Document:

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                                                                  EXHIBIT 10.6

                                ESCROW AGREEMENT

         The Agreement is made and entered into as of _______________________,
2000, by and among Key Trust Company, N.A. (the "Escrow Agent"), McDonald
Investments, Inc. (the "Sales Agent"), and Ohio Legacy Corp (the "Company").

Recitals
--------

A.   The Company proposes to offer for sale to investors through one or more
     registered broker-dealers up to 1,200,000 shares of common stock and
     attached warrants (the "Securities") at a price of $10.00 per share (the
     "Proceeds").

B.   The Sales Agent intends to sell the Securities as the Company's agent on a
     best-efforts part-or-none basis for 900,000 shares and on a best-efforts
     basis for the remaining Securities in a public offering (the "Offering").

C.   The Company and the Sales Agent desire to establish an escrow account in
     which funds received from subscribers will be deposited pending completion
     of the escrow period. Key Trust Company, N.A. agrees to serve as Escrow
     Agent in accordance with the terms and conditions set forth herein.

D.   The term Selected Dealer as used herein shall include the Sales Agent and
     other selected dealers as part of the selling group. All Selected Dealers
     shall be bound by this Agreement. However, for purposes of communications
     and directives, the Escrow Agent need only accept those signed by McDonald
     Investments, Inc.

Agreement
---------

Now therefore, in consideration of the foregoing, it is hereby agreed as
follows:

1)   Establishment of Escrow Account. On or prior to the date of the
     commencement of the offering, the parties shall establish an
     interest-bearing escrow account with the Escrow Agent, which escrow account
     shall be entitled OLCB Escrow Account. The Selected Dealer will instruct
     subscribers to make checks for subscriptions payable to the order of the
     Escrow Agent. Any checks received that are made payable to a party other
     than the Escrow Agent shall be returned to the Selected Dealer who
     submitted the check. Company and/or Sales Agent will be responsible for
     delivery of all deposits to Escrow Agent's principal office at 127 Public
     Square, 15th Floor, Cleveland, Ohio 44114.

2)   Escrow Period. The Escrow Period shall begin with the commencement of the
     Offering and shall terminate upon the earlier to occur of the following
     dates:

     a)   The date upon which the Escrow Agent confirms that it has received in
          the Escrow Account gross proceeds of $9,000,000 in deposited funds
          (the "Minimum"); or

<PAGE>   2

     b)   The expiration of 30 days from the date of commencement of the
          Offering (unless extended as permitted in the offering document for an
          additional 30 days by mutual written agreement between the Company and
          the Sales Agent with a copy of such extension to the Escrow Agent); or

     c)   The date upon which a determination is made by the Company and the
          Sales Agent to terminate the offering prior to the sale of the
          Minimum.

     During the escrow period, the Company is aware and understands that it is
     not entitled to any funds received into escrow and no amounts deposited in
     the Escrow Account shall become the property of the Company or any other
     entity, or be subject to the debts of the Company or any other entity.

3)   Deposits into the Escrow Account. The Selected Dealer agrees to direct
     subscribers to submit funds directly to the Escrow Agent in the form of
     wire transfer, check, draft, or money order for deposit in the Escrow
     Account. If the funds are instead delivered to the Selected Dealer, it
     shall promptly deliver all monies received from subscribers for the payment
     of the Securities to the Escrow Agent for deposit in the Escrow Account.
     For each subscriber, the Selected Dealer shall provide a written account of
     each sale, which account shall set forth, among other things, the
     subscriber's name and address, the subscriber's Taxpayer Identification
     Number, the number of securities purchased, and the amount paid therefor.
     All monies so deposited in the Escrow Account are hereinafter referred to
     as the "Escrow Amount".

4)   Disbursements from the Escrow Account. In the event the Escrow Agent does
     not receive the Minimum deposits totaling $9,000,000 prior to the
     termination of the Escrow Period, the Escrow Agent shall refund to each
     subscriber the amount received from the subscriber, without deduction,
     penalty, or expense to the subscriber, and the Escrow Agent shall notify
     the Company and the Selected Dealer of its distribution of the funds. The
     purchase money returned to each subscriber shall be free and clear of any
     and all claims of the Company or any of its creditors. Further, refunds to
     subscribers shall include each subscriber's pro-rata share of any income
     earned while the subscriber's funds were on deposit in the Escrow Account.
     Escrow Agent will not be responsible for tax reporting of any kind.

     In the event the Escrow Agent does receive the Minimum prior to termination
     of the Escrow Period, in no event will the Escrow Amount be released to the
     Company until such amount is received by the Escrow Agent in collected
     funds. For purposes of this Agreement, the term "collected funds" shall
     mean all funds received by the Escrow Agent which have cleared normal
     banking channels and are in the form of cash.

     The Minimum may be met by funds that are deposited from the effective date
     of the offering up to an including the date on which the contingency must
     be met, i.e., during the Escrow Period. However, the escrow cannot be
     broken and the offering may not proceed to closing until customer checks
     have been collected through the

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     normal banking channels in an aggregate amount sufficient to meet the
     Minimum. The Escrow Agent makes the determination as to when sufficient
     funds have been deposited and collected to break escrow. If the Minimum is
     met with checks tendered on the last day of the Escrow Period and,
     subsequently, such checks fail to clear the banking system, thereby
     reducing the funds received by the escrow Agent to an amount less than that
     necessary to meet the Minimum, the offering contingency has not been met.
     In this event, the Escrow Agent must promptly return all funds to
     subscribers.

     In this connection, it should also be noted that purchases made after the
     Escrow Period has terminated, but prior to the date escrow is broken
     pending clearance of subscribers' funds, may not be subsequently counted to
     meet the Minimum should checks tendered prior to the termination of the
     Escrow Period fail to clear the banking system. Further, under Securities
     and Exchange Commission Rules 15c2-4 and 10b-9, a broker-dealer may not
     substitute its own good check for the check of a customer that has
     insufficient funds nor otherwise purchase to satisfy the offering
     contingency unless the broker-dealer is purchasing for investment prior to
     the termination of the Escrow Period and the offering document discloses
     the maximum amount of such potential purchase.

     All disbursements from the Escrow Account will be directed in writing and
     signed by both the Company and Sales Agent stating that the Minimum
     threshold amount has been met.

5)   Collection Procedure. The Escrow Agent is hereby authorized to forward each
     check for collection and, upon collection of the proceeds of each check,
     deposit the collected proceeds in the Escrow Account. As an alternative,
     the Escrow Agent may telephone the bank on which the check is drawn to
     confirm that the check has been paid.

     Any check returned unpaid to the Escrow Agent shall be returned to the
     Selected dealer that submitted the check. In such cases, the Escrow Agent
     will promptly notify the Company of such return.

     If the Company rejects any subscription for which the Escrow Agent has
     already collected funds, the Escrow Agent shall promptly issue a refund
     check to the rejected subscriber. If the Company rejects any subscription
     for which the Escrow Agent has not yet collected funds but has submitted
     the subscriber's check for collection, the Escrow Agent shall promptly
     issue a check in the amount of the subscriber's check to the rejected
     subscriber after the Escrow Agent has cleared such funds. If the Escrow
     Agent has not yet submitted a rejected subscriber's check for collection,
     the Escrow Agent shall promptly remit the subscriber's check directly to
     the subscriber.

     Should any released Escrow funds be found to be uncollectable by Escrow
     Agent after funds have been released to the Company, the Company will
     immediately

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<PAGE>   4

     deposit such amount via federal fund with Escrow Agent upon demand. Company
     shall be responsible in pursuing subscriber regarding the status of their
     deposit.

6)   Investment of Escrow Amount. The Escrow Agent will invest the Escrow Amount
     in The Victory U.S. Government Select Obligation Money Market Fund issued
     by the Escrow Agent, as long as the maturity date of the account does not
     extend beyond the anticipated contingency occurrence date or, if the
     maturity date does extend beyond the anticipated contingency occurrence,
     the account can be closed without any dissipation of the offering proceeds
     invested.

7)   Compensation of Escrow Agent. See Escrow Agent's schedule of fees attached
     as "Exhibit A".

8)   Indemnification of the Escrow Agent. The Company and the Sales Agent agree
     to indemnify and hold harmless the Escrow Agent against any and all losses,
     claims, damages, liabilities and expenses which may be imposed upon the
     Escrow Agent or incurred by the Escrow Agent in connection with the
     performance of its duties hereunder, by reason of any litigation arising
     from the agreement or involving the subject matter hereof of the funds
     deposited hereunder; provided, however, that such indemnity shall not
     extend to any of such losses, claims, damages, liabilities and expenses
     which are so imposed upon or incurred by the Escrow Agent by reason of its
     own negligence or willful misconduct.

     Notwithstanding any provision contained in this agreement to the contrary,
     the Escrow Agent, including its officers, directors, employees, and agents,
     shall:

     a)   Have no responsibility to inquire into or determine the genuineness,
          authenticity, or sufficiency of any securities, checks, subscription
          agreements, confirmation of sales, or other documents or instruments
          submitted to it in connection with its duties under this agreement;
          and

     b)   Be entitled to deem the signatories of any documents or instruments to
          it under this agreement as being those purported to be authorized to
          sign such documents or instruments on behalf of the parties thereto
          and shall be entitled to rely upon the genuineness of the signatures
          of such signatories without inquiry and without requiring
          substantiating evidence of any kind.

9)   Notices. All notices, requests, demands, and other communications required
     or permitted to be given hereunder shall be in writing and shall be deemed
     to have been duly given if delivered personally, sent by overnight delivery
     service, or mailed first-class mail, postage prepaid to the other parties
     addressed to the address set forth below or to any other address hereafter
     designated by the party to whom notice is given.

10)  Governing Law. All questions concerning the validity, intention, or meaning
     of this agreement or relating to the rights and obligations of the parties
     with respect to

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     performance hereunder shall be construed and resolved under the laws of the
     State of Ohio.

11)  Resignation. The Escrow Agent may resign by mailing written notice to all
     parties. In the event of any such resignation, the Escrow Agent shall
     refrain from taking any action with respect to the Escrow Funds until it
     receives written instructions from all parties to the Escrow Agreement
     designating a successor Escrow Agent.

12) Counterparts. This Agreement may be executed in any number of counterparts,
all of which taken together shall constitute but one and the same instrument,
and any party hereto may execute this agreement by signing any such counterpart.

     OHIO LEGACY CORP
     305 West Liberty Street
     Wooster, OH  44691

     -----------------------------------------------------------
     By: L. Dwight Douce, President and Chief Executive Officer

     McDonald Investments Inc.
     800 Superior Avenue
     Cleveland, Ohio  44114

     -----------------------------------------------------------
     By: Charles R. Crowley, Managing Director

     Key Trust Company, N.A.
     127 Public Square
     Cleveland, Ohio  44114

     By: __________________________________________

     Name:_________________________________________

     Title_________________________________________

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                                    Exhibit A
                                    ---------

                         Escrow Agent's Schedule of Fees

                             Key Trust Company, N.A.

     One-Time annual administration fee.......................$1,800.00*

     *This fee is based on a total of 100 subscriber's check or wire deposits;

     Additional subscriber deposits (over 100) will be invoiced at the rate of
     $18.00 per deposit.

     Additional Fees
     ---------------

     Should it become necessary to return principal and interest to subscribers,
     a charge of $25.00 for each disbursement will be payable by the Company,
     prior to the mailing of the checks. (Wire transfers will not be available).

                                       6<PAGE>   1
                                                                 Exhibit 10.12

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                              AMENDED AND RESTATED
                           LOAN AND SECURITY AGREEMENT

                         Dated as of November 17, 1999

                                     between

                                SPINCYCLE, INC.,
                                   as Borrower

                                       and

                       LASALLE BANK NATIONAL ASSOCIATION,
                                    as Lender

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<PAGE>   2
                              AMENDED AND RESTATED
                           LOAN AND SECURITY AGREEMENT

         THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT ("Agreement"),
dated as of November 17, 1999, is entered into between "Lender" and "Borrower"
(hereinafter defined).

                                R E C I T A L S:

         A. Borrower and Lender, as assignee of Heller Financial, Inc. and
Finova Capital Corporation ("Prior Lenders"), are parties to a Loan and Security
Agreement dated as of April 28, 1998, as amended and supplemented from time to
time (collectively, the "Prior Agreements"), pursuant to which Lender made
revolving loans to Borrower and Borrower granted Lender, as successor to Heller
Financial, Inc., as Agent, a lien on the Collateral.

         B. Borrower desires, upon the terms and conditions set forth in this
Agreement, to amend and restate the Prior Agreements in their entirety.

         NOW, THEREFORE, in consideration of the parties' mutual agreements
contained herein, the parties hereto agree as follows:

1.       DEFINITIONS

         1.1     General Terms.  As used in this Agreement, the following
                 terms shall have the following definitions:

                 "Accounts" shall mean all of Borrower's presently existing and
                 hereafter arising accounts, accounts receivable, contract
                 rights, instruments, documents, chattel paper, and all other
                 forms of obligations owing to Borrower arising out of the sale
                 or lease of goods or the rendition of services by Borrower,
                 whether or not earned by performance, and any and all credit
                 insurance, guarantees, letters of credit and other security
                 therefor, as well as all merchandise returned to or reclaimed
                 by Borrower, and all products and proceeds of the foregoing.

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

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                 "Agreement" shall mean this Amended and Restated Loan and
                 Security Agreement, any and all exhibits or schedules hereto,
                 any and all concurrent or subsequent riders to this Amended and
                 Restated Loan and Security Agreement and any extensions,
                 supplements, amendments, modifications or restatements to or of
                 this Amended and Restated Loan and Security Agreement and/or to
                 or of any such rider.

                 "Alliance" means Alliance Laundry Systems LLC.

                 "Alliance Financing" shall mean the term loan by Alliance to
                 Borrower in the original principal amount of $3,000,000,
                 evidenced by the Alliance Loan Documents.

                 "Alliance Loan Documents" shall mean the Loan and Security
                 Agreement dated November 17, 1999 between Alliance and
                 Borrower and all other Loan Documents (as such term is
                 defined therein).

                 "Alliance Senior Collateral" shall have the meaning provided
                 therefor in the Intercreditor Agreement.

                 "Borrower" shall mean SpinCycle, Inc.

                 "Borrower's Books" shall mean all of Borrower's books and
                 records including, but not limited to: minute books; ledgers;
                 records indicating, summarizing, or evidencing Borrower's
                 assets, liabilities, the Accounts and all information relating
                 thereto; records indicating, summarizing, or evidencing
                 Borrower's business operations or financial condition; records
                 indicating, summarizing, or evidencing Borrower's compliance
                 with or problems or activities concerning Environmental Laws;
                 and all computer programs, disc or tape files, printouts, runs,
                 and other computer prepared information and the equipment
                 containing such information and any software necessary to
                 operate the same.

                 "Business Day(s)" shall mean (a) any day other than a Saturday,
                 Sunday or other day on which banks in Illinois are closed, and
                 (b) relative to Eurodollar Loans, any day on which dealings in
                 Dollars are carried on in the interbank Eurodollar market which
                 also satisfies the criteria set forth in (a) above.

                 "Capital Expenditures" shall mean, with respect to any period,
                 the aggregate of all expenditures (whether paid in cash or
                 accrued as liabilities and including expenditures for the
                 portion of capitalized lease obligations amortizable in the
                 fiscal period of measurement) by Borrower during such period
                 that are required by Generally Accepted Accounting Principles
                 to be

                                      -2-
<PAGE>   4
                 included in or reflected by the property, plant, or equipment
                 or similar fixed asset accounts in the balance sheet of
                 Borrower.

                 "Closing" shall have the meaning set forth in Section 5.1
                 hereof.

                 "Code" shall mean the Uniform Commercial Code of the State of
                 Illinois as in effect from time to time during the Initial Term
                 and any renewal term hereof, and any and all terms used in this
                 Agreement which are not otherwise defined herein but are
                 defined in the Code shall be construed and defined in
                 accordance with the meaning and definition ascribed to such
                 terms under the Code.

                 "Collateral" shall mean each and all of the following wherever
                 located and whether now existing or owned or hereafter created
                 or acquired by Borrower: the Accounts; the General Intangibles;
                 the Negotiable Collateral; the Inventory; Borrower's Books; the
                 Equipment; any money, deposit accounts or other assets of
                 Borrower in which Lender receives a Lien or which hereafter
                 comes into the possession, custody or control of Lender or any
                 bailee of Lender; and all products and proceeds of every nature
                 of any of the foregoing, including, but not limited to,
                 proceeds of insurance covering the Collateral and any and all
                 Accounts, General Intangibles, Negotiable Collateral,
                 Inventory, contract rights, instruments, documents and chattel
                 paper, Equipment, money, deposit accounts or other tangible and
                 intangible property of Borrower resulting from the sale or
                 other disposition of the Collateral, and the proceeds and
                 products thereof.

                 "Default Rate" shall have the meaning set forth in Section
                 2.14(c) hereof.

                 "EBITDA" shall have the meaning provided therefor in the
                 definition of Senior Interest Coverage Ratio set forth in this
                 Section.

                 "Effective Date" shall mean the date on which the conditions
                 precedent for initial Revolving Loans under Section 5 hereof
                 have been satisfied and the initial Revolving Loans have been
                 made.

                 "Environmental Laws" shall mean any applicable laws, statutes,
                 rules, regulations, orders, consent decrees, permits or
                 licenses of any governmental authority, relating to prevention,
                 remediation, reduction or control of pollution, or protection
                 of the environment, natural resources and/or human health and
                 safety, including, without limitation, such applicable laws,
                 statutes, rules, regulations, orders, consent decrees, permits
                 or licenses relating to (a) solid waste and/or Hazardous
                 Materials treatment, storage, disposal, generation and
                 transactions, (b) air, water, and noise pollution, (c) soil,
                 ground, water or groundwater contamination, (d) the generation,

                                      -3-
<PAGE>   5
                 handling, storage, transportation or Release into the
                 environment of Hazardous Materials, and (e) regulation of
                 underground and above ground storage tanks.

                 "Equipment" shall mean the machinery and equipment of Borrower,
                 including, without limitation, laundry equipment, processing
                 equipment, data processing and computer equipment with software
                 and peripheral equipment, and all engineering, processing and
                 manufacturing equipment, office machinery, furniture, materials
                 handling equipment, tools, molds, dies, attachments,
                 accessories, automotive equipment, trailers, trucks, motor
                 vehicles, leasehold improvements and cranes, and other
                 equipment of every kind and nature, and fixtures, all whether
                 now owned or hereafter acquired, and wheresoever situated,
                 together with all additions and accessions thereto,
                 replacements therefor, all parts therefor, and all manuals,
                 drawings, instructions, warranties, and rights with respect
                 thereto, and all products and proceeds of the foregoing, and
                 condemnation awards and insurance proceeds with respect
                 thereto.

                 "ERISA" shall mean the Employee Retirement Income Security Act
                 of 1974, as amended, and all references to sections thereof
                 shall include such sections and any predecessor and successor
                 provisions thereto.

                 "Eurodollar Loan" shall mean any Revolving Loan with respect to
                 which the Borrower shall have selected an interest rate based
                 on the LIBOR Rate in accordance with the provisions of Section
                 2.2(a) of this Agreement; provided, however that there shall
                 not be in excess of three (3) Eurodollar Loans outstanding at
                 any one time.

                 "Event of Default" shall mean the occurrence of any one or more
                 of the events set forth in Section 12 of this Agreement.

                 "Excess Issuance Proceeds" shall mean the proceeds of any
                 issuance of Subordinated Indebtedness consented to by Lender or
                 any sale of equity securities by Borrower not required to be
                 paid to Lender by Section 9.9 of this Agreement.

                 "Fiscal Quarter" shall mean the four (4) fiscal quarterly
                 periods of Borrower during each Fiscal Year consisting of three
                 (3), three (3), four (4), and three (3) Reporting Periods,
                 respectively.

                 "Fiscal Year" shall mean with respect to Borrower, the fiscal
                 accounting period of Borrower each year consisting of thirteen
                 (13) four calendar week accounting periods ending on the last
                 Sunday of December of each calendar year.

                                      -4-
<PAGE>   6
                 "Free Cash Flow" shall mean with respect to Borrower for any
                 period of measurement, the sum of EBITDA for such period, less
                 Maintenance Capital Expenditures during such period, less
                 income taxes paid during such period, less interest expense
                 paid during such period.

                 "Funded Debt" shall mean Indebtedness of Borrower incurred
                 under this Agreement, the other Loan Documents, and the
                 Alliance Loan Documents.

                 "Funded Debt Interest Expense" shall have the meaning provided
                 therefor in the definition of Senior Interest Coverage Ratio
                 set forth in this Section.

                 "General Intangibles" shall mean all of the Borrower's present
                 and future general intangibles, contract rights and other
                 personal property rights of Borrower to all choses or things in
                 action, tax refund claims, credits, claims, demands, goodwill,
                 licenses, franchise agreements, subscription costs, patents,
                 trade names, trademarks, copyrights, rights to royalties,
                 blueprints, drawings, customer lists, purchase orders, computer
                 programs, computer discs, computer tapes, literature, reports,
                 catalogs, methods, sales literature, video tapes, confidential
                 information and trade secrets, consulting agreements,
                 employment agreements, leasehold interests in real and personal
                 property, insurance policies, deposits with insurers relating
                 to workmen's compensation liabilities, deposit accounts, tax
                 refunds and proprietary rights in any Equipment, other than
                 Equipment, Inventory and Accounts, as well as Borrower's Books
                 relating to any of the foregoing, and all products and proceeds
                 of the foregoing.

                 "Generally Accepted Accounting Principles" shall mean, with
                 respect to any date of determination, generally accepted
                 accounting principles as used by the Financial Accounting
                 Standards Board and/or the American Institute of Certified
                 Public Accountants consistently applied and maintained
                 throughout the periods indicated.

                 "Hazardous Materials" shall mean any flammable or explosive
                 materials, petroleum (including crude oil and its fractions),
                 radioactive materials, hazardous wastes, toxic substances or
                 related hazardous materials, including without limitation
                 polychlorinated biphenyls, friable asbestos, and any substances
                 defined as, or included in the definition of toxic or hazardous
                 substances, wastes, or materials under any federal or
                 applicable state or local laws, ordinances, rules or
                 regulations including Environmental Laws.

                 "Indebtedness" shall mean, with respect to any Person, (a)
                 indebtedness for borrowed money or for the deferred purchase
                 price of property or services in respect of which such Person
                 is liable, contingently or otherwise, as obligor or otherwise,
                 including without limitation accounts payable and accrued

                                      -5-
<PAGE>   7
                 indebtedness owed by such Person or any commitment by which
                 such Person assures a creditor against loss, including
                 contingent reimbursement obligations with respect to letters of
                 credit, (b) indebtedness guaranteed in any manner by such
                 Person, including guarantees in the form of an agreement to
                 repurchase or reimburse, (c) obligations under leases which
                 shall have been or should be, in accordance with Generally
                 Accepted Accounting Principles, recorded as capital leases, in
                 respect of which obligations such Person is liable,
                 contingently or otherwise, as obligor, guarantor or otherwise,
                 or in respect of which obligations such Person assures a
                 creditor against loss, and (d) any unfunded obligation of such
                 Person to any Benefit Plan or Multiemployer Plan.

                 "Indemnified Persons" shall have the meaning set forth in
                 Section 18.1 hereof.

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

                 "Insolvency Proceeding" shall mean, with respect to any Person,
                 any proceeding commenced by or against such Person, under any
                 provision of the United States Bankruptcy Code, as amended, or
                 under any other bankruptcy, reorganization or insolvency law,
                 or any assignment for the benefit of creditors, formal or
                 informal moratorium, or compositions or extensions with some or
                 all creditors of such Person.

                 "Intercreditor Agreement" shall mean the Intercreditor
                 Agreement of even date herewith between Alliance and Lender.

                 "Interest Period" shall mean: (i) as to any Eurodollar Loan,
                 the period commencing on the date of such Eurodollar Loan and
                 ending on the numerically corresponding day (or, if there is no
                 numerically corresponding day, on the last day) in the calendar
                 month that is 1, 2 or 3 months thereafter, as the Borrower may
                 elect, and (ii) as to any Reference Rate Loan, the period
                 commencing on the date of such Reference Rate Loan and ending
                 on the earlier of (A) the last Business Day of each calendar
                 month, and (B) the expiration or earlier termination of this
                 Agreement; provided, however, that (i) if any Interest Period
                 would end on a day that shall not be a Business Day, such
                 Interest Period shall be extended to the next succeeding
                 Business Day unless, with respect to Eurodollar Loans only,
                 such next succeeding Business Day would fall in the next
                 calendar month, in which case such Interest Period shall end on
                 the immediately preceding Business Day, (ii) no Interest Period
                 with respect to any Revolving Loan shall end later than the
                 expiration of the term of this Agreement, (iii) interest shall
                 accrue from and including the first day of an Interest Period
                 to and excluding the last day of such Interest Period, and (iv)
                 no Interest Period may be

                                      -6-
<PAGE>   8
                 selected if after giving effect thereto Borrower will be unable
                 to make a principal payment scheduled to be made during such
                 Interest Period without paying part of a Eurodollar Loan on a
                 date other than on the last day of an Interest Period
                 applicable thereto.

                 "Inventory" shall mean all present and future inventory in
                 which Borrower has any interest, including, but not limited to,
                 goods held by Borrower for sale or lease or to be finished
                 under a contract of service and all of Borrower's present and
                 future raw materials, work in process, finished goods, supplies
                 and packing and shipping materials, wherever located, and any
                 documents of title representing any of the above.

                 "IRC" shall mean the Internal Revenue Code of 1986, as amended,
                 and all references to sections thereof shall include such
                 sections and any predecessor and successor provisions thereto.

                 "Lender" shall mean LaSalle Bank National Association, a
                 national banking association.

                 "Letter of Credit Facility" shall have the meaning set forth in
                 Section 2.4 hereof.

                 "Letters of Credit" shall mean any standby letters of credit
                 which are now or hereafter at any time issued by Lender at the
                 request of and for the account of Borrower pursuant to the
                 terms of this Agreement, in form and substance acceptable to
                 Lender.

                 "LIBOR Rate" shall mean, with respect to any Eurodollar Loan
                 for any Interest Period, the interest rate per annum equal to
                 the quotient obtained by dividing (x) the rate of interest
                 determined by Lender to be the average of the rate per annum at
                 which deposits in U.S. dollars are generally offered to Lender
                 in the London Interbank Market at 11:00 A.M. London time, two
                 (2) Business Days before the first day of such Interest Period,
                 for a period equal to such Interest Period and in the amount of
                 the applicable Eurodollar Loan, by (y) the difference between
                 one hundred percent (100%) and any applicable reserve
                 requirements (rounded upward to the nearest whole multiple of
                 one hundredth (1/100) of one percent per annum), including,
                 without limitation, any statutory maximum requirement for
                 Lender to hold reserves for "Eurocurrency Liabilities" under
                 Regulation D of the Board of Governors of the Federal Reserve
                 System (or any similar reserves under any successor regulation
                 or regulations).

                                      -7-
<PAGE>   9
                 "Lien" shall mean any mortgage, deed of trust, pledge, fixed or
                 floating charge, lien, security interest, or encumbrance or
                 security arrangement of any nature whatsoever, whether arising
                 by written or oral agreement or by operation of law, including
                 without limitation any conditional sale or title retention
                 arrangement and any assignment, deposit arrangement or lease
                 intended as or having the effect of, security.

                 "Loan Documents" shall mean all agreements, instruments and
                 documents, including without limitation security agreements,
                 loan agreements (including without limitation this Agreement),
                 notes, guarantees, mortgages, deeds of trust, subordination
                 agreements, intercreditor agreements, pledges, affidavits,
                 certificates, powers of attorney, consents, assignments,
                 landlord and mortgagee waivers, opinions, collateral
                 assignments, reimbursement agreements, contracts, notices,
                 leases, financing statements, and all amendments, supplements,
                 restatements and renewals thereof, and all other written
                 matter, whether heretofore, now or hereafter executed by or on
                 behalf of Borrower, or any other Person in connection with the
                 Obligations or the transactions contemplated hereby (including
                 without limitation any guaranty of the Obligations), and
                 delivered to Lender, together with all agreements, instruments
                 and documents referred to therein or contemplated thereby,
                 whether heretofore, now or hereafter executed by or on behalf
                 of Borrower or any such other Persons and delivered to Lender,
                 and all amendments, supplements, restatements and renewals
                 thereof, but not including any proposal letter, commitment
                 letter or other comparable documents delivered by Lender prior
                 to the date hereof and not expressly incorporated herein and
                 made a part hereof.

                 "Losses" shall have the meaning set forth in Section 18.1
                 hereof.

                 "Maintenance Capital Expenditures" shall have the meaning set
                 forth in Section 8.20 hereof.

                 "Maximum Revolving Credit Facility" shall mean $12,000,000.

                 "Negotiable Collateral" shall mean a letter of credit, advice
                 of credit, instrument, money, negotiable document, warehouse
                 receipt, bill of lading, certificated security, certificate of
                 title, certificate of deposit, chattel paper, or similar
                 property, and the proceeds thereof.

                 "Net Worth" means the total of Borrower's stated capital, paid
                 in surplus and retained earnings, less treasury stock, all as
                 determined in accordance with Generally Accepted Accounting
                 Principles.

                                      -8-
<PAGE>   10
                 "Obligations" shall mean all loans, advances, overdrafts,
                 debts, liabilities (including, without limitation, any and all
                 amounts charged to Borrower's account pursuant to any agreement
                 authorizing Lender to charge the loan account maintained by
                 Lender with respect to Borrower), obligations, reimbursement
                 and indemnity obligations with respect to Letters of Credit,
                 covenants, lease payments, guarantees and duties owing by
                 Borrower to Lender of any kind or description (whether advanced
                 pursuant to or evidenced by this Agreement, by the Revolving
                 Loan Note, by any other Loan Document or other agreement,
                 instrument or document or otherwise), whether direct or
                 indirect, absolute or contingent, due or to become due, now
                 existing or hereafter arising, and including without limitation
                 any debt, liability or obligation owing from Borrower to
                 another Person which Lender may have obtained by assignment of
                 which notice is provided to Borrower (or otherwise as a result
                 of a payment made by Lender on behalf of Borrower as permitted
                 under this Agreement or any other Loan Documents) and further
                 including without limitation all interest, all Out-of-Pocket
                 Fees and Costs which Borrower is required to pay or reimburse
                 by this Agreement or any other Loan Document, by law or
                 otherwise.

                 "Out-of-Pocket Fees and Costs" shall have the meaning set forth
                 in Section 2.15(c) hereof.

                 "Participant" shall mean any Person now or from time to time
                 hereafter participating with Lender in any of the Revolving
                 Loans made by Lender to Borrower pursuant to this Agreement.

                 "Permitted Liens" shall have the meaning set forth in Section
                 8.1 hereof.

                 "Person" shall mean any individual, sole proprietorship,
                 partnership, joint venture, trust, unincorporated organization,
                 association, corporation, limited liability corporation,
                 institution, entity or governmental entity.

                 "Potential Default" shall mean any event which through the
                 passage of time, service of notice or both, would mature into
                 an Event of Default.

                 "Pro Formas" shall have the meaning set forth in Section 7.11
                 hereof.

                 "Rate" shall have the meaning set forth in Section 2.14(a)
                 hereof.

                 "Reference Rate" shall mean the variable per annum rate of
                 interest announced from time to time by Lender at its corporate
                 headquarters in Chicago, Illinois, as its prime or equivalent
                 rate. The "Reference Rate" is one of Lender's index rates and
                 merely serves as a basis under which effective rates of
                 interest are calculated for loans making reference thereto

                                      -9-
<PAGE>   11
                 and may not be the lowest or best rate at which Lender
                 calculates interest or extends credit.

                 "Reference Rate Loan" shall mean any Loan with respect to which
                 Borrower shall have selected an interest rate based upon the
                 Reference Rate in accordance with the provisions of Section
                 2.2(a) of this Agreement.

                 "Release" shall mean any actual or threatened past, present or
                 future releasing, spilling, leaking, pumping, pouring,
                 emitting, emptying, discharging, seeping, injecting, escaping,
                 leaching, dumping or disposing, whether intentional or not.

                 "Reporting Period" shall mean each of Borrower's thirteen (13)
                 annual four week fiscal reporting periods.
                 "Restriction Agreement" shall have the meaning set forth in
                 Section 8.8 hereof.

                 "Revolving Loan Note" shall have the meaning set forth in
                 Section 2.1 hereof.

                 "Revolving Loans" shall have the meaning set forth in Section
                 2.1 hereof.

                 "Senior Discount Notes" shall mean Borrower's $144,990,000
                 principal amount of 12-3/4% Series B Senior Discount Notes due
                 2005, issued pursuant to an Indenture dated as of April 29,
                 1998 between Borrower and Norwest Bank Minnesota, N.A., as
                 Trustee (the "Note Indenture").

                 "Senior Interest Coverage Ratio" shall mean with respect to
                 Borrower for any period of measurement (a) the total of (i)
                 Borrower's net income after income taxes (exclusive of any gain
                 or loss in such period from an asset disposition other than
                 Inventory in the ordinary course of business and excluding
                 other extraordinary gains and losses) for such period, plus
                 (ii) Borrower's amortization, depreciation and other non-cash
                 charges (excluding Accounts reserves, Inventory reserves and
                 other reserves incurred in the ordinary course of business) for
                 such period ("EBITDA"), divided by (b) interest expense paid or
                 accrued on Funded Debt for such period ("Funded Debt Interest
                 Expense").

                 "Subordinated Indebtedness" shall mean Borrower's Indebtedness,
                 if any, to any Person, the repayment of which has been
                 subordinated to the repayment of the Obligations on terms and
                 by written agreement in form and substance acceptable to
                 Lender.

                                      -10-
<PAGE>   12
                 "Subsidiary" shall mean any corporation of which more than
                 fifty percent (50%) of the outstanding capital stock having
                 ordinary voting power to elect a majority of the board of
                 directors of such corporation (irrespective of whether at the
                 time stock of any other class or classes of such corporation
                 shall have or might have voting power by reason of the
                 happening of any contingency) is at the time, directly or
                 indirectly, owned by Borrower, or any partnership, limited
                 liability company or joint venture of which more than fifty
                 percent (50%) of the outstanding equity interests are at the
                 time, directly or indirectly, owned by Borrower.

                 "Tangible Net Worth" means the sum of the Net Worth of
                 Borrower, plus the outstanding principal balance of the Senior
                 Discount Notes, less all of the following: (i) all prepaid
                 expenses and deposits, (ii) the book value of all such assets
                 which would be treated as an intangible under Generally
                 Accepted Accounting Principles, including without limitation,
                 goodwill, trademarks, tradenames, copyrights, patents,
                 licenses, deferred charges, unamortized debt discount and
                 expenses and covenants not to compete, and (iii) accounts,
                 notes and other receivables due from Affiliates and/or
                 employees of Borrower.

                 "Term" shall mean the term of this Agreement, including the
                 Initial Term and any renewal term.

                 "Uncured Default" shall mean an Event of Default which shall
                 be continuing.

         1.2     Accounting Terms. Any accounting terms used in this Agreement
                 which are not specifically defined herein shall have the
                 meanings customarily given them in accordance with Generally
                 Accepted Accounting Principles. In the event that changes in
                 Generally Accepted Accounting Principles shall be mandated by
                 the Financial Accounting Standards Board and/or the American
                 Institute of Certified Public Accountants or any similar
                 accounting body of comparable standing, or shall be recommended
                 by Borrower's certified public accountants, to the extent that
                 such changes would modify such accounting terms or the
                 interpretation or computation thereof as contemplated by this
                 Agreement at the time of execution hereof, then in such event
                 such changes shall be followed in defining such accounting
                 terms only after the Borrower and Lender shall have agreed to
                 amend this Agreement to reflect the original intent of such
                 terms in light of such changes, and such terms shall continue
                 to be applied and interpreted without such change until such
                 agreement.

                                      -11-
<PAGE>   13
         1.3     Certain Matters of Construction. The terms "herein", "hereof"
                 and "hereunder" and other words of similar import refer to this
                 Agreement as a whole and not to any particular section,
                 paragraph or subdivision. Any pronoun used shall be deemed to
                 cover all genders. The section titles, table of contents and
                 list of exhibits appear as a matter of convenience only and
                 shall not affect the interpretation of this Agreement. All
                 references to statutes and related regulations shall include
                 any amendments of same and any successor statutes and
                 regulations. All references to any instruments or agreements,
                 including, without limitation, references to any of the Loan
                 Documents shall include any and all modifications or amendments
                 thereto and any and all extensions or renewals thereof. The
                 Recitals to this Agreement are incorporated into this Agreement
                 in their entirety and deemed to be a part hereof.

2.       LOANS; FEES; TERMS OF PAYMENT

         2.1     Revolving Credit Facility.  Subject to the terms and
                 provisions of this Agreement including without limitation, that
                 no Event of Default or Potential Default has occurred and all
                 other conditions precedent to lending under Section 5 hereof
                 have been satisfied, upon the request of Borrower, made at any
                 time and from time to time during the term of this Agreement,
                 the Lender agrees to make loans and advances (individually, a
                 "Revolving Loan" and collectively, "Revolving Loans") to
                 Borrower from time to time in the amount requested by Borrower
                 so long as the aggregate amount of the Revolving Loans
                 outstanding at any time does not exceed the sum of the Maximum
                 Revolving Credit Facility, less the outstanding face amount of
                 all Letters of Credit.

                 Lender is hereby authorized to make the Revolving Loans
                 provided for in this Agreement based upon telephonic or other
                 instructions received from anyone purporting to be (and which
                 Lender in good faith believes to be) an authorized
                 representative of Borrower, or at the discretion of Lender, if
                 such Revolving Loans are necessary to satisfy any Obligation of
                 Borrower to Lender.

                 The Revolving Loans shall be evidenced by, and repayable in
                 accordance with, the Revolving Loan Note substantially in the
                 form of Exhibit A to this Agreement ("Revolving Loan Note").

                                      -12-
<PAGE>   14
         2.2     Borrowing Procedures.

                 (a)      Lender shall have received, on or before 11:00 a.m.
                          Chicago time, on the day a Revolving Loan is to be
                          made, if a Reference Rate Loan, or three (3) Business
                          Days prior to the date a Revolving Loan is to be made,
                          if a Eurodollar Loan, including continuations and
                          conversions (i) an oral request from Borrower for a
                          Revolving Loan in a specific amount (and a request in
                          writing, which shall be delivered to Lender on the
                          same Business Day, executed by an authorized
                          representative of Borrower), (ii) designation whether
                          the Revolving Loan is to be a Eurodollar Loan or a
                          Reference Rate Loan, and if such Revolving Loan is to
                          be a Eurodollar Loan, the Interest Period or Interest
                          Periods with respect thereto, and (iii) copies of all
                          other documents which the Borrower is required to
                          deliver to Lender hereunder. If such request for a
                          Revolving Loan is received by Lender before 11:00 a.m.
                          Chicago time on the day a Reference Rate Loan is to be
                          made, or before 11:00 a.m. Chicago time three (3)
                          Business Days prior to the date a Eurodollar Loan is
                          to be made, subject to the other terms and conditions
                          of this Agreement, Lender will make such Revolving
                          Loan on the applicable day on which such Revolving
                          Loan is to be funded hereunder, subject to any delays
                          beyond Lender's reasonable control, provided that
                          Lender shall not be liable for any damages or
                          liabilities for the failure to so make any Revolving
                          Loan on the day requested, unless such failure was due
                          to Lender's gross negligence or wilful misconduct. If
                          no election as to the type of Revolving Loan is
                          specified in any such notice by Borrower, then such
                          Revolving Loan shall be a Reference Rate Loan. If no
                          Interest Period is specified with respect to a
                          Eurodollar Loan in such notice, then Borrower shall be
                          deemed to have selected an Interest Period of one
                          month's duration. Notwithstanding anything contained
                          in this Agreement to the contrary, Borrower may not
                          have more than three (3) Eurodollar Loans outstanding
                          at any one time, and each request for a Eurodollar
                          Loan shall be in a minimum initial increment of
                          $1,000,000.

         2.3     Renewals: Conversion and Continuation of Revolving Loans.

                 (a)      Provided no Potential Default or Event of Default has
                          occurred, upon maturity of any Revolving Loan, upon
                          notice to Lender given in the manner and at the times
                          specified in Section 2.2(a) of this Agreement with
                          respect to Revolving Loans to be renewed, the Borrower
                          may renew all or any part of any Revolving Loan to it
                          from Lender with a Revolving Loan of the same or a
                          different type from Lender, subject to the conditions
                          and limitations set forth herein and elsewhere in this

                                      -13-
<PAGE>   15
                          Agreement. Any Revolving Loan or part thereof so
                          renewed shall be deemed to be repaid in accordance
                          with this Section 2.3(a) with the proceeds of a new
                          borrowing hereunder and the proceeds of the new
                          Revolving Loan, to the extent such proceeds do not
                          exceed the principal amount of the Revolving Loan
                          being renewed, shall not be paid by Lender to
                          Borrower.

                 (b)      Provided no Potential Default or Event of Default has
                          occurred, the Borrower shall have the right at any
                          time, upon notice to Lender given in the manner and at
                          the times specified in Section 2.2(a) of this
                          Agreement with respect to the Revolving Loans to be
                          converted or continued, to convert its Eurodollar
                          Loans into Reference Rate Loans, to convert its
                          Reference Rate Loans into Eurodollar Loans (specifying
                          the Interest Period to be applicable thereto), to
                          convert the Interest Period applicable to any of its
                          Eurodollar Loans to another permissible Interest
                          Period, and to continue any of its Revolving Loans
                          into a subsequent Interest Period of any permissible
                          duration, subject to the terms and conditions of this
                          Agreement, and to the following:

                          (i)     each conversion shall be effected by Lender by
                                  applying the proceeds of the new Reference
                                  Rate Loan or Eurodollar Loan, as the case may
                                  be, to the Reference Rate Loan or Eurodollar
                                  Loan (or portion thereof) being converted;

                          (ii)    accrued interest on a Revolving Loan (or
                                  portion thereof) being converted or continued
                                  shall be paid by the Borrower at the time of
                                  conversion or continuation;

                          (iii)   if any Eurodollar Loan is converted at any
                                  time other than the end of an Interest
                                  Period applicable thereto, the Borrower
                                  shall make such payments associated
                                  therewith as are required pursuant to
                                  Section 2.4 at the time such Eurodollar Loan
                                  shall be converted to a Reference Rate Loan;
                                  and

                          (iv)    the Interest Period applicable to any
                                  Eurodollar Loan resulting from a conversion or
                                  continuation shall be specified by the
                                  Borrower in the notice of conversion or
                                  continuation delivered pursuant to this
                                  Section 2.3 provided, however, that if no such
                                  Interest Period shall be specified, the
                                  Borrower shall be deemed to have selected an
                                  Interest Period of one month's duration.

                                      -14-
<PAGE>   16
         2.4     Indemnity.

                 The Borrower hereby agrees to indemnify Lender against any
                 loss, fee, claim, damage, liability or expense which Lender may
                 sustain or incur as a consequence of (i) any failure by the
                 Borrower to fulfill on the date of any borrowing of a
                 Eurodollar Loan hereunder the applicable conditions set forth
                 in this Agreement which Borrower is required to fulfill as of
                 such date with respect to a Revolving Loan, (ii) any failure by
                 the Borrower to borrow hereunder after notice of borrowing
                 pursuant to this Agreement has been given to Lender, except
                 where the availability of Eurodollar Loans is suspended by
                 Lender pursuant to Section 2.6 of this Agreement, (iii) any
                 payment, prepayment or conversion of a Eurodollar Loan required
                 by any provision of this Agreement, or otherwise made on a date
                 other than the last day of the applicable Interest Period, or
                 (iv) the occurrence of any Event of Default, including, but not
                 limited to, any loss or reasonable expense sustained or
                 incurred or to be sustained or incurred in liquidating or
                 employing deposits from third parties acquired to effect or
                 maintain such Revolving Loan or any part thereof as a
                 Eurodollar Loan. Such loss or reasonable expense shall include,
                 without limitation, an amount equal to the excess, if any, as
                 reasonably determined by Lender of its cost of obtaining the
                 funds for the Eurodollar Loan being paid, prepaid or converted
                 or not borrowed (based on the LIBOR Rate applicable thereto)
                 for the period from the date of such payment, prepayment or
                 conversion or failure to borrow to the last day of the Interest
                 Period for such Eurodollar Loan (or, in the case of a failure
                 to borrow, the Interest Period for such Eurodollar Loan which
                 would have commenced on the date of such failure to borrow)
                 over the amount of interest (as reasonably determined by
                 Lender) that could be realized by Lender in reemploying during
                 such period the funds so paid, prepaid or converted or not
                 borrowed. A certificate of Lender setting forth any amount or
                 amounts which Lender is entitled to receive pursuant to this
                 Section 2.4 shall be conclusive absent manifest error.

         2.5     Change in Legality.

                 (a)      Notwithstanding anything to the contrary herein
                          contained, if any change in any law or regulation or
                          in the interpretation thereof by any governmental
                          authority charged with the administration or
                          interpretation thereof shall make it unlawful for
                          Lender to make or maintain any Eurodollar Loan or to
                          give effect to its obligations as contemplated hereby
                          (an "Illegality"), or if Lender determines that
                          maintenance of Eurodollar Loans would cause Lender to
                          implement or modify any reserve, special deposit or
                          assessment or other requirement, or impose any other
                          condition on Lender affecting the Revolving Loans
                          (each of the foregoing circumstances called a

                                      -15-
<PAGE>   17
                          "Regulatory Action"), then, by written notice to the
                          Borrower, Lender shall:

                          (i)     declare that Eurodollar Loans will not
                                  thereafter be made by Lender hereunder,
                                  whereupon the Borrower shall be prohibited
                                  from requesting Eurodollar Loans from Lender
                                  hereunder unless such declaration is
                                  subsequently withdrawn; provided, however,
                                  that if after the date of any such declaration
                                  there shall occur any change in law or
                                  regulation or in the interpretation thereof by
                                  any government authority charged with the
                                  administration or interpretation thereof that
                                  shall eliminate such Illegality, Lender shall
                                  as promptly as reasonably practicable notify
                                  the Borrower of such occurrence and withdraw
                                  such declaration; and

                          (ii)    require that all outstanding Eurodollar Loans
                                  made by Lender be converted to Reference Rate
                                  Loans, in which event (1) all such Eurodollar
                                  Loans shall be automatically converted to
                                  Reference Rate Loans as of the effective date
                                  of such notice as provided in paragraph (b)
                                  below and, (2) all payments and prepayments of
                                  principal which would otherwise have been
                                  applied to repay the converted Eurodollar
                                  Loans shall instead be applied to repay the
                                  Reference Rate Loans resulting from the
                                  conversion of such Eurodollar Loans

                 (b)      for purposes of this Section 2 a notice to the
                          Borrower by Lender pursuant to paragraph (a) above
                          shall be effective on the date of receipt by the
                          Borrower.

         2.6     Unavailability of Deposits or Inability to Ascertain, or
                 Inadequacy of LIBOR Rate.

                 If on or prior to the first day of any Interest Period for any
                 borrowing of Eurodollar Loans:

                 (a)      the Lender advises the Borrower that deposits in
                          United States Dollars (in the applicable amounts) are
                          not being offered to it in the off-shore U.S. Dollar
                          interbank market for such Interest Period, or

                 (b)      the Lender advises the Borrower that the LIBOR Rate as
                          determined by the Lender will not adequately and
                          fairly reflect the cost to Lender of funding the
                          Eurodollar Loans for such Interest Period, until it
                          notifies the Borrower that the circumstances giving
                          rise to such

                                      -16-
<PAGE>   18
                          suspension no longer exist, the obligations of the
                          Lender to make Eurodollar Loans shall be suspended
                          without liability to Lender.

         2.7     Increased Cost and Reduced Return.

                 (a)      If on or after the date hereof, the adoption of any
                          applicable law, rule or regulation, or any change
                          therein, or any change in the interpretation or
                          administration thereof by any governmental authority,
                          central bank or comparable agency charged with the
                          interpretation or administration thereof, or
                          compliance by Lender with any request or directive
                          (whether or not having the force of law) of any such
                          authority, central bank or comparable agency:

                          (i)     shall subject Lender to any tax, duty or other
                                  charge with respect to its Eurodollar Loans,
                                  the Revolving Loan Note or its obligation to
                                  make Eurodollar Loans, or shall change the
                                  basis of taxation of payments to Lender of the
                                  principal of or interest on its Eurodollar
                                  Loans or any other amounts due under this
                                  Agreement in respect of its Eurodollar Loans
                                  or its obligation to make Eurodollar Loans
                                  (except for changes in the rate of tax on the
                                  overall net income of Lender imposed by the
                                  jurisdiction in which Lender's principal
                                  executive office is located); or

                          (ii)    shall impose, modify or deem applicable any
                                  reserve, special deposit or similar
                                  requirement (including, without limitation,
                                  any such requirement imposed by the Board of
                                  Governors of the Federal Reserve System),
                                  against assets of, deposits with or for the
                                  account of, or credit extended by, Lender or
                                  shall impose on Lender or on the interbank
                                  market any other condition affecting Lender's
                                  Eurodollar Loans, the Revolving Loan Note or
                                  its obligation to make Eurodollar Loans;

                 and the result of any of the foregoing is to increase the cost
                 to Lender of making or maintaining any Eurodollar Loan, or to
                 reduce the amount of any sum received or receivable by such
                 Lender under this Agreement or under the Revolving Loan Note
                 with respect thereto, by an amount deemed reasonably and in
                 good faith by Lender to be material, then, Borrower shall,
                 within fifteen (15) days after demand by Lender setting forth
                 the computation of the amount of any increased costs, be
                 obligated to pay Lender such additional amount or amounts as
                 will compensate Lender for such increased cost or reduction
                 (computed commencing on the effective date of any event
                 mentioned herein). Lender agrees to use its best efforts to
                 give the Borrower notice of the occurrence of any event
                 mentioned herein.

                                      -17-
<PAGE>   19
                 In addition, Lender may, upon notice to Borrower, elect to
                 increase the interest rate applicable to all Eurodollar Loans
                 made subsequent thereto, to compensate Lender for such
                 increased cost or reduced yield.

         2.8     Regulations Affecting Loans. If (a) Regulation D, Regulation M
                 or any other regulation of the Board of Governors of the
                 Federal Reserve System or any other Federal regulation, or (b)
                 after the date hereof, the adoption of any applicable law, rule
                 or regulation, or any change, amendment to, deletion from or
                 revision, modification or other change therein, or any change
                 in the interpretation or administration thereof by any
                 governmental authority, central bank or comparable agency
                 charged with the interpretation or administration thereof, or
                 by any court, or compliance by Lender with any request or
                 directive (whether or not having the force of law) of any such
                 authority, central bank or comparable agency,

                 (a)      shall impose, modify or deem applicable any reserve
                          (including, without limitation, any reserve imposed by
                          the Federal Reserve Board), special deposit, special
                          assessment or similar requirement against assets of,
                          deposits with or for the account of, or credit
                          extended by, Lender; or

                 (b)      shall impose on Lender any other condition affecting
                          the Revolving Loans;

                 and the result of any of the foregoing is to increase the cost
                 to Lender of making or maintaining the Revolving Loans, or to
                 reduce the amount of any sum received or receivable by Lender
                 under this Agreement or under the Revolving Loan Note with
                 respect thereto, then on the earlier of termination of this
                 Agreement or fifteen (15) days after demand by Lender setting
                 forth the computation of the amount of any increased costs,
                 Borrower shall pay directly to Lender from time to time such
                 additional amount or amounts as Lender reasonably determines
                 will compensate Lender for such increased cost or such
                 reduction. Lender agrees to use its best efforts to give the
                 Borrower notice of the occurrence of any event mentioned herein
                 prior to Lender's demand for payment.

         2.9     Letter of Credit Facility.

                 (a)      Subject to the terms and provisions of this Agreement,
                          including without limitation, that no Event of Default
                          or Potential Default has occurred and all other
                          conditions precedent to lending under Section 5 hereof
                          have been satisfied, Lender may, at Borrower's request
                          and for the account of Borrower, issue Letters of
                          Credit; provided, that the aggregate undrawn face
                          amount of the Letters of Credit shall not

                                      -18-
<PAGE>   20
                          at any time exceed the sum of Five Hundred Thousand
                          Dollars ($500,000.00) (the "Letter of Credit
                          Facility") and no Letter of Credit shall have a term
                          extending beyond the term of this Agreement.

                 (b)      Borrower agrees to pay to (i) Lender upon the opening
                          of a Letter of Credit and thereafter on demand,
                          Lender's standard administrative and operating fees
                          and charges in effect from time to time for issuing,
                          administering and paying draws under any Letters of
                          Credit, plus (ii) a fee, payable upon issuance of each
                          Letter of Credit and annually thereafter equal to two
                          percent (2.00%) per annum of the aggregate face amount
                          available to be drawn under such Letter of Credit.
                          Borrower shall execute Lender's customary form of
                          application and related documents for each Letter of
                          Credit requested by it.

                 (c)      Borrower agrees to reimburse Lender, within one (1)
                          Business Day after demand, for each payment made by
                          Lender under or pursuant to any Letter of Credit
                          issued by Lender on behalf of Borrower. Borrower
                          further agrees to pay to Lender, on demand, interest
                          at the Default Rate on any amount paid by Lender under
                          or pursuant to any such Letter of Credit from the due
                          date of payment until the date of reimbursement to
                          Lender. Lender shall, upon the request of Borrower
                          when no Event of Default or Potential Default exists
                          (to the extent the Revolving Credit Facility shall
                          then be in effect and there is additional availability
                          for Revolving Loans thereunder, but without regard to
                          the other conditions precedent set forth in Section
                          5), provide for the payment of any reimbursement
                          obligations due to Lender and any interest accrued
                          thereon under the Letter of Credit Facility by
                          advancing the amount thereof to Borrower as a
                          Revolving Loan.

                 (d)      Borrower's obligation to reimburse Lender for payments
                          and disbursements made by Lender under any Letter of
                          Credit requested by Borrower and issued by Lender
                          shall be absolute and unconditional under any and all
                          circumstances and irrespective of any setoff,
                          counterclaim or defense to payment which Borrower may
                          have or have had against Lender, including, without
                          limitation, any defense based on the failure of the
                          demand for payment under such Letter of Credit to
                          conform to the terms of such Letter of Credit, the
                          legality, validity, regularity or enforceability of
                          such Letter of Credit, or the identity of the
                          transferee of such Letter of Credit or the sufficiency
                          of any transfer if such Letter of Credit is
                          transferable; provided, however that Borrower shall
                          not be obligated to reimburse Lender for any wrongful
                          payment or disbursement made under any Letter of
                          Credit as a result of acts or omissions constituting
                          gross

                                      -19-
<PAGE>   21
                          negligence or willful misconduct on the part of Lender
                          or any of its officers, employees or agents.

                 (e)      Notwithstanding anything to the contrary herein, upon
                          the occurrence of an Event of Default or upon
                          termination of the Letter of Credit Facility or
                          termination of this Agreement whether by expiration of
                          the existence of such facility or the term or
                          otherwise, an amount equal to the aggregate amount of
                          the outstanding Obligations of Borrower under or in
                          connection with Letters of Credit shall, at Lender's
                          option and without demand upon or further notice to
                          Borrower, be deemed (as between Lender and Borrower)
                          to have been paid or disbursed by Lender under the
                          Letters of Credit issued by Lender (notwithstanding
                          that such amounts may not in fact have been so paid or
                          disbursed), and a Revolving Loan to Borrower in the
                          amount of such Obligations to have been made and
                          accepted, which Revolving Loan shall be immediately
                          due and payable. In lieu of the foregoing, at the
                          election of Lender at any time after an Event of
                          Default, or upon expiration or termination of the
                          Letter of Credit Facility or this Agreement, whether
                          by expiration of the term or otherwise, Borrower
                          shall, upon Lender's demand, deliver to Lender cash or
                          wire transfer of immediately available funds, in an
                          amount equal to the aggregate outstanding face amount
                          of all Letters of Credit. Any such cash and/or any
                          amounts received by Lender in payment of the Revolving
                          Loan made pursuant to this paragraph shall be
                          delivered to and held by Lender in a separate account
                          appropriately designated as a cash collateral account
                          in relation to this Agreement and the Letters of
                          Credit and shall be retained by Lender as collateral
                          security in respect of, first, Borrower's Obligations
                          under or in connection with the Letters of Credit and
                          then, all other Obligations. Such amounts shall not be
                          used by Lender to pay any amounts drawn or paid under
                          or pursuant to any Letter of Credit, but may be
                          applied to reimburse Lender for drawings or payments
                          under or pursuant to Letters of Credit which Lender
                          has paid, or if no such reimbursement is required, to
                          payment of such other Obligations as Lender shall
                          determine. Any amounts remaining in any cash
                          collateral account established pursuant to this
                          paragraph following payment in full of all Obligations
                          shall be returned to Borrower.

                 (f)      In determining whether to make any payment under or
                          pursuant to any Letter of Credit, Lender shall have no
                          obligation to Borrower or any other Person other than
                          to confirm that any documents required to be delivered
                          have been delivered and that such documents comply on
                          their face with the requirements of such Letter of
                          Credit.  No other

                                      -20-
<PAGE>   22
                          action taken or omitted by Lender under or in
                          connection with any Letter of Credit, if taken or
                          omitted in the absence of gross negligence or willful
                          misconduct, shall put Lender under any resulting
                          liability to Borrower.

         2.10    Payments.

                 (a)      Borrower shall make each payment in respect of the
                          principal of and interest on the Revolving Loans and
                          any other payments due under this Agreement not later
                          than 12:00 p.m. Chicago time on the day when due, in
                          United States dollars, to Lender at its office in
                          Chicago, Illinois in immediately available funds.

                 (b)      Borrower shall, at the time of making such payment
                          under this Agreement or the Revolving Credit Note,
                          specify to Lender the amounts payable by Borrower
                          hereunder to which such payment is to be applied (and
                          in the event that it fails to so specify, or if an
                          Event of Default has occurred and has not been cured
                          or waived as set forth in this Agreement, Lender shall
                          distribute such payment in such manner as Lender may
                          determine to be appropriate).

         2.11    Sharing of Payments, Etc. Borrower agrees that, in addition to
                 (and without limitation of) any right of set-off, bankers' lien
                 or counterclaim Lender might otherwise have, Lender shall be
                 entitled, at its option, to offset balances held by it for the
                 account of Borrower at any of its offices, against any
                 Obligations which are not paid when due subject to any
                 applicable grace periods (regardless of whether such balances
                 are then due to Borrower), in which case it shall promptly
                 notify Borrower thereof, provided that Lender's failure to
                 provide such notice shall not affect the validity thereof.

         2.12    All Loans One Obligation. All Loans by Lender to Borrower under
                 this Agreement shall constitute Obligations of Borrower,
                 secured by Lender's Lien on the Collateral, and by any Lien
                 heretofore, now or at any time or times hereafter granted by
                 Borrower to Lender under any Loan Document.

         2.13    Payment of Over Advances. If, at any time and for any reason,
                 the outstanding Revolving Loans exceed the Maximum Revolving
                 Credit Facility, any such excess shall immediately be due and
                 payable by Borrower to Lender, and prior to such repayment such
                 over advances shall bear interest at the Default Rate.

                                      -21-
<PAGE>   23
         2.14    Interest.

                 (a)      Rate.  All Obligations owed by Borrower to Lender
                          (except for Eurodollar Loans and those Obligations
                          evidenced by a note other than the Revolving Loan
                          Note, or covered by any other Section of this
                          Agreement or other agreement which specifically
                          provides for a rate of interest different from that
                          provided for herein) shall bear interest on the unpaid
                          principal balance thereof, at a rate per annum
                          (computed on the basis of the actual number of days
                          elapsed over a 360 day year) equal to the Reference
                          Rate, plus one percent (1.00%) (the "Rate"). Interest
                          owed on the Obligations (other than Eurodollar Loans)
                          shall be payable monthly in arrears on the first
                          Business Day of each month.

                          In addition to calculations of the Rate as provided
                          above, in the event that the Reference Rate announced
                          is, from time to time hereafter, changed, adjustment
                          in the Rate shall be made on the effective date of
                          such change in the Reference Rate. Lender shall use
                          reasonable efforts to notify Borrower of each change
                          in the Reference Rate as soon as practicable, but
                          Borrower's obligation to pay all interest at the Rate
                          and Default Rate as provided in this Agreement shall
                          not be affected by, nor shall Lender have any
                          liability for, any failure to so notify Borrower.

                 (b)      LIBOR Rate. Subject to the provisions of Section 2.14
                          of this Agreement, each Eurodollar Loan shall bear
                          interest on the unpaid principal balance thereof at a
                          rate per annum (computed on the basis of the actual
                          number of days elapsed over a 360 day year) equal to
                          the LIBOR Rate for the Interest Period in effect for
                          such Eurodollar Loan, plus three percent (3.00%).
                          Interest on Eurodollar Loans shall be payable in
                          arrears on the last day of the applicable Interest
                          Period.

                 (c)      Default Rate. Notwithstanding the foregoing, the
                          Obligations shall bear interest, from and after
                          written notice by Lender to Borrower of the occurrence
                          of an Event of Default and for so long as such Event
                          of Default has not been cured or waived as set forth
                          in this Agreement, and without constituting a waiver
                          of any such Event of Default, on the balances owing
                          from time to time, at a rate per annum equal to two
                          percentage (2.00%) points above the Rate (the "Default
                          Rate"), payable on demand.

                                      -22-
<PAGE>   24
                 (d)      Maximum Interest. It is the intention of Lender and
                          Borrower to comply with the laws of the State of
                          Illinois, and notwithstanding any provision to the
                          contrary contained herein or in the other Loan
                          Documents, Borrower shall not be required to pay, and
                          Lender shall not be permitted to collect, any amount
                          in excess of the maximum amount of interest permitted
                          by applicable law ("Excess Interest"). If any Excess
                          Interest is provided for or determined to have been
                          provided for by a court of competent jurisdiction in
                          this Agreement or in any of the other Loan Documents,
                          then in such event (i) the provisions of this Section
                          2.14(d) shall govern and control; (ii) Borrower shall
                          not be obligated to pay any Excess Interest; (iii) any
                          Excess Interest that Lender may have received
                          hereunder shall be, at Lender's option, (A) applied as
                          a credit against either the outstanding principal
                          balance of the Revolving Loans or accrued and unpaid
                          interest hereon, (B) refunded to the payor thereof, or
                          (C) any combination of the foregoing; (iv) the
                          interest rate provided for herein shall be
                          automatically reduced to the maximum rate allowed
                          under applicable law, and this Agreement and the other
                          Loan Documents shall be deemed to have been, and shall
                          be, reformed and modified to reflect such reduction;
                          and (v) Borrower shall not have any action against
                          Lender for any damages arising out of the payment or
                          collection of any Excess Interest. Notwithstanding the
                          foregoing, if any interest payment or other charge or
                          fee payable hereunder or under any of the other Loan
                          Documents exceeds the maximum amount then permitted by
                          applicable law, then to the extent permitted by law,
                          Borrower shall be obligated to pay the maximum amount
                          then permitted by applicable law and Borrower shall
                          continue to pay the maximum amount from time to time
                          permitted by applicable law until all such interest
                          payments and other charges and fees otherwise due
                          hereunder or under any of the other Loan Documents (in
                          the absence of such restraint imposed by applicable
                          law) have been paid in full.

                 (e)      Charges to Loan Account.  Notwithstanding anything in
                          this Agreement to the contrary, Lender may, at its
                          option, charge any principal, interest or fees payable
                          hereunder or under any of the other Loan Documents to
                          the loan account maintained by Lender with respect to
                          Borrower, and any amounts so charged shall thereupon
                          constitute Obligations hereunder and shall thereafter
                          accrue interest as provided for in this Agreement.

         2.15    Fees. In consideration of Lender's establishing the Maximum
                 Revolving Credit Facility hereunder and making of the Revolving
                 Loans hereunder, Borrower shall pay to Lender the following
                 fees and charges:

                                      -23-
<PAGE>   25
                 (a)      Unused Line Fee. An unused line fee of one-half of one
                          percent (.50%) per annum (computed on the basis of a
                          year of 360 days and charged for the actual number of
                          days elapsed) of the amount by which the Maximum
                          Revolving Credit Facility exceeds the average daily
                          balance of the Revolving Loans, payable monthly in
                          arrears, on the first day of each month commencing the
                          first day of the first calendar month following the
                          Closing date.

                 (b)      Closing Fee. A one-time closing fee equal to
                          $120,000.00, payable at the Closing.

                 (c)      Out-of-Pocket Fees, Costs and Expenses. All reasonable
                          out-of-pocket fees, costs and expenses ("Out-of-Pocket
                          Fees and Costs"), incurred by Lender in connection
                          with the documentation, negotiation and closing of
                          this Agreement and the other Loan Documents and the
                          ongoing administration of the Revolving Loans and any
                          and all reasonable costs of enforcement of this
                          Agreement or the other Loan Documents or collection of
                          the Obligations, including, without limitation, the
                          reasonable fees, costs and expenses of attorneys and
                          paralegals in connection with all of the foregoing,
                          all of which shall be part of the Obligations, payable
                          on demand. Prior to an Event of Default, Lender shall
                          provide Borrower with copies of invoices of charges
                          and expenses setting forth all Out-of-Pocket Fees and
                          Costs. There shall be included as Out-of-Pocket Fees
                          and Costs, but without limitation of the foregoing
                          sentence, certain specific categories of Out-of-Pocket
                          Fees and Costs related to Collateral as follows: (i)
                          any reasonable costs or expenses incurred by Lender
                          concerning any property of Borrower relating to
                          Environmental Laws, including without limitation, for
                          consultants or engineers; (ii) any out-of-pocket fees,
                          costs and expenses for audits or examinations by
                          Lender or its agents or representatives, of Borrower
                          or the Collateral; and (iii) any reasonable appraisal
                          and evaluation fees and expenses, including for
                          appraisers retained by Lender in Lender's discretion
                          to appraise Equipment, Inventory or any other
                          Collateral or property of Borrower which are
                          undertaken pursuant to and as limited by Section
                          6.2(c).

         2.16    Lender Rights to Collect Directly. Lender or Lender's designee
                 may, after the occurrence of an Event of Default which has been
                 declared by Lender by notice to Borrower, (i) notify customers
                 or account debtors of Borrower that the Accounts have been
                 assigned to Lender and that Lender has a Lien thereon, and (ii)
                 collect the Accounts directly, and charge the reasonable
                 collection costs and expenses to Borrower's account.

                                      -24-
<PAGE>   26
         2.17    Disputes, Returns and Allowances. Returns and allowances, if
                 any, as between Borrower and its customers, will be on the same
                 basis and in accordance with the usual customary practices of
                 Borrower, as they exist at this time. After the occurrence of
                 an Event of Default which has not been cured or waived as set
                 forth in this Agreement, no discount, credit or allowance shall
                 be granted by Borrower to any account debtor without Lender's
                 consent, and no return of merchandise shall be accepted by
                 Borrower outside the ordinary course of its business without
                 Lender's consent. Lender may, in its discretion, after the
                 occurrence of an Event of Default which has not been cured or
                 waived as set forth in this Agreement, settle or adjust
                 disputes and claims directly with account debtors for amounts
                 and upon terms which Lender considers advisable, and in such
                 cases, Lender will credit Borrower's account with only the net
                 amounts received by Lender in payment of such disputed
                 Accounts, after deducting all Out-of-Pocket Fees and Costs
                 incurred or expended in connection therewith.

         2.18    Lender Statements. Lender may render from time to time,
                 statements of the Obligations owing by Borrower to Lender,
                 including statements of all principal, interest, and Out-of-
                 Pocket Fees and Costs owing, and such statements shall be
                 presumed to be correct and accurate and constitute an account
                 stated between Borrower and Lender unless, within sixty (60)
                 days after receipt thereof by Borrower, Borrower shall deliver
                 to Lender, in accordance with Section 16 of this Agreement, at
                 Lender's place of business indicated in Section 16 hereof,
                 written objection thereto specifying the error or errors, if
                 any, contained in any such statement.

3.       TERM OF THIS AGREEMENT; PREPAYMENTS

         3.1     Term.

                 (a)      Initial Term and Renewal Terms. This Agreement shall
                          have a term (the "Initial Term") commencing on the
                          Effective Date and expiring on September 30, 2001.

                 (b)      Lender Right to Terminate. Notwithstanding the
                          foregoing, upon the occurrence of an Event of Default,
                          Lender may in accordance with Section 13.1 of this
                          Agreement terminate this Agreement without notice,
                          except that this Agreement shall terminate
                          automatically upon an Event of Default under Section
                          12.6 or 12.7.

                                      -25-
<PAGE>   27
                 (c)      Effects of Termination. On the date of termination or
                          expiration of this Agreement, all Obligations owed by
                          Borrower shall become immediately due and payable
                          without notice or demand and shall be repaid in cash
                          or by a wire transfer of immediately available funds.
                          Notwithstanding termination, until all Obligations
                          have been fully repaid, Lender shall retain its Lien
                          on the Collateral of Borrower, and Borrower shall
                          continue to immediately turn over to Lender, in kind,
                          all collections received with respect to the Accounts.

         3.2     Prepayment. Subject to Sections 2.3 and 2.4 of this Agreement,
                 Borrower may borrow, repay and reborrow Revolving Loans subject
                 to the terms of this Agreement.

         3.3     Termination.

                 The indemnifications set forth in Sections 2, 18 and elsewhere
                 in this Agreement shall survive termination of this Agreement.

4.       CREATION OF LIEN AND COLLATERAL

         4.1     Security Interest. Borrower hereby grants to Lender, a
                 continuing Lien and security interest in all presently existing
                 and hereafter arising Collateral which Borrower now or
                 hereafter owns or has an interest in, wherever located, to
                 secure prompt repayment of any and all Obligations owed and to
                 be owed by Borrower to Lender and to secure prompt performance
                 by Borrower of each and all of its covenants and obligations
                 under this Agreement and the other Loan Documents. Lender's
                 Lien and security interest in the Collateral shall attach to
                 all Collateral without further act on the part of Lender or
                 Borrower. In the event that any Collateral, including proceeds,
                 is evidenced by or consists of Negotiable Collateral, Borrower
                 shall, immediately upon receipt thereof, endorse and assign
                 such Negotiable Collateral over to Lender (or in blank if
                 requested by Lender) and deliver actual physical possession of
                 the Negotiable Collateral to Lender.

         4.2     Preservation of Collateral and Perfection of Security
                 Interests. Borrower shall execute and deliver to Lender,
                 concurrently with Borrower's execution of this Agreement, and
                 at any time or times hereafter immediately at the request of
                 Lender, all financing statements, amendments or continuations
                 of financing statements, fixture filings, security agreements,
                 chattel mortgages, assignments, endorsements of certificates of
                 title, affidavits, reports, notices, schedules of accounts,
                 letters of authority and all other documents that Lender may
                 reasonably request, in form satisfactory to Lender, that are
                 required to perfect and maintain perfected Lender's Liens in
                 the Collateral and to fully consummate all of the transactions
                 contemplated under this

                                      -26-
<PAGE>   28
                 Agreement. Borrower hereby irrevocably makes, constitutes and
                 appoints Lender (and any of Lender's officers, employees or
                 agents designated by Lender), with full power of substitution
                 by Lender, as Borrower's true and lawful attorney with power to
                 sign the name of Borrower on any of the above-described
                 documents or on any other similar documents which need to be
                 executed, recorded and/or filed to perfect or continue
                 perfected Lender's Lien in the Collateral upon the failure of
                 Borrower to do so after a request by Lender. For purposes
                 hereof, photocopies of this Agreement or any other Loan
                 Document constituting a security agreement may be filed by
                 Lender as a financing statement.

         4.3     Inspection, Appointment as Attorney-in-Fact. Lender (through
                 any of its officers, employees or agents) shall have the right,
                 at any time or times during Borrower's usual business hours, or
                 during the usual business hours of any third party having
                 control over the records of Borrower, to inspect and verify
                 Borrower's Books and the Collateral in order to verify the
                 amount or condition of, or any other matter relating to, the
                 Collateral and Borrower's financial condition; provided that,
                 unless an Event of Default has occurred or Lender in good faith
                 believes that Borrower has breached a representation, warranty
                 or covenant hereunder, Lender shall give Borrower two (2)
                 Business Days' notice of Lender's inspections. In addition,
                 Borrower hereby appoints Lender (and any of Lender's officers,
                 employees or agents designated by Lender), with full power of
                 substitution by Lender, as Borrower's attorney-in-fact, with
                 power: to endorse Borrower's name on any checks, notes,
                 acceptances, money orders, drafts or other forms of payment or
                 security that may come into Lender's possession; to sign
                 Borrower's name on any invoice or bill of lading relating to
                 any Accounts, on drafts against account debtors, on schedules
                 and assignments of Accounts, on verifications of Accounts and
                 on notices to account debtors; after an occurrence of an Event
                 of Default, to notify the post office authorities to change the
                 address for delivery of Borrower's mail to an address
                 designated by Lender, to receive and open all mail addressed to
                 Borrower, and to retain all mail relating to the Collateral and
                 forward all other mail to Borrower; to send, whether in writing
                 or by telephone, request for verifications of Accounts and
                 request for verifications of trade and other Indebtedness of
                 Borrower; and after the occurrence of an Event of Default, to
                 do all things necessary to carry out this Agreement. Borrower
                 ratifies and approves all acts of the attorney acting in
                 accordance with this Section 4.3 (other than those acts which
                 constitute gross negligence or willful misconduct) and neither
                 Lender nor any other Person acting as Borrower's attorney
                 hereunder will be liable for any acts or omissions or for any
                 error of judgment or mistake of fact or law made in good faith
                 except as result of gross negligence or willful misconduct. The
                 appointment of Lender as Borrower's attorney, and each and
                 every one of Lender's rights and powers

                                      -27-
<PAGE>   29
                 as set forth in this Section 4.3, being coupled with an
                 interest, are irrevocable so long as any Accounts in which
                 Lender has a Lien remain unpaid and until all of the
                 Obligations have been fully repaid and this Agreement shall
                 have expired or been terminated.

5.       CONDITIONS PRECEDENT

         5.1     Closing: Conditions to Initial Loan and Closing. The initial
                 Revolving Loan hereunder shall be made upon the Effective Date
                 hereunder at the offices of Lender's counsel ("Closing"). In
                 addition to those conditions set forth in Section 2 of this
                 Agreement and set forth in Section 5.2 with respect to all
                 Revolving Loans hereunder, prior to or contemporaneously with
                 the making of the initial Revolving Loan hereunder at Closing,
                 Lender shall be satisfied that all of the following conditions
                 precedent shall have been satisfied in a manner satisfactory to
                 Lender.

                 (a)      Satisfactory Due Diligence.  Lender shall have
                          completed and shall be satisfied with the results of
                          (i) due diligence by Lender and its counsel with
                          respect to Borrower; (ii) Lender's examination of
                          Borrower, including a review of prior years'
                          "management letters" by Borrower's independent
                          certified public accountants, to the extent such
                          management letters exist; (iii) the results of
                          investigations, including any consultants' reports,
                          concerning Environmental Laws; (iv) all appraisals
                          reasonably required by Lender; and (v) any
                          governmental approvals, waivers or consents.

                 (b)      No Adverse Change. There shall have been, as
                          determined by Lender in its reasonable discretion (i)
                          no material adverse change since August 8, 1999 in the
                          operations (financial or otherwise) of Borrower, and
                          (ii) no material litigation or claims with respect to
                          this Agreement or otherwise which could have a
                          material adverse effect on the condition, financial or
                          otherwise, business, property or assets of Borrower or
                          the results of the operation of Borrower, the
                          Collateral, Lender's Liens or ability to enforce its
                          rights and remedies hereunder or the ability of
                          Borrower to pay or perform the Obligations.

                 (c)      Senior Loan.  Lender shall have received evidence
                          reasonably satisfactory to it that Lender has a first
                          priority perfected Lien on the Collateral (other than
                          the Alliance Senior Collateral) and a second priority
                          perfected Lien on the Alliance Senior Collateral, and
                          all financing statements and other documents Lender
                          deems reasonably necessary to perfect such Lien shall
                          have been filed and recorded.

                                      -28-
<PAGE>   30
                 (d)      Required Documents. Lender shall have received all of
                          the following documents, each in form and substance
                          reasonably satisfactory to Lender and its counsel,
                          duly executed and dated the Effective Date (or such
                          other date prior thereto as shall be reasonably
                          satisfactory to Lender), where required:

                          (i)     Agreement. Multiple copies of this Agreement
                                  as requested by Lender.

                          (ii)    Revolving Loan Note.  The Revolving Loan Note.

                          (iii)   Intercreditor Agreement.  The Intercreditor
                                  Agreement.

                          (iv)    Assignments of Leases. Assignments to Lender,
                                  for collateral purposes, of all leases of
                                  Borrower for any of Borrower's places of
                                  business or leased locations where Collateral
                                  is located, other than locations where the
                                  Alliance Senior Collateral is located.

                          (v)     Landlord and Mortgagee Waivers.  Landlord,
                                  mortgagee and bailee waivers for any of
                                  Borrower's places of business, equipment
                                  locations or Inventory storage or processing
                                  locations, including without limitation, all
                                  leased locations or where any Collateral is
                                  located or where payroll and Accounts are
                                  processed, except for such premises which are
                                  owned by Borrower and subject only to the Lien
                                  of Lender, together with any necessary
                                  landlord consents to any subleases or lease
                                  assignments to Borrower.

                          (vi)    Certificate for Certified Resolutions,
                                  Incumbency By-Laws. A secretary's certificate
                                  for the Borrower with respect to resolutions
                                  of the directors of Borrower authorizing this
                                  Agreement and all related transactions and the
                                  incumbency of Borrower's officers.

                          (vii)   Legal Opinion. A legal opinion of Pedersen &
                                  Houpt, counsel for Borrower, in form and
                                  substance reasonably acceptable to Lender.

                          (viii)  Organizational Documents. A copy of the
                                  by-laws and the Certificate of Incorporation
                                  of the Borrower, as amended to and including
                                  the Closing date, certified by the Secretary
                                  of State of the State of incorporation of
                                  Borrower.

                                      -29-
<PAGE>   31
                          (ix)    Insurance.  A certified list with copies of
                                  insurance policies of Borrower; certificates
                                  of liability and other third party insurance
                                  of Borrower, each showing Lender as
                                  certificate holder and additional insured;
                                  certificates of property and boiler and
                                  machinery insurance, each showing Lender as
                                  certificate holder and lender loss payee, with
                                  a form of lender's loss payable clause in form
                                  and in accordance with the requirements of
                                  Section 9.2 of this Agreement to Lender
                                  attached to each such certificate; a
                                  certificate of business interruption insurance
                                  of Borrower, showing Lender as certificate
                                  holder, lender's loss payee, and assignee of
                                  such policy, with lender's loss payable clause
                                  and the collateral assignment of such
                                  insurance policy, in form and substance
                                  satisfactory to Lender.

                          (x)     Good Standing Certificates. Good standing
                                  certificates and qualifications to do business
                                  for Borrower in the State of its incorporation
                                  and in each other State in which the failure
                                  of Borrower to be qualified to transact
                                  business as a corporation would have a
                                  material adverse impact on Borrower.

                          (xi)    Officer's Certificate. A certificate executed
                                  by the President of Borrower in his capacity
                                  as such officer, stating that (a) no Event of
                                  Default or Potential Default has occurred and
                                  is continuing, (b) no material adverse change
                                  in the condition or operations, financial or
                                  otherwise, or in the business prospects of
                                  such Borrower's business, has occurred since
                                  August 8, 1999, and (c) no litigation,
                                  investigation or proceeding, or injunction,
                                  writ or restraining order of the type
                                  described in Section 7.8 or Section 9.3 hereof
                                  is pending or threatened.

                          (xii)   Releases. Evidence of releases of any other
                                  Liens on the Collateral other than Permitted
                                  Liens.

                          (xiii)  Completion of Transactions. Satisfactory
                                  evidence of completion of the Alliance
                                  Financing.

                          (xiv)   Remarketing Agreement An agreement of Alliance
                                  for the benefit of Lender pursuant to which
                                  Alliance agrees to assist Lender in
                                  liquidating the Equipment in the event of the
                                  exercise by Lender of its remedies after the
                                  occurrence of an Event of Default.

                                      -30-
<PAGE>   32
                          (xv)    Payoff Letters and Releases. Payoff letters,
                                  releases and UCC-3 termination statements,
                                  executed by any secured party designated by
                                  Lender, in a form appropriate for recording
                                  and filing, as to any Lien recorded against
                                  the Collateral and which is not permitted
                                  hereunder.

                          (xvi)   Pro Formas.  The Pro Formas.

                          (xvii)  Other. Such other documents as Lender shall
                                  reasonably request.

                 (e)      Out-of-Pocket Fees and Costs. Lender shall have
                          received reimbursement for all Out-of-Pocket Fees and
                          Costs which then have been paid or incurred by Lender.

         5.2     Condition to All Loans. Notwithstanding any other provisions
                 contained in this Agreement, the making of each Revolving Loan
                 provided for in this Agreement shall be conditioned upon the
                 satisfaction of the matters set forth in this Section 5.2, and
                 each request by the Borrower for a Revolving Loan shall
                 constitute a representation to Lender that each such condition
                 set forth below has been met or satisfied.

                 (a)      Warranties and Representations. All of the warranties
                          and representations contained in this Agreement or any
                          other Loan Document shall be true and correct in all
                          material respects on and as of the date of such
                          Revolving Loan as if made on such date and each
                          request for a Revolving Loan shall constitute an
                          affirmation by Borrower that such warranties and
                          representations are then true and correct in all
                          material respects.

                 (b)      Borrower's Request. Lender shall have received a
                          request in the manner set forth in Section 2.2 of this
                          Agreement and copies of all other documents required
                          to have been delivered to Lender hereunder. Lender
                          shall be entitled, but not required, to rely on oral
                          requests for Revolving Loans from officers from time
                          to time designated by Borrower to Lender in writing,
                          and shall be fully protected in doing so.

                 (c)      No Default. As determined by Lender in its reasonable
                          discretion, no Potential Default shall have occurred
                          and be continuing or will result from such Revolving
                          Loan and no Event of Default shall have occurred which
                          has not been cured or waived as set forth in this
                          Agreement or will result from such Revolving Loan.

                                      -31-
<PAGE>   33
                 (d)      Other Requirements and Other Documents. Lender shall
                          have received, in form and substance reasonably
                          satisfactory to Lender, all certificates, orders,
                          authorizations, consents, affidavits, schedules,
                          instruments, security agreements, financing
                          statements, and other documents which are provided for
                          hereunder, or which Lender may at any time reasonably
                          request.

6.       WARRANTIES, REPRESENTATIONS, AND COVENANTS --
         COLLATERAL

         Borrower warrants, represents, covenants and agrees that:

         6.1     Collateral Warranties Generally. Borrower has and will continue
                 to have good and marketable title to the portion of the
                 Collateral owned by it; the Collateral is free and clear of all
                 Liens, except (i) as may be consented to in writing by Lender,
                 (ii) as held by Lender, or (iii) Permitted Liens.

         6.2     Account Warranties and Covenants. The Accounts are and will, at
                 all times pertinent hereto, be bona fide existing obligations
                 created by the sale and delivery of merchandise or the
                 rendition of services to account debtors in the ordinary course
                 of business, free of Liens (except those described in Section
                 6.1), and are unconditionally owed to Borrower without
                 defenses, disputes, offsets or counterclaims which have been
                 asserted, rights of return or cancellation, except for any such
                 defenses, offsets or counterclaims which may arise in the
                 ordinary course of Borrower's business.

         6.3     Inventory and Equipment Warranties and Covenants.

                 (a)      Borrower shall keep the Inventory and Equipment only
                          at the locations specified in Schedule 6.3 hereto or
                          at (i) locations consented to by Lender upon 30 days'
                          prior written notice to Lender, or (ii) new store
                          locations permitted by Section 8.20 of this
                          Agreement, and in the case of (i) and (ii) above,
                          execution by Borrower or any other Persons of such
                          financing statements, landlord, mortgagee, bailee,
                          warehouseman or other agreements requested by Lender
                          in its reasonable discretion.

                 (b)      All Inventory is now and at all times hereafter shall
                          be of good and merchantable quality, free from defects
                          that make the Inventory unsalable in the ordinary
                          course of Borrower's business (as determined by Lender
                          in its reasonable discretion).

                                      -32-
<PAGE>   34
                 (c)      Borrower shall keep and maintain the Equipment in good
                          operating condition and repair (normal wear and tear
                          excepted) in a manner consistent with that maintained
                          by prudent business people in similar circumstances
                          and, subject to the terms of this Agreement, make
                          necessary or appropriate replacements thereto.
                          Borrower shall not permit any items of Equipment to
                          become a fixture to real estate or an accession to
                          other property and the Equipment is now and shall at
                          all times remain and be personal property to the
                          extent that under applicable law, such Equipment would
                          be deemed to be fixtures and/or otherwise part of the
                          real property, except where Lender first receives a
                          landlord's waiver satisfactory to it, establishing the
                          priority of Lender's Lien in such Equipment. Borrower
                          shall promptly deliver to Lender any and all evidence
                          of ownership, if any, of any of the Equipment
                          including, without limitation, certificates of title
                          and applications for title. Borrower shall maintain
                          accurate, itemized records describing the kind, type,
                          quality, quantity and value of the Equipment and shall
                          furnish Lender with a current schedule containing the
                          foregoing information when requested, and Borrower
                          shall not sell, lease, or otherwise dispose of or
                          transfer any of the Equipment or any part thereof,
                          except as otherwise permitted under the terms of this
                          Agreement. Borrower shall, as and when requested by
                          Lender, procure and supply to Lender, at Borrower's
                          expense, annual appraisals of the Equipment Collateral
                          by appraisers and in form reasonably satisfactory to
                          Lender; provided, however, that upon or after the
                          occurrence of an Event of Default, Borrower's
                          obligations for such appraisals shall not be limited
                          to annual appraisals and Lender may request or procure
                          additional appraisals at Borrower's expense.

                 (d)      The Inventory and Equipment is not now and shall not
                          at any time or times hereafter be stored with a
                          bailee, warehouseman or similar party without Lender's
                          prior written consent, and, in such event, Borrower
                          will upon Lender's request, concurrent therewith,
                          cause any such bailee, warehouseman or similar party
                          to issue and deliver to Lender, in a form acceptable
                          to Lender, warehouse receipts in Lender's name
                          evidencing the storage of the Inventory or Equipment.

                 (e)      Borrower shall keep correct and accurate records
                          itemizing and describing the kind, type, quality and
                          quantity of the Inventory, and its costs therefor, all
                          of which records shall be available at all times after
                          demand to any of Lender's officers, agents, and
                          employees for inspection and copying.

                                      -33-
<PAGE>   35
                 (f)      Lender shall have the right at all times during
                          Borrower's usual business hours, to inspect and
                          examine the Inventory and Equipment and to check and
                          test the same as to quality, quantity, value, and
                          condition; provided that prior to an Event of Default,
                          Lender shall provide Borrower two (2) Business Days'
                          prior notice of any such inspection, and Lender shall
                          use its good faith efforts to minimize interference
                          with Borrower's business in conducting such
                          inspections.

7.       GENERAL CONTINUING WARRANTIES AND REPRESENTATIONS

         Borrower warrants, represents, covenants and agrees that:

         7.1     Office. The chief executive office or principal place of
                 business of Borrower is at the address indicated in Section 16
                 hereof, and Borrower covenants and agrees that it will not,
                 during the term of this Agreement, without at least thirty (30)
                 days prior written notification to Lender and the delivery to
                 Lender, if requested, of an executed landlord's or mortgagee's
                 waiver and Code financing statements in form acceptable to
                 Lender, relocate either such chief executive office or
                 principal place of business.

         7.2     Existence. Borrower is and shall at all times hereafter be a
                 corporation, duly organized and existing under the laws of the
                 state of its organization and qualified and licensed to do
                 business, and is good standing, in any state in which it
                 conducts its business or in which the failure to qualify would
                 have a material adverse effect on the condition, financial or
                 otherwise, business, property or results of operations of
                 Borrower, which states include, as of the date hereof and as of
                 the Closing date, the states listed on Schedule 7.2.

         7.3     Authority. Borrower has the right and power and is duly
                 authorized to enter into this Agreement and the other Loan
                 Documents.

         7.4     Validity. This Agreement and all of the other Loan Documents
                 are the legal, valid and binding obligations of Borrower,
                 enforceable in accordance with their respective terms, except
                 as limited by applicable bankruptcy, reorganization, insolvency
                 or similar laws affecting the enforcement of creditor's rights
                 generally.

         7.5     No Breach. The execution by Borrower of this Agreement and the
                 other Loan Documents shall not constitute a breach of any
                 provision contained in Borrower's Certificate of Incorporation
                 or by-laws, nor does it constitute an event of default under
                 any material agreement to which Borrower is now or hereafter
                 becomes a party, nor does it violate any order, decree or
                 judgment of any court or governmental commission or agency.

                                      -34-
<PAGE>   36
         7.6     Solvency. On the Effective Date both prior to and after the
                 transactions contemplated in connection with the Closing and
                 the Alliance Financing, and at all times thereafter, Borrower's
                 assets (determined at present fair saleable value) are and
                 shall be greater than Borrower's liabilities (taking into
                 account all liabilities of Borrower, whether fixed or
                 contingent, direct or indirect, disputed or undisputed and
                 whether or not required to be reflected on a balance sheet
                 prepared in accordance with Generally Accepted Accounting
                 Principles other than Borrower's liabilities under the Senior
                 Discount Notes); Borrower is and shall at all times hereafter
                 be able to pay its debts as they mature, and Borrower does not
                 and will not have an unreasonably small amount of capital.
                 Borrower has and at all times hereafter will have sufficient
                 capital to carry on its business and transactions as now
                 conducted and as planned to be conducted in the future.

         7.7     Compliance With Laws. Borrower is in compliance in all material
                 respects with all applicable laws, rules and regulations of any
                 governmental authority, including but not limited to the
                 Securities Act of 1933, the Securities Exchange Act of 1934,
                 the Fair Labor Standards Act, Environmental Laws, laws relating
                 to income, unemployment, payroll or social security taxes and
                 Benefit Plans (as defined in Section 7.15 hereof) as required
                 by ERISA, except for those laws, rules and regulations the
                 violation of which would not have a material adverse effect on
                 the condition, financial or otherwise, business, property or
                 results of operations of Borrower.

         7.8     Actions or Proceedings. Except as disclosed on Schedule 7.8,
                 there are no actions or proceedings pending by or against
                 Borrower before any court, administrative agency or other
                 governmental entity and Borrower has no knowledge of any
                 pending, threatened or imminent litigation, governmental
                 investigations or claims, complaints, actions or prosecutions
                 involving Borrower, or any breaches by Borrower or any other
                 Person of any agreement to which Borrower is a party, except
                 for actions, proceedings, litigation, investigations, claims,
                 complaints, actions, prosecutions and breaches that involve
                 claims that do not exceed $100,000 individually or $200,000 in
                 the aggregate.

         7.9     Trademarks, Licenses, etc. Borrower owns or possesses rights to
                 use all licenses, patents, patent applications, copyrights,
                 service marks, trademarks and trade names required to continue
                 to conduct its business as heretofore or presently conducted.
                 All such licenses, patents, patent applications, copyright
                 registrations, service marks, trademarks and trade names are
                 listed on Schedule 7.9. No such license or trademark has been
                 declared invalid, been limited by order of any governmental
                 authority or by agreement, or is the subject of any
                 infringement, interference or similar proceeding or

                                      -35-
<PAGE>   37
                 challenge, except for those licenses or trademarks which if
                 challenged, limited or rendered invalid, would not have a
                 material adverse effect on the condition, financial or
                 otherwise, business, property or results of operations of
                 Borrower, the Collateral, Lender's Liens or Lender's ability to
                 enforce its rights and remedies hereunder.

         7.10    Financial Statements. All financial statements relating to
                 Borrower which have been or may hereafter be delivered by
                 Borrower to Lender fairly present the financial condition of
                 Borrower for the periods related thereto and have been prepared
                 in accordance with Generally Accepted Accounting Principles,
                 subject to year-end adjustments and the absence of footnotes
                 with respect to interim financial statements, and there has
                 been no material adverse change in the financial condition of
                 Borrower since the submission of such financial information to
                 Lender.

         7.11    Pro Formas. Borrower has furnished to Lender, (i) profit and
                 loss statements and cash flow projections for each Reporting
                 Period after the Closing through December 21, 2003, and (ii)
                 balance sheets, profit and loss statements and cash flow
                 projections reflected annually for the next five (5) Fiscal
                 Years, including the Fiscal Year 1999, all certified by the
                 Chief Executive Officer or a Vice President of Borrower and
                 (except as stated above), based on Generally Accepted
                 Accounting Principles, and on financial data as of the
                 Effective Date, and which are attached hereto as Schedule 7.11
                 (the "Pro Formas"). The Pro Formas are complete and accurate,
                 and fairly present Borrower's assets, liabilities and financial
                 condition, on the bases described above, as of the Effective
                 Date, but taking into account the transactions contemplated by
                 this Agreement and those contemplated as of the Effective Date
                 under the other Loan Documents. There are no omissions from the
                 Pro Formas or other facts and circumstances not reflected in
                 the Pro Formas which are or may be material.

         7.12    Conduct of Business. Except as contemplated hereby, since
                 August 8, 1999, Borrower has not (i) incurred any debts,
                 obligations, or liabilities (absolute, accrued, or contingent
                 and whether due or to become due) except current liabilities
                 incurred in the ordinary course of business, none of which
                 (individually or in the aggregate) materially and adversely
                 affects the business or properties of Borrower, except as set
                 forth in Schedule 7.12; (ii) paid any obligation or liability
                 other than current liabilities in the ordinary course of
                 business, or discharged or satisfied any Liens or encumbrances
                 other than those securing current liabilities, in each case in
                 the ordinary course of business or as required by the terms of
                 this Agreement; (iii) declared or made any payment to or
                 distribution to its stockholders as such, or purchased or
                 redeemed any of its shares of capital stock, or obligated
                 itself to do so; (iv) mortgaged, pledged, or subjected to any
                 Lien any of its

                                      -36-
<PAGE>   38
                 assets, tangible or intangible (other than Permitted Liens);
                 (v) sold, transferred or leased any of its assets except in the
                 usual and ordinary course of business; (vi) suffered any
                 physical damage, destruction or loss (whether or not covered by
                 insurance) materially and adversely affecting its properties or
                 business; (vii) except as set forth in Schedule 7.12, entered
                 into any transaction other than in the usual and ordinary
                 course of business and other than as contemplated hereby;
                 (viii) encountered any strikes or work stoppages or labor union
                 organizing activities; (ix) issued or sold any shares of
                 capital stock or other securities or granted any options or
                 similar rights with respect thereto other than pursuant to
                 Borrower's existing stock option plans, as such plans may be
                 amended with the approval of Borrower's stockholders; or (x)
                 agreed to do any of the foregoing other than pursuant hereto.
                 To Borrower's knowledge after due inquiry, there has been no
                 material adverse change in the business, financial condition,
                 operations or results of operations of Borrower since August 8,
                 1999.

         7.13    Environmental Laws. Except as disclosed on Schedule 7.13: (i)
                 Borrower and all properties owned or operated by Borrower
                 comply with all Environmental Laws; (ii) Borrower is not
                 subject to any actual or threatened judicial or administrative
                 proceeding, investigation or inquiry into the possibility of
                 violation of any Environmental Laws; (iii) neither the Borrower
                 nor its properties is the subject of actual or, to the best of
                 Borrower's knowledge after due inquiry, threatened governmental
                 authority investigation or inquiry evaluating whether any
                 remedial action is needed to respond to a Release of any
                 Hazardous Material or other substance into the environment, and
                 Borrower does not have knowledge or notice of the presence on
                 or under any property owned or operated by it, or of the
                 Release of, any Hazardous Material; (iv) there is no claim
                 pending or, to the best of Borrower's knowledge after due
                 inquiry, threatened against Borrower relating to damage,
                 contribution, cost recovery compensation, loss, or injury
                 resulting from the Release of, or exposure to, any Hazardous
                 Material other than as listed on Schedule 7.13, which Hazardous
                 Material is stored in or under Borrower's properties in the
                 ordinary course of business in accordance with Environmental
                 Laws; and (v) Borrower has not filed, nor was required to file,
                 any notice under any law, regulation or rule indicating past or
                 present generation, transportation, treatment, storage or
                 disposal of a Hazardous Material or reporting a Release of a
                 Hazardous Material into the environment and has not engaged in
                 such activity other than in accordance with Environmental Laws
                 where failure to file such notice or report will not have a
                 material adverse effect on Borrower. Borrower does not have any
                 known contingent liability in connection with any Release of
                 any Hazardous Material into the environment; and Borrower has
                 not received notice, nor has reason to expect notice, of any
                 potential liability under any Environmental Law.

                                      -37-
<PAGE>   39
         7.14    Permits and Licenses. Borrower has not been in breach or
                 default under, and is current and in good standing with respect
                 to, all governmental approvals, permits, certificates,
                 licenses, inspections, consents and franchises necessary to
                 continue to conduct its business and to own or lease and
                 operate its respective properties as heretofore conducted,
                 owned, leased or operated, including, without limitation, any
                 and all governmental approvals, permits, certificates,
                 licenses, inspections, consents and franchises related to
                 Environmental Laws.

         7.15    ERISA. Neither Borrower nor any ERISA Affiliate (defined below)
                 of Borrower, nor any Benefit Plan (defined below) is in
                 violation in any material respect of any of the provisions of
                 ERISA or any of the qualification requirements of Section
                 401(a) of the IRC; no Prohibited Transaction (defined below) or
                 Reportable Event (defined below) has occurred with respect to
                 any Benefit Plan, nor has any Benefit Plan been the subject of
                 a waiver of the minimum funding standard under Section 412 of
                 the IRC; nor has any Benefit Plan experienced an accumulated
                 funding deficiency under Section 412 of the IRC; nor has any
                 Lien been imposed upon Borrower or any ERISA Affiliate of
                 Borrower under Section 412(n) of the IRC; nor has any Benefit
                 Plan been amended in such a way that the security requirements
                 of Section 401(a)(29) of the IRC apply; no notice of intent to
                 terminate a Benefit Plan has been distributed to affected
                 parties or filed with the Pension Benefit Guaranty Corporation,
                 or any successor agency (the "PBGC"), under Section 4041 of
                 ERISA, nor has any Benefit Plan been terminated under Section
                 4041(e) of ERISA; the PBGC has not instituted proceedings to
                 terminate, or appoint a trustee to administer, a Benefit Plan
                 and no event has occurred or condition exists which might
                 constitute grounds under Section 4042 of ERISA for the
                 termination of, or the appointment of a trustee to administer,
                 any Benefit Plan; neither Borrower nor any ERISA Affiliate of
                 Borrower would be liable for any amount pursuant to Sections
                 4062, 4063 or 4064 of ERISA if all Benefit Plans terminated as
                 of the most recent valuation dates of such Benefit Plans;
                 neither Borrower nor any ERISA Affiliate of Borrower maintains
                 any employee welfare benefit plan, as defined in Section 3(l)
                 of ERISA, which provides any benefits to an employee or the
                 employee's dependents with respect to claims incurred after the
                 employee separates from service other than is required by
                 applicable law; and neither Borrower nor any ERISA Affiliate of
                 Borrower has incurred or expects to incur any withdrawal
                 liability to any Multiemployer Plan (defined below), or
                 contributes to a Multiemployer Plan. As used herein, (a)
                 "Benefit Plan" shall mean an employee benefit plan of Borrower
                 or an ERISA Affiliate, as defined in Section 3(3) of ERISA; (b)
                 "ERISA Affiliate" shall mean any Person which, together with
                 Borrower, would be treated as a single employer under Section

                                      -38-
<PAGE>   40
                 4001(a)(14) of ERISA or IRC Section 414(b), (c), (m), (n) or
                 (o), as applicable; (c) "Multiemployer Plan" shall mean a plan
                 described in Section 4001(a)(3) of ERISA which covers employees
                 of Borrower or any ERISA Affiliate; (d) "Prohibited
                 Transaction" shall mean any transaction described in Section
                 406 of ERISA which is not exempt by reason of Section 408 of
                 ERISA, and any transaction described in Section 4975(c) of the
                 IRC which is not exempt by reason of Sections 4975(c)(2) or (d)
                 of the IRC, and which could result in any excise tax, fine,
                 penalty or other liability being imposed on Borrower; and (e)
                 "Reportable Event" shall mean a reportable event described in
                 Section 4043 of ERISA or the regulations thereunder, for which
                 the thirty (30) day notice requirement has not been waived.

         7.16    Customer and Trade Relations. There exists no actual or to the
                 best of Borrower's knowledge after diligent inquiry, threatened
                 termination, cancellation or limitation of, or any modification
                 or change in, the business relationship between Borrower and
                 any customer or any group of customers whose purchases
                 individually or in the aggregate are material to the business
                 of Borrower, or with any material supplier, and there exists no
                 present condition or state of facts or circumstances which
                 would materially adversely affect Borrower or prevent Borrower
                 from conducting such business after the consummation of the
                 transactions contemplated by this Agreement in substantially
                 the same manner in which it has heretofore been conducted by
                 Borrower.

         7.17    Other Names. The businesses conducted by Borrower have not been
                 conducted under any corporate, trade or fictitious name other
                 than those names listed on Schedule 7.17 hereto.

         7.18    Tax Obligations. Borrower has filed complete and correct
                 federal, state and local tax reports and returns required to be
                 filed by them, prepared in accordance with any applicable laws
                 or regulations, and except for extensions duly obtained, have
                 either duly paid all taxes, duties and charges owed by it, or
                 made adequate provision for the payment thereof. There are no
                 material unresolved questions or claims concerning any tax
                 liability of Borrower. None of the transactions contemplated
                 hereby or under any agreements referred to hereunder will
                 result in any material tax liability for Borrower or result in
                 any other material adverse tax consequence for Borrower.

         7.19    Employee Controversies. There are no strikes, work stoppages or
                 controversies pending or, to the best of Borrower's knowledge
                 after diligent inquiry and investigation, threatened, between
                 Borrower and any of its employees, other than employee
                 grievances arising in the ordinary course of

                                      -39-
<PAGE>   41
                 business which are not, in the aggregate, material to the
                 financial condition, results of operations or business of
                 Borrower.

         7.20    Investment Company Act. Borrower is not an "investment company"
                 nor a company "controlled" by an investment company within the
                 meaning of the Investment Company Act of 1940, as amended.

         7.21    Full Disclosure. This Agreement, the financial statements
                 delivered in connection herewith, and the representations and
                 warranties of Borrower herein and in any other document
                 delivered or to be delivered by or on behalf of Borrower in
                 connection therewith, do not and will not contain any untrue
                 statement of a material fact or omit a material fact necessary
                 to make the statements contained therein or herein, in light of
                 the circumstances under which they were made, not misleading.
                 There is no material fact which Borrower has not disclosed to
                 Lender in writing which materially and adversely affects or, so
                 far as Borrower can foresee, would materially and adversely
                 affect the assets, business, prospects, profits, or condition
                 (financial or otherwise) of Borrower, the rights of Lender or
                 the ability of Borrower to perform this Agreement.

         7.22    Year 2000 Compliance. The Borrower and its Affiliates have
                 reviewed the areas within their business and operations which
                 could be adversely affected by, and have developed or are
                 developing a program to address on a timely basis, the "Year
                 2000 Problem" (that is, the risk that computer applications
                 used by the Borrower and its Affiliates may be unable to
                 recognize and perform properly date-sensitive functions
                 involving certain dates prior to and any date after December
                 31, 1999), and have made related appropriate inquiry of
                 material suppliers and vendors. Based on such review and
                 program, the Borrower believes that the "Year 2000 Problem"
                 will not have a material adverse effect on the Borrower, its
                 financial condition, business and operations, and its ability
                 to pay and perform the Obligations. From time to time, at the
                 request of Lender, the Borrower and its Affiliates shall
                 provide to Lender such updated information or documentation as
                 is reasonably requested regarding the status of its efforts to
                 address the "Year 2000 Problem".

8.       NEGATIVE COVENANTS

         The Borrower will not, without Lender's prior written consent:

         8.1     Sale, Transfer or Encumbrance of Assets. Sell, lease, pledge,
                 encumber, grant or permit a Lien on (other than Permitted
                 Liens), or otherwise dispose of or transfer, whether by sale or
                 otherwise, any of its assets, except for (a) sales of Inventory
                 in the ordinary course of business, (b) sales of items of

                                      -40-
<PAGE>   42
                 Equipment which are obsolete, worn-out or otherwise not useable
                 in Borrower's businesses up to an aggregate of $100,000 in
                 sales proceeds in any Fiscal Year so long as (i) no Event of
                 Default has occurred and which has not been cured or waived as
                 set forth in this Agreement, or Potential Default exists, (ii)
                 the proceeds thereof are applied to the principal balance of
                 the Obligations, (iii) Lender has prior written notice thereof,
                 (iv) such sales are on price and other terms, and Borrower
                 proposes to apply the proceeds of each such sale to the
                 Obligations in a manner, reasonably acceptable to Lender, and
                 (v) the transfer of assets in each such sale will not result in
                 any impairment in use or value of the Collateral remaining
                 after each such sale, or (c) the closure of Borrower's
                 locations listed on Schedule 8.1 hereto or such other locations
                 consented to by Lender in writing, which consent shall not be
                 unreasonably withheld, provided that the Equipment located at
                 any closed facility is transferred to locations of Borrower
                 listed on Schedule 6.3 hereto or locations permitted by Section
                 6.3(a) of this Agreement. For purposes of this Agreement,
                 "Permitted Liens" shall mean any or all of the following: (i)
                 Liens to Lender, (ii) Liens securing the payment of taxes or
                 other governmental charges not yet due and payable, (iii) Liens
                 securing claims or demands of materialmen, mechanics, carriers,
                 warehousemen, landlords and other like Persons imposed without
                 action of such parties, provided that the payment thereof is
                 not yet required; (iv) Liens incurred or deposits made in the
                 ordinary course of Borrower's business in connection with
                 worker's compensation, unemployment insurance, social security
                 and other like laws, (v) easements, rights of way, restrictions
                 and other similar encumbrances incurred in the ordinary course
                 of business that, in the aggregate, are not substantial in
                 amount and that do not in any case materially detract from the
                 value of the property subject thereto or materially interfere
                 with the ordinary conduct of Borrower's business, (vi) Liens in
                 connection with purchase money security interests for the
                 purchase of Equipment up to an aggregate sum not to exceed One
                 Hundred Thousand Dollars ($100,000) for any purchase and One
                 Hundred Thousand Dollars ($100,000) in the aggregate for
                 purchases during any Fiscal Year, provided the documents
                 relating to any such purchases must be in form and substance
                 reasonably satisfactory to Lender, (vii) Liens listed on
                 Schedule 8.1, and (viii) Liens in favor of Alliance.

         8.2     Name or Identity Change.  Change Borrower's name, business
                 structure, or identity, or add any new fictitious name.

         8.3     Guaranties. Guarantee or otherwise become in any way liable
                 with respect to the obligations of any third party except by
                 endorsement of instruments or items of payments for deposit to
                 the general account of Borrower or which are transmitted or
                 turned over to Lender.

                                      -41-
<PAGE>   43
         8.4     Change in Business. Enter into any business not related to
                 Borrower's present business or make any change in Borrower's
                 financial structure or in any of its business objectives,
                 purposes, or operations which would adversely affect the
                 ability of Borrower to repay the Obligations, the value of the
                 Collateral or Lender's rights and remedies hereunder, or create
                 any Subsidiary or change the form of Borrower's business entity
                 from a corporation.

         8.5     Loans and Investments. Except as set forth on Schedule 8.5,
                 make any advance, loan, investment or material acquisition of
                 assets other than (i) advances made to employees in the
                 ordinary course of business for travel and business related
                 expenses so long as the amount of such advances do not exceed
                 Fifty Thousand Dollars ($50,000) in the aggregate outstanding
                 at any time; (ii) investments in short-term direct obligations
                 of the United States government; (iii) investments in
                 negotiable certificates of deposit issued by a bank having
                 capital and surplus of not less than $100,000,000, payable to
                 the order of Borrower or to bearer, and (iv) investments in
                 commercial paper rated A-1 or P-1; provided, that with respect
                 to clauses (ii), (iii) and (iv), Borrower shall assign all such
                 investments to Lender in form acceptable to Lender.

         8.6     Indebtedness. Incur or make any commitments or agreements to
                 incur or suffer to exist any Indebtedness, other than (i)
                 unsecured trade debt and accrued expenses arising in the
                 ordinary course of Borrower's business, (ii) Indebtedness
                 incurred with respect to Maintenance Capital Expenditures in
                 accordance with Section 8.20 hereof up to the aggregate sum of
                 $500,000 in any Fiscal Year, (iii) Indebtedness incurred in
                 connection with Liens arising under Section 8.1(v) of this
                 Agreement, (iv) Indebtedness incurred in connection with the
                 Alliance Financing, or (v) obligations under the Note
                 Indenture.

         8.7     Prepayments. Prepay any existing Indebtedness owing to any
                 Person, except that (i) Borrower may prepay trade creditors in
                 the ordinary course of business, and (ii) Borrower may prepay
                 Lender as provided in this Agreement.

         8.8     Affiliate Transactions. Transfer any cash or property to any
                 direct or indirect owner of or beneficial owner of any interest
                 in Borrower or other Affiliate or enter into any transaction,
                 including without limitation the purchase, lease, sale or
                 exchange of property or the rendering of any service to or by
                 any direct or indirect owner of or beneficial owner of any
                 interest in Borrower or other Affiliate; provided that Borrower
                 may (i) sell Inventory to Affiliates, for cash for fair value
                 in the ordinary course of business pursuant to terms that are
                 no less favorable to Borrower than the terms upon which

                                      -42-
<PAGE>   44
                 such transactions would have been made had such transfers or
                 transactions been made at arm's length to or with a Person that
                 is not an Affiliate, and notice thereof has been given to
                 Lender, (ii) pay compensation for services to employees who are
                 direct or indirect owners of or beneficial owners of any
                 interest in Borrower in the ordinary course of Borrower's
                 business, (iii) pay Pedersen & Houpt for legal services
                 performed for Borrower, and (iv) repurchase common stock of
                 Borrower pursuant to that certain Stock Transfer Restriction
                 Agreement between Borrower and certain of its shareholders
                 ("Restriction Agreement") as permitted by Section 8.12 hereof.

         8.9     Consolidations, Mergers.  Merge or consolidate with any other
                 Person, or enter into any joint venture or become a partner in
                 any partnership.

         8.10    Liquidations. Adopt or undertake a plan of liquidation or
                 dissolution.

         8.11    Suspension of Business. Suspend or terminate the transaction of
                 its business or abandon the Collateral.

         8.12    Redemptions and Distributions. Except for the purchase or
                 redemption of capital stock of officers of Borrower who
                 terminate their employment with Borrower or whose employment is
                 terminated by Borrower and repurchases by Borrower of capital
                 stock of Borrower pursuant to the Restriction Agreement, up to
                 the aggregate sum of $50,000 in any Fiscal Year, purchase,
                 redeem, retire or otherwise acquire any shares of its capital
                 stock or declare or pay, directly or indirectly, any cash or
                 other property, dividends or distributions to its shareholders.

         8.13    Unpermitted Uses of Loans. Use any part of the proceeds of the
                 Revolving Loans hereunder for any purpose which constitutes a
                 violation of, or is inconsistent with, any applicable
                 regulations of the Board of Governors of the Federal Reserve
                 System, including without limitation, the purchase or carrying
                 of (or refinancing of indebtedness originally incurred to
                 purchase or carry) margin securities.

         8.14    ERISA. Adopt or agree to contribute to any tax qualified
                 Benefit Plan, except for a 401(k) Plan or as previously
                 approved by Lender in writing.

         8.15    Consignment. Sell any goods on consignment, bill and hold, or
                 similar terms, except as permitted in writing by Lender.

         8.16    Bank Accounts. Unless Borrower first notifies Lender and
                 obtains any necessary blocked account agreements from such
                 financial institution, establish any depository, operating or
                 other account at any financial institution other than those
                 accounts listed on Schedule 8.16 hereof.

                                      -43-
<PAGE>   45
         8.17    Compensation. Unless approved by Borrower's board of directors,
                 pay total compensation, including salaries, withdrawals, fees,
                 bonuses, commissions, drawing accounts, and other payments,
                 whether directly or indirectly, in money or otherwise, to the
                 officers of Borrower in any fiscal year, in amounts in excess
                 of one hundred twenty percent (120%) of the total compensation
                 for the immediately preceding fiscal year, paid or accrued by
                 Borrower or its Affiliates to or for the benefit of such
                 Persons (individually).

         8.18    Lease Modifications. Modify or amend the material terms of or
                 terminate any lease of real property, except for the
                 termination of the leases for the stores listed on Schedule 8.1
                 hereto.

         8.19    New Leases. Enter into any lease of real property without
                 obtaining an executed landlord's waiver and except where such
                 lease contains a consent to assignment thereof to Lender, both
                 in form attached hereto as Exhibit C.

         8.20    Capital Expenditures. Make any Capital Expenditures except for
                 (i) Capital Expenditures to maintain or upgrade existing
                 business locations of Borrower, up to the aggregate sum of
                 $1,000,000 in any Fiscal Year ("Maintenance Capital
                 Expenditures"), (ii) Capital Expenditures either to maintain or
                 upgrade existing business locations or for the construction and
                 equipping of new business locations, up to the aggregate sum of
                 seventy-five percent (75%) of Free Cash Flow in any Fiscal
                 Year, and (iii) Capital Expenditures either to maintain or
                 upgrade existing business locations or for the construction of
                 new business locations, up to the aggregate sum of ninety
                 percent (90%) of any Excess Issuance Proceeds, provided such
                 sums are actually spent on Capital Expenditures within twelve
                 (12) months of their receipt by Borrower.

9.       AFFIRMATIVE COVENANTS - GENERAL

         So long as any Obligations are outstanding, Borrower covenants and
agrees that:

         9.1     Taxes. All assessments and taxes, whether real, personal or
                 otherwise, due or payable by, or imposed, levied or assessed
                 against, Borrower or any of its property have been paid, and
                 shall hereafter be paid in full, before delinquency, except
                 those assessments and taxes the validity of which is being
                 contested in good faith by appropriate proceedings, do not
                 impair the priority of Lender's Liens on the Collateral and as
                 to which Borrower shall have set aside adequate reserves (as
                 determined by Lender in its reasonable discretion). Borrower
                 will make timely payment or deposit of all FICA payments and
                 withholding taxes required of it by applicable laws, and will,
                 upon request, furnish Lender with proof reasonably satisfactory
                 to it that Borrower has made such payments or deposits.

                                      -44-
<PAGE>   46
         9.2     Insurance. Borrower, at its expense, shall keep and maintain
                 the Collateral insured under "all risk" or equivalent types of
                 policies against loss or damage by fire, theft, explosion,
                 sprinklers and all other hazards and risks ordinarily insured
                 against by other owners who use such properties in similar
                 business for the full insurable value thereof as necessary to
                 prevent application of any co-insurance provisions. Borrower
                 shall also keep and maintain business interruption insurance
                 and public liability and property damage insurance relating to
                 Borrower's ownership and use of the Inventory, Equipment and
                 its other assets. All such policies of insurance shall be in
                 such form, with such companies, and in such amounts as may be
                 reasonably satisfactory to Lender. Borrower shall deliver to
                 Lender certified copies of such policies of insurance and
                 evidence of the payments of all premiums therefor. All such
                 policies of insurance (except those of public liability and
                 those insuring improvements to real estate leased by Borrower
                 (the "Real Property Improvement Insurance") shall contain an
                 endorsement in a form reasonably satisfactory to Lender showing
                 Lender as the lender loss payee on all Collateral with a waiver
                 of warranties, and absent the occurrence of a Potential Default
                 or an Event of Default, all proceeds payable thereunder in
                 excess of the aggregate sum of One Hundred Thousand Dollars
                 ($100,000) shall be payable to Lender and, upon receipt by
                 Lender, shall be applied on account of the Obligations owing to
                 Lender. Absent the occurrence of a Potential Default or Event
                 of Default, Borrower may retain proceeds up to the aggregate
                 sum of One Hundred Thousand Dollars ($100,000) to be used by
                 Borrower for the repair or replacement of any damaged or
                 destroyed Collateral. Upon the occurrence of a Potential
                 Default or Event of Default, all insurance proceeds (other than
                 the Real Property Improvement Insurance proceeds) shall be paid
                 to Lender. To secure the payment of the Obligations, Borrower
                 grants Lender a Lien in and to all such policies of insurance
                 (except those of public liability and the Real Property
                 Improvement Insurance) and the proceeds thereof, and except as
                 provided above, Borrower shall direct all insurers under such
                 policies of insurance to pay all proceeds thereof directly to
                 Lender as its interest may appear. After the occurrence of a
                 Potential Default or Event of Default, Borrower hereby
                 irrevocably appoints Lender (and any of Lender's officers,
                 employees or agents designated by Lender) as Borrower's
                 attorney-in-fact for the purpose of making, settling and
                 adjusting claims under such policies of insurance, endorsing
                 the name of Borrower on any check, draft, instrument or other
                 item of payment for the proceeds of such policies of insurance
                 and for making all determinations and decisions with respect to
                 such policies of insurance. Prior to an Event of Default or
                 Potential Default, Borrower shall not make, settle or adjust
                 claims in excess of One Hundred Thousand Dollars ($100,000)
                 under such policies of insurance without prior consultation
                 with and written consent of Lender. Borrower will not cancel

                                      -45-
<PAGE>   47
                 any of such policies without Lender's prior written consent.
                 Borrower shall obtain by endorsement upon the policy or
                 policies of insurance issued to Borrower as required above, or
                 by independent instruments furnished to Lender, an agreement
                 from each insurer that it will give Lender at least thirty (30)
                 days' written notice before any such policy or policies of
                 insurance shall be materially altered or canceled, and that no
                 act or default of Borrower, or any other Person, shall affect
                 the right of Lender to recover under such policy or policies of
                 insurance required above or to pay any premium in whole or in
                 part relating thereto. Lender, without waiving or releasing any
                 Obligations or any Event of Default may, but shall have no
                 obligation to, obtain and maintain such policies of insurance
                 that Borrower is required to carry hereunder and pay such
                 premiums and take any other action with respect to such
                 policies which Lender deems advisable. All sums disbursed by
                 Lender in accordance with this Section 9.2, as well as
                 reasonable attorneys' fees, court costs, expenses and other
                 charges relating thereof, shall constitute Out-of-Pocket Fees
                 and Costs and shall be payable on demand.

         9.3     Litigation. Borrower shall immediately notify Lender in writing
                 of any suit in law or equity or administrative proceeding
                 involving money or property, and seeking damages in excess of
                 $100,000 individually or $200,000 in the aggregate.

         9.4     Books and Records. Borrower at all times hereafter shall keep
                 proper books of record and account in which full and true
                 entries will be made of all dealings or transactions with
                 respect to or in relation to the business and affairs of
                 Borrower, and shall maintain a standard and modern system of
                 accounting, in accordance with Generally Accepted Accounting
                 Practices with ledger and account cards and/or computer tapes,
                 discs, printouts, and records pertaining to the Collateral
                 which contain information as may from time to time be
                 reasonably requested by Lender. Borrower agrees to permit
                 Lender and any of its employees, officers or agents, at all
                 times during Borrower's usual business hours, or the usual
                 business hours of third Persons having control thereof, to have
                 access to and examine all of Borrower's Books relating to the
                 Collateral, the Obligations, Borrower's financial condition and
                 the results of Borrower's operations, and, in connection
                 therewith, permit Lender or any of its agents, employees or
                 officers to copy and make extracts therefrom; provided that
                 prior to an Event of Default, Lender shall provide Borrower two
                 (2) Business Days' prior notice of such examinations and Lender
                 shall use its good faith efforts to minimize interference with
                 Borrower's business.

                                      -46-
<PAGE>   48
         9.5     Compliance with Laws. Borrower shall comply in all material
                 respects with all Federal, State, local and foreign laws, rules
                 and regulations, including, but not limited to the Securities
                 Act of 1933, the Securities Exchange Act of 1934, the Fair
                 Labor Standards Act, Environmental Laws, laws relating to
                 income, unemployment, payroll or social security taxes and
                 pension funds and retirement benefit programs as required by
                 ERISA.

         9.6     Expense Reimbursements. Borrower shall within five (5) Business
                 Days of demand by Lender, reimburse Lender for all sums
                 expended by Lender which constitute Out-of-Pocket Fees and
                 Costs if Borrower fails to pay same. Absent the occurrence of
                 an Event of Default, Lender shall provide Borrower with copies
                 of invoices for such Out-of-Pocket Fees and Costs. Lender may
                 charge any or all of such amounts expended for Out-of-Pocket
                 Fees and Costs to the loan account maintained by Lender with
                 respect to Borrower and such amounts shall be part of the
                 Obligations subject to interest at the Rate or Default Rate, as
                 applicable.

         9.7     ERISA Reportable Events. Borrower shall furnish to Lender: (a)
                 as soon as possible, but in no event later than thirty (30)
                 days after it knows or has reason to know that any Reportable
                 Event with respect to any Benefit Plan has occurred, a
                 statement of the Chief Executive Officer of Borrower setting
                 forth the details concerning such Reportable Event and the
                 action which it proposes to take with respect thereto, together
                 with a copy of the notice of such Reportable Event given to the
                 PBGC, if a copy of such notice is available to Borrower; (b)
                 upon request by Lender, promptly after the filing thereof with
                 the United States Internal Revenue Service or the PBGC, copies
                 of each annual report with respect to each Benefit Plan; (c)
                 promptly after receipt thereof, a copy of any notice of any
                 potential material liability, adverse determination letter,
                 ruling or opinion it may receive from the PBGC or the Internal
                 Revenue Service with respect to any Benefit Plan; (d) when the
                 same is made available to participants in a Benefit Plan, all
                 notices of a significant reduction in the rate of benefit
                 accrual or plan termination to the participants by the
                 administrator of such Benefit Plan; and (e) promptly after
                 receipt thereof, any notice from any Multiemployer Plan to
                 which it or any of its ERISA Affiliates contributes which
                 quantifies any actual or potential withdrawal liability which
                 will or may be imposed upon the withdrawal of Borrower or any
                 ERISA Affiliate of Borrower from such Multiemployer Plan.

         9.8     Intellectual Property. Upon Borrower's acquisition of any
                 patents, trademarks, licenses or other intellectual property
                 rights, Borrower shall notify Lender of same in writing and
                 take all steps that Lender reasonably deems necessary to create
                 a first priority lien and security interest in such assets in
                 favor of Lender.

                                      -47-
<PAGE>   49
         9.9     Prepayment of Obligations. Borrower shall utilize the net
                 proceeds of any issuance of Subordinated Indebtedness or
                 issuance and sale of equity securities permitted by this
                 Agreement or otherwise consented to by Lender (after deduction
                 of all issuance and underwriting fees and reasonable costs
                 associated therewith), to prepay the outstanding Obligations to
                 the extent of such proceeds. Any excess proceeds remaining
                 after prepayment of the Obligations in full may be utilized by
                 Borrower for any purpose permitted by this Agreement and
                 Borrower shall not be permitted to request additional Revolving
                 Loans hereunder until it has fully utilized such excess
                 proceeds. Borrower shall further prepay the Obligations with
                 any Excess Issuance Proceeds not used to fund Capital
                 Expenditures, to the extent permitted by Section 8.20 of this
                 Agreement, within twelve (12) months of Borrower's receipt of
                 such Excess Issuance Proceeds.

10.      AFFIRMATIVE COVENANTS - REPORTING

         Borrower shall furnish or cause to be furnished to Lender the
following:

         10.1    (a)      Periodic Financial Statements.  As soon as practicable
                          and in any event within thirty (30) days following the
                          end of each Reporting Period (i) a statement of income
                          and a statement of cash flow of Borrower for each such
                          Reporting Period and for the period from the beginning
                          of the then current fiscal year of Borrower to the end
                          of such Reporting Period, (ii) a balance sheet of
                          Borrower as of the end of such Reporting Period, and
                          (iii) with respect to such statement of income and
                          balance sheet, in comparative form, figures for the
                          corresponding Reporting Periods in the preceding
                          Fiscal Year of Borrower, all in reasonable detail and
                          certified by the Chief Executive Officer of Borrower
                          as fairly presenting the financial condition of
                          Borrower in accordance with Generally Accepted
                          Accounting Principles, subject to changes resulting
                          from normal year-end adjustments and the absence of
                          footnotes.

                 (b)      Yearly Financial Statements.  As soon as practicable
                          and in any event within ninety (90) days after the end
                          of each Fiscal Year of Borrower, a statement of income
                          of Borrower for such Fiscal Year, and a balance sheet
                          of Borrower as of the end of such Fiscal Year, and a
                          statement of cash flow of Borrower for such Fiscal
                          Year, all setting forth in comparative form,
                          corresponding figures for the period covered by the
                          preceding annual audit and as of the end of the
                          preceding Fiscal Year of Borrower, all in reasonable
                          detail and in scope in accordance with audits
                          performed for Borrower in prior years and examined and
                          certified by independent certified public

                                      -48-
<PAGE>   50
                          accountants of recognized national standing selected
                          by Borrower and reasonably satisfactory to Lender,
                          whose opinion shall be unqualified and shall be in
                          scope in accordance with audits performed for Borrower
                          in prior years, in form and substance satisfactory to
                          Lender.

                 (c)      Projections.  As soon as practicable and in any event
                          not later than thirty (30) days prior to the beginning
                          of each Fiscal Year of Borrower hereafter, preliminary
                          drafts of projected balance sheets, statements of
                          income and cash flow for Borrower, for each month
                          during such Fiscal Year, which shall include the
                          assumptions used therein, together with final versions
                          of same within sixty (60) days after the beginning of
                          each Fiscal Year containing appropriate supporting
                          details as requested by Lender, along with
                          consolidated calculations with respect to compliance
                          with covenants in the same manner as required in
                          connection with the delivery of financial statements
                          under (a) and (b) above.

                 (d)      Management Letters, Tax Distributions. As soon as
                          practicable and in any event within ten (10) days of
                          delivery to Borrower a copy of any letter issued by
                          Borrower's independent public accountants or other
                          management consultants, if any are issued, with
                          respect to Borrower's financial or accounting systems
                          or controls, including all so-called "management
                          letters".

                 (e)      Yearly Reports.  In conjunction with the delivery of
                          the annual presentation of projections or budgets
                          referred to in subsection (c) above, a letter signed
                          by the Chief Executive Officer of Borrower,
                          describing, comparing and analyzing, in reasonable
                          detail, all changes and developments between the
                          anticipated financial results included in such
                          projections or budgets for the prior Fiscal Year and
                          the historical financial statements of Borrower for
                          such prior Fiscal Year.

                 (f)      SEC Reports. Within five (5) days after the same are
                          sent, copies of all financial statements and reports
                          that Borrower sends to the Securities and Exchange
                          Commission or any holders of other Indebtedness.

                 (g)      Other Information. With reasonable promptness, such
                          other business or financial data, reports, appraisals
                          and projections as Lender may reasonably request.

                                      -49-
<PAGE>   51
                 All financial statements delivered to Lender pursuant to the
                 requirements of this subsection (except where otherwise
                 expressly indicated) shall be prepared in accordance with
                 Generally Accepted Accounting Principles as provided in this
                 Agreement. Together with each delivery of financial statements
                 required by subsections (a) and (b) above, Borrower shall
                 deliver to Lender an officer's certificate in the form of
                 Exhibit B hereto stating that (i) there exists no Event of
                 Default or Potential Default, or if an Event of Default or
                 Potential Default exists, specifying the nature thereof, the
                 period of existence thereof and what action Borrower proposes
                 to take with respect thereto, (ii) no material adverse change
                 in the condition, financial or otherwise, business, property,
                 including without limitation, with respect to Environmental
                 Laws, or results of operations of Borrower has occurred since
                 the previous certificate was sent to Lender by Borrower or, if
                 any such change has occurred, specifying the nature thereof and
                 what action Borrower has taken or proposes to take with respect
                 thereto, (iii) all insurance premiums then due have been paid
                 before delinquent, (iv) all taxes then due have been paid or,
                 for those taxes which have not been paid before delinquent, a
                 statement of the taxes not paid and a description of Borrower's
                 rationale therefor, (v) except as previously reported to
                 Lender, no litigation, investigation or proceeding, or
                 injunction, writ or restraining order involving claims in
                 excess of $100,000 individually or $200,000 in the aggregate is
                 pending or to the best of Borrower's knowledge after diligent
                 inquiry, threatened, and (vi) stating whether or not Borrower
                 is in compliance with the representations, warranties and
                 covenants in this Agreement, including a calculation of
                 financial covenants in the schedule attached to such officer's
                 certificate in form satisfactory to Lender. Lender shall
                 exercise reasonable efforts to keep such information, and all
                 information acquired as a result of any inspection conducted in
                 accordance with this Agreement, confidential, provided that
                 Lender may communicate such information (A) to any other Person
                 in accordance with the customary practices of commercial
                 lenders relating to routine trade inquiries, (B) to any
                 regulatory authority, or pursuant to any order, judgement or
                 decree of any court having jurisdiction over Lender, (C) to any
                 other Person in connection with the exercise of Lender's rights
                 hereunder, or (D) with Borrower's consent, which consent will
                 not be unreasonably withheld, conditioned or delayed, to any
                 Participant or prospective Participant.

         10.2    Accounting Information. Borrower authorizes Lender to discuss
                 the financial condition of Borrower with Borrower's independent
                 public accountants and agrees that such discussion or
                 communication shall be without liability to either Lender or
                 Borrower's independent public accountants. Prior to the
                 occurrence of a Potential Default or Event of Default, Lender
                 shall use its best efforts to notify Borrower of Lender's
                 discussions with Borrower's accountants. Borrower shall deliver
                 a letter

                                      -50-
<PAGE>   52
                 addressed to such accountants authorizing them to comply with
                 the provisions of this subsection, and authorizing Lender to
                 rely on financial statements of Borrower issued by such
                 accountants, which letter shall be acknowledged and consented
                 to in writing by such accountants, and be in form and substance
                 satisfactory to Lender.

         10.3    Other Information and Changes. Borrower shall promptly supply
                 Lender with such other information concerning its affairs as
                 Lender may request from time to time hereafter, and shall
                 promptly notify Lender of any material adverse change in
                 Borrower's financial condition and of any condition or event
                 which constitutes a breach of or an Event of Default under this
                 Agreement.

11.      AFFIRMATIVE COVENANTS - FINANCIAL

         11.1    Tangible Net Worth. Borrower shall maintain its Tangible Net
                 Worth in an amount of not less than the amount set forth
                 opposite each period set forth below, measured quarterly, as of
                 the last day of each Fiscal Quarter.

                              MINIMUM TANGIBLE NET WORTH

Period                                             Minimum Level

Closing Date to and including
December 26, 1999                                  $90,000,000

December 27, 1999 to and including                 $85,000,000
June 11, 2000

June 12, 2000 and thereafter                       $80,000,000

         11.2    Senior Interest Coverage Ratio. Borrower shall maintain a
                 Senior Interest Coverage Ratio, calculated and tested as of the
                 last day of each respective Fiscal Quarter, cumulatively for
                 the rolling thirteen (13) Reporting Periods ending on the last
                 day of each such Fiscal Quarter of not less 3.00 : 1.00;
                 provided that for purposes of determining the ratio described
                 above for the Fiscal Quarters ending December 26, 1999, March
                 19, 2000, and June 11, 2000, EBITDA and Funded Debt Interest
                 Expense shall be deemed to equal EBITDA and Funded Debt
                 Interest Expense for such Fiscal Quarter (and, in the case of
                 the later two such determinations, each previous Fiscal Quarter
                 commencing with the Closing), multiplied by 13/3rds, 13/3rds,
                 and 13/3rds respectively.

                                      -51-
<PAGE>   53
         11.3    Minimum Net Book Value of Laundry Equipment. Borrower shall own
                 at all times, laundry Equipment having a net book value of not
                 less than $30,000,000.

12.      EVENTS OF DEFAULT

         Any one or more of the following shall constitute an Event of Default
         by Borrower under this Agreement:

         12.1    Payment. If Borrower fails to pay, when due and payable or when
                 declared due and payable, all or any portion of the Obligations
                 representing principal or interest owing to Lender, or Borrower
                 fails to pay, when due and payable or when declared due and
                 payable, any other Obligations and such failure is not cured
                 within five (5) days of such breach.

         12.2    Breach of Covenants. If Borrower fails or neglects to perform,
                 keep or observe any term, provision, condition, covenant, or
                 agreement contained in this Agreement, any other Loan Document,
                 or any other present or future agreement between Borrower and
                 Lender and/or evidencing and/or securing the Obligations,
                 except the failure to comply with Sections 8.2, 8.18, 9.1, 9.3,
                 9.4, 9.5, 9.7 and 9.8 of this Agreement shall not be an Event
                 of Default unless such failure continues for a period of thirty
                 (30) days following notice by Lender to Borrower.

         12.3    Breach of Representation. If any representation, warranty,
                 statement, report, or certificate made or delivered by
                 Borrower, or any of its officers, employees or agents on behalf
                 of Borrower, to Lender is false in any material respect when
                 made or deemed to be made.

         12.4    Material Adverse Change. If in Lender's reasonable discretion
                 (i) there is a material impairment of the prospect of repayment
                 of all or any portion of the Obligations, (ii) there is any
                 impairment of the priority of Lender's Liens on all or a
                 portion of the Collateral (including without limitation a Lien,
                 levy or assessment in any amount of the type referred to in
                 Section 12.9 hereof), or (iii) a material adverse change has
                 occurred in the condition (financial or otherwise), business,
                 property or results of operations of Borrower.

         12.5    Attachment or Levy. If all or any of Borrower's assets in
                 excess of Fifty Thousand Dollars ($50,000) in the aggregate are
                 attached, seized, subjected to a writ or distress warrant, or
                 are levied upon, or come into the possession of any trustee,
                 receiver, controller, custodian or assignee for the benefit of
                 creditors (or any other Person with similar powers or duties)
                 unless, with respect to any such assets, such attachment,
                 seizure, writ, warrant or levy

                                      -52-
<PAGE>   54
                 shall be dismissed, released or stayed within thirty (30) days
                 of issuance thereof.

         12.6    Voluntary Insolvency.  If an Insolvency Proceeding is commenced
                 by Borrower.

         12.7    Involuntary Insolvency. If an Insolvency Proceeding is
                 commenced against Borrower except that if Borrower is
                 contesting such Insolvency Proceeding in good faith, such
                 Insolvency Proceeding shall not constitute an Event of Default
                 unless such Insolvency Proceeding is not dismissed within sixty
                 (60) days of the commencement of such Insolvency Proceedings.

         12.8    Injunction. If Borrower is enjoined, restrained or in any way
                 prevented by court order from continuing to conduct all or any
                 material part of its business affairs and such order continues
                 for more than thirty (30) days.

         12.9    Governmental Lien. Except as permitted by Section 9.1, if a
                 notice of Lien, levy or assessment in excess of Ten Thousand
                 Dollars ($10,000) in the aggregate, is filed of record with
                 respect to any or all of Borrower's assets by the United States
                 Government, or any department, agency or instrumentality
                 thereof, or by any state, county, municipal or other
                 governmental agency, or if any taxes or debts owing at any time
                 hereafter to any one or more of such entities in excess of Ten
                 Thousand Dollars ($10,000) in the aggregate, becomes a Lien,
                 whether choate or otherwise, upon any or all of Borrower's
                 assets and the same is not paid on or before the due date
                 thereof.

         12.10   Judgment. If a judgment or other claim in excess of Fifty
                 Thousand Dollars ($50,000) individually, or One Hundred
                 Thousand Dollars ($100,000) in the aggregate, becomes a Lien
                 upon any or all of Borrower's assets, or any individual
                 judgment or other claim in excess of One Hundred Thousand
                 Dollars ($100,000) is entered against Borrower and is not
                 stayed, vacated or discharged within thirty (30) days of the
                 entry thereof.

         12.11   Other Indebtedness. If there is a default in any agreement with
                 respect to Indebtedness in excess of One Hundred Thousand
                 Dollars ($100,000) to which Borrower is a party with another
                 Person resulting in a right by such Person to accelerate the
                 maturity of Borrower's Indebtedness or to exercise any other
                 right or remedy.

         12.12   Prepayment. If Borrower makes any prepayment on account of
                 Indebtedness for borrowed money, except for prepayments to
                 Lender.

                                      -53-
<PAGE>   55
         12.13   ERISA Reportable Event. If (a) any Reportable Event which
                 Lender determines constitutes grounds for the termination of
                 any Benefit Plan by the PBGC or for the appointment by the
                 appropriate United States District Court of a trustee to
                 administer any such Plan, shall have occurred and be continuing
                 thirty (30) days after written notice of such determination
                 shall have been given to Borrower by Lender, or any such
                 Benefit Plan shall be terminated within the meaning of Title IV
                 of ERISA, or a trustee shall be appointed by the appropriate
                 United States District Court to administer any such Plan, or
                 the PBGC shall institute proceedings to terminate any Benefit
                 Plan; and (b) in case of any event described above in this
                 Section 12.13, the aggregate amount of Borrower's liability
                 under Sections 4062, 4063 or 4064 of ERISA shall exceed one
                 percent (1.00%) of its Net Worth, or (c) there shall be a
                 withdrawal from any Multiemployer Plan as a result of which the
                 aggregate amount of Borrower's liability in relation thereto
                 shall exceed one percent (1%) of its Net Worth.

         12.14   Change of Control. If any "person" or "group" (as such terms
                 are used in Sections 13(d) and 14(d) of the Securities Exchange
                 Act of 1934, as amended (the "Exchange Act")), shall become, or
                 obtain rights (whether by means of warrants, options or
                 otherwise) to become the "beneficial owner" (as defined in
                 Rules 13(d)-3 and 13(d)-5 under the Exchange Act, directly or
                 indirectly, of more than 30% of the outstanding common stock of
                 Borrower or the occurrence of a Change of Control (as defined
                 in the Note Indenture).

         12.15   Default Under the Alliance Financing. If an Event of Default or
                 (as defined therein) occurs under the Alliance Loan Agreement.

         Notwithstanding anything contained in this Section 12 or contained in
         any other provision of this Agreement or the other Loan Documents to
         the contrary, in the event of the institution of Insolvency Proceedings
         against Borrower, Lender shall not be obligated to make advances to
         Borrower during the sixty (60) day grace period under Section 12.7

13.      RIGHTS AND REMEDIES

         13.1    Rights and Remedies Generally. Upon the occurrence of an Event
                 of Default by Borrower under this Agreement and notice thereof
                 by Lender to Borrower, except as hereinafter provided, Lender
                 may, at its sole election, without notice of its election and
                 without demand, do any one or more of the following, all of
                 which are authorized by Borrower:

                 (a)      Declare all Obligations, whether evidenced by this
                          Agreement, by the Revolving Loan Note, or otherwise,
                          immediately due and payable; provided, that all
                          Obligations shall be immediately due and payable

                                      -54-
<PAGE>   56
                          without notice or demand upon an Event of Default
                          under Section 12.6 or 12.7;

                 (b)      Cease advancing money or extending credit to or for
                          the benefit of Borrower under this Agreement, or any
                          other agreement between Borrower and Lender;

                 (c)      Terminate this Agreement as to any future liability or
                          obligation of Lender with respect to the Revolving
                          Loans and Letters of Credit but without affecting
                          Lender's rights and Lien in the Collateral and without
                          affecting the Obligations owing by Borrower to Lender;

                 (d)      Without notice to or demand upon Borrower, make such
                          payments and do such acts as Lender considers
                          necessary or reasonable to protect its Lien in the
                          Collateral. Borrower agrees to assemble the Collateral
                          if Lender so requires, and to make the Collateral
                          available to Lender at such location as Lender may
                          designate. Borrower authorizes Lender to enter the
                          premises where the Collateral is located subject to
                          the terms of the related real estate leases, take and
                          maintain possession of the Collateral, or any part of
                          it, and to pay, purchase, contest or compromise any
                          Lien which in the opinion of Lender appears to be
                          prior or superior to its Lien (exclusive of the Lien
                          of Alliance on the Alliance Collateral) and to pay all
                          expenses incurred in connection therewith;

                 (e)      Ship, reclaim, recover, store, finish, maintain,
                          repair, prepare for sale, advertise for sale and sell
                          (in the manner provided for herein) the Collateral;

                 (f)      Sell some or all of the Collateral at either public or
                          private sales, or both, by way of one or more
                          contracts or transactions, for cash or on terms, in
                          such manner and at such places (including Borrower's
                          premises subject to the terms of the related real
                          estate leases) as is commercially reasonable in the
                          opinion of Lender. It is not necessary that the
                          Collateral be present at any such sale.

                          Lender is hereby granted a license or other right to
                          use, without charge, Borrower's labels, patents,
                          copyrights, rights of use of any name, logo, trade
                          secrets, trade names, trademarks, customer lists and
                          advertising matter, or any property of a similar
                          nature, as it pertains to the Collateral, in
                          completing production of, advertising for sale and
                          selling any Collateral and Borrower's rights under all
                          licenses and all franchise agreements shall inure to
                          Lender's benefit.

                                      -55-
<PAGE>   57
         13.2    Notice of Disposition. Lender shall give notice of the
                 disposition of the Collateral as follows:

                          (i)     Lender shall give Borrower and each holder of
                                  a Lien in the Collateral who has filed with
                                  Lender a written request for notice, a notice
                                  in writing of the time and place of public
                                  sale, or, if the sale is a private sale or
                                  some other disposition other than a public
                                  sale is to be made of the Collateral, the time
                                  on or after which the private sale or other
                                  disposition is to be made;

                          (ii)    The notice to Borrower shall be personally
                                  delivered or mailed, postage prepaid, as
                                  provided in Section 16, at least ten (10)
                                  calendar days before the date fixed for the
                                  sale, or at least ten (10) calendar days
                                  before the date on or after which the private
                                  sale or other disposition is to be made,
                                  unless the Collateral is perishable or
                                  threatens to decline speedily in value. Notice
                                  to Persons other than Borrower claiming an
                                  interest in the Collateral shall be sent to
                                  such addresses as they have furnished to
                                  Lender; and

                          (iii)   If the sale is to be a public sale, Lender
                                  shall also give notice of the time and place
                                  by publishing a notice one time at least ten
                                  (10) calendar days before the date of the sale
                                  in a newspaper of general circulation in the
                                  county in which the sale is to be held. Lender
                                  may bid in any way permitted by applicable law
                                  and purchase at any public sale.

         13.3    Expenses of Enforcement.  Borrower shall pay all Out-of-Pocket
                 Fees and Costs incurred in connection with Lender's enforcement
                 and exercise of any of its rights and remedies as herein
                 provided, whether or not suit is commenced by Lender. Any
                 deficiency which exists after disposition of the Collateral as
                 provided above will be paid immediately by Borrower. Any excess
                 will be returned, without interest to Borrower or such other
                 Person as may be entitled thereto by Lender.

         13.4    Rights Cumulative. Lender's rights and remedies under this
                 Agreement, all other Loan Documents and all other agreements
                 with Borrower shall be cumulative. Lender shall have all other
                 rights and remedies not inconsistent herewith as provided under
                 the Code, by law, or in equity. No exercise by Lender of one
                 right or remedy shall be deemed an election, and no waiver by
                 Lender of any default on Borrower's part shall be deemed a
                 continuing waiver. No delay by Lender shall constitute a
                 waiver, election or acquiescence by it.

                                      -56-
<PAGE>   58
14.      TAXES AND EXPENSES REGARDING THE COLLATERAL

         14.1    If Borrower fails to pay promptly when due to any other Person,
                 monies which Borrower is required to pay by reason of any
                 provision in this Agreement in accordance with the provisions
                 of this Agreement (including without limitation for any tax,
                 expense or with respect to any Lien), or to promptly contest
                 same by proper proceedings diligently pursued and establish
                 adequate reserves therefor as required by the terms of this
                 Agreement, Lender may, but need not, pay the same after any
                 notice required hereunder and charge Borrower's account
                 therefor, and Borrower shall promptly reimburse Lender. All
                 such sums shall become additional Obligations owing to Lender,
                 shall bear interest at the applicable interest rate hereunder
                 and shall be secured by the Collateral. Any payments made by
                 Lender shall not constitute: (i) an agreement by Lender to make
                 similar payments in the future, or (ii) a waiver by Lender of
                 any Event of Default under this Agreement. In connection with
                 any payment made by Lender pursuant to this Section 14.1,
                 Lender need not inquire as to, or contest the validity of, any
                 such expense, tax or Lien and the receipt of the usual official
                 notice for the payment thereof shall be conclusive evidence
                 that the same was validly due and owing, and the receipt of any
                 other notice with respect to all other such monies due
                 hereunder shall be prima facia evidence that the same was
                 validly due and owing.

15.      CERTAIN WAIVERS

         15.1    Application of Payments. Except as expressly provided in this
                 Agreement, Borrower waives the right to direct the application
                 of any and all payments at any time or times hereafter received
                 by Lender on account of any Obligations owed by Borrower,
                 including without limitation amounts received which are the
                 proceeds of any insurance policy, and Borrower agrees that
                 Lender shall have the continuing exclusive right to apply and
                 reapply such payments in any manner as Lender may deem
                 advisable, notwithstanding any entry by Lender upon its books.

         15.2    Demand, etc. Except as specifically provided herein, Borrower
                 waives demand, protest, notice of protest, notice of default or
                 dishonor, notice of payment and nonpayment, notice of any
                 default, notice of nonpayment at maturity, notice of intent to
                 accelerate, and notice of acceleration, notice prior to
                 Lender's taking possession or control of any of the Collateral,
                 or any bond or security which might be required by any court
                 prior to allowing Lender to exercise any of Lender's remedies,
                 including the issuance of an immediate writ of possession, the
                 release, compromise, settlement, extension or renewal of any or
                 all commercial paper, accounts, documents, instruments, chattel
                 paper, and guarantees at any time held by Lender on

                                      -57-
<PAGE>   59
                 which Borrower may in any way be liable, the benefit of all
                 valuation, appraisement and exemption laws, and any right to
                 require a marshalling of assets by Lender or to require that
                 Lender first resort to some or any portion of any Collateral
                 before sale, foreclosure or realization on any other portion
                 thereof.

         15.3    Risk of Loss Regarding Collateral.  Beyond the safe custody of
                 the Collateral in its possession, Lender shall not in any way
                 or manner be liable or responsible for: (a) the Collateral in
                 its possession (or in the possession or control of any agent or
                 bailee); (b) any loss or damage thereto occurring or arising in
                 any manner or fashion from any cause, including without
                 limitation, lost profits, incidental or consequential damages;
                 or (c) any diminution in the value thereof. Except where
                 occasioned by gross negligence or willful misconduct of Lender,
                 all risk of loss, damage or destruction of the Collateral shall
                 be borne by Borrower.

         15.4    Confidentiality. Borrower authorizes its accounting firm and/or
                 service bureau to provide Lender with such information
                 requested by Lender pursuant to or in accordance with Section
                 10.2 of this Agreement, and authorizes Lender to contact
                 directly any such accounting firm and/or service bureau in
                 order to obtain such information. Prior to the occurrence of a
                 Potential Default or Event of Default, Lender shall notify
                 Borrower prior to contacting such accounting firm or service
                 bureau, but in no event shall Lender be liable to Borrower for
                 failure to provide such notice.

16.      NOTICES

         Except as otherwise expressly provided herein, any notice required or
         desired to be served, given or delivered hereunder shall be in the form
         and manner specified below, and shall be addressed to the party to be
         notified as follows:

         If to Lender at:         LaSalle Bank National Association
                                  135 South LaSalle Street
                                  Chicago, Illinois 60603
                                  Attn: John Thurston
                                  Facsimile No. 312/904-6225

         With a copy to:          Jenner & Block
                                  One IBM Plaza
                                  Chicago, Illinois 60611
                                  Attn: Jeffrey L. Elegant, Esq.
                                  Facsimile No. 312/840-7720

                                      -58-
<PAGE>   60
         If to Borrower at:       SpinCycle, Inc.
                                  15990 N. Greenway/Hayden Loop, Suite 400
                                  Scottsdale, AZ 85260
                                  Attn: Peter Ax
                                  Facsimile No. 602/707-9967

         With copies to:          Pedersen & Houpt
                                  161 N. Clark Street, Suite 3100
                                  Chicago, Illinois 60601
                                  Attn: Amy Yates, Esq.
                                  Facsimile No. 312/641-6895

         or to such other address as each party designates to the other by
         notice in the manner herein prescribed. Notice shall be deemed given
         hereunder if (i) delivered personally or otherwise actually received,
         (ii) sent by overnight delivery service, (iii) mailed by first-class
         United States mail, postage prepaid, registered or certified, with
         return receipt requested, or (iv) sent via telecopy machine with a
         duplicate signed copy sent on the same day as provided in clause (ii)
         above. Notice mailed as provided in clause (iii) above shall be
         effective upon the expiration of three (3) Business Days after its
         deposit in the United States mail, and notice telecopied as provided in
         clause (iv) above shall be effective upon receipt of such telecopy if
         the duplicate signed copy is sent under clause (ii) above. Notice given
         in any other manner described in this section shall be effective upon
         receipt by the addressee thereof; provided, however, that if any notice
         is tendered to an addressee and delivery thereof is refused by such
         addressee, such notice shall be effective upon such tender unless
         expressly set forth in such notice.

17.      CHOICE OF LAW AND VENUE

         17.1    This Agreement shall be deemed to have been made in the State
                 of Illinois and the validity of this Agreement, its
                 construction, interpretation and enforcement, and the rights of
                 parties hereunder and concerning the Collateral, shall be
                 determined under, governed by and construed in accordance with
                 the laws of the State of Illinois. The parties agree that at
                 Lender's election, all actions or proceedings arising in
                 connection with this Agreement shall be tried and litigated
                 only in the state and federal courts located in the County of
                 Cook, State of Illinois. Borrower waives any right it may have
                 to assert the doctrine of forum non conveniens or to object to
                 such venue and hereby consents to any court ordered relief.
                 Borrower consents that all service of process upon it be made
                 by registered mail or messenger directed to it at the address
                 set forth in Section 16 above and that service so made shall be
                 deemed to be completed upon the earlier of actual receipt or
                 three (3) Business Days after the same shall have been posted
                 to Borrower's address. Nothing contained in this Section 17
                 shall affect the

                                      -59-
<PAGE>   61
                 right of Lender to serve legal process in any other manner
                 permitted by law or affect the right of Lender to bring any
                 action or proceeding against Borrower or its property in the
                 courts of any other jurisdiction.

18.      INDEMNITY

         18.1    Borrower hereby shall indemnify, hold harmless and defend
                 Lender and its directors, officers, agents, counsel and
                 employees ("Indemnified Persons") from and against all losses,
                 claims, damages, costs, expenses and liabilities ("Losses"),
                 whether such Losses arise or notice thereof is received by
                 Lender during the Initial Term or any renewal term or after
                 termination of this Agreement, incurred by any of them arising
                 principally out of or relating to this Agreement or under any
                 other transaction contemplated hereby except for any such
                 Losses caused by the gross negligence or willful misconduct of
                 such Indemnified Persons, and shall reimburse Lender and each
                 other Indemnified Person for any reasonable expenses including
                 in connection with the investigation of, preparation for or
                 defense of any actual or threatened claim, action or proceeding
                 arising therefrom (including any such costs of responding to
                 discovery requests or subpoenas), regardless of whether any
                 Indemnified Person is a party thereto. Each Indemnified Person
                 may select its own counsel with respect to any Losses, in
                 addition to Borrower's counsel, and shall be indemnified
                 therefor hereunder.

19.      GENERAL PROVISIONS

         19.1    Acceptance. This Agreement shall be binding and deemed
                 effective when executed by Borrower and accepted and executed
                 by Lender.

         19.2    Binding Agreement. This Agreement shall bind and inure to the
                 benefit of the respective successors and assigns of each of the
                 parties, provided, however, that Borrower may not assign this
                 Agreement or any rights hereunder without Lender's prior
                 written consent and any prohibited assignment shall be
                 absolutely void. No consent to an assignment by Lender shall
                 release Borrower from its Obligations to Lender. Lender may not
                 assign this Agreement and its rights and duties hereunder,
                 without Borrower's written consent, such consent not to be
                 unreasonably withheld, conditioned or delayed, and Borrower
                 shall execute and deliver such documents in connection with
                 such assignment as Lender or such assignee may reasonably
                 request. Lender may not transfer, negotiate or grant
                 participations in all or any part of, or any interest in its
                 rights and benefits hereunder without Borrower's written
                 consent, such consent not to be unreasonably withheld,
                 conditioned or delayed. In connection therewith, Lender may
                 disclose all documents and information which Lender now or
                 hereafter may have relating to Borrower or Borrower's business,
                 but shall

                                      -60-
<PAGE>   62
                 use all reasonable efforts to ensure that the recipient of such
                 information maintains the confidentiality of such information
                 as required by the terms of this Agreement.

         19.3    Section Headings. Section headings and section numbers have
                 been set forth herein for convenience only. Unless the contrary
                 is compelled by the context, everything contained in each
                 paragraph applies equally to this entire Agreement.

         19.4    Construction. Neither this Agreement nor any uncertainty or
                 ambiguity herein shall be construed or resolved against Lender
                 or Borrower, whether under any rule of construction or
                 otherwise. On the contrary, this Agreement has been reviewed by
                 all parties and shall be construed and interpreted according to
                 the ordinary meaning of the words used so as to fairly
                 accomplish the purposes and intentions of the parties hereto.

         19.5    Severability. Each provision of this Agreement shall be
                 severable from every other provision of this Agreement for the
                 purpose of determining the legal enforceability of any specific
                 provision.

         19.6    Entire Agreement. This Agreement cannot be changed or
                 terminated orally. All prior agreements, understandings,
                 representations, warranties, and negotiations, if any, are
                 merged into this Agreement. This Agreement may be amended only
                 by a written agreement signed by duly authorized officers of
                 Borrower and Lender.

         19.7    No Fiduciary Relationship or Joint Venture. No provision herein
                 or in any of the other Loan Documents and no course of dealing
                 between the parties hereto shall be deemed to create any
                 fiduciary relationship between Lender and Borrower nor to
                 create any partnership or joint venture between Lender and
                 Borrower.

         19.8    Publicity. Subject to the other confidentiality provisions of
                 this Agreement, Borrower hereby consents to the issuance or
                 dissemination by Lender to the public of information describing
                 the credit accommodations entered into pursuant to this
                 Agreement (as it may be amended, modified and supplemented from
                 time to time) including without limitation the name and address
                 of Borrower, a general description of Borrower's business and
                 the use of Borrower's name and logo in connection therewith.

         19.9    Counterparts. This Agreement may be executed in two (2) or more
                 counterparts, each of which shall be deemed an original but all
                 of which shall together constitute one and the same instrument.

                                      -61-
<PAGE>   63
         19.10   Conflict. In the event of a conflict between the terms of this
                 Agreement and the terms of any other Loan Documents, the terms
                 of this Agreement shall be controlling.

         19.11   WAIVER OF JURY TRIAL

                 LENDER AND BORROWER ACKNOWLEDGE THAT THE RIGHT TO A TRIAL BY
                 JURY IS A CONSTITUTIONAL RIGHT, BUT THAT THE RIGHT MAY BE
                 WAIVED. BORROWER AND LENDER EACH KNOWINGLY, VOLUNTARILY,
                 IRREVOCABLY AND WITHOUT COERCION, WAIVE ALL RIGHTS TO TRIAL BY
                 JURY OF ALL DISPUTES BETWEEN THEM. NEITHER LENDER NOR BORROWER
                 SHALL BE DEEMED TO HAVE GIVEN UP THIS WAIVER OF JURY TRIAL
                 UNLESS THE PARTY CLAIMING THAT THIS WAIVER HAS BEEN
                 RELINQUISHED HAS A WRITTEN INSTRUMENT SIGNED BY THE OTHER PARTY
                 STATING THAT THIS WAIVER HAS BEEN GIVEN UP.

         19.12   Restatement of Prior Agreement. This Agreement constitutes an
                 amendment and restatement of, and a replacement and substitute
                 for the Prior Agreements. The Obligations under the Prior
                 Agreements are continuing indebtedness and nothing contained in
                 this Agreement shall be deemed to constitute payment,
                 settlement or novation of the Obligations under the Prior
                 Agreement or otherwise effect Lender's Lien on the Collateral
                 under the Prior Agreements, which shall continue in full force
                 and effect. Borrower hereby confirms that the Obligations under
                 the Prior Agreements are validly existing and enforceable and
                 that Borrower presently has no defenses, rights of setoff or
                 counterclaims against Lender arising out of the Prior
                 Agreements. Upon execution of this Agreement, this Agreement
                 shall amend and supersede and is substituted for the Prior
                 Agreements in their entirety. All references to Heller
                 Financial, Inc., Finova Capital Corporation, Agent or Lenders
                 in any other Loan Documents assigned by Heller Financial, Inc.
                 and/or Finova Capital Corporation to Lender pursuant to that
                 certain Assignment and Assumption Agreement dated November 17,
                 1999 among Borrower, Lender, Heller Financial, Inc., and Finova
                 Capital Corporation, shall be deemed to refer to Lender and
                 except as amended and restated hereby, shall remain unchanged
                 and in full force and effect and are hereby ratified and
                 affirmed by the parties hereto.

                                      -62-
<PAGE>   64
         IN WITNESS WHEREOF, Borrower has executed and delivered this Agreement.

                                 SPINCYCLE, INC.

                                    By:       /s/  Tim Yost
                                            ------------------------------------
                                    Title:     Vice President
                                            ------------------------------------
                                    Address:   15590 N. Greenway/Hayden Loop
                                               Suite 400
                                    Attention: Peter Ax
                                    Facsimile: 602/707-9967

         ACCEPTED this 17th day of November, 1999 at Lender's place of business
in the City of Chicago, State of Illinois.

                                    LASALLE BANK NATIONAL ASSOCIATION

                                    By:       /s/ John Thurston
                                            ------------------------------------
                                    Title:  Vice President
                                            ------------------------------------
                                    Address:   135 South LaSalle Street
                                               Chicago, Illinois 60603
                                               Attn:   John Thurston

                                    Facsimile: 312/904-6225

                                      -63-
<PAGE>   65
                             Schedules and Exhibits

EXHIBITS

Exhibit A        Form of Revolving Loan Note
Exhibit B        Form of Compliance Certificate
Exhibit C        Form of Landlord's Waiver and Lease Assignment Provision

SCHEDULES

Schedule 6.3 - Location of Inventory
Schedule 7.2 - States Where Borrower is Qualified
Schedule 7.8 - Litigation
Schedule 7.9 - Intellectual Property
Schedule 7.11 - Pro Formas
Schedule 7.12 - Conduct of Business
Schedule 7.13 - Environmental Compliance
Schedule 7.17 - Fictitious Names
Schedule 8.1 - Permitted Liens, Facilities to be Closed
Schedule 8.16 - Bank Accounts

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