such Person,  whether or not such  Indebtedness  is assumed by
         such Person.

                  (b) Any guaranty, endorsement, suretyship or other undertaking
         pursuant  to  which  that  Person  may  be  liable  on  account  of any
         obligation of any third party.

                  (c)      The  Indebtedness of a  partnership or joint  venture
         in which such  Person is a general  partner or joint venturer.

         "Indemnified Person": Is defined in Section 14-11.

         "Inventory":  Includes,  without limitation,  "inventory" as defined in
the Uniform Commercial Code and including all goods, merchandise, raw materials,
goods and work in process,  finished goods, and other tangible personal property
now owned or hereafter acquired and held for sale or lease or furnished or to be
furnished under contracts of service or used or consumed in Borrower's business.

         "Inventory Reserves":  Such reserves as may be established from time to
time by the Lender in the Lender's  discretion with respect to the determination
of conditions affecting the saleability,  at retail, of the Acceptable Inventory
or which reflect such other factors as affect the current Retail or market value
of the  Acceptable  Inventory  and which  conditions or factors  having  changed
materially  from those  existing  at the time of  execution  of this  Agreement.
Without limiting the generality of the foregoing, Inventory Reserves may include
(but are not limited to) reserves based on the following:

                  (a)  Obsolescence  (determined  based upon  Inventory  on hand
         beyond a given number of days), consistent with Borrower's past history
         with  respect  to  such   obsolescence  and  any  changes  thereto  and
         Borrower's Business Plan satisfactory to Lender.

                  (b)      Seasonality.

                  (c)      Shrinkage.

                                       57
<PAGE>

                  (d)      Imbalance.

                  (e)      Change in Inventory character, composition or mix.

                  (f)      Markdowns (both permanent and point of sale).

                  (g) Retail markons or markups  inconsistent  with prior period
         practice  and  performance;  current  business  plans;  or  advertising
         calendar and planned advertising events.

                  (h)      The relationship between the amount expended for
         Inventory purchases and the cost of goods sold.

         "Investment Property": Has the meaning given that term in the Uniform
Commercial Code.

         "Issuer": The issuer of any L/C.

         "L/C":  Any letter of credit,  the  issuance  of which is  procured  by
the Lender  for the  account of the  Borrower and any acceptance made on account
of such letter.

         "Landlord  Lien  State":  Any state or other  jurisdiction  under whose
statutory  or common law the rights of a landlord  in assets of that  landlord's
tenant,  for unpaid rent,  are senior to a perfected  security  interest in such
assets.

         "Lease":  Any  lease or  other  agreement,  no  matter  how  styled  or
structured, which the Borrower is entitled to the use or occupancy of any space.

         "Leasehold  Interests":  Shall mean the Borrower's  leasehold estate or
interest  in each of the  properties  at or upon  which  the  Borrower  conducts
business,  offers any Inventory  for sale,  or maintains any of the  Collateral,
whether or not for retail sale,  together with Borrower's interest in any of the
improvements  and  fixtures  located  upon  or  appurtenant  to  each  leasehold
interest.

         "Lender's Rights and Remedies": Is defined in Section 11-6.

         "Liabilities"  (in  the  singular,   "Liability"):   Includes,  without
limitation,  all and each of the  following,  whether now  existing or hereafter
arising:

                  (a) Any and all direct and indirect  liabilities,  debts,  and
         obligations of the Borrower to the Lender under any Loan  Document,  as
         amended from time to time, each of every kind, nature, and description.

                  (b) Each obligation to repay any loan, advance,  indebtedness,
         note,  obligation,  overdraft,  or amount now or hereafter owing by the
         Borrower to the Lender  (including all future  advances  whether or not
         made pursuant to a commitment by the Lender) under any Loan  Documents,
         as amended from time to time, whether or not any of such are

                                       58
<PAGE>

         liquidated,   unliquidated,  primary,  secondary,  secured,  unsecured,
         direct, indirect,  absolute,  contingent, or of any other type, nature,
         or  description,  or by reason of any cause of action  which the Lender
         may hold against the Borrower under any Loan Documents, as amended from
         time to time.

                  (c) All notes and other  obligations of the Borrower under any
         Loan Documents now or hereafter assigned to or held by the Lender, each
         of every kind, nature, and description.

                  (d) All  interest,  fees,  and charges and other amounts which
         may be charged by the Lender to the  Borrower  and/or  which may be due
         from the  Borrower  to the  Lender  from  time to time  under  any Loan
         Documents.

                  (e) All costs and  expenses  incurred or paid by the Lender in
         respect of any agreement  between the Borrower and the Lender under any
         Loan Documents, as amended from time to time or instrument furnished by
         the  Borrower to the Lender under any Loan  Documents,  as amended from
         time to time  (including,  without  limitation,  Costs  of  Collection,
         attorneys'  reasonable  fees,  and all court and  litigation  costs and
         expenses).

                  (f) Any and  all  covenants  of the  Borrower  to or with  the
         Lender and any and all obligations of the Borrower to act or to refrain
         from acting in accordance  with any agreement  between the Borrower and
         the Lender or instrument furnished by the Borrower to the Lender.

         "Loan Account": Is defined in Section 1-5.

         "Loan Documents": This Agreement, each instrument and document executed
and/or  delivered as  contemplated  by Article 4, and each other  instrument  or
document from time to time  executed  and/or  delivered in  connection  with the
arrangements contemplated hereby other than strictly for informational purposes,
as each may be amended from time to time.

         "Local DDA": A depository account maintained by the Borrower,  the only
contents of which may be transfers  from the Funding  Account and actually  used
solely (i) for petty cash purposes; or (ii) for payroll.

         "Loan Maintenance Fee": Is defined in Section 1-9(b).

         "Master Note": Is defined in Section 1-6.

         "Material  Adverse Change":  Means (a) a material adverse change in the
business, prospects,  operations,  results of operations, assets, liabilities or
condition (financial or otherwise) of Borrower, including, without limitation, a
material  adverse  change in the  business,  prospects,  operations,  results of
operations,  assets,  liabilities  or  condition  since  the date of the  latest
financial  information  submitted to Lender on or before the Closing  Date,  and
since the date of the latest financial  information supplied hereunder or at any
time as compared to the Business Plan  attached  hereto on the date of execution
hereof as EXHIBIT 9-10;  (b) the material  impairment  of Borrower's  ability to
perform its obligations under the Loan Documents to which it is a party or of

                                       59
<PAGE>

Lender to enforce the Liabilities or realize upon the Collateral, (c) a material
adverse effect on the value of the Collateral or the amount that Lender would be
likely to receive (after giving  consideration to delays in payment and costs of
enforcement) in the liquidation of such Collateral, or (d) a material impairment
of the priority of Lender's liens with respect to the Collateral,  other than as
permitted under this Agreement.

         "Maturity Date":  Means  that  date which is five (5)  years  from  the
Closing Date.

         "Net Retail Liquidation Value":  Means the appraised  liquidation value
of Acceptable  Inventory less liquidation  expenses as reasonably  determined by
Lender or its agents from time to time,  consistent with the appraisal  prepared
by Lender as of the Closing Date, or any subsequent appraisal.

         "One Turn State": Any state or other jurisdiction under whose statutory
or common law the  relative  priority  of the rights of a landlord  in assets of
that landlord's tenant, for unpaid rent, vis a vis the rights of the holder of a
perfected  security  interest  therein is dependent  upon whether such  security
interest  arose  prior or  subsequent  to the  subject  asset's  coming onto the
demised premises.

         "Overadvance":    Any   amounts   advanced   hereunder   which   exceed
Availability.

         "Participant": Is defined in Section 14-12.

         "Percentage Points": The number of whole (and, if indicated,  fractions
(or decimal equivalents) of) integers of a percentage referred to in a financial
performance  covenant.  For example, if a projected  percentage were fifty (50%)
percent and the actual  percentage  turned out to be fifty-five and 6/10 (55.6%)
percent, the variance would be 5.6 Percentage Points.

         "Person":  Any natural person, and any corporation,  limited  liability
company,  trust,  partnership,  joint venture, or other enterprise or entity.

         "Real Estate": Means any estates or  interests  in  real  property  now
owned or hereafter acquired by Borrower.

         "Receipts":  All cash, cash equivalents,  checks, and credit card slips
and receipts as arise out of the sale of the Collateral and any other cash, cash
equivalents or checks otherwise received by Borrower, whether as a result of any
loan, investment by the Borrower, investment in the Borrower or otherwise.

         "Receivables Collateral": That portion of the Collateral which consists
of the  Borrower's  Accounts,  Accounts  Receivable,  Contract  Rights,  General
Intangibles,  Chattel  Paper,  Instruments,  Investment  Property,  Documents of
Title, Documents, Securities, letters of credit for the benefit of the Borrower,
and bankers' acceptances held by the Borrower, and any rights to payment.

                                       60
<PAGE>

         "Related Entity":

                  (a)  Any  corporation,   limited  liability  company,   trust,
         partnership,  joint venture,  or other  enterprise  which: is a parent,
         brother,  sister,  subsidiary,  or affiliate, of the Borrower; has such
         enterprise's tax returns or financial statements  consolidated with the
         Borrower's;  is a member of the same  controlled  group of corporations
         (within the meaning of Section 1563(a)(1),  (2) and (3) of the Internal
         Revenue  Code of 1986,  as  amended  from  time to  time) of which  the
         Borrower is a member;  Controls or is  Controlled by the Borrower or by
         any Affiliate of the Borrower.

                  (b)      Any Affiliate.

         "Requirement of Law":  As to any Person:

                  (a) (i) All statutes,  rules,  regulations,  orders,  or other
         requirements  having  the  force of law and (ii) all court  orders  and
         injunctions,  arbitrator's  decisions,  and/or similar rulings, in each
         instance  ((i) and (ii)) of or by any federal,  state,  municipal,  and
         other governmental authority, or court, tribunal,  panel, or other body
         which  has  jurisdiction  over such  Person,  or any  property  of such
         Person,  or of any other Person for whose  conduct such Person would be
         responsible;

                  (b) That  Person's  charter,  certificate   of  incorporation,
articles of organization,  and/or other organizational documents, as applicable;
and

                  (c) That Person's by-laws and/or other  instruments which deal
         with corporate or similar governance, as applicable.

         "Reserves":  All (if any)  Availability  Reserves, Inventory  Reserves,
and any other  reserves  which may be established in accordance  with  the  Loan
Agreement.

         "Retail":  The Cost of Inventory divided by the Cost Factor.

         "Revolving Credit": Is defined in Section 1-1.

         "  Special  Subline":  Means  amounts,  up to the  lesser  of (a) Three
Million  ($3,000,000)  Dollars, or (b) the lesser of: (i) twelve and five tenths
of one (12.5%)  percent of the Net Retail  Liquidation  Value or (ii) calculated
together  with  amounts   available  under  the  Standard  Line,  the  following
percentages  of the Cost value of  Acceptable  Inventory  during  the  following
periods:

                           January1                  eighty (80%) per cent
                           February                  eighty (80%) per cent
                           March                     eighty (80%) per cent
                           April                     eighty (80%) per cent
                           May                       eighty (80%) per cent
                           June                      eighty (80%) per cent
                           July                      eighty (80%) per cent
                           August                    eighty-four (84%) per cent

                                       61
<PAGE>

                           September                 eighty-four (84%) per cent
                           October                   eighty-four (84%) per cent
                           November                  eighty-four (84%) per cent
                           December                  eighty-four (84%) per cent
         ---------------------------------
                  1 The total  combined  Advance Rate for January of 80% of Cost
         Value of Acceptable Inventory is allowed so long as Excess Availability
         for the  preceding  60  days  is  within  90% of the  projected  Excess
         Availability,  otherwise  the Special  Sub-line will be reduced to 6.3%
         for a total combined advance rate of 72.0%.  Note: this requirement has
         been waived for  January  2001  (Standard  Line  Advance  rate = 65.7%,
         Special Sub-line = 14.3%, Total Combined Advance Rate = 80.0%).

         Under this  Special  Subline and absent the  occurrence  of an Event of
Default  hereunder,  upon  fifteen  (15) days  prior  written  notice to Lender,
Borrower may convert $2,000,000.00 of the Special Subline into a Term Loan to be
repaid in equal  consecutive  monthly principal  installments  (except the final
installment),  plus interest,  based upon a five (5) year amortization schedule,
for the  number  of  months  remaining  prior  to the  Maturity  Date,  with all
remaining principal and accrued,  but unpaid interest,  to be due and payable on
the Maturity Date.

         Standard  Line":  Means  amounts up to the lesser of (a) Seven  Million
($7,000,000)  Dollars or (b) the lesser of:(i)  eighty-seven  and five tenths of
one (87.5%) percent of the Net Retail  Liquidation  Value and (ii) the following
percentages  of the Cost Value of  Acceptable  Inventory  during  the  following
periods:

                      January     sixty-five and seven tenths (65.7%) per cent
                      February    seventy and six tenths (70.6%) per cent
                      March       seventy-two and seven tenths (72.7%) per cent
                      April       seventy and six tenths (70.6%) per cent
                      May         seventy-four (74%) per cent
                      June        seventy-four (74%) per cent
                      July        seventy and five tenths (70.5%) per cent
                      August      seventy-two and six tenths (72.6%) per cent
                      September   seventy-two (72%) per cent
                      October     seventy and six tenths (70.6%) per cent
                      November    seventy-four (74%) per cent
                      December    seventy-four (74%) per cent

         "Stated Amount": The maximum amount for which an L/C may be honored.

         "Suspension  Event":  Any occurrence,  circumstance,  or state of facts
which (a) is an Event of Default;  or (b) becomes an Event of Default  following
any  requisite  notice  and/or  any  requisite  period  of time  runs  and  such
occurrence,  circumstance,  or state of facts is not absolutely cured within any
applicable grace period.

         "Termination  Date":  The earliest of (a) the Maturity Date; or (b) the
occurrence of any event described in Section 10-11; or (c) the date set forth in
Lender's notice to the Borrower  setting the Termination  Date on account of the
occurrence of any Event of Default other than as described in Section 10-11.

                                       62
<PAGE>

         "UCC":   The  Uniform  Commercial  Code  as  presently  in  effect   in
Massachusetts (Mass. Gen. Laws, Ch. 106).

                                       63
<PAGE>

                                   EXHIBIT 5-2

                                Related Entities

(1) 49.4% of the outstanding common stock of RightStart.com Inc. is owned by the
Company and (2) the Company's beneficial owners hold, beneficially and directly,
substantially  the amounts of the Company's  common stock shown in the Company's
Current Report on Form 8K filed November 21, 2000.  RightStart.com Inc. is not a
subsidiary  nor controlled by the Company for purposes of  consolidation  of the
two entities' financial  statements.  The Company's financial statements are not
consolidated with the financial statements of any of its beneficial owners.

(2) The Company has two  wholly-owned  inactive  subsidiaries,  The Right Start,
Inc.  Subsidiary I and The Right Start,  Inc.  Subsidiary II, which it is in the
process of eliminating.

                                   EXHIBIT 5-3

                  Trade Names; Trademarks, Service Marks, Etc.

[Intentionally Omitted]

                                   EXHIBIT 5-4

                                    Locations

[Intentionally Omitted]

                                   EXHIBIT 5-5

                             Encumbrances and Liens

         Secured Party              Description             Payment Terms
         or Mortgagee               of Collateral       and Dates of Maturity

1.  ARBCO Associates, L.P.          Blanket Lien   PIK Notes Due Sept. 1, 2005
Kayne Anderson Non-Traditional                     $3,000,000 in aggregate
         Investments, L.P.                          principal amount
Kayne Anderson Diversified
         Capital Partners, L.P.                    UCCs filed in states in which
Kayne Anderson Capital                             collateral is located
         Partners, L.P.

2.  Liens imposed for taxes, assessments or other charges.

                                       64
<PAGE>

3.  Non-consensual  statutory Liens including,  without  limitation,  carriers',
mechanics',  warehousemen's,  artisans', service, suppliers',  depositaries' and
other like Liens arising in the ordinary course of business.

4.  Pledges  or  deposits  in  respect  of workers'  compensation,  unemployment
insurance  and other  social  security legislation.

5. Deposits to secure  performance of bids, trade contracts,  leases,  statutory
obligations,  surety  and  appeal  bonds,  performance  bonds and other  similar
obligations incurred in the ordinary course of business.

6. Easements,  rights-of-way,  restrictions and similar encumbrances incurred in
the  ordinary  course  of  business  and   encumbrances   consisting  of  zoning
restrictions,  easements,  licenses and  restrictions  on the use of property or
minor imperfections in title that do not materially interfere with the Company's
business.

7.  Liens in favor of credit card processors.

8.  Purchase money security interests.

9.  Liens on indebtedness permitted under Section 5-6.

10.  Liens of landlords and their lenders against leasehold interests.

11.  Liens of customs and revenue authorities.

12.  Liens existing on acquired property.

13.  Any extension, renewal or replacement of the foregoing.

                                       65
<PAGE>
                                   EXHIBIT 5-6

                                  Indebtedness

                            Principal                   Monthly
Creditor                      Amount    Maturity Date   Payment      Collateral

1. ARBCO Associates, L.P.  $3,000,000   Sept. 1, 2005   PIK 8%     Substantially
Kayne Anderson                                          per        all of the
  Non-Traditional                                       anum       Company's
  Investments, L.P.                                                Assets
Kayne Anderson Diversified
  Capital Partners, L.P.
Kayne Anderson Capital
  Partners, L.P.

2.  Intercompany payables between the Company and RightStart.com  in  amounts up
to $750,000.

3.  Trade obligations and accruals in the ordinary course of business.

4.  Purchase money indebtedness including capital leases.

5.  Unsecured indebtedness.

6.  Indebtedness   arising  under  agreements   providing  for  indemnification,
adjustment of purchase price or similar  obligations,  or obligations to perform
bids, trade contracts, leases, statutory obligations or surety and appeal bonds,
performance bonds and other similar obligations  incurred in the ordinary course
of business.

7.  Indebtedness  to secure workers'  compensation,  unemployment  insurance and
other social security  legislation obligations.

8.  Indebtedness of the Company  incurred in exchange for or the net proceeds of
which  are used to  extend,  refinance,  renew,  replace,  substitute  or refund
Indebtedness referred to above.

                                   Guaranties

                        Amount and Description
Primary Obligor         of Obligation Guaranteed         Beneficiary of Guaranty

         None.

                                       66
<PAGE>

                                   EXHIBIT 5-7

                               Insurance Policies

         Insurance Company                           Type and Amount of Coverage

[Intentionally Omitted]

                                   EXHIBIT 5-9

                                     Leases

[Intentionally Omitted]

                                  EXHIBIT 5-12

                                      Taxes

        The  Company  has paid taxes  through  Fiscal  Year End January 2000.

                                       67
<PAGE>

                                  EXHIBIT 7-1

                             Demand Deposit Accounts

[Intentionally Omitted]

                                  EXHIBIT 7-2

                            Credit Card Arrangements

            The  Borrower has payment  processing  agreements  with  Paymentech,
Novus and American Express.

                                       68
<PAGE>

                                  EXHIBIT 9-R

[Intentionally Omitted]

                                       69
<PAGE>

                                  EXHIBIT 9-11

Covenants:

                       FINANCIAL AND INVENTORY COVENANTS
(Based on current applicable approved business plan set forth on Exhibit 9-12):

                          Minimum Excess Availability
Minimum Excess Availability at closing shall be at least $2,500,000.

Measured   at  month  end,  on  a  rolling  two-month  average   basis.   Excess
Availability  shall  be  no  less  than  85% of Excess Availability for the same
periods projected in the Business Plan.

                          Maximum Capital Expenditures
Measured   every   six   months,  beginning  July  2001,  year-to-date   Capital
Expenditures  for  each  six-month  period  shall  not  exceed 110% of the total
Capital Expenditures for the same period projected in the Business Plan.

                  Ratio of Inventory Receipts to Cost of Sales
Measured monthly (i) on a trailing three-month basis,  the  ratio  of  Inventory
Receipts to Cost of Goods Sold shall be no less than 85% of the ratio  projected
in  the  Business  Plan  and (ii)  the annualized twelve month average inventory
turnover rate not less than 2.7 times for the periods January 2001 through April
2001 and 3.0 times each month thereafter.  Annualized inventory  turnover  shall
be calculated as the rolling twelve-months Cost of  Goods Sold  divided  by  the
corresponding rolling twelve-months average EOM Inventory at Cost.  Average  EOM
Inventory at Cost shall  be  calculated  as the  total  Company  Inventory  less
inventory allocated to RightStart.com, in each case, at the end  of  each  month
during the period for which the calculation is made.  Inventory  Receipts  shall
mean the cost to the Company of  all  Inventory  received by  the  Company  plus
freight-in.  Cost of Goods Sold shall  mean an  amount  calculated  consistently
from an accounting perspective with the Cost of  Goods  Sold  on  the  Company's
Borrowing Base certificate provided at Closing.

                                       70
<PAGE>

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