FIVE STAR PRODUCTS INC
LOAN AND SECURITY AGREEMENT
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>3
<FILENAME>ex101.txt
<DESCRIPTION>LOAN AND SECURITY AGREEMENT
<TEXT>



                           LOAN AND SECURITY AGREEMENT

     This LOAN AND SECURITY AGREEMENT made and dated as of June 20, 2003, by
and between

                  FIVE STAR GROUP, INC., a corporation of the State of Delaware
                  with its principal corporate place of business at 903 Murray
                  Road, East Hanover, Morris County, New Jersey 07936 with its
                  mailing address at 903 Murray Road, P.O. Box 1960, East
                  Hanover, Morris County, New Jersey 07936 (hereinafter referred
                  to as "BORROWER")

                                       and

                  FLEET CAPITAL CORPORATION, a corporation organized and
                  existing under the laws of the State of Rhode Island with
                  offices at 750 Walnut Avenue, Third Floor, Cranford, New
                  Jersey 07016 (being hereinafter referred to as "LENDER")

                                 WITNESSES THAT:

     (1) WHEREAS, BORROWER is desirous of borrowing $25,000,000 from LENDER in
the form of a revolving loan (called the "Revolving Loan" in this Agreement and
more fully defined in Section 2.1 below);

     (2) WHEREAS, BORROWER seeks to enter into a relationship with LENDER
setting forth an understanding relating to the manner by which BORROWER may
obtain advances under such Revolving Loan from LENDER and the time and the
manner of the repayment of such advances;

     (3) WHEREAS, LENDER is willing to enter into this Agreement but only if the
conditions contained in this Agreement are satisfied;

     (4) WHEREAS, to induce LENDER to enter into this Agreement and to extend
the benefits of the Revolving Loan to BORROWER, BORROWER is willing to execute
this Agreement and comply with the provisions of this Agreement or cause them to
be complied with;


<PAGE>

     NOW THEREFORE in consideration of the premises and the covenants contained
in this Agreement and for other good and valuable consideration, BORROWER and
LENDER do hereby agree as follows:

                                   ARTICLE I

                                   DEFINITIONS

     1.1 DEFINITIONS OF "BORROWER" and "LENDER". The terms BORROWER and LENDER
shall have the meanings given those terms in the Preliminary Statements of this
Agreement.

     1.2 "ACCESSIONS" means, in addition to the definition of Accessions as
contained in the UCC, Goods that are physically united with other Goods in such
a manner that the identity of the original Goods is not lost.

     1.3 "ACCOUNTING TERMS". Any accounting terms used in this Agreement that
are not specifically defined herein shall have the meanings customarily given to
them in accordance with GAAP as in effect on the date of this Agreement, except
that references in Article V and/or Article VI to GAAP shall be deemed to refer
to generally accepted accounting principles as in effect on the date of the
financial statements delivered pursuant thereto and consistently applied over
the period to which they relate.

     1.4 "ACCOUNTS" or "ACCOUNTS RECEIVABLE" means, in addition to the
definition of Account as contained in the UCC, all of the accounts, contract
rights of BORROWER (including its rights as an unpaid vendor, or lienor,
including stoppage in transit, replevin and reclamation), including without
limitation any right to the payment of a monetary obligation, whether or not
earned by performance (a) for property that has been or is to be sold, leased,
licensed, assigned or otherwise disposed of, (b) for services rendered or to be
rendered, (c) for a policy of insurance issued or to be issued, (d) for a
secondary obligation incurred or to be incurred; (e) for energy provided or to
be provided; (f) for the use or hire of a vessel under a charter or other
contract; (g) arising out of the use of a credit or charge card or information
contained on or for use with the card; (h) Health-Care-Insurance Receivables and
Bondable Transition Property. The term does not include (i) rights to payment
evidenced by Chattel Paper or an Instrument; (ii) Commercial Tort Claims; (iii)
Deposit Accounts; (iv) Investment Property; (v) Letter-of-Credit Rights or
Letters of Credit; (vi) rights to payment for money or funds advanced or sold,
other than rights arising out of the use of a credit or charge card or
information contained on or for use with the card.


     1.5 "ACCOUNT DEBTOR" means, in addition to the definition of Account Debtor
as contained in the UCC, the person or persons obligated to BORROWER on an
Account, Chattel Paper or General Intangible, or who is represented by BORROWER
to be so obligated.

     1.6 "ACH FACILITY" means any automatic clearinghouse facility now or
hereafter provided to BORROWER by LENDER's Affiliate Fleet National Bank.


     1.7 "ADVANCES" is a collective term which means all cash advances and
extensions of monetary credit (including those reimbursable expenses of LENDER
deemed to be Advances under this Agreement and other amounts which LENDER is
authorized by this Agreement to charge against the Revolving Loan) now or at any
time hereafter made by LENDER to, on behalf of or for the account of BORROWER
under the Revolving Loan and/or any of the other Liabilities.


     1.8 "AGREEMENT" is a collective term which means all of the following:

          (a) this Loan and Security Agreement; and

          (b) all extensions, modifications (including without limitation
     modifications increasing or decreasing the amount of the Revolving Loan),
     refinancings, renewals, substitutions, replacements and/or redatings
     hereof.

<PAGE>


     1.9 "ASSET PURCHASE AGREEMENT" means that certain Asset Purchase Agreement
dated August 31, 1998 between SELLER (as seller and under the name FIVE STAR
GROUP, INC.") and BORROWER (as buyer and under the name "FIVE STAR ACQUISITION
CORP.") relating to the sale by SELLER and the purchase by BORROWER of SELLER's
assets, a copy of such Asset Purchase Agreement being attached to the
Certification Responsive to the Loan Agreement.

     1.10 "AUTHORIZATION TO CHARGE" has the meaning given that term in Section
2.8 below.

     1.11 "BLOCKED ACCOUNTS" shall mean the checking/demand deposit operating
accounts (if more than one) which is maintained either in LENDER's name or in
BORROWER's name for the benefit of LENDER at one or more financial institutions
(including Fleet National Bank and any other LENDER's Affiliate) of LENDER's
choosing and into which are to be deposited all Collateral Proceeds, including
without limitation all sums from any of the Lockboxes.

     1.12 "BOOKS AND RECORDS" means, in addition to the definition of "General
Intangibles contained in the UCC, all books and records (including such books
and records as are contained in computerized storage media), including, without
limitation, all inventory, purchasing, accounting, sales, export, import,
manufacturing, banking and shipping records, all customer and supplier lists,
files, records, literature and correspondence and all advertising, marketing and
public relations materials, drawings, engineering, manufacturing and assembly
information, operating and training manuals, quotations, bids, trade association
membership, customer credit information and pricing information, business plans,
studies and analysis and personnel records.

     1.13 "BORROWING BASE CERTIFICATE" means that certain certification in the
form attached hereto as Exhibit "A" for certifications which are required to be
submitted no less frequently than weekly, setting forth, among other things,
information relating to amounts and agings of Eligible Receivables and/or
amounts and values of Eligible Inventory.

     1.14 "BUSINESS DAY" shall mean a day on which LENDER and LENDER's Affiliate
Fleet National Bank are open for business during its usual business hours and
offering substantially all its services.

     1.15 "CERTIFICATION AS TO LIENS" means any certification now or hereafter
given by BORROWER setting forth the existence or non-existence of UCC liens
filed against BORROWER.

     1.16 "CERTIFICATION RESPONSIVE TO THE GUARANTY" is a collective term which
means the certification of GUARANTOR as to the truth and accuracy of certain
representations and warranties set forth in the Guaranty, to which is attached
each of the following:

          (a) Exhibit "A": the Certification of an assistant corporate secretary
     or the corporate secretary of GUARANTOR as to a true, complete and correct
     copy of the resolutions adopted by GUARANTOR's Board of Directors
     authorizing the execution, delivery and performance of the Guaranty and any
     other documents required thereunder or hereunder;

          (b) Exhibit "B": the Certification of an assistant corporate secretary
     or the corporate secretary of GUARANTOR as to the true, complete and
     correct copy of the incumbency and specimen signatures of those officers of
     GUARANTOR who are to execute the Guaranty and any other documents required
     thereunder or hereunder;

          (c) Exhibit "C": a true, complete and correct copy of GUARANTOR's
     Certificate of Incorporation, as amended;

          (d) Exhibit "D": a true, complete and correct copy of GUARANTOR's
     By-Laws, as amended;


<PAGE>

          (e) Exhibit "E": the certificate as to the Good Standing of GUARANTOR
     for the State of Delaware;

          (f) Exhibit "F": the certificate as to the Good Standing of GUARANTOR
     for the State of New York.

     1.17 "CERTIFICATION RESPONSIVE TO THE LOAN AGREEMENT" is a collective term
which means the certification of BORROWER as to the truth and accuracy of
certain representations and warranties, to which is attached each of the
following:

          (a) Exhibit "A": the Certification of an assistant corporate secretary
     or the corporate secretary of BORROWER as to a true, complete and correct
     copy of the resolutions adopted by BORROWER's Board of Directors
     authorizing the execution and delivery of this Agreement, the borrowings
     hereunder, and the execution and delivery of the other Loan Documents;

          (b) Exhibit "B": the Certification of an assistant corporate secretary
     or the corporate secretary of BORROWER as to a true, complete and correct
     copy of the incumbency and specimen signatures of those officers of
     BORROWER who are to execute this Agreement and the other Loan Documents;
     and

          (c) Exhibit "C": a true, complete and correct copy of BORROWER's
     Certificate of Incorporation, as amended (including, the certificate of
     amendment changing BORROWER's name from FIVE STAR ACQUISITION CORP. to FIVE
     STAR GROUP, INC.);

          (d) Exhibit "D": a true, complete and correct copy of BORROWER's
     By-Laws, as amended;

          (e) Exhibit "E: the certificate as to BORROWER's "Good Standing" in
     the State of Delaware;

          (f) Exhibit "F": the certificate as to BORROWER's "Good Standing" and
     authorization to do business in the State of Connecticut;

          (g) Exhibit "G": the certificate as to BORROWER's "Good Standing: and
     authorization to do business in the State of Maryland;

          (h) Exhibit "H": the certificate as to BORROWER's "Good Standing" and
     authorization to do business in the State of New Jersey;

          (i) Exhibit "I": the certificate as to BORROWER's "Good Standing" and
     authorization to do business in the State of New York;

          (j) Exhibit "J": copy of the Asset Purchase Agreement;

          (k) Exhibit "K": copy of the Bill of Sale transferring assets sold by
     SELLER (under its current name "JL DISTRIBUTORS, INC.") and bought by
     BORROWER (under the name "FIVE STAR GROUP, INC.") pursuant to the Asset
     Purchase Agreement.

     1.18 "CHATTEL PAPER" means, in addition to the definition of Chattel Paper
as contained in the UCC, a record or records that evidence both a monetary
obligation and one or more of the following: a security interest in specific
Goods, a security interest in specific Goods and software used in the Goods, a
security interest in specific Goods and license of software used in the Goods, a
lease of specific Goods, or a lease of specific Goods and license of software
used in the Goods. Chattel Paper also includes: (i) Tangible Chattel Paper
(i.e., Chattel Paper evidenced by a record or records consisting of information
that is inscribed on a tangible medium) and (ii) Electronic Chattel Paper (i.e.,
Chattel Paper evidenced by a record or records consisting of information stored

<PAGE>

in an electronic medium). The term does not include (x) charters of other
contracts involving the use or hire of a vessel or (y) records that evidence a
right to payment arising out of the use of a credit or charge card or
information contained on or for use with the card. If a transaction is evidenced
by records that include an instrument or series of instruments, the group of
records taken together constitutes Chattel Paper.


     1.19 "COLLATERAL" is a collective term which means all of the following:

          (a) all property (including but not limited to all Collateral
     described in Article III of this Agreement), whether real, personal or
     mixed, or tangible or intangible, now or at any time hereafter given,
     assigned or pledged to LENDER to secure the Liabilities by BORROWER or by
     GUARANTOR; and

          (b) all products and Proceeds of the foregoing.

     1.20 "COLLATERAL LOCATIONS" is a collective term which means the locations
set forth on Exhibit B attached hereto.

     1.21 "COLLATERAL PROCEEDS" is a collective term which means each of the
following:

          (a) all Proceeds (including proceeds in the form of cash, invoices,
     Accounts Receivable, checks, notes, instruments for the payment of money,
     remittances in kind, and the like) which BORROWER receives from any sale,
     lease, transfer, exchange or other disposition of any of the Collateral
     (whether tangible or intangible) and/or from services rendered by BORROWER
     to Account Debtors and other third parties; and

          (b) all other sums received by BORROWER as payment for services
     rendered by it to Account Debtors and/or other third parties and/or as
     payment from any sale, lease, transfer, exchange or other disposition of
     any of its assets (whether tangible or intangible) or which BORROWER
     receives for any other reason whatsoever; and

          (c) all products and Proceeds of all the foregoing, including
     insurance proceeds and condemnation awards.

     1.22 "COLLATERAL UPDATE CERTIFICATE" means that certain certification in
the form attached hereto as Exhibit C (or as otherwise acceptable to LENDER).

     1.23 "COMMERCIAL TORT CLAIMS" means, in addition to the definition of
Commercial Tort Claims as contained in the UCC, a claim arising in tort with
respect to which (a) the claimant is an organization or (b) the claimant is an
individual and the claim arose in the course of claimant's business or
profession and does not include damages arising out of personal injury to or
death of an individual.

     1.24 "CONSIGNMENTS" means, in addition to the definition of Consignments as
contained in the UCC, a transaction, regardless of form, in which Goods are
delivered to a merchant for the purpose of sale and the merchant (i) deals in
Goods of that kind under a name other than that of the person making delivery;
(ii) is not an auctioneer; and (iii) is not generally known by its creditors to
be substantially engaged in selling the Goods of others.

     1.25 "CONTRACT RIGHTS" means any right of BORROWER to receive payment or
performance under a contract not yet earned by payment and/or performance and
any franchise right to operate a business.

     1.26 "DEFAULT RATE" means a rate per annum equal to the lesser of (a) 200
basis points in excess of the contractual rate of interest which would otherwise

<PAGE>

be paid by BORROWER without giving effect to any reduction to which BORROWER may
be entitled by compliance with Performance Benchmark #1 or Performance Benchmark
#2 or Performance Benchmark #3 or (b) the maximum rate allowed by law, it being
intended that at no time shall the rate of interest payable on the Revolving
Loan be calculated at a rate higher than the maximum rate allowed by law.

     1.27 "ELIGIBLE INVENTORY" is a collective term which means and includes
such of BORROWER's Inventory which is and at all times shall continue in all
respects to be acceptable and satisfactory to LENDER in its discretion,
exercised in good faith and using reasonable commercial judgment, and which, not
in limitation of the foregoing, also consists of the following:


          (a) that portion of BORROWER's inventory of finished goods held for
     sale by BORROWER, normally and currently saleable in the ordinary course of
     BORROWER's business, and which at all times pertinent hereto is of good and
     merchantable quality, free from defects, as to which LENDER has a perfected
     first priority lien, and which is located at the Collateral Locations, and
     as to which BORROWER has satisfied all terms, conditions, warranties and
     representations of this Agreement and the other Loan Documents and which is
     valued at the lower of (i) its cost (where cost is computed at historic
     invoiced purchase price without adjustment for subsequently received
     rebates) or (ii) its market value; but

          (b) Eligible Inventory does not include any of the following:

              (1) catalogs and other promotional materials of any kind;

              (2) raw materials;

              (3) work in process;

              (4) any returned items unless returned in salable condition;

              (5) any damaged, defective or recalled items;

              (6) any obsolete items;

              (7) any items used as demonstrators, prototypes or salesmen's
          samples;

              (8) any items of Inventory which have been consigned to BORROWER
          or as to which any third person claims a lien;

              (9) any items of Inventory which have been consigned by BORROWER
          to a consignee;

              (10) any items of Inventory which BORROWER maintains on a bill and
          hold basis;

              (11) packing and shipping materials;

              (12) Inventory which in the reasonable judgment of LENDER
          exercised in good faith using reasonable commercial judgment is
          considered to be slow moving or otherwise not merchantable.

     1.28 "ELIGIBLE RECEIVABLES" is a collective term which means and includes
such of BORROWER's Accounts Receivable which are and at all times shall continue
in all respects to be acceptable and satisfactory to LENDER in its discretion,
exercised in good faith and using reasonable commercial judgment, and which, not
in limitation of the foregoing, also consist of Accounts Receivable which are
created by BORROWER in the ordinary course of business in an arm's length third
party transaction, are genuine and in all respects are what they purport to be.
In addition to the foregoing, an Account shall be deemed to be an Eligible
Receivable only if as of the date of computation of Eligible Receivables, such
Account shall not have been outstanding for more than ninety (90) days from the
date of the invoice, provided, however, that the following shall apply:

<PAGE>

          (a) if the Account is in respect of goods to be sold by the Account
     Debtor in a new retail establishment (i.e., a new customer for BORROWER for
     a period of one-year) from the establishment of the relationship), then,
     such Account shall not have been outstanding for more than two hundred
     seventy (270) days from the date of invoice, provided, that the maximum
     amount of Accounts beyond 90 days from the date of the invoice which shall
     be considered Eligible Receivables pursuant to this Subsection (a) shall
     not exceed $75,000 in the aggregate at any time; and

          (b) in the case of a "dated sale", if the terms of sale were otherwise
     entered into by BORROWER in respect of such invoice in the ordinary course
     of BORROWER's business, (1) then, as of the date of computation of Eligible
     Receivables, such Account shall not have been outstanding for more than one
     hundred fifty (150) days from the date of the invoice related to such
     "dated sale", (2) provided, however, that if the Account relates to the
     sale of "Cabot's Stain", then such Account shall not have been outstanding
     for more than one hundred eighty (180) days from the date of the invoice
     related to such "dated sale", (3) further, provided, that the maximum
     amount of Accounts which shall be considered Eligible Receivables pursuant
     to this Subsection (b) shall not exceed $4,000,000 in the aggregate at any
     time, and of such amount, not more than $1,500,000 in the aggregate of such
     Accounts shall at any time consist of the Accounts referred to in
     Subsection (b)(2) of this definition.


     1.29 "EQUIPMENT" means, in addition to the definition of Equipment
contained in the UCC, Goods of every kind, nature and description and whether
affixed to realty or not, other than Inventory, farm products or consumer goods.

     1.30 "EVENT OF DEFAULT" has the meaning set forth in Article VII of this
Agreement.

     1.31 "GAAP" means generally accepted accounting principles, consistently
applied over the period to which they relate.

     1.32 "GENERAL INTANGIBLES" means each and all of the following:

          (a) all property included within the definition of General Intangibles
     contained in the UCC,

          (b) any personal property, including things in action, payment
     intangibles and software but does not include Accounts, Chattel Paper,
     Commercial Tort Claims, Deposit Accounts, Documents, Goods, Instruments,
     Investment Property, Letter-of-Credit Rights, Letters of Credit, money, and
     oil, gas or other minerals before extraction,

          (c) all rights of BORROWER, including but not limited to all rights to
     property, choses in action and other rights of BORROWER not otherwise
     specifically included elsewhere in this Agreement, further including but
     not limited to all present and future federal and state tax refunds,
     trademarks (including without limitation Five Star Products), trade names
     (including without limitation Five Star Products), service marks,
     copyrights and patents, all rights under license agreements for the use of
     same, warranties, insurance proceeds and condemnation awards; and

          (d) (1) all inventions (whether patentable or unpatentable and whether
     or not reduced to practice), all improvements thereto, and all patents,
     patent applications, and patent disclosures, together with all reissuances,
     continuations, continuations-in-part, revisions, extensions, and
     reexaminations thereof; (2) all trademarks (including, without limitation,
     the trade mark Five Star Products) service marks, trade dress, logos, trade
     names, together with all translations, adaptations, derivations, and
     combinations thereof and including all goodwill associated therewith, and
     all applications, registrations, and renewals in connection therewith; (3)

<PAGE>

     all copyrightable works, all copyrights, and all applications,
     registrations, and renewals in connection therewith; (4) all mask works and
     all applications, registrations, and renewals in connection therewith; (5)
     all trade secrets and confidential business information (including ideas,
     research and development, know-how, formulas, compositions, manufacturing
     and production processes and techniques, technical data, designs, drawings,
     specifications, customer and supplier lists, pricing and cost information
     and business and marketing plans and proposals, secret processes and
     procedures, engineering, production, assembly, design, installation, other
     technical drawings and specifications, working notes and memos, market
     studies, consultants' reports, technical and laboratory data, competitive
     samples, engineering prototypes, and all similar property of any nature,
     tangible or intangible); (6) all computer software (including data and
     related documentation), computer applications software, owned or licensed,
     whether for general business usage (e.g., accounting, word processing,
     graphics, spreadsheet analysis, etc.) or specific, unique-to-the-business
     usage (e.g., order processing, manufacturing, process control, shipping,
     etc.) and computer operating, security or programming software; (7) all
     rights in and to any domain names and url addresses; (8) all other
     proprietary rights; and (9) all copies and tangible embodiments thereof (in
     whatever form or medium);

          (e) all federal, foreign, state, local and other governmental
     consents, licenses, permits, franchises, approvals, notifications, numbers
     and identifiers issued by governmental authorities, grants and other
     authorizations required for the operation of BORROWER's business;

          (f) all unperformed commitments or obligations owing to BORROWER which
     pertain to BORROWER's business;

          (g) all other tangible and intangible assets (including the telephone
     and facsimile numbers used in connection with BORROWER's business, all
     causes of action, rights of action (whether in tort, contract or
     otherwise), contract rights and warranty and product liability claims
     against third parties), unliquidated rights and claims pursuant to
     warranties made by manufacturers, suppliers or vendors, claims for refunds,
     rights of off-set and credits of all kinds, which are used or useful in or
     necessary to the operation of BORROWER's business; and

          (h) all of the goodwill associated with BORROWER's business as a going
     concern.

     1.33 "GOODS" means, in addition to the definition of Goods as contained in
the UCC, all things that are movable when a security interest attaches and
includes all articles of tangible personal property capable of being sold,
supplied, leased or otherwise disposed of, and shall include all of BORROWER's
right, title and interest in and to any Goods or other property underlying or
securing any of the Accounts Receivable.

     1.34  "GUARANTOR"  means  "FIVE STAR  PRODUCTS,  INC."  (formerly  known as
"AMERICAN  DRUG COMPANY,  INC.", a corporation of the State of Delaware with its
principal corporate place of business at 777 Westchester  Avenue,  Fourth Floor,
White Plains, Westchester County, New York 10604.

     1.35 "GUARANTY" is a collective term which means all of the following:

          (a) that certain  unlimited  guaranty (dated even date herewith) given
     by  GUARANTOR  to  LENDER  guaranteeing  payment  and  performance  of  the
     Liabilities; and

          (b)   all   extensions,    modifications,    refinancings,   renewals,
     substitutions, replacements and/or redatings of such certain guaranty.

     1.36  "INSTRUMENT"  means,  in addition to the  definition of instrument as
contained  in the UCC,  a  negotiable  instrument  or a  security,  or any other
writing which  evidences a right to the payment of a monetary  obligation and is

<PAGE>

not  itself a  security  agreement  or lease and is of the type which is, in the
ordinary  course  of  business,  transferred  by  delivery  with  any  necessary
endorsement  or assignment.  The term does not include (i) Investment  Property,
(ii) Letters of Credit,  (iii) writings that evidence a right to payment arising
out of the use of a credit or charge card or information contained on or for use
with the  card.

     1.37 "INVENTORY" means, in addition to the definition of Inventory as
contained in the UCC, Goods (other than farm goods) which are (a) leased by
BORROWER as lessor, or (b) held by BORROWER for sale or lease or to be furnished
under contracts of service, or (c) are furnished by BORROWER under a contract of
service, or (d) consist of raw materials, work in process, finished Goods or
materials used or consumed in a business (including materials and supplies,
incidentals, packaging materials and all other items which contribute to the
finished product or to the promotion or sale thereof) and all Goods returned by
or reclaimed from customers.

     1.38 "LANDLORD'S CONSENTS" is a collective term which means those certain
waivers and consents (including warehouseman consents) pursuant to which the fee
owners of the Collateral Locations (or any other location at which BORROWER's
property is located) allow LENDER to come onto such premises in order to
exercise its rights against BORROWER upon the occurrence of an Event of Default
hereunder.

     1.39 "LENDER'S AFFILIATE" means any entity (including Fleet National Bank
and any successor thereto) which directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common control with,
LENDER, or any entity under the control of FleetBoston Financial Corporation (or
any successor thereto).

     1.40 "LENDING FORMULA" means the lesser of:

          (a)   $25,000,000   LESS  the  "Swap   Reserve"   (i.e.,   the  amount
     approximating  the marked to market exposure from time to time of LENDER or
     LENDER's Affiliate under the Master  Agreement),  such "Swap Reserve" to be
     instituted  only if BORROWER  has elected the  Extended  Maturity  Date and
     BORROWER's  Fixed  Charge  Coverage (as defined in Article V below) is less
     than 1.13 to 1.0 as at any testing date which said Article V fixes for such
     covenant; or

          (b) the total of the loan value of Eligible Receivables PLUS the "loan
     value" of Eligible Inventory.

     1.41 "LETTER-OF-CREDIT RIGHTS" means, in addition to the definition of
Letter of Credit Rights as contained in the UCC, a right to payment and
performance under a Letter of Credit whether or not the beneficiary has demanded
or is at the time entitled to demand payment or performance, excluding, however,
the right of a beneficiary to demand payment or performance under a Letter of
Credit. 1.42 "LIABILITIES" means all of the following:

          (a)  principal  due on the  Revolving  Loan  and  the  Revolving  Note
     (including  all Advances and  re-Advances  under the Revolving Loan and the
     Revolving  Note) to be paid  with  interest  thereon  as  required  by this
     Agreement and the Revolving Note;

          (b) Advances, re-Advances,  borrowings and re-borrowings which are and
     which may be made from time to time to BORROWER under this Agreement not in
     compliance  with the Lending  Formula or the "loan value"  requirements  of
     Article II;

          (c) Advances, re-Advances,  borrowings and re-borrowings which are and
     which may be made from time to time to BORROWER under the ACH Facility;


<PAGE>

          (d) Advances, re-Advances,  borrowings and re-borrowings which are and
     which may be made from time to time to BORROWER  under this  Agreement over
     and above any  monetary  limitation  on the  Revolving  Loan and/or the ACH
     Facility  and/or over and above any other lending  limitation  contained in
     this Agreement, and the interest thereon;

          (e) any and all claims, damages, losses, liabilities, reasonable costs
     or  expenses  whatsoever  which  LENDER  may incur (or which may be claimed
     against  LENDER  by any  person  or entity  whatsoever  including  LENDER's
     affiliate  Fleet  National  Bank) by  reason of or in  connection  with the
     execution and delivery of, or payment or failure to pay under the Revolving
     Loan and/or the ACH Facility and/or this Agreement;

          (f)  all  other  indebtedness,   liabilities  and  obligations  owing,
     arising,  due and payable from  BORROWER to LENDER of every kind or nature,
     whether  absolute or  contingent,  due or to become due,  joint or several,
     liquidated or unliquidated, matured or unmatured, primary or secondary, now
     existing  or  hereafter  incurred,  purchase  money or  nonpurchase  money,
     arising under this Agreement or any of the other Loan Documents, regardless
     of the form or purpose of such  indebtedness,  liabilities or  obligations,
     including, without limitation, any and all interest, commissions,  checking
     account overdrafts, bank overdrafts, and other obligations, liabilities and
     indebtedness  (including  indebtedness owed under any ACH Facility) owed by
     BORROWER to LENDER or any LENDER's  Affiliate  (whether direct or indirect,
     primary,  secondary,  contingent,  joint or several,  and regardless of how
     acquired by LENDER or any such Lender's  Affiliate)  which are due or which
     will arise or become due in the future,  no matter how or when  arising and
     whether  under  any now  existing  or future  agreement  or  instrument  of
     whatever nature (1) between BORROWER and LENDER or (2) between BORROWER and
     any LENDER's Affiliate or (3) otherwise;

          (g) the  performance  and  fulfillment  by  BORROWER of all the terms,
     conditions, promises, covenants and provisions contained in this Agreement,
     or in any now existing  agreement  or future  agreement  or  instrument  of
     whatever nature (1) between BORROWER and LENDER or (2) between BORROWER and
     any LENDER's Affiliate (including without limitation any Master Agreement);

          (h) BORROWER's obligation to indemnify LENDER from and against any and
     all claims,  damages,  losses,  liabilities,  reasonable  costs or expenses
     whatsoever  which LENDER may incur (or which may be claimed  against LENDER
     by any person or entity  whatsoever  including  any LENDER's  Affiliate) by
     reason of or in connection  with  BORROWER's  execution and delivery of the
     Loan Documents, or payment or failure to pay under the Revolving Loan; and

          (i) the  amount due upon any notes or other  obligations  given to, or
     received by, LENDER or any LENDER's Affiliate on account of the obligations
     and   liabilities   described  in  Subsection  (a)  through  and  including
     Subsection (h) above.

     1.43 "LIBOR-RELATED DEFINITIONS": The following terms shall have the
meanings given to them in the Sections referenced below: (a) "LIBOR" shall have
the meaning given that term in Section 2.6(e)(1) below.

          (b) "LIBOR Based Interest Period" shall have the meaning given that
     term in Section 2.6(e)(2) below.

          (c) "LIBOR Based Rate" shall have the meaning given that term in
     Section 2.6(c) below.

          (d) "LIBOR Option" shall have the meaning given that term in Section
     2.6(a)(1)(2) below.

          (e) "LIBOR Reserve Percentage" shall have the meaning given that term
     in Section 2.6(e)(3) below.


<PAGE>

          (f) "London Banking Day" shall have the meaning given that term in
     Section 2.6(e)(4) below.

          (g) "Principal Balance" shall have the meaning given that term in
     Section 2.6(e)(5) below.

          (h) "Roll over Date" shall have the meaning given that term in Section
     2.6(e)(6) below.

     1.44 "LOAN DOCUMENTS" means this Agreement, the Certification as to Liens,
the Certification Responsive to the Loan Agreement, the Certification Responsive
to the Guaranty, the Guaranty, the Revolving Note, the Subordination Agreement,
UCC Financing Statements, and any agreements, documents or instruments now or
hereafter executed by BORROWER and/or GUARANTOR and delivered to LENDER with
respect to the transactions contemplated by this Agreement and all extensions,
modifications or renewals of any or all of the foregoing.

     1.45 "LOAN VALUE" means: (a) As it relates to Eligible Receivables:
Eligible Receivables shall normally have a "loan value" of eighty percent (80%)
of such Eligible Receivables, provided, however, that LENDER in good faith and
in the exercise of its reasonable commercial judgment may on prior notice to
BORROWER fix the aforesaid advance rate at some lesser percentage.

          (b) As it relates to Eligible Inventory: Eligible Inventory shall
     normally have a "loan value" of up to the lesser of $14,300,000 or 55% of
     the value of Eligible Inventory, provided, however, that LENDER in good
     faith and in the exercise of its reasonable commercial judgment may on
     prior notice to BORROWER fix the aforesaid "loan value" at some lesser
     amount or percentage.

     1.46 "LOCKBOX" means the secured deposit box maintained in the name of
BORROWER for the benefit of LENDER at a LENDER's Affiliate (including Fleet
National Bank) and/or at another financial institution approved by LENDER and
into which BORROWER deposits Collateral Proceeds.

     1.47 "MASTER AGREEMENT" shall mean means any ISDA [International Swap
Dealers Association, Inc.] Master Agreement relating to interest rate contracts
and/or determinations hereafter entered into between BORROWER and LENDER's
Affiliate Fleet National Bank or other financial institution (and all
confirmations and schedules relating thereto, including those now or hereafter
relating to the Revolving Loan) and all extensions, modifications, refinancings,
renewals, substitutions, replacements and/or redatings thereof.

     1.48 "MATERIALLY ADVERSE EFFECT" shall mean a materially adverse effect on
the business, condition (financial or otherwise), operations, performance or
properties of BORROWER (and/or its Subsidiaries) taken as a whole or GUARANTOR
(and/or its Subsidiaries) taken as a whole.

     1.49 "MATURITY DATE" shall mean June 30, 2006, provided, however, that
within 30 days from the date hereof, BORROWER may on written notice to LENDER
extend the Maturity Date to June 30, 2008, provided further, however, that any
such election will not be effective unless within 90 days from the date hereof,
BORROWER enters into a Master Agreement with LENDER relating to a forward
starting swap fixing the rate of interest payable on no less than $12,000,000
and not more than $15,000,000 of the principal amount of the Revolving Loan
during the three years commencing within 30 days before or after the second
anniversary of the date hereof, such extended June 30, 2008 Maturity Date being
called the "Extended Maturity Date".

     1.50 "OUTSTANDING" is an adjective which means "unpaid at any one specific
time", and has such meaning regardless whether the applicable underlying
obligations owed under the Revolving Loan and/or any of the other Liabilities
are matured or unmatured, liquidated or unliquidated, direct or indirect,
absolute or contingent, joint or several, accrued or not-yet-accrued and/or due
or not-yet-due.


<PAGE>

     1.51 "PERFORMANCE BENCHMARK #1" means the performance achievements set
forth in Section 5.22 below.

     1.52 "PERFORMANCE BENCHMARK #2" means the performance achievements set
forth in Section 5.22 below.

     1.53 "PERFORMANCE BENCHMARK #3" means the performance achievements set
forth in Section 5.22 below.

     1.54 "PERMITTED LIENS" means, as of any particular time, any of the
following, so long as none of the following (except liens or security interests
held by or in favor of LENDER) constitutes a lien against BORROWER's Accounts or
Inventory: (a) liens at any time granted by BORROWER in favor of LENDER pursuant
hereto;

          (b) liens for taxes, assessments and other governmental charges not
     yet subject to penalties for non-payment or the payment of which is being
     contested in food faith and for which BORROWER has established cash
     reserves in an amount satisfactory to LENDER;

          (c) statutory liens of carriers, mechanics, materialmen, landlords,
     warehouseman and other similar liens imposed by law, which are incurred in
     the ordinary course of business for sums not yet overdue by more than 90
     days or which, if due and payable, are being properly contested and for
     which BORROWER has established cash reserves in an amount satisfactory to
     LENDER;

          (d) liens arising out of non-final judgments or awards against
     BORROWER which are being properly contested and for which BORROWER has
     established cash reserves in an amount satisfactory to LENDER;

          (e) liens resulting from pledges or deposits made by BORROWER in the
     ordinary course of its business in connection with workers' compensation
     laws, unemployment insurance laws, social security laws, or similar
     legislation, or good faith deposits or security deposits in connection with
     bids, tenders, contracts (other than for the payment of borrowed money), or
     leases to which BORROWER is a party, or deposits to secure public or
     statutory obligations of BORROWER or deposits of cash or United States
     Government Bonds to secure surety, appeal, performance or other similar
     bonds to which BORROWER is a party, or deposits as security for contested
     taxes or import duties or for the payment of rent;

          (f) survey exceptions, encumbrances, easements or reservations of, or
     rights of, others for rights of way, highways and railroad crossings,
     sewers, electric lines, telegraph and telephone lines and other similar
     purposes, or zoning or other restrictions as to the use of real properties.

          (g) liens consented to by LENDER in writing.

     1.55 "PRIME BASED RATE" shall have the meaning given that term in Section
2.6(b) below.

     1.56 "PRIME RATE" means the variable rate of interest set from time to time
by Fleet National Bank as its usual, short-term base lending rate to its
commercial borrowers. The Prime Rate is a reference rate and does not
necessarily represent the lowest or best rate being charged to any customer.
From time to time LENDER makes loans to certain customers at rates of interest
below the Prime Rate of Fleet National Bank.

     1.57 "PROCEEDS" means, in addition to the definition of proceeds given in
the UCC, all additions, substitutions, replacements, and increments to the
Collateral, including cash and non-cash proceeds of all of the Collateral in
whatever form, including negotiable instruments and other instruments for the
payment of money, Chattel Paper, security agreements or other documents,
insurance or condemnation awards and any Collateral purchased with Proceeds.


<PAGE>

     1.58 "REGULATORY CHANGE" means as to LENDER, any change after the date of
this Agreement in United States federal, or state, or foreign, laws or
regulations (including Regulation D and the laws or regulations that designate
any assessment rate relating to certificates of deposit or otherwise (including
the "Assessment Rate" if applicable to any Advance) or the adoption or making
after such date of any interpretations, directives or requests applying to a
class of banks, including LENDER, of or under any United States federal, or
state, or foreign laws or regulations (whether or not having the force of law)
by any court or governmental or monetary authority charged with the
interpretation or administration thereof.

     1.59 "RECONCILIATION CERTIFICATE" means that certain certification in the
form attached hereto as Exhibit D for certifications which are required to be
submitted no less frequently than monthly (unless otherwise specified herein),
setting forth, among other things, information relating to adjustments in
amounts and/or values of the Collateral.

     1.60 "REVISED ARTICLE 9" means Article 9 of the Uniform Commercial Code in
the form adopted by the State of New Jersey in 2001.

     1.61 "REVOLVING LOAN" has the meaning set forth in Section 2.1 of this
Agreement.

     1.62 "REVOLVING NOTE" means the master promissory note executed by BORROWER
on the date hereof in favor of LENDER so as to evidence the indebtedness of
BORROWER to LENDER with respect to any and all Advances made by LENDER under the
Revolving Loan and all extensions, modifications or renewals of such note.

     1.63 "SELLER" means JL DISTRIBUTORS, INC. (formerly known as FIVE STAR
GROUP, INC.), a Delaware corporation whose name is to be changed to and whose
principal corporate place of business at 9 West 57th Street, Suite 4170, New
York (New York County), New York 10019.

     1.64 "SUBORDINATION AGREEMENT" is a collective term which means the
agreement pursuant to which SELLER subordinates its right to repayment of
certain indebtedness owed to it by BORROWER to LENDER's right to repayment of
the Liabilities.

     1.65 "SUBORDINATED SELLER NOTE" means that certain $4,500,000 (face amount)
note dated August 2, 2002, a copy of which is attached hereto as Exhibit A to
the Subordination Agreement, relating to BORROWER's remaining payment
obligations under the Asset Purchase Agreement.

     1.66 "SUBSIDIARY" means any corporation or other entity more than a
majority (by number of votes) of the voting interest therein is at the time
owned or controlled by BORROWER or a Subsidiary of BORROWER.

     1.67 "SUPPORTING OBLIGATIONS" means, in addition to the definition of
Supporting Obligations as contained in the UCC, a Letter-of-Credit Right or
secondary obligation that supports the payment or performance of an Account,
Chattel Paper, Document, General Intangible, Instrument or Investment Property.

     1.68 "UCC" shall mean the Uniform Commercial Code, as now in effect and as
from time to time hereafter in effect in the State of New Jersey.

     1.69 UCC DEFINITIONS. All terms defined in Articles 1 or 9 of the UCC shall
have the meanings given therein unless otherwise defined herein.

                                 ARTICLE II

     2.1 ESTABLISHMENT OF THE REVOLVING LOAN.

     (a) Upon  BORROWER's  request,  made to LENDER  pursuant  to Section  2.12,
LENDER  hereby  agrees,  from  time to time but  subject  to the  terms  and the

<PAGE>

conditions of this Agreement, to make Advances and re-Advances to BORROWER under
a revolving loan facility,  to be disbursed by LENDER in the manner specified in
Section 2.3. (b) Such Advances and re-Advances  constitute the "Revolving  Loan"
described throughout this Agreement.

     2.2 MAXIMUM PERMITTED REVOLVING LOAN BORROWINGS.

     (a) The maximum which may be  Outstanding  under the Revolving  Loan at any
one time cannot exceed the Lending Formula.

     (b) The "loan value" of Eligible Inventory and Eligible Receivables will be
determined by LENDER using the information supplied by BORROWER to LENDER in the
Borrowing Base  Certificate,  together with any other information which BORROWER
is required to give LENDER pursuant to Section 5.6 below.

     2.3 DISBURSEMENT OF REVOLVING LOAN ADVANCES.

     BORROWER shall give LENDER notice of each  borrowing  hereunder as provided
in Section 2.12 hereof.  LENDER, upon its receipt thereof but only to the extent
BORROWER is allowed to borrow hereunder,  shall disburse such sum to BORROWER by
crediting BORROWER's demand deposit operating account at Fleet National Bank (or
other  financial  institution  acceptable  to LENDER)  and  charging  BORROWER's
Revolving  Loan account on LENDER's  books.  Advances can be made,  however,  by
means other than as aforesaid.

     2.4 RIGHT TO RECEIVE REVOLVING LOAN ADVANCES.

(a) So long as the Advances Outstanding under the Revolving Loan do
not exceed the Lending Formula and so long as BORROWER is otherwise in
compliance with the terms and conditions of this Agreement, (1) BORROWER may
borrow, re-pay and re-borrow Advances under the Revolving Loan at any time
during the period from the date hereof up to the day before the Maturity Date
and (2) repayment by BORROWER of Advances Outstanding under the Revolving Loan
shall not affect the ability of BORROWER to borrow and re-borrow under this
Agreement.

(b) To the extent that by operation of any circumstance which causes
the amount of all Advances Outstanding under the Revolving Loan to violate the
Lending Formula, LENDER may in its discretion make no other Advances hereunder
until such Outstanding Advances are in compliance with the Lending Formula.
Nothing in the foregoing shall limit LENDER's right to declare an Event of
Default because of such non-compliance.

     (c) In  addition  and  notwithstanding  anything in this  Agreement  to the
contrary,  the  obligation  of  LENDER to  continue  making  advances  under the
Revolving  Loan shall  terminate upon the expiration of this Agreement and shall
be suspended  upon written  notice  (except in the case of the  occurrence of an
Event of Default  described  in Section  7.6,  Section 7.7 and Section 7.8 as to
which no notice shall be required) from LENDER to BORROWER of the occurrence and
during the continuance of any of the following events:

     (1) an Event of Default hereunder; or

     (2) an event which, except for the passage of time or the giving of notice,
would be such an Event of Default.

     2.5 REPAYMENT OF REVOLVING LOAN ADVANCES.

     (a) Subject to the other  provisions of this Section and this Agreement and
so long as (1) the Advances  Outstanding  under the Revolving Loan do not exceed
the Lending Formula,  (2) BORROWER is otherwise in compliance with the terms and
conditions  of this  Agreement,  any and all Advances  shall be repayable on the

<PAGE>

Maturity  Date  unless the term of this  Agreement  or LENDER's  Revolving  Loan
relationship  with BORROWER is sooner  accelerated  or terminated or modified as
provided  herein.  On the  Maturity  Date,  all Advances  Outstanding  under the
Revolving Loan, plus accrued interest and other amounts Outstanding  thereunder,
shall be due and owing,  unless  sooner due or payable as provided  herein.

     (b) Notwithstanding the foregoing provisions of subsection (a) above, prior
to the Maturity Date the principal  owing on the Revolving  Loan shall be repaid
on a continuing and continual  basis as follows:

     (1) (A) BORROWER  agrees to and shall  establish  and  maintain,  or permit
LENDER to establish  and maintain as  determined  from time to time by LENDER in
its  discretion,  one or more Lockboxes  and/or Blocked  Accounts.

     (B)  BORROWER  agrees as  follows:

     (i) Each Lockbox is one of the Deposit Accounts described in Article III of
this Agreement.

     (ii) Each Blocked  Account is an account  owned by LENDER and holding funds
of LENDER and not funds of BORROWER and against  which  BORROWER has rights only
to the extent that funds in any such account exceeds the Liabilities  after this
Agreement has been terminated and such Liabilities have been paid in full.

     (iii) Each  Blocked  Account is one of the Deposit  Accounts  described  in
Article III of this Agreement.

     (2) BORROWER agrees to and shall forthwith deposit all Collateral  Proceeds
into a Blocked  Account.

     (3) BORROWER agrees to and shall direct its Account Debtors and other third
parties to remit all Collateral  Proceeds  directly to one or more Lockboxes (if
required by LENDER or elected by BORROWER),  Blocked  Accounts and/or such other
place  designated  by LENDER.  As it relates to each  Lockbox,  BORROWER  hereby
authorizes  LENDER to,  transfer  or cause the  transfer of (on a daily basis or
other  frequency  determined  by LENDER)  all amounts  from each  aforementioned
Lockbox into one or more of the aforementioned Blocked Accounts.

     (4)  BORROWER  agrees to and shall  forthwith  transfer,  assign,  endorse,
deliver  and turn over to LENDER  for  LENDER's  deposit  into any such  Blocked
Account  and/or such other place  designated by LENDER all  Collateral  Proceeds
which,  despite BORROWER's  aforementioned  direction to its Account Debtors and
other third parties, are received by BORROWER.

     (5) BORROWER shall in no case commingle any of the Collateral Proceeds with
any other  property of BORROWER  or any other  person or entity,  but shall keep
such  Collateral  Proceeds  segregated,  held in trust for  LENDER  as  LENDER's
exclusive property and immediately  transfer,  assign,  endorse,  deliver and/or
turn such  Collateral  Proceeds  over to LENDER in the  identical  form received
(excluding endorsements necessary for collection for the benefit of LENDER) to a
Lockbox (if required by LENDER or elected by BORROWER),  Blocked  Account and/or
such other place designated by LENDER.

     (6)  BORROWER  hereby  authorizes  LENDER to effect  the  repayment  of the
Advances  Outstanding on the Revolving Loan, the payment of interest thereon and
the other  Liabilities on a continuing and continual  basis,  either daily or on
another  frequency  determined by LENDER,  by LENDER's  transfer,  withdrawal or
"sweep" of all funds on deposit in such  Blocked  Accounts.  Funds  deposited by
BORROWER in a Blocked  Account prior to 2 p.m. on any Business Day will normally
be  transferred,  withdrawn  or "swept" by LENDER on the  immediately  following
Business Day and funds  deposited by BORROWER in a Blocked Account at or after 2

<PAGE>

p.m. on any Business Day will normally be  transferred,  withdrawn or "swept" by
LENDER on the second Business Day following said deposit.  LENDER will apply the
funds so  transferred,  withdrawn  or  "swept"  by  LENDER to the  repayment  of
Advances  Outstanding on the Revolving  Loan on the  applicable  Business Day on
which LENDER's aforesaid transfer, withdrawal or "sweep" occurs.

     (7) If notwithstanding  the application of funds in the Blocked Accounts as
set forth  above,  BORROWER  at any time is not in  compliance  with the Lending
Formula,  BORROWER must,  immediately  upon the earlier of BORROWER's  knowledge
that  non-compliance  exists or notice from LENDER to do so, bring the Revolving
Loan into  compliance with the Lending Formula and BORROWER will be able to draw
under the  Revolving  Loan only to the extent that such  borrowings  would be in
compliance  with the Lending  Formula.  In the event that  BORROWER  fails to so
bring balances  Outstanding  under the Revolving Loan into  compliance  with the
Lending Formula,  such failure shall be an Event of Default hereunder and LENDER
shall have all rights which arise therefrom.

     (8) BORROWER recognizes that the amounts evidenced by checks, notes, drafts
or any other  items of  payment  relating  to and/or  constituting  proceeds  of
Collateral (other than payment via wire transfer or electronic depository check)
may not be  collectible  by LENDER on the date  received.  In  consideration  of
LENDER's  agreement to  conditionally  afford BORROWER credit as of the Business
Day on which LENDER  receives those items of payment,  BORROWER  agrees that, in
computing  interest and the charges imposed under this  Agreement,  all items of
payment  received by LENDER shall be deemed  applied by LENDER on account of the
Liabilities (subject to final payment of such items) two Business Days after the
applicable  Business Day on which LENDER transfers,  withdraws or "sweeps" funds
from the corresponding Blocked Account. LENDER is not, however, required to give
BORROWER credit for the amount of any item of payment which is unsatisfactory to
LENDER  and LENDER  may  charge  BORROWER  for the amount of any item of payment
which is returned unpaid to LENDER.

     (c)  Nothing in this  Section 2.5 is intended to limit the rights of LENDER
under Section 2.4(c).

     (d) Unless  BORROWER is otherwise given notice by LENDER in accordance with
this  Agreement,  all  payments  shall  be  made  at the  location  that  LENDER
designates  by  written  notice  to  BORROWER  given  in  accordance  with  this
Agreement.

     2.6 PAYMENT OF REVOLVING LOAN INTEREST.

     (a) (1)  BORROWER  shall pay to LENDER  per annum  interest  on the  unpaid
principal  amount of each Advance made by such LENDER for the period  commencing
on the date of such  Advance  until  such  Advance  shall  be paid in full.

         (2) Subject to the other provisions of this Section 2.6,  interest
shall be charged on the Advances  Outstanding under the Revolving Loan at (A) a
per annum rate  (the  "Prime  Based  Rate"  as more  fully  defined  below)
based  on the fluctuating  Prime Rate or (B) at BORROWER's  option (the "LIBOR
Option") to be exercised  in the manner set forth  below,  a per annum rate (the
"LIBOR  Based Rate" as more fully  defined  below)  based on LIBOR (as defined
below).  In no event,  however,  shall  interest  ever be  calculated at a rate
higher than the maximum  rate  allowed by law.

     (b) (1) The Prime Based Rate (the "Prime Based Rate") shall equal the Prime
Rate,  floating,  plus  one-half  of  one  percent,   provided,   however,  that
notwithstanding the foregoing, the following shall apply:


<PAGE>

            (A) if BORROWER complies with and maintains Performance Benchmark #1
            and so long as no Event of Default has occurred, then effective upon
            LENDER's   determination   that   BORROWER  has  so  complied   with
            Performance   Benchmark   #1  but  only  during  the  term  of  such
            compliance,  the Prime  Based  Rate  shall  equal  the  Prime  Rate,
            floating, plus four-tenths of one percent,


            (B) if BORROWER complies with and maintains Performance Benchmark #2
            and so long as no Event of Default has occurred, then effective upon
            LENDER's   determination   that   BORROWER  has  so  complied   with
            Performance   Benchmark   #2  but  only  during  the  term  of  such
            compliance,  the Prime  Based  Rate  shall  equal  the  Prime  Rate,
            floating, plus one-quarter of one percent;

            (C) if BORROWER complies with and maintains Performance Benchmark #3
            and so long as no Event of Default has occurred, then effective upon
            LENDER's   determination   that   BORROWER  has  so  complied   with
            Performance   Benchmark   #3  but  only  during  the  term  of  such
            compliance,  the Prime  Based  Rate  shall  equal  the  Prime  Rate,
            floating;

            (D) in all events on and after the occurrence and  continuance of an
            Event  of  Default,  per  annum  interest  shall be  charged  on the
            Advances Outstanding under the Revolving Loan at the Default Rate.

     (2) If the interest rate is  determined at a Prime Based Rate,  then in the
event there  should be a change in the Prime  Rate,  the rate of interest on the
Revolving Loan shall be changed  effective as of the effective date of each such
change in the Prime Rate,  as  established  by LENDER,  without  prior notice to
BORROWER. Any change in the Prime Rate shall not affect or alter any other terms
or  conditions  of this  Agreement.  LENDER will use its best efforts to provide
BORROWER  with  notice of the amount of the Prime Rate or the  interest  rate or
rates being  charged to BORROWER as part of the periodic  statements  of account
which LENDER provides to BORROWER hereunder but LENDER's failure to provide such
notice  shall not  result in any  liability  to LENDER or affect  the  rights or
remedies of LENDER hereunder or the obligations of BORROWER  hereunder.

     (c) The LIBOR Based Rate (the "LIBOR Based Rate") shall be a rate per annum
equal to 225 basis points in excess of LIBOR (as defined  below) with respect to
the applicable  LIBOR Based Interest  Period (as also defined  below),  it being
understood that each determination of a LIBOR Based Rate shall be made by LENDER
in its sole and absolute  discretion  and shall be  conclusive  and binding upon
BORROWER,  absent manifest error.  Notwithstanding the foregoing,  the following
shall apply:

              (1) if BORROWER complies with and maintains  Performance Benchmark
              #1 and so long as no Event of Default has occurred, then effective
              upon  LENDER's  determination  that  BORROWER has so complied with
              Performance  Benchmark  #1  but  only  during  the  term  of  such
              compliance,  the LIBOR  Based Rate shall be a rate per annum equal
              to 220 basis  points in excess of LIBOR (as  defined  below)  with
              respect to the  applicable  LIBOR Based  Interest  Period (as also
              defined below); and

              (2) if BORROWER complies with and maintains  Performance Benchmark
              #2 and so long as no Event of Default has occurred, then effective
              upon  LENDER's  determination  that  BORROWER has so complied with
              Performance  Benchmark  #2  but  only  during  the  term  of  such
              compliance,  the LIBOR  Based Rate shall be a rate per annum equal
              to 210 basis  points in excess of LIBOR (as  defined  below)  with
              respect to the  applicable  LIBOR Based  Interest  Period (as also
              defined below); and


<PAGE>

              (3) if BORROWER complies with and maintains  Performance Benchmark
              #3 and so long as no Event of Default has occurred, then effective
              upon  LENDER's  determination  that  BORROWER has so complied with
              Performance  Benchmark  #3  but  only  during  the  term  of  such
              compliance,  the LIBOR  Based Rate shall be a rate per annum equal
              to 200 basis  points in excess of LIBOR (as  defined  below)  with
              respect to the  applicable  LIBOR Based  Interest  Period (as also
              defined below); and

              (4) in all events on and after the occurrence  and  continuance of
              an Event of Default,  per annum  interest  shall be charged on the
              Advances Outstanding under the Revolving Loan at the Default Rate.

     (d) (1) The  determination  whether  BORROWER  has  met and  complied  with
Performance  Benchmark #1 and/or  Performance  Benchmark  #2 and/or  Performance
Benchmark #3 for purposes of obtaining  the interest rate  reduction  allowed by
this  Section  will be made  quarterly  (on a rolling  four-quarter  basis)  and
determined by reference to the annual and quarterly-to-date financial statements
which  BORROWER is required to submit under this Agreement and by using GAAP and
will be made by LENDER  within 30 Business  Days after  LENDER's  receipt of all
necessary  financial  statements  and other  information  from  BORROWER and, if
BORROWER  meets and complies with  Performance  Benchmark #1 and/or  Performance
Benchmark #2 and/or  Performance  Benchmark #3, will be effective  commencing at
the end of such 30 Business  Days' review  period  unless  BORROWER is otherwise
notified by LENDER in writing.

     (2)  The   determination   whether  BORROWER  remains  in  compliance  with
Performance  Benchmark #1 and/or  Performance  Benchmark  #2 and/or  Performance
Benchmark #3 for purposes of continuing the interest rate  reduction  allowed by
this Section will also be made quarterly (on a rolling  four-quarter  basis) and
determined by reference to the annual and quarterly-to-date financial statements
which  BORROWER is required to submit under this Agreement and by using GAAP and
will be made by LENDER  within 30 Business  Days after  LENDER's  receipt of all
necessary  financial  statements and other information from BORROWER,  provided,
however,  that nothing in the foregoing shall prevent LENDER from  discontinuing
such  interest  rate  reduction  prior  to  LENDER's   receipt  of  any  of  the
aforementioned  financial  statements of BORROWER or prior to the end of such 30
Business Days' review period in the event LENDER  obtains actual  knowledge that
BORROWER is not in compliance with Performance  Benchmark #1 and/or  Performance
Benchmark #2 and/or Performance  Benchmark #3 and nothing in the foregoing shall
prohibit  LENDER from  discontinuing  such  interest  rate  reduction  after the
expiration of any 30 Business Day period  referenced  above.

     (e)  For  purposes  of the  determination  of any  LIBOR  Based  Rate,  the
following terms shall have the following meanings:

              (1) (A) "LIBOR"  means,  as applicable to any LIBOR Based Interest
              Period,  the rate per annum (rounded upward, if necessary,  to the
              nearest  1/32 of one  percent) as  determined  on the basis of the
              offered rates for deposits in U.S.  dollars,  for a period of time
              comparable  to such LIBOR Based  Interest  Period which appears on
              the  Telerate  page 3750 as of 11:00 a.m.  London  time on the day
              that is two London  Banking Days  preceding  the first day of such
              LIBOR  Based  Interest  period;  provided,  however,  if the  rate
              described  above  does not  appear on the  Telerate  System on any
              applicable  interest  determination  date, then LIBOR shall be the
              rate  (rounded  upwards as  described  above,  if  necessary)  for
              deposits  in  dollars  for a  period  substantially  equal  to the
              interest  period on the Reuters Page "LIBO" (or such other page as
              may  replace  the LIBO Page on that  service  for the  purpose  of
              displaying such rates), as of 11:00 a.m. (London Time), on the day
              that is two London  Banking  Days prior to the  beginning  of such
              interest period.


<PAGE>

              (B) If both the Telerate and Reuters system are unavailable,  then
              the rate for that  date  will be  determined  on the  basis of the
              offered  rates for  deposits in U.S.  dollars for a period of time
              comparable to such LIBOR Based  Interest  Period which are offered
              by  four   major   banks  in  the  London   interbank   market  at
              approximately  11:00  a.m.  London  time,  on the day  that is two
              London  Banking Days  preceding  the first day of such LIBOR Based
              Interest Period as selected by LENDER. The principal London office
              of each of the  four  major  London  banks  will be  requested  to
              provide a quotation of its U.S. dollar deposit offered rate. If at
              least two such  quotations  are  provided,  the rate for that date
              will be the arithmetic mean of the  quotations.  If fewer than two
              quotations are provided as requested,  the rate for that date will
              be  determined  on the basis of the rates quoted for loans in U.S.
              dollars to leading  European banks for a period of time comparable
              to such LIBOR Based Interest  Period offered by major banks in New
              York City at  approximately  11:00 a.m. New York City time, on the
              day that is two London  Banking  Days  preceding  the first day of
              such LIBOR  Based  Interest  Period.  In the event that  LENDER is
              unable to obtain any such quotation as provided  above, it will be
              deemed that LIBOR pursuant to a LIBOR Based Interest Period cannot
              be determined.

              (C) In the  event  that the  Board  of  Governors  of the  Federal
              Reserve  System  shall  impose  a LIBOR  Reserve  Percentage  with
              respect to LIBOR  deposits  of LENDER  then for any period  during
              which such LIBOR Reserve  Percentage  shall apply,  LIBOR shall be
              equal to the amount determined above divided by an amount equal to
              1 minus the LIBOR Reserve Percentage.

          (2) "LIBOR Based Interest Period" shall mean the period  commencing on
          the date so specified in  BORROWER's  notice to LENDER of any election
          to exercise the LIBOR Option and ending on the date  specified in such
          notice,  which  ending date (A) shall be either 1 month,  2 months,  3
          months or 6 months after the  commencement of the LIBOR Based Interest
          Period,  and (B) shall in no event extend beyond the Maturity Date. No
          LIBOR Based  Interest  Period  shall  commence  other than on a London
          Banking  Day. If any LIBOR Based  Interest  Period  shall end on a day
          which is not a London  Banking Day, such LIBOR Based  Interest  Period
          shall  be  extended  to  the  next  succeeding   London  Banking  Day.
          Notwithstanding  the  foregoing,   if  BORROWER  properly  elects  the
          Extended  Maturity  Date,  for the principal  portion of the Revolving
          Loan subject to the Master  Agreement each LIBOR Based Interest Period
          must be 1 month.

          (3)  "LIBOR  Reserve  Percentage"  means  for any day that  percentage
          (expressed as a decimal) which is in effect on such day, as prescribed
          by the  Board of  Governors  of the  Federal  Reserve  System  (or any
          successor)  for  determining  the maximum  reserve  requirement  for a
          member  bank of the  Federal  Reserve  System  in New York  City  with
          deposits  exceeding  one  billion  dollars in respect of  Eurocurrency
          liabilities  (as defined in  Regulation D of the Board of Governors of
          the Federal  Reserve  System) (or in respect of any other  category of
          liabilities which includes deposits by reference to which the interest
          rate on loans  covered  by a LIBOR  Based  Rate is  determined  or any
          category of extensions of credit or other assets which  includes loans
          by a non-United  States office of LENDER to United States  residents).
          The LIBOR Based Rate shall be adjusted  automatically on and as of the
          effective date of any change in the LIBOR Reserve Percentage.

          (4)  "London  Banking  Day" shall mean a day which is not a  Saturday,
          Sunday or day on which banks in London are  required or  permitted  to
          close.


<PAGE>

          (5) "Principal Balance" means, at any time, the portion or portions of
          the Advances Outstanding under the Revolving Loan as to which BORROWER
          has  elected  to have  interest  determined  or to be  determined,  as
          applicable, at a LIBOR Based Rate and includes all amounts that are to
          be borrowed at a LIBOR Based Rate,  whether or not  BORROWER  actually
          borrows such amounts.

          (6) "Roll Over Date" shall mean the day immediately following the last
          day of a LIBOR Based Interest Period.

     (f) If BORROWER  wishes to exercise the LIBOR Option,  BORROWER  shall give
LENDER  notice in writing or by telex or by facsimile  (receipt of which must be
confirmed  electronically  or  telephonically)  of any  election to exercise the
LIBOR  Option at least two London  Banking Days prior to the  commencement  of a
LIBOR Based  Interest  Period,  which  notice  shall  specify (1) the  Principal
Balance  with  respect to which  BORROWER  is making such  election,  and (2) in
conformity with the definition of "LIBOR Based Interest Period" set forth above,
the date upon which such LIBOR Based Interest  Period is to commence and (3) its
duration.  LENDER  shall,  as soon as  practical  prior to or on the date of the
commencement of the LIBOR Based Interest Period, determine and quote to BORROWER
a LIBOR  Based Rate with  respect to the  Principal  Balance  specified  in such
notice,  and notify  BORROWER of the date and time by which BORROWER must accept
the quoted LIBOR Based Rate. If BORROWER rejects the quoted LIBOR Based Rate, or
if BORROWER does not inform  LENDER of its  acceptance of the quoted LIBOR Based
Rate by the date and time  specified by LENDER,  time being of the essence,  the
Prime Based Rate shall apply,  or continue to apply to the  specified  Principal
Balance.  If BORROWER  accepts the quoted  LIBOR Based Rate by the date and time
specified  by LENDER,  the quoted  LIBOR Based Rate shall be  applicable  to the
Principal  Balance during the LIBOR Based Interest Period  specified by BORROWER
in such  notice.  A quoted  LIBOR Based Rate may be accepted by BORROWER  either
orally  or  in  writing,  provided  that  any  such  oral  acceptance  shall  be
immediately  confirmed  by  BORROWER  in  writing  or by telex  or by  facsimile
(receipt  of which must be  confirmed  electronically  or  telephonically).  The
interest  rate  applicable  to the  Principal  Balance,  with  respect  to which
BORROWER  has  accepted a quoted  LIBOR Based Rate,  shall revert from the LIBOR
Based Rate  applicable  thereto to the Prime Based Rate as of the Roll Over Date
applicable  thereto.  LENDER  shall  be under no duty or  obligation  to  notify
BORROWER that the interest rate on the Principal Balance is about to revert from
a LIBOR  Based Rate to the Prime Based  Rate.

     (g) The LIBOR  Option may only be  exercised  by BORROWER if the portion of
the Revolving Loan to be affected by the LIBOR Option would bear interest at the
Prime  Based Rate on the date of  commencement  of the  applicable  LIBOR  Based
Interest Period,  but for the exercise by BORROWER of the LIBOR Option, and only
if the following conditions are met:

              (1) No Event of Default has occurred and is continuing.

              (2) The LIBOR  Based  Interest  Period  must  commence on a London
              Banking Day.

              (3) The LIBOR Based Interest Period shall extend either 1 month, 2
              months,  3 months or 6 months after the  commencement of the LIBOR
              Based Interest Period.  Notwithstanding the foregoing, if BORROWER
              properly  elects the Extended  Maturity  Date,  for the  principal
              portion of the  Revolving  Loan  subject to the Master  Agreement,
              each LIBOR Based Interest Period must be 1 month.

              (4) The  LIBOR  Based  Interest  Period  shall in no event  extend
              beyond the termination  date or any extended  termination  date of
              the Revolving Loan.


<PAGE>

              (5) If any LIBOR Based Interest Period shall end on a day which is
              not a London Banking Day, such LIBOR Based  Interest  Period shall
              be extended to the next succeeding London Banking Day.

              (6) The LIBOR Option must be exercised for a minimum of $1,000,000
              and integral multiples of $100,000 thereafter. Notwithstanding the
              foregoing, if BORROWER properly elects the Extended Maturity Date,
              for the  principal  portion of the  Revolving  Loan subject to the
              Master  Agreement,  the LIBOR  Option  will be deemed to have been
              exercised for the amount of the forward starting swap.

              (7) No more than  $15,000,000  of the total  Advances  Outstanding
              under the  Revolving  Loan may be the  subject of  interest  being
              determined  at a LIBOR  Based Rate or LIBOR Based Rates at any one
              time.  Notwithstanding the foregoing,  if BORROWER properly elects
              the  Extended  Maturity  Date,  for the  principal  portion of the
              Revolving Loan subject to the Master  Agreement,  the LIBOR Option
              will be  deemed  to have  been  exercised  for the  amount  of the
              forward  starting  swap  and  BORROWER  will  remain  entitled  to
              exercise  the LIBOR  Option from time to time with  respect to the
              difference  between  $15,000,000 and the principal  portion of the
              Revolving Loan subject to the Master Agreement.

              (8) The  exercise of the LIBOR Option will not result in more than
              3 separate LIBOR subcontracts in the collective aggregate being in
              existence   between   BORROWER   and   LENDER  at  any  one  time.
              Notwithstanding  the foregoing,  if BORROWER  properly  elects the
              Extended  Maturity Date,  there may only be 2 additional  separate
              LIBOR subcontract at any one time.

     (h) In the  event,  and on each  occasion,  that on or before the date upon
which a LIBOR Based  Interest  Period is to  commence,  LENDER shall have in its
sole discretion  exercised in good faith using  reasonable  commercial  judgment
made a determination  (which  determination shall be conclusive and binding upon
BORROWER) that a LIBOR Based Rate cannot be determined or that the current LIBOR
Based Rate will not  adequately  and fairly reflect the cost to LENDER of making
or maintaining any Principal  Balance of any such LIBOR Based Loan, LENDER shall
so notify BORROWER and the Principal  Balance with respect to which BORROWER has
exercised the LIBOR Option,  shall, as applicable,  bear interest or continue to
bear  interest  at the Prime Based Rate.

     (i) In all events, interest shall be payable monthly on an accrued basis on
the last day of each and every  calendar  month and shall be  calculated  on the
basis of a year consisting of 360 days and paid for actual days elapsed.

     (j) (1) On and after the  occurrence  of an Event of Default  hereunder  or
after the Maturity Date, all Outstanding Advances shall, unless otherwise agreed
by LENDER, bear interest at the Default Rate.

          (2) In addition,  interest on the Revolving Loan will be calculated at
the Default  Rate prior to the  declaration  of an Event of Default in the event
BORROWER  does not supply or cause to be  delivered  to LENDER  any  information
required  by this  Agreement  or any of the Loan  Documents  by the  dates  such
information is due (including any grace period allowed by this Agreement).

          (3) It is nonetheless  understood that LENDER's  acceptance of payment
at the Default Rate does not otherwise  prevent LENDER from otherwise  declaring
an Event of Default as a result of BORROWER's  failure to perform or observe any
of the foregoing.


<PAGE>

     (k) All agreements between BORROWER and LENDER are hereby expressly limited
so that in no contingency or event whatsoever, whether by reason of acceleration
of maturity of the indebtedness evidenced hereby or otherwise,  shall the amount
paid or  agreed  to be  paid to  LENDER  for the use or the  forbearance  of the
indebtedness  evidenced hereby exceed the maximum  permissible  under applicable
law. As used herein,  the term  "applicable law" shall mean the law in effect as
of the date hereof provided, however, that in the event there is a change in the
law which results in a higher permissible rate of interest, then this Agreement
shall be governed by such new law as of its effective  date. In this regard,  it
is  expressly  agreed  that it is the  intent  of  BORROWER  and  LENDER  in the
execution,  delivery  and  acceptance  of this  Agreement  to contract in strict
compliance with the laws of the State of New Jersey from time to time in effect.
If, under or from any  circumstances  whatsoever,  fulfillment  of any provision
hereof  or of any of the  Loan  Documents  at the  time of  performance  of such
provision  shall be due, shall involve  transcending  the limit of such validity
prescribed  by  applicable  law,  then  the  obligation  to be  fulfilled  shall
automatically  be reduced to the limits of such  validity,  and if under or from
circumstances  whatsoever LENDER should ever receive as interest an amount which
would  exceed the highest  lawful  rate,  such amount  which would be  excessive
interest  shall be applied to the reduction of the principal  balance  evidenced
hereby and not to the payment of interest.  This  provision  shall control every
other provision of all agreements  between  BORROWER and LENDER.

     2.7 PAYMENT OF LATE CHARGES.  Any payment of interest received more than 10
days after the payment's  due date, if accepted by LENDER,  will be subject to a
late charge of 5% of the total interest installment. Nothing in the foregoing is
intended to mean that LENDER will  accept any payment  after the  payment's  due
date (after any applicable "grace" period). Nothing in the foregoing is intended
to mean that  LENDER's  acceptance  of any  payment  more than 10 days after the
payment's due date,  other than  acceptance  of payment of all sums  outstanding
under the Revolving Loan, is a cure of any default.

     2.8 AUTHORIZATION TO CHARGE ACCOUNTS.  BORROWER hereby authorizes LENDER to
charge and effect  payment as of each due date of all interest and other amounts
(including  principal)  due  under  the  Revolving  Loan and this  Agreement  by
increasing the principal balance of the Revolving Loan as though an Advance were
taken by  BORROWER  against  the  Revolving  Loan in the  amount of any  payment
effected by LENDER. The foregoing is defined as the "Authorization to Charge".

     2.9 TERMINATION BY BORROWER OR LENDER AND PREMIUMS DUE ON PREPAYMENT.

     (a) Generally. The Revolving Loan relationship shall continue in full force
and  effect  until the  Maturity  Date  (unless  the term of this  Agreement  or
LENDER's  Revolving  Loan  relationship  with BORROWER is sooner  accelerated or
terminated or modified as provided herein).

     (b)  Termination by LENDER.  LENDER may terminate this Agreement on written
notice to  BORROWER  on or after the  occurrence  of an Event of  Default  or as
otherwise allowed by this Agreement.

     (c) Termination by BORROWER.  BORROWER may, at its option and upon at least
thirty  (30) days prior  written  notice to LENDER,  terminate  this  Agreement;
provided,  however,  no such  termination  shall be effective until BORROWER has
paid all of the  Liabilities  in  immediately  available  funds.  Any  notice of
termination  given by BORROWER  shall be  irrevocable  unless  LENDER  otherwise
agrees in writing,  and LENDER shall have no  obligation to make any Advances or
other financial  accommodations  on or after the termination date stated in such
notice.  BORROWER may elect to terminate this Agreement in its entirety only. In
the event that  interest on any portion or  portions  of the  Revolving  Loan is
being  determined at a LIBOR Based Rate, such portion or portions may be prepaid
at any time but such prepayment must be made for the entirety of the portion for
which  LENDER has entered  into  contracts  relating to LIBOR  pricing.  Partial
prepayments of any such portion or portions are not allowed. In the event of any
such prepayment, the provisions of Section 2.10 shall apply.


<PAGE>

     (d)  Termination  Charges.  At the effective  date of  termination  of this
Agreement for any reason (and whether by LENDER or by BORROWER),  BORROWER shall
pay to LENDER (in addition to the then outstanding  principal,  accrued interest
and other charges  owing under the terms of this  Agreement and any of the other
Loan  Documents and in addition to any amounts  payable under Section 2.10) as a
premium or liquidated  damages for the loss of the bargain and not as a penalty,
the following, as applicable:

          (1) When Extended Maturity Date Is Not Applicable:


              (A) If BORROWER has not selected  the Extended  Maturity  Date and
              termination occurs during the period commencing on the date hereof
              and ending on the third  anniversary of the date hereof,  BORROWER
              shall pay a prepayment  premium equal to $250,000 (i.e., 1% of the
              face amount of the Revolving Loan).

          (2) When Extended Maturity Date Is Applicable:

              (A) If  BORROWER  has  selected  the  Extended  Maturity  Date and
              termination occurs during the period commencing on the date hereof
              and ending on the third  anniversary of the date hereof,  BORROWER
              shall pay a prepayment  premium equal to $250,000 (i.e., 1% of the
              face amount of the Revolving Loan).

              (B) If  BORROWER  has  selected  the  Extended  Maturity  Date and
              termination  occurs  during  the  period  commencing  on  the  day
              immediately following the third anniversary of the date hereof and
              ending on the  fourth  anniversary  of the date  hereof,  BORROWER
              shall pay a prepayment  premium equal to $187,500  (i.e.,  3/4% of
              the face amount of the Revolving Loan).

              (C) If  BORROWER  has  selected  the  Extended  Maturity  Date and
              termination  occurs  during  the  period  commencing  on  the  day
              immediately  following the fourth  anniversary  of the date hereof
              and ending on the fifth  anniversary of the date hereof,  BORROWER
              shall pay a prepayment  premium equal to $125,000  (i.e.,  1/2% of
              the face amount of the Revolving Loan).

     (e) Effect of Termination.  All of the Liabilities shall be immediately due
and payable upon the  termination  date stated in any notice of  termination  of
this  Agreement.  All  undertakings,   agreements,   covenants,  warranties  and
representations  of BORROWER  contained in the Loan Documents  shall survive any
such termination and LENDER shall retain its security  interest and liens in the
Collateral  and  all of  its  rights  and  remedies  under  the  Loan  Documents
notwithstanding  such  termination  until  BORROWER  has  indefeasibly  paid the
Liabilities to LENDER in full, in immediately available funds, together with the
applicable  termination  charge, if any.  Notwithstanding the payment in full of
the  Liabilities,  LENDER  shall  not be  required  to  terminate  its  security
interests and liens in the Collateral unless, with respect to any loss or damage
LENDER  may incur as a result of  dishonored  checks or other  items of  payment
received  by LENDER  from  BORROWER  or any  Account  Debtor and  applied to the
Liabilities, LENDER shall, at its option, (i) have received a written agreement,
executed by BORROWER and by any person whose loans or other Advances to BORROWER
are used in whole or in part to satisfy  the  Liabilities,  indemnifying  LENDER
from any such loss or damage;  or (ii) have  retained any  monetary  reserves or
security interest and liens on the Collateral for such period of time as LENDER,
in its reasonable discretion, may deem necessary to protect LENDER from any such
loss or damage.

     (f) Yield Maintenance Provisions Survive. In the event that interest on any
portion or portions of the Revolving  Loan is being  determined at a LIBOR Based
Rate,  such portion or portions  may be prepaid at any time but such  prepayment
must be made for the  entirety of the portion for which  LENDER has entered into
contracts relating to LIBOR pricing.  Partial prepayments of any such portion or

<PAGE>

portions are not allowed. In the event of any such prepayment, the provisions of
Section  2.10 shall  apply.

     (g) Rights of LENDER Also Continue. Despite any modification or termination
of the Revolving Loan relationship,  whether by BORROWER or by LENDER,  LENDER's
rights under this  Agreement  shall  continue to remain in full force and effect
(as modified in the case of any modification and despite any acceleration in the
case  of any  acceleration  and  despite  any  termination  in the  case  of any
termination) until all Liabilities are paid in full.

     2.10  YIELD  MAINTENANCE  AND  INDEMNIFICATION   RELATING  TO  LIBOR  BASED
INTEREST.

     (a) BORROWER hereby agrees to indemnify  LENDER against any loss or expense
which  LENDER  may  sustain  or incur as a  consequence  of (1) any  failure  by
BORROWER  to borrow all or any portion of any  Principal  Balance  (relating  to
Advances  Outstanding  under the Revolving Loan as to which BORROWER has elected
to have interest determined or to be determined, as applicable, at a LIBOR Based
Rate and as more fully  defined  above) or (2) the receipt or recovery by LENDER
of all or any  part of any  Principal  Balance  prior  to the  maturity  thereof
whether by voluntary or involuntary prepayment, acceleration or otherwise.

     (b) Without limiting the effect of the foregoing,  the amount to be paid by
BORROWER to LENDER in order to indemnify  LENDER for any loss  occasioned by any
of the events  described in the preceding  provisions  of this  Section,  and as
liquidated damages therefor, shall be equal to the following amount:

                The current rate for United States Treasury securities (Bills on
                a discounted basis shall be converted to a bond equivalent) with
                a  maturity  closest  to the  maturity  date of the LIBOR  Based
                Interest  Period  chosen  pursuant to the LIBOR Option and as to
                which the prepayment is made shall be subtracted  from the "cost
                of funds"  component  of the LIBOR  Based  Rate in effect at the
                time of the  prepayment.  If the  result  is zero or a  negative
                number,  there shall be no yield  maintenance fee. If the result
                is a positive  number,  then the resulting  percentage  shall be
                multiplied by the amount of the Principal Balance being prepaid.
                The resulting  amount shall be divided by 360 and  multiplied by
                the  number of days  remaining  in the term of the  LIBOR  Based
                Interest  Period chosen pursuant to the LIBOR Option as to which
                the prepayment is made.  Said amount shall be reduced to present
                value  calculated  by using the number of days  remaining in the
                designated  term and using the above  referenced  United  States
                Treasury  security rate and the number of days  remaining in the
                term of the LIBOR Based Interest  Period chosen  pursuant to the
                LIBOR Option as to which the  prepayment is made.  The resulting
                amount shall be the yield maintenance fee due to LENDER upon any
                prepayment of any Principal Balance.  Such yield maintenance fee
                shall be paid,  if due under the formula set forth  above,  upon
                the  receipt  or  recovery  by  LENDER of all or any part of any
                Principal  Balance  prior to the  maturity  thereof  whether  by
                voluntary or involuntary prepayment, acceleration or otherwise.

     (c) A certificate as to any  additional  amounts  payable  pursuant to this
Section setting forth the basis and method of determining  such amounts shall be
conclusive,  absent manifest error, as to the  determination by LENDER set forth
therein if made reasonably and in good faith.  BORROWER shall pay any amounts so
certified to it by LENDER within 10 days of receipt of any such certificate.

     (d) The  indemnities  provided for herein shall survive  payment in full of
the principal amount of the Revolving Loan and the interest due thereon.

     (e)  Nothing in the  foregoing  shall in any way limit any  obligations  of
BORROWER under any Master Agreement.


<PAGE>

     2.11 EVIDENCE OF REVOLVING LOAN INDEBTEDNESS.

     (a) The Revolving Loan is evidenced by BORROWER's certain master promissory
revolving note dated even date herewith and made payable to the order of LENDER.
The amounts due under such note shall be payable as provided in this Agreement.

     (b) LENDER is hereby  authorized by BORROWER to record on LENDER's  records
all  advances  made by  LENDER to  BORROWER  under  the  Revolving  Loan and all
interest  and other  amounts  due thereon  and all  payments  made on account of
principal  and/or  interest  and/or such other  amounts.  The  aggregate  unpaid
principal  and/or  interest  and/or other amounts  entered and shown on LENDER's
records  shall  further  evidence the  principal  and/or  interest  and/or other
amounts  owing and unpaid on the  Revolving  Loan.  LENDER may from time to time
render a statement of the aforementioned  records.  LENDER will use good efforts
to  render  such  statement  monthly.  If  BORROWER  fails to object to any such
statement  within  sixty  (60)  days  after it is  received  by  BORROWER,  such
statement  shall be deemed to be an account  stated and binding  upon  BORROWER,
provided,  however,  that  nothing  in the  foregoing  shall  prevent  LENDER or
BORROWER from correcting manifest errors in such statements. Notwithstanding the
foregoing, the following shall apply:

     (1) any  failure by LENDER to enter on its  records  the date and amount of
any advance or interest or other  amount due on the  Revolving  Loan or LENDER's
failure to render any such  statement  shall not,  however,  limit or  otherwise
affect the  obligations  of BORROWER under this Agreement or under the Revolving
Loan to repay the principal amount of the advances, re-advances,  borrowings and
re-borrowings made by LENDER to BORROWER under the Revolving Loan, together with
all interest  accruing and other  amounts due thereon.

     (2)  LENDER's  failure to enter on its  records  the date and amount of any
payment made by BORROWER shall not, however, limit or otherwise affect the right
of BORROWER under the Revolving  Loan to demonstrate  its payment of any Advance
or any interest accruing and other amounts due thereon.

     (c) The  foregoing  note  (and  all  extensions,  modifications  [including
without  limitation  modifications  increasing or  decreasing  the amount of the
Revolving Loan],  refinancings,  renewals,  substitutions,  replacements  and/or
redatings thereof) and the records of LENDER indicating Advances made hereunder,
accrued interest and other charges due thereon, and payments made by BORROWER on
account of such Advances,  interest and charges is referred to as the "Revolving
Note" in this Agreement.

     2.12 NOTICES RELATING TO ADVANCES.

     (a)  Subject to any special  notice  requirements  relating  to  BORROWER's
exercise of any LIBOR Option,  BORROWER shall give LENDER written notice of each
borrowing  of each  Advance  (in each case,  a  "Borrowing  Notice").  Each such
written notice shall be  irrevocable  and shall be effective only if received by
LENDER,  subject to any  special  notice  requirements  relating  to  BORROWER's
exercise of any LIBOR Option, not later than 11 a.m., New York City time, on the
date  that is one  Business  Day prior to the date of  borrowing.

     (b) Each such notice of borrowing  shall  specify the amount to be borrowed
or  prepaid,  the  date of  borrowing  (which  shall  be a  Business  Day).

     (c)  Notwithstanding  the  foregoing,  as it relates to any borrowing of an
Advance,  LENDER may in its discretion  rely on and act on oral requests made by
BORROWER and the making of any requested  Advance shall  conclusively  establish
BORROWER's  obligation to repay such Advance in accordance  with this Agreement.


     (d) Also notwithstanding the foregoing,  unless payment is otherwise timely
made by BORROWER,  the becoming due of any Advance or other obligation  required
to be paid under this Agreement or any Loan Document shall be deemed irrevocably
to be a request by BORROWER for an Advance on the due date of, and in the amount

<PAGE>

required  to pay,  such  Advance or other  obligation  which has become  due. In
addition,  the  presentation  by BORROWER  for payment by LENDER of any check or
other item of payment drawn on any demand deposit  account of BORROWER at LENDER
shall be deemed  irrevocably  to be a request by BORROWER  for an Advance in the
amount of such check or other item of payment, provided,  however, that BORROWER
understands  and agrees that LENDER has no obligation to honor drafts  presented
against any demand deposit account having insufficient balances even if BORROWER
has the  ability  to borrow  under  the  Revolving  Loan.

     2.13 APPLICATION OF PAYMENTS.

     (a) Prior to the  occurrence of an Event of Default,  payments  received by
LENDER as payments due on the Revolving  Loan shall be applied  against  amounts
owing under the Revolving Loan and this Agreement, in the following order unless
otherwise  determined by LENDER in its discretion:  first to expenses of LENDER,
then to interest and then to  principal.

     (b) On and after the  occurrence  of an Event of Default,  LENDER may apply
all  payments  and other  sums of money  received  by it from or on  account  of
BORROWER towards the satisfaction of those  Liabilities which LENDER in its sole
discretion deems fit.

     2.14 OBLIGATIONS ABSOLUTE. The obligations of BORROWER under this Agreement
shall be  absolute,  unconditional  and  irrevocable,  and  shall  be  performed
strictly in accordance with the terms of this Agreement, under all circumstances
whatsoever,  and such  obligations  shall not be affected,  modified or impaired
upon the happening from time to time of any event,  including without limitation
any of the following, whether or not with notice to, or consent of, BORROWER:

     (a)  LENDER's  taking or not taking any of the  actions  referred to in the
Loan Documents;

     (b) LENDER's release (whether with or without  consideration),  impairment,
failure to perfect a security interest in, exchange, surrender,  substitution or
modification of (1) any Collateral or (2) any other collateral or security given
by BORROWER or (3) any  collateral  or security  given by  GUARANTOR  or (4) any
Proceeds of the foregoing;

     (c) any failure, omission or delay on the part of LENDER to enforce, assert
or exercise any right,  power or remedy conferred on it in the Loan Documents or
any other action or acts on the part of LENDER;

     (d) the voluntary or involuntary  liquidation,  dissolution,  sale or other
disposition  of all or  substantially  all the assets,  marshaling of assets and
liabilities, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors,   reorganization,   arrangement,   composition   with   creditors  or
readjustment,  or other similar proceedings which affect GUARANTOR or any of its
assets;

     (e)  LENDER's  compromise,  settlement,  release  (whether  with or without
consideration),  discharge, change, modification, amendment (whether material or
otherwise) or termination of any or all of the obligations, duties, covenants or
agreements of GUARANTOR under any of the Loan Documents;

     (f) the default or failure of BORROWER or GUARANTOR fully to perform any of
the obligations set forth in the Loan Documents;

     (g) LENDER's  inability to recover  payment from any person or entity under
the Loan Documents; or

     (h) the  existence  of any claim,  setoff,  defense or other  rights  which
BORROWER  or  GUARANTOR  may have at any time  against  any  person  whether  in
connection  with this  Agreement,  the other  Loan  Documents  or any  unrelated
transactions.


<PAGE>

 2.15  FEES.

     (a) Commitment  Fee:  BORROWER shall pay LENDER a Commitment Fee of $16,776
(payable  in  monthly  installments  of $466 on the  first day of each and every
calendar  month  beginning  July 1,  2003 and  continuing  until  paid in full),
provided,  however,  that if BORROWER  elects the Extended  Maturity  Date,  the
Commitment Fee shall be $35,400 (payable in monthly  installments of $590 on the
first day of each and every calendar month beginning July 1, 2003 and continuing
until  paid in full).  The  aforementioned  Commitment  Fee shall be  considered
earned ratably over the term of the Revolving Loan.

     (b) Unused  Revolving  Loan  Facility  Fee: In the event that average daily
usage under the Revolving  Loan during any calendar  month or part thereof falls
below the  maximum  amount  which may be  borrowed  under  the  Revolving  Loan,
BORROWER  shall  pay  LENDER  an unused  Revolving  Loan fee on the  short  fall
determined at a rate equal to 1/4 of one percent per annum. Following the end of
each calendar  month,  LENDER will bill BORROWER for the unused  Revolving  Loan
facility  fee, if any,  then due and  BORROWER  shall pay the fee within 10 days
after the receipt of such bill.

     (c)  Collateral  Management  Fee:  BORROWER  shall pay LENDER a  Collateral
Management Fee as more fully set forth in Article V.

     (d) Verification  Fee:  BORROWER shall pay LENDER an Accounts  Verification
Fee as more  fully  set  forth in  Article  V. On the date  hereof,  there is no
Verification Fee.

     (e) Field  Examination Fee:  BORROWER shall pay LENDER a Field  Examination
Fees as more fully set forth in Article V.


     2.16  ADDITIONAL  COSTS;  CAPITAL  REQUIREMENTS.

     (a) In the event that any existing or future law or  regulation,  guideline
or  interpretation  thereof,  by any  court or  administrative  or  governmental
authority charged with the administration  thereof, or compliance by LENDER with
any  request or  directive  (whether or not having the force of law) of any such
authority  shall impose,  modify or deem applicable or result in the application
of, any capital  maintenance,  capital ratio or similar requirement against loan
commitments  or other  obligations  entered  into by LENDER  hereunder,  and the
result of any event  referred to above is to impose upon LENDER or increase  any
capital  requirement  applicable  as a result of the  making or  maintenance  of
LENDER's  commitment   hereunder  or  otherwise  (which  imposition  of  capital
requirements  may  be  determined  by  LENDER's  reasonable  allocation  of  the
aggregate of such capital  increases or impositions),  then, upon demand made by
LENDER as  promptly as  practicable  after it obtains  knowledge  that such law,
regulation,   guideline,   interpretation,   request  or  directive  exists  and
determines to make such demand,  BORROWER shall  immediately  pay to LENDER from
time to time as specified by LENDER  additional  commitment  fees which shall be
sufficient  to compensate  LENDER for such  imposition of or increase in capital
requirements  together  with interest on each such amount from the date demanded
until payment in full thereof at the Default  Rate. A certificate  setting forth
in reasonable detail the amount necessary to compensate LENDER as a result of an
imposition  of or  increase  in  capital  requirements  submitted  by  LENDER to
BORROWER shall be conclusive,  absent  manifest error, as to the amount thereof.
For purposes of this  Section,  all  references  to "LENDER"  shall be deemed to
include any participant in LENDER's  commitment  hereunder,  provided,  however,
that the  foregoing  shall not require  BORROWER to pay more under this  Section
because of the existence of such  participants than BORROWER would pay to LENDER
if there  were no  participants.

     (b) In the event that any Regulatory  Change shall: (1) change the basis of
taxation of any amounts  payable to LENDER under this Agreement or the Revolving
Note (other than taxes  imposed on the overall net income of LENDER for any such

<PAGE>

Advances by the United States of America or the jurisdiction in which LENDER has
its  principal  office);  or (2) impose or modify any reserve,  Federal  Deposit
Insurance  Corporation  premium  or  assessment,   special  deposit  or  similar
requirements  relating to any  extensions  of credit or other  assets of, or any
deposits  with  or  other  liabilities  of,  LENDER;  or (3)  impose  any  other
conditions  affecting  this  Agreement  in  respect  of  Advances  or  any  such
extensions of credit,  assets,  deposits or  liabilities;  and the result of any
event referred to in clause (1), (2) or (3) above shall be to increase  LENDER's
costs of making or maintaining any Advances including,  without limitation,  its
commitment hereunder,  or to reduce any amount receivable by LENDER hereunder in
respect of its commitment  hereunder  (such increases in costs and reductions in
amounts receivable are hereinafter referred to as "Additional Costs"),  then, in
each case,  upon  demand  made by LENDER as  promptly  as  practicable  after it
obtains  knowledge  that such a Regulatory  Change exists and determines to make
such demand (a copy of which  demand  shall be  delivered  to LENDER),  BORROWER
shall  pay to  LENDER  from  time to time as  specified  by  LENDER,  additional
commitment fees or other amounts which shall be sufficient to compensate  LENDER
for such  increased  cost or reduction in amounts  receivable by LENDER from the
date of such change,  together  with  interest on each such amount from the date
demanded  until payment in full thereof at the Prime Based Rate and, if not paid
within 30 days  after  demand,  then with  interest  at the  Default  Rate.  All
references  to any  "LENDER"  shall be  deemed to  include  any  participant  in
LENDER's commitment hereunder,  provided,  however, that the foregoing shall not
require BORROWER to pay more under this Section because of the existence of such
participants than BORROWER would pay to LENDER if there were no participants.

     (c)  Determinations by LENDER for purposes of this Section of the effect of
any  Regulatory  Change on its costs of making  or  maintaining  Advances  or on
amounts  receivable by it in respect of Advances,  and of the additional amounts
required to compensate LENDER in respect of any Additional  Costs,  shall be set
forth in writing in reasonable  detail and shall be conclusive,  absent manifest
error.

     (d) In the event that LENDER demands compensation under this Section,  then
without limiting or reducing the obligations of BORROWER hereunder, LENDER shall
take reasonable  steps to mitigate the  circumstances  resulting in such demand,
provided,  however,  that LENDER shall not be required to take such steps if, in
its  opinion,  such  steps  (1) would be  inconsistent  with  LENDER's  internal
policies,  (2) would or might have an adverse  effect  upon  LENDER's  business,
operations, or financial condition or (3) would result in any cost, liability or
exposure to LENDER.

                                  ARTICLE III
                                   COLLATERAL

     3.1 CROSS  COLLATERALIZATION.  BORROWER agrees that payment and performance
of all  Liabilities  shall be secured by each and all of the following:  (a) all
Collateral  hereinafter set forth in this Article III, (b) all Collateral now or
hereafter  given by BORROWER to LENDER and (c) all  products and Proceeds of the
foregoing.

     3.2  ACCESSIONS.  To secure  payment and  performance  of all  Liabilities,
BORROWER  hereby  creates in favor of LENDER and hereby grants to LENDER a first
security  interest in all  Accessions,  as defined  herein,  presently  owned by
BORROWER or hereafter existing, created or acquired by it.

     3.3  ACCOUNTS  RECEIVABLE.   To  secure  payment  and  performance  of  all
Liabilities,  BORROWER  hereby  creates in favor of LENDER and hereby  grants to
LENDER a first security interest in all Accounts,  as defined herein,  presently
owned by BORROWER or hereafter existing, created or acquired by it.

     3.4 BOOKS AND  RECORDS.  To  secure  the  payment  and  performance  of all
Liabilities,  BORROWER  hereby  creates in favor of LENDER and hereby  grants to
LENDER a first  security  interest in all of  BORROWER's  Books and Records,  as

<PAGE>

defined herein,  presently owned by BORROWER or hereafter  existing,  created or
acquired by it.

     3.5 CHATTEL PAPER.  To secure payment and  performance of all  Liabilities,
BORROWER  hereby  creates in favor of LENDER and hereby grants to LENDER a first
security interest in all of BORROWER's Chattel Paper, as defined herein, whether
presently  owned by BORROWER or  hereafter  acquired  by it,  including  but not
limited to all such Chattel  Paper,  and now or hereafter left in the possession
of LENDER for any purpose.

     3.6  COMMERCIAL  TORT  CLAIMS.  To secure  payment and  performance  of all
Liabilities,  BORROWER  hereby  creates in favor of LENDER and hereby  grants to
LENDER a first security interest in all of BORROWER's Commercial Tort Claims, as
defined herein, presently owned by BORROWER or hereafter acquired by it.

     3.7  CONSIGNMENTS.  To secure payment and  performance of all  Liabilities,
BORROWER  hereby  creates in favor of LENDER and hereby grants to LENDER a first
security  interest  in  all  of  BORROWER's  Consignments,  as  defined  herein,
presently  owned by BORROWER or  hereafter  acquired  by it,  including  without
limitation,  (a) BORROWER's  rights to the underlying  Goods in any  Consignment
where Goods of BORROWER are  delivered to a merchant for the purpose of sale and
the  merchant  (1) deals in Goods of that kind  under a name  other than that of
BORROWER;  (2) is not an  auctioneer;  and  (3) is not  generally  known  by its
creditors  to be  substantially  engaged in selling  the Goods of others and (b)
BORROWER's  rights to the underlying  Goods in any Consignment  where Goods of a
third party are delivered to BORROWER for the purpose of sale.

     3.8 CONTRACT RIGHTS.  To secure payment and performance of all Liabilities,
BORROWER  hereby  creates in favor of LENDER and hereby grants to LENDER a first
security interest in all Contract Rights, as defined herein,  presently owned by
BORROWER or hereafter acquired by it.

     3.9 DEPOSIT ACCOUNTS. To secure payment and performance of all Liabilities,
BORROWER  hereby  creates in favor of LENDER  and  hereby  assigns to LENDER and
hereby grants to LENDER a first security interest in each and all the following:

              (1)  the  balance  of  all  Deposit  Accounts,  now  or  hereafter
              existing,  of  BORROWER  with  LENDER  or any  LENDER's  Affiliate
              (including Fleet National Bank) or in transit to any of them; and

              (2)  all  money,  instruments,   securities,  documents,  credits,
              claims,  and other  property of BORROWER,  now or hereafter or for
              any purpose (including  safe-keeping or pledge or security for any
              of the  Liabilities)  in the possession,  custody,  safekeeping or
              control  of  LENDER or any  LENDER's  Affiliate  (including  Fleet
              National Bank) or in transit to any of them; and

              (3) any sum  now or  hereafter  owed  by  LENDER  or any  LENDER's
              Affiliate  (including  Fleet  National  Bank) in any  capacity  to
              BORROWER whether due or not; and

              (4) all additions, substitutions,  replacements, and increments to
              the  foregoing  property,  as  well  as  proceeds  of  all  of the
              foregoing  property in whatever form,  including cash,  negotiable
              instruments and other instruments for the payment of money.

     3.10  EQUIPMENT.  To secure  payment and  performance  of all  Liabilities,
BORROWER  hereby  creates in favor of LENDER and hereby grants to LENDER a first
security  interest in all of BORROWER's  Equipment,  as defined herein,  whether
presently owned by BORROWER or hereafter acquired by it, and wherever located.

     3.11  GENERAL  INTANGIBLES.  To  secure  payment  and  performance  of  all
Liabilities,  BORROWER  hereby  creates in favor of LENDER and hereby  grants to
LENDER a first security interest in all of BORROWER's  General  Intangibles,  as
defined herein, whether presently owned by BORROWER or hereafter acquired by it.


<PAGE>

     3.12 GOODS. To secure payment and performance of all Liabilities,  BORROWER
hereby  creates in favor of LENDER and hereby grants to LENDER a first  security
interest in all of BORROWER's Goods, as defined herein,  whether presently owned
by BORROWER or hereafter acquired by it.

     3.13  INSTRUMENTS.  To secure payment and  performance of all  Liabilities,
BORROWER  hereby  creates in favor of LENDER and hereby grants to LENDER a first
security  interest in all of BORROWER's  Instruments as defined herein,  whether
presently  owned by BORROWER or  hereafter  acquired  by it,  including  but not
limited to all such  Instruments  now or  hereafter  left in the  possession  of
LENDER for any purpose, including but not limited for the purpose of collection.

     3.14  INVENTORY.  To secure  payment and  performance  of all  Liabilities,
BORROWER  hereby  creates in favor of LENDER and hereby grants to LENDER a first
security  interest in all of BORROWER's  Inventory,  as defined herein,  whether
presently owned by BORROWER or hereafter acquired by it, and wherever located.

     3.15 ALL OTHER BUSINESS  ASSETS.  (a) To secure payment and  performance of
all Liabilities,  BORROWER hereby creates in favor of LENDER and hereby grants a
first  security  interest in all of BORROWER's  other business  assets,  whether
presently  owned by BORROWER or  hereafter  acquired  by it,  including  without
limitation the following  categories of assets as defined in Revised  Article 9:
Inventory,  Equipment  (and  any  Accessions  thereto),  Instruments  (including
promissory  notes),   Documents,   Accounts   (including   Health-Care-Insurance
Receivables),  Chattel Paper (whether tangible or electronic), Deposit Accounts,
Letter-of-Credit  Rights  (whether or not the letter of credit is evidenced by a
writing),  Commercial Tort Claims, Securities and all other Investment Property,
General  Intangibles  (including payment  intangibles and software),  Supporting
Obligations,  and any and all proceeds of any thereof, wherever located, whether
now owned and hereafter acquired.  (b) If BORROWER shall at any time, whether or
not the aforesaid Revised Article 9 is in effect in any jurisdiction,  acquire a
Commercial  Tort Claim,  as defined in said Revised  Article 9,  BORROWER  shall
immediately  notify LENDER in a writing  signed by BORROWER of the brief details
thereof and grant to LENDER in such writing a security  interest  therein and in
the proceeds thereof, with such writing to be in form and substance satisfactory
to LENDER.

     3.16  PRODUCTS  AND  PROCEEDS.  To secure  payment and  performance  of all
Liabilities,  BORROWER  hereby  creates in favor of LENDER and hereby  grants to
LENDER a security interest in Proceeds and in all products of the Collateral.


                                   ARTICLE IV
                                REPRESENTATIONS

     In order to induce  LENDER to enter into this  Agreement and to perform its
obligations hereunder,  BORROWER makes the following  representations to LENDER,
each and all of which shall survive the execution and delivery of this Agreement
for the duration of the term,  or the extended or renewed term or terms of, this
Agreement  and each  and all of which  shall be  deemed  to be  reconfirmed  and
restated at and as of the date of BORROWER's  submission  of the  certifications
required by Section 5.6(c) and Section 5.6(d) of this Agreement:

     4.1 (a)  BORROWER  is a  corporation  of the  State  of  Delaware  with its
principal  place of business at 903 Murray Road,  P.O. Box 1960,  East  Hanover,
Morris County, New Jersey 07936.

     (b) BORROWER's correct legal name is "FIVE STAR GROUP, INC."

     (c) (1) On the date  hereof,  BORROWER  uses no trade  marks or trade names
except the trade mark and trade name "Five Star Products".

     (2) BORROWER  will not use any other trade name without first giving LENDER
prior notice thereof.

<PAGE>

     (d) (1) On the date hereof,  BORROWER owns no patents,  trade names (except
as set forth above) or trade marks.

     (2) BORROWER will advise LENDER of any patents,  trade names or trade marks
which it acquires  and,  if  requested  by LENDER,  will  provide  LENDER with a
security interest therein.

     (e) BORROWER is engaged in the business of the  wholesale  distribution  of
home decorating,  hardware and finishing  products and business directly related
thereto.

     (f) The stock of BORROWER is wholly owned by GUARANTOR.

     (g) BORROWER has no Subsidiaries.

     4.2 BORROWER is in good  standing  under the laws of the State of Delaware,
the state of its incorporation.

     4.3 BORROWER is  qualified  to do business  and is in good  standing in the
States of Connecticut, New Jersey,  Massachusetts,  New York and Maryland and in
each  jurisdiction  where  the  nature  of  its  business  requires  it to be so
qualified  except  where the failure to so qualify  would not have a  Materially
Adverse Effect on the business, properties or financial condition of BORROWER.

     4.4 BORROWER has the corporate power to execute, deliver and carry out this
Agreement and its Board of Directors has duly  authorized and approved the terms
described herein and the taking of any and all action contemplated herein.

     4.5  BORROWER  will use  proceeds  of the  Revolving  Loan only for working
capital purposes and no other.

     4.6 On the date hereof, the Collateral given by BORROWER is located only at
the Collateral Locations.

     4.7 BORROWER has full power and  authority to execute,  deliver and perform
this Agreement,  the Revolving Note and all of the other Loan Documents to which
it is party and to  perform  and  observe  the terms and  provisions  hereof and
thereof.

     4.8 This  Agreement  is a legal,  valid and binding  agreement  of BORROWER
enforceable against BORROWER in accordance with its terms and the Revolving Note
and all of the other Loan Documents to which it is a party are similarly  valid,
binding and enforceable  against  BORROWER in accordance  with their  respective
terms  except as such  enforcement  may be  limited  by  applicable  bankruptcy,
insolvency,  reorganization,  moratorium or other similar laws, now or hereafter
in effect,  relating  to or  affecting  the  enforcement  of  creditors'  rights
generally and except that the remedy of specific performance and other equitable
remedies are subject to judicial discretion.

     4.9 No consent or approval of any trustee or holder of any  indebtedness or
obligation  of  BORROWER is  necessary  in  connection  with the  execution  and
delivery  of this  Agreement  or the  Revolving  Note or any of the  other  Loan
Documents  to which  it is a party or any  transaction  contemplated  hereby  or
thereby.

     4.10  No  consent,  permission,  authorization,  order  or  license  of any
governmental  authority  is  necessary  in  connection  with the  execution  and
delivery  of this  Agreement  or the  Revolving  Note or any of the  other  Loan
Documents  to which  it is a party or any  transaction  contemplated  hereby  or
thereby  except  where the  failure  to  obtain  any such  consent,  permission,
authorization,  order or license would not create a Materially Adverse Effect on
the business, properties or financial condition of BORROWER.

     4.11 There is no provision of any indenture or material agreement,  written
or oral,  to which to the best of BORROWER's  knowledge,  BORROWER is a party or

<PAGE>

under which it is obligated  which would be contravened in any material  respect
by the execution and delivery of this  Agreement or the Revolving Note or any of
the other Loan  Documents  to which it is a party or by the  performance  of any
material provision,  condition,  covenant or other term hereof or thereof except
where  such  contravention  would not have a  Materially  Adverse  Effect on the
business, properties or financial condition of BORROWER.

     4.12 To the best of  BORROWER's  knowledge,  there is no  statute,  rule or
regulation,  or any judgment,  decree or order of any court or agency binding on
BORROWER  which would be  contravened  in any  Materially  Adverse Effect by the
execution  and delivery of this  Agreement or the  Revolving  Note or any of the
other  Loan  Documents  to  which  it is a party  or by the  performance  of any
material provision,  condition,  covenant or other term hereof or thereof except
where  such  contravention  would not have a  Materially  Adverse  Effect on the
business, properties or financial condition of BORROWER.

     4.13 On the date of this Agreement,  BORROWER has good and marketable title
to all of its properties and assets,  real,  personal and mixed, as reflected on
the most recent balance sheet of BORROWER, and none of said properties or assets
is subject to any mortgage, pledge, lien, security interest, encumbrance, charge
or title  retention or other security  agreement or arrangement of any character
whatsoever   except  for  Permitted  Liens  and  except  as  set  forth  on  the
Certification  as to Liens and except where the existence of such lien would not
otherwise  violate  Section  7.4 or Section 7.5 hereof and would also not have a
Materially Adverse Effect on the business,  properties or financial condition of
BORROWER.

     4.14 (a) BORROWER has timely  filed all returns and  information  and other
reports required of it under all Federal,  State,  local and foreign tax laws to
which it is subject,  except  where  failure to file would not have a Materially
Adverse Effect on the business, properties or financial condition of BORROWER;

     (b) all such  returns  and reports  are true,  correct and  complete in all
material respects;

     (c) there are not now in effect any  extensions  of time in which to assess
additional taxes against BORROWER;

     (d) BORROWER has paid or made  adequate  provision  for the full payment of
all fees, taxes,  interest and penalties which have been incurred or are due and
payable by it or which have been asserted or proposed to be asserted against it,
except  for  those  taxes  being  contested  in good  faith  and by  appropriate
proceedings  diligently  pursued and for which  BORROWER  has  established  cash
reserves to the satisfaction of LENDER;

     (e) the liability for taxes shown on the most current financial  statements
of BORROWER  submitted to LENDER is  sufficient  for the payment of all material
Federal,  State,  local and foreign  taxes  attributable  or with respect to all
periods,  or portions  thereof,  prior to the date of such financial  statements
remaining unpaid as of such date and any interest thereon to such date; and

     (f) BORROWER is not now being  audited by any tax  authority  nor are there
pending any unresolved issues arising from prior audits,  except as set forth in
the most current financial statements of BORROWER submitted to LENDER.


     4.15 No material  action or  proceeding is now pending or, to the knowledge
of  BORROWER is  threatened,  against  BORROWER at law, in equity or  otherwise,
before any court, board,  commission,  agency or instrumentality of any federal,
state or local government or of any agency or subdivision thereof, or before any
arbitrator or panel of arbitrators,  other than claims covered by insurance that
could  reasonably  be  expected  to  have a  Materially  Adverse  Effect  on the
business, properties or financial condition of BORROWER.


<PAGE>

     4.16 (a) There  are no  collective  bargaining  agreements  or other  labor
contracts  covering  BORROWER other than the Agreement  between Five Star Group,
Inc. and Local No. 11 affiliated  with  International  Brotherhood  of Teamsters
effective December 16, 2000 through December 20, 2003.

     (b)  Except  as set  forth in  subsection  (a)  above,  no such  collective
bargaining agreement or other labor contract will expire during the term of this
Agreement.

     (c)  To  the  best  of  BORROWER's  knowledge,  no  union  or  other  labor
organization  is  seeking  to  organize,  or  to  be  recognized  as  bargaining
representative for, a bargaining unit of employees of BORROWER.

     (d) To the best of BORROWER's knowledge, there is no pending or, threatened
strike,  work  stoppage,   material  unfair  labor  practice  claim  or  charge,
arbitration or other material labor dispute against or affecting BORROWER or its
employees  which  would  have a  Materially  Adverse  Effect  on  the  business,
properties or financial condition of the BORROWER.

     (e) There  has not been,  during  the five  year  period  prior to the date
hereof, a strike, work stoppage, material unfair labor practice claim or charge,
arbitration or other material labor dispute against or affecting BORROWER or any
of its employees.

     (f) There are no actions, suits, charges, demands, claims, counterclaims or
proceedings pending or, to the best of BORROWER's knowledge,  threatened against
BORROWER,  by or on behalf  of, or with,  its  employees,  other  than  employee
grievances  arising in the  ordinary  course of  business  that are not,  in the
aggregate, material.

     4.17 No event has  occurred and is  continuing  which would  constitute  an
Event of Default as  defined in Article  VII or which,  upon a lapse of time and
notice, if applicable, would become such an Event of Default and no borrowing by
BORROWER  under  this  Agreement  constitutes  an event  of  default  under  any
agreement to which BORROWER is a party.

     4.18 All financial  statements of BORROWER and all written  information and
other  written data  furnished by BORROWER to LENDER are complete and correct in
all material  respects,  and such  financial  statements  have been  prepared in
accordance with GAAP and fairly represent the financial condition of BORROWER as
of such date  subject  to  year-end  audit  adjustments  in the case of  interim
financial statements.  Since such date there has been no material adverse change
in BORROWER's  financial condition sufficient to impair its ability to repay all
of the  Liabilities  except for those taxes being contested in good faith and by
appropriate   proceedings   diligently   pursued  and  for  which  BORROWER  has
established  reserves to the satisfaction of LENDER.  BORROWER does not have any
material  contingent  obligations,  liabilities  for taxes or other  outstanding
financial  obligations which are material in the aggregate,  except as disclosed
in such statements, information and data.

     4.19 (a) Neither  BORROWER nor any  employee  benefit  plan  maintained  by
BORROWER is in violation  of any of the  provisions  of the Employee  Retirement
Income  Security Act of 1974,  29 U.S.C.  ss.1001 et seq.,  as from time to time
amended  ("ERISA") or any  regulations  issued  thereunder  by the United States
Treasury  Department,  the Department of Labor and the Pension Benefit  Guaranty
Corporation,  and no  prohibited  transaction  (within the meaning of Title I of
ERISA or the  Internal  Revenue  Code of 1986,  as  amended  (the  "Code"))  has
occurred and is continuing with respect to any such plan, in each instance where
such violation or prohibited  transaction or any liabilities  resulting directly
or indirectly  therefrom  individually or in the aggregate  could  reasonably be
expected  to have a  Materially  Adverse  Effect  on the  business,  results  of
operations,  prospects, financial condition or any material asset of BORROWER or
on the ability of BORROWER to execute this  Agreement or  consummate  any of the
transactions  contemplated  hereby.  For  purposes of this  Agreement,  the term

<PAGE>

"employee  benefit  plan" means any plan of a type  described in Section 3(3) of
ERISA in respect of which  BORROWER is an  "employer" as defined in Section 3(5)
of ERISA (herein called the "Benefit Plans" or individually the "Benefit Plan").

     (b)  With  respect  to  each  such  Benefit  Plan  and any  trusts  created
thereunder:

     (1) all reports,  forms and other information required to be filed with any
government  agency or to be  distributed  or made  available to any Benefit Plan
participant or  beneficiary of any Benefit Plan have been filed,  distributed or
made available;

     (2) all Benefit Plans have been amended to the extent currently required by
the applicable provisions of ERISA and the Code;

     (3) BORROWER has made all contributions required to be made with respect to
each Benefit Plan;

     (4) with respect to each group  health plan  maintained  by  BORROWER,  the
requirements of Sections 601 through 608 of ERISA have been complied with;

     (5) no Benefit Plan and no trust thereunder has been terminated;

     (6) there has been no  "reportable  event",  as defined in Section  4043 of
ERISA, or any "accumulated funding deficiency";

     (7) BORROWER has not incurred any liability to the Pension Benefit Guaranty
Corporation.

     (c)  Neither  BORROWER  nor any  officer,  director  or other  employee  of
BORROWER,  nor any "party in interest" or "disqualified  person",  as such terms
are  defined  in  Section 3 of ERISA and  Section  4975 of the Code,  has,  with
respect  to any  Benefit  Plan,  engaged  in or been a party to any  "prohibited
transaction", as such term is defined in Section 4975 of the Code or Section 406
of ERISA,  in connection  with which BORROWER or any officer,  director or other
employee of BORROWER,  or any Benefit  Plan,  could  reasonably  be expected to,
directly or  indirectly,  be subject to either a penalty,  assessed  pursuant to
Section 502(i) of ERISA, or a tax imposed by Section 4975 of the Code.

     4.20 BORROWER is not engaged nor will it engage,  principally  or as one of
its important activities, in the business of extending credit for the purpose of
"purchasing" or "carrying" any "margin stock" within the respective  meanings of
each of the quoted  terms under  Regulation  U of the Board of  Governors of the
Federal Reserve System as now and from time to time hereafter in effect. No part
of the  proceeds  of the  Revolving  Loan  will  be  used  for  "purchasing"  or
"carrying"  "margin stock" as so defined or for any purpose which  violates,  or
which would be  inconsistent  with,  the  provisions of the  Regulations of such
Board of Governors.

     4.21 BORROWER is indebted to SELLER under the  Subordinated  Seller Note in
the principal amount of $4,500,000.

                                   ARTICLE V
                               POSITIVE COVENANTS

     BORROWER covenants and agrees that, until the full and final payment of the
Liabilities, unless LENDER waives compliance in writing:

     5.1 Payment of Liabilities.

     (a) BORROWER will repay the Revolving Loan, in accordance with the terms of
the Revolving Note and this Agreement.

     (b)  Unless  otherwise  provided  herein,   BORROWER  will  repay  LENDER's
customary service charges associated with any accounts maintained at LENDER.

<PAGE>


     (c) Unless  otherwise  provided  herein,  BORROWER will repay the customary
service  charges  associated  with any  accounts or services  maintained  at any
LENDER's Affiliate.

     (d) BORROWER will repay all other  Liabilities in accordance with the terms
thereof and any note and/or notes and/or records of LENDER evidencing the same.

     5.2 Preservation of Existence and Prohibition against Dissolution, Mergers,
Acquisitions, Formation of Subsidiaries. BORROWER will (a) preserve and maintain
its corporate existence (provided,  however, that nothing in the foregoing shall
prohibit GP Strategies  Corporation  and/or any of its affiliates  and/or any of
its officers or directors from  increasing its ownership  interest in GUARANTOR,
BORROWER's  parent),  (b) maintain all of its rights,  privileges and franchises
necessary  or  desirable  in the  normal  conduct of its  business  except if no
Materially  Adverse Effect results from the loss of any such rights,  privileges
and franchises and (c) conduct its business in an orderly and regular manner.

     5.3 Preservation of Assets . BORROWER will maintain,  preserve and keep its
properties and assets or cause the same to be maintained, preserved and kept, in
good repair,  working order and condition  excepting  reasonable  wear and tear;
make or cause to be made all  necessary  and proper  repairs,  replacements  and
renewals  thereto as shall from time to time be necessary;  and make or cause to
be made all necessary and proper  substitutions,  additions,  modifications  and
improvements as may be necessary to preserve (a) the value of its properties and
assets,  (b)  their  usefulness  to  BORROWER  and (c) their  fitness  for their
intended purposes,  provided that nothing in this Section shall prevent BORROWER
from  discontinuing  the operation and  maintenance of any of its properties and
disposing  of same if in the  judgment  of  BORROWER  such is  desirable  in the
conduct of its business and such  discontinuance  and  disposition do not in the
aggregate have a Materially Adverse Effect on BORROWER.

     5.4 Payment of Taxes.

     (a) (1)  BORROWER  will pay as they become due,  all taxes (or will provide
adequate reserves therefor), assessments, levies and other governmental charges,
by whatever  name  called,  that may at any time be lawfully  assessed or levied
against or with  respect  to  BORROWER,  the  Collateral  or any other  property
acquired by BORROWER in  substitution  for, as a renewal or  replacement  of, or
modification,  improvement or addition to the Collateral (including,  but not by
way of limitation,  any tax,  assessment or other governmental  charge which, if
not paid, will become a lien or charge upon the Collateral).

     (2) BORROWER will also pay all utilities and other charges  incurred in the
operation, maintenance, use and upkeep of the Collateral or any part thereof.

     (b) (1) If any  lien  shall be  claimed  which in  LENDER's  opinion  might
possibly create a valid obligation having priority over the rights granted to it
herein,  LENDER may, on prior notice to BORROWER,  pay such taxes,  assessments,
charges or claims, and the amount thereof, together with interest at the Default
Rate, shall be added to the Liabilities hereby secured.

     (2) By its  execution  of this  Agreement,  BORROWER  authorizes  LENDER to
reimburse itself for any of its expenses associated with the above in the manner
set forth in the Authorization to Charge.

     5.5 Cooperation and Further Assurances.

     (a) At any time or from  time to time  when in the  reasonable  opinion  of
LENDER or its counsel it shall be necessary or desirable, BORROWER will execute,
acknowledge and deliver or cause to be executed,  acknowledged and delivered any
supplement  hereto or other mortgage,  document,  instrument,  agreement,  UCC-1
Financing  Statement,  UCC-3  Financing  Statement,  invoice,  bill  of  lading,
shipping document and receipt or other writing as may reasonably be required for
perfecting  the liens  and  security  interests  granted  to  LENDER  hereunder,

<PAGE>

correcting any inadequate or incorrect description of the Collateral or carrying
out the intention of or facilitating  the  performance of any term,  covenant or
condition of this Agreement.

     (b) In addition to the  foregoing,  LENDER may at any time and from time to
time,  file financing  statements,  continuation  statements and amendments that
describe the  Collateral as all assets of BORROWER,  or include words of similar
effect,  and which contain any other  information  required by Revised Article 9
for the sufficiency,  or filing office acceptance,  of any financing  statement,
continuation   statement  or  amendment,   including   whether  BORROWER  is  an
organization,  the type of  organization,  and any  organization  identification
number issued to BORROWER.  BORROWER  agrees to furnish any such  information to
LENDER  promptly  upon  request.  Any such  financing  statements,  continuation
statements or amendments may be signed by LENDER on behalf of BORROWER,  and may
be filed at any time in any  jurisdiction,  whether or not Revised  Article 9 is
then in effect in that  jurisdiction.

     (c)  BORROWER  shall  at any time and  from  time to time,  whether  or not
Revised Article 9 is in effect in any particular  jurisdiction,  take such steps
as LENDER may reasonably request for LENDER (1) to obtain an acknowledgment,  in
form and substance  satisfactory to LENDER, from any bailee having possession of
any of the Collateral that said bailee holds such Collateral for LENDER,  (2) to
obtain "control" of any Investment Property, Deposit Accounts,  Letter-of-Credit
Rights or Electronic Chattel Paper (as such terms are defined in Revised Article
9 with  corresponding  provisions in Revised Article 9, Sections  9-104,  9-105,
9-106  and  9-107  relating  to what  constitutes  "control"  for such  items of
Collateral),  with  any  agreements  establishing  control  to  be in  form  and
substance  satisfactory to LENDER,  and (3) to otherwise to insure the continued
perfection and priority of LENDER's  security  interest in any of the Collateral
and of the preservation of its rights therein, whether in anticipation of and/or
following the effectiveness of Revised Article 9.

     (d) Nothing  contained  in this  Section  shall be  construed to narrow the
scope of LENDER's security interest in any of the Collateral,  or the perfection
or priority thereof, or to impair or otherwise limit any of the rights,  powers,
privileges  or remedies of LENDER  hereunder.

     5.6 Reporting Requirements.

     (a) BORROWER  shall  maintain  books and records in such  detail,  form and
scope as being currently maintained by BORROWER.

     (b) In  addition,  BORROWER  shall  supply to LENDER on forms  supplied  by
LENDER or otherwise  reasonably  acceptable to LENDER, the information set forth
in the subsections  below,  it being  understood that in the event that BORROWER
does not supply or cause to be  delivered  to LENDER the  information  set forth
below within 10 calendar days after  BORROWER  receives  notice from LENDER that
such information is past due,  interest on the Revolving Loan will be calculated
at the Default Rate during the time that BORROWER is not in compliance, it being
further understood that LENDER's  acceptance of payment at the Default Rate does
not otherwise  prevent LENDER from otherwise  declaring an Event of Default as a
result thereof:

     (1)  At  Least  Weekly  Collateral  Reporting:  Not  in  limitation  of the
foregoing or of the right of LENDER to request other information in the exercise
of its reasonable commercial judgment, BORROWER shall submit at the time of each
request for an advance under the Revolving Loan but in no event less  frequently
than weekly the information  contained in the Borrowing Base  Certificate,  such
certificate  to be  submitted  no  later  than  Wednesday  after  the end of the
immediately preceding week and such information to include each of the following
to the extent not specifically provided for in the Borrowing Base Certificate:


<PAGE>

              (A) all deposit tickets (including collections in the form of cash
              or checks);

              (B)  immediately  upon their  occurrences,  reports and records of
              merchandise   returns   or   disputes,   discounts,    advertising
              allowances,  contraoffsets or any other offsets, volume discounts,
              rebate   arrangements,   sales  of   samples,   "bill   and  hold"
              transactions, and any other factor which would dilute the value or
              reduce the amount of any Account Receivable.

     (2) Monthly Collateral  Reporting:  Also not in limitation of the foregoing
or of the  right of  LENDER  to  reasonably  request  other  information  in the
exercise of its  reasonable  commercial  judgment,  BORROWER  shall  submit on a
monthly basis the following  information,  to be submitted no later than 20 days
after  the end of each  calendar  month:  (A)  detailed  invoice  date  Accounts
Receivable  aging,  which detail individual  Account Debtors' names,  addresses,
amounts owed and days outstanding;

              (B) aging schedules of accounts payable;

              (C)  Reconciliation  Certificate,  in the form attached  hereto as
              Exhibit "D"; and

              (D) Collateral Update Certificate,  in the form attached hereto as
              Exhibit  "C",  including  monthly  Inventory  reports  showing the
              amount of Inventory in stock and the location and cost thereof.

     (c) Quarterly Financial Statements: Also not in limitation of the foregoing
or of the  right of  LENDER  to  reasonably  request  other  information  in the
exercise of its reasonable  commercial judgment,  BORROWER shall, so long as any
of the Liabilities  remains  outstanding  (unless LENDER  otherwise  consents in
writing), deliver to LENDER as soon as available and in any event within 50 days
after the end of each fiscal  quarter of BORROWER,  each of the  following:

     (1) financial statements prepared internally by management substantially in
the same form  (except for notes to the  financial  statements)  as required for
GUARANTOR's  consolidated  annual  financial  statements  with  BORROWER and NPD
Trading (USA), Inc. (GUARANTOR's other subsidiary) and showing on a consolidated
basis the assets and liabilities of GUARANTOR,  BORROWER and the  aforementioned
NPD Trading  (USA),  Inc., at the end of said fiscal  quarter and the results of
their consolidated operations during said fiscal quarter, prepared in accordance
with GAAP, all in reasonable  detail and in each case duly certified in the form
attached hereto as Exhibit "E" by the principal financial officer of BORROWER as
having been prepared in  accordance  with GAAP and being correct and complete in
all material respects subject only to year end adjustments,  it being understood
that, to the extent that GUARANTOR's  quarterly report on Form 10-Q contains any
of the foregoing items,  LENDER will accept  GUARANTOR's  report on Form 10-Q in
lieu of such items;

     (2) a certificate  of said officer in the form  attached  hereto as Exhibit
"F" (i) stating that such officer does not have any  knowledge  that an Event of
Default  (or an event  which,  with  notice or the lapse of time or both,  would
constitute an Event of Default) exists or, if an Event of Default (or such other
event) does exist,  a statement as to the nature  thereof and the actions  which
BORROWER proposes to take with respect thereto, and (ii) showing calculations in
reasonable  detail of  BORROWER's  compliance  at and as of the end of each such
fiscal  quarter,  with each  financial  ratio and  requirement  of Article V and
Article VI of this Agreement.

     (d) Annual Financial  Statements:  Not in limitation of the foregoing or of
the right of LENDER to reasonably  request other  information in the exercise of
its  reasonable  commercial  judgment,  BORROWER  shall,  so  long as any of the
Liabilities  remains  outstanding (unless LENDER otherwise consents in writing),
deliver to LENDER as soon as  available  and in any event  within 105 days after
the end of each fiscal year of BORROWER, each of the following:


<PAGE>

     (1) an annual audit report for such year for GUARANTOR,  including (A) on a
consolidated  basis for BORROWER and the aforementioned NPD Trading (USA), Inc.,
their balance sheet and statements of  operations,  their cash flows and changes
in stockholders'  equity for such fiscal year, setting forth in comparative form
the corresponding  figures for the preceding fiscal year, prepared in accordance
with  GAAP and all in  reasonable  detail  and in each case  duly  certified  by
independent  certified public accountants of recognized  standing  acceptable to
LENDER,  and  (B) on a  consolidating  basis  for  GUARANTOR,  BORROWER  and the
aforementioned  NPD Trading  (USA),  Inc.,  their balance sheet and statement of
operations,  all in  reasonable  detail and duly  certified in the form attached
hereto as Exhibit "E" by the principal  financial  officer of BORROWER as having
been  prepared in  accordance  with GAAP and being  correct and  complete in all
material  respects,  it being  understood  that, to the extent that  GUARANTOR's
annual  report on Form 10-K  contains any of the  foregoing  items,  LENDER will
accept GUARANTOR's report on Form 10-K in lieu of such items;

     (2) a copy of the management letter, if any, issued by such accounting firm
to BORROWER; and

     (3) a certificate  of said  accounting  firm stating that, in the course of
auditing and reporting on the  financial  statements of BORROWER for such fiscal
year,  they obtained no knowledge that BORROWER failed to comply with the terms,
covenants, provisions or conditions of Article V or Article VI hereof insofar as
such Articles relate to accounting  matters or, if such  accountants  shall have
obtained  knowledge  of such  failure,  they shall  disclose the failure in such
statement; and

     (4) a certificate  of the chief  financial  officer of BORROWER in the form
attached  hereto as Exhibit "F" (A) stating  that such officer does not have any
knowledge that an Event of Default (or an event which,  with notice or the lapse
of time or both, would  constitute an Event of Default) exists,  or, if an Event
of Default (or such other event) does exist,  a statement of the nature  thereof
and the actions  which  BORROWER  proposes to take with respect  thereto and (B)
showing calculations in reasonable detail of BORROWER's  compliance at and as of
the end of each such fiscal year with each  financial  ratio and  requirement of
Article V and Article VI of this Agreement.

     (e) Annual Tax Returns:  BORROWER hereby covenants to furnish to LENDER, no
later than  September 20 of each year, a true copy of the tax return of BORROWER
as filed with the Internal Revenue Service.

     (f) Annual Projections:  Not in limitation of the foregoing or of the right
of LENDER to request other  information,  BORROWER  shall, so long as any of the
Liabilities  remains  outstanding (unless LENDER otherwise consents in writing),
deliver to LENDER as soon as available  and in any event within 60 days prior to
the end of each of its fiscal  years,  annual  projections  for the  immediately
upcoming fiscal year,  prepared on an annual basis, and including balance sheet,
profit and loss and cash flow and in form acceptable to LENDER.


     (g) Notice of Default:  BORROWER  hereby  covenants to furnish to LENDER as
soon as possible and in any event  within  three days after it becomes  aware of
the occurrence of each Event of Default (or each event which, with the giving of
notice  or lapse of time or both,  would  constitute  an Event of  Default)  the
written  statement  of the chief  financial  officer of BORROWER  setting  forth
details  of such Event of Default  (or such  other  event) and the action  which
BORROWER proposes to take with respect thereto.

     (h) Notice of Adverse  Condition:  BORROWER hereby  covenants to furnish to
LENDER as soon as possible the written  statement of the chief financial officer
of BORROWER  setting  forth  details of any action,  event or  condition  of any
nature of which  BORROWER is aware,  which may  reasonably be expected to have a
Materially  Adverse Effect upon the business,  assets or financial  condition of
BORROWER  or the value of the  Collateral  or the liens and  security  interests
granted to LENDER  herein and the action  which  BORROWER  proposes to take with
respect thereto.

<PAGE>

     (i) Notice of  Litigation:  BORROWER will notify LENDER in writing within a
reasonable  time  (which  shall in no  event  exceed  ten  business  days  after
BORROWER's  knowledge) of the  commencement or threat of any litigation  against
BORROWER which,  if determined  adversely to it, would result in its dissolution
or  liquidation,  prevent or materially  impair it from  conducting its business
substantially  as now  conducted,  prevent or  materially  impair  BORROWER from
repaying the Revolving  Loan and the other  Liabilities or prevent or materially
impair BORROWER from otherwise faithfully  performing its obligations under this
Agreement  or result in a material  adverse  change in  BORROWER's  business  or
financial condition or affairs or  creditworthiness.  Without intending to limit
the generality of the foregoing,  any  litigation  which seeks monetary  damages
(whether  compensatory  or punitive)  from  BORROWER in an  aggregate  amount in
excess of  $150,000.00  which is not  covered  by  insurance  shall be deemed to
constitute litigation of a character which must be reported to LENDER.

     (j) Other  Information:  BORROWER  will  promptly  after a written  request
therefor  provide  LENDER  with:  (1)  such  other  information   regarding  the
Collateral (including, without limitation, Accounts Receivable and Inventory) or
any  Collateral  Proceeds and the  business,  affairs and  condition of BORROWER
(including,  without  limitation,  projections) as LENDER may reasonably request
from time to time, and (2) such other  financial data or information  evidencing
compliance with the  requirements of this Agreement,  the Revolving Note and the
other Loan Documents, as LENDER may reasonably request from time to time.

     5.7 Compliance with Laws.  BORROWER will at all times comply with, or cause
to be  complied  with,  all  laws,  statutes,  rules,  regulations,  orders  and
directions of any  governmental  authority having  jurisdiction  over it and its
business  except  for  non-compliance  that  would  not  have  singly  or in the
aggregate have a Materially Adverse Effect on BORROWER.

     5.8 Insurance. (a) BORROWER shall maintain insurance coverage as follows:

     (1)  Casualty  Insurance:  At  BORROWER's  expense,  an original  policy or
policies of  insurance  issued by  financially  sound and  reputable  insurer or
insurers  satisfactory  to LENDER (in the exercise of its reasonable  commercial
judgment)  insuring  BORROWER's  machinery,  equipment,  fixtures  and  personal
property  against  such  perils  and on such  terms  and in such  amounts  as is
customarily maintained by similar businesses. Without limiting the generality of
the  foregoing,  said  insurance  shall  in no event be less  than  that  amount
necessary to prevent  BORROWER and LENDER from being  deemed  co-insurers  under
applicable law (and in no event less than the replacement  value of the property
insured)  and shall  insure  against  the  hazards of fire,  extended  coverage,
vandalism,  malicious  mischief and  sprinkler  leakage and shall name LENDER as
mortgagee and loss payee, as its interests may appear. Such policy shall contain
a 30 day notice of cancellation and non-renewal provision.

     (2) Liability  Insurance:  At  BORROWER's  expense,  an original  policy or
policies  of  liability  insurance  issued by  financially  sound and  reputable
insurer or insurers  satisfactory  to LENDER (in the exercise of its  reasonable
commercial  judgment) and in amounts not less than  $1,000,000/$3,000,000.  Such
policy shall name LENDER as an additional  insured, as its interests may appear,
and shall contain a 30 day notice of cancellation and non-renewal provision.

     (b) Certificates evidencing the coverage afforded under BORROWER's policies
of insurance  and, if  requested,  copies of all policies are to be delivered to
LENDER.

     (c) If BORROWER fails to take the action called for herein,  LENDER may, in
its  discretion  upon 10 days prior notice to BORROWER or such shorter period as
may be necessary to prevent a gap in insurance  protection and coverage,  obtain
insurance  covering  LENDER's  interest in the  Collateral and the amount of the
premium  for said  insurance,  together  with per annum  interest at the Default
Rate,  shall be added to the  Liabilities  and the  repayment  thereof  shall be
secured by the Collateral.


<PAGE>

     (d) All rights to insurance  proceeds are hereby  assigned to LENDER to the
extent of the unpaid Liabilities.

     (e) Unless otherwise  agreed in writing,  LENDER shall have the sole right,
in its own name or in  BORROWER's  name,  to file  claims  under  any  insurance
policies,  to receive and give  acquittance for any payments that may be payable
thereunder,  and to  execute  any  and  all  endorsements,  receipts,  releases,
assignments,  reassignments  or other  documents that may be necessary to effect
the collection,  compromise or settlement of any claims under any such insurance
policies.

     (f) BORROWER  shall have no claim against  insurance  proceeds until all of
the  Liabilities  are paid in full.  LENDER  shall  not be  responsible  for any
failure to  collect  any  insurance  proceeds,  regardless  of the cause of such
failure.  Nothing  herein  shall in any way affect  LENDER's  lien  against  the
Collateral  or the  liability of any person  responsible  for the payment of the
balance of the Liabilities.

     (g) In the event the  Collateral  or any part  thereof  shall be damaged or
destroyed,  LENDER, at its election, may (1) apply the insurance proceeds or any
part  thereof to the payment of the  Liabilities,  whether the  indebtedness  be
matured  or not,  (2) use the same or any part  thereof  to  fulfill  any of the
covenants  contained  herein  or in the  other  Loan  Documents  as  LENDER  may
determine,  (3) use the same or any part  thereof  to  replace  or  restore  the
Collateral  to the extent  satisfactory  to LENDER,  or (4)  release the same to
BORROWER.

     (h)  BORROWER  agrees  that in the event  that the  Collateral  or any part
thereof  shall be damaged or  partially or totally  destroyed  there shall be no
abatement or  reduction  in the amounts  payable  hereunder  and BORROWER  shall
continue to be obligated to make such payments.

     (i) Any monies  released  by LENDER to  BORROWER  or paid or applied on the
cost of replacement or restoration  shall in no event be deemed a payment on any
of the Liabilities.

     (j) Anything to the contrary herein contained notwithstanding, any proceeds
paid over to LENDER and not used for replacement or restoration shall be applied
to pay accrued interest and any other sums then due and owing to LENDER, and any
excess shall be paid over to BORROWER.

     5.9 No Disposal of  Collateral.  (a) BORROWER will  safeguard,  protect and
hold all the  Collateral for LENDER's  account and make no  disposition  thereof
except in the  regular  course  of  business  as  hereinafter  provided  in this
Section.

     (b) Until LENDER shall have given written  notice to BORROWER that an Event
of Default has occurred and is continuing, any Collateral which may from time to
time remain in  possession or control of BORROWER or any third party may be sold
and shipped to customers in the ordinary course of business, on open account and
on terms not exceeding the terms currently extended. LENDER shall have the right
to withdraw this  permission at any time by written  notice to BORROWER after an
Event of Default  has  occurred  and is  continuing,  in which  event no further
disposition shall be made of the Collateral without LENDER's written approval.

     (c) The  rights  given  BORROWER  in  subsection  (b) above  are  expressly
conditioned  upon  BORROWER's  forthwith  transferring,   assigning,  endorsing,
delivering  and turning over to LENDER all Collateral  Proceeds,  or causing all
such  Collateral  Proceeds  to be  forthwith  transferred,  assigned,  endorsed,
delivered  and turned  over to LENDER,  by deposit  into one or more  Lockboxes,
Blocked Accounts and/or such other place designated by LENDER (all as more fully
set forth in Section 2.5 above).


<PAGE>

     (d) Upon the sale, lease,  transfer,  exchange, or other disposition of the
Collateral,  the security  interests  and liens  created and provided for herein
shall without break in continuity and without further  formality or act continue
in and attach to the instruments for the payment of money,  Accounts Receivable,
Contract Rights,  documents of title, shipping documents,  Chattel Paper and all
other cash and  non-cash  Proceeds of such sale,  lease,  transfer,  exchange or
disposition,   including   Collateral  returned  or  rejected  by  customers  or
repossessed  by  LENDER.  As to any such  sale,  lease,  transfer,  exchange  or
disposition,  LENDER shall have all of the rights of an unpaid seller, including
stoppage in transit, replevin and reclamation.

     5.10  LENDER's  Power  to  Endorse  Checks  and  Drafts.  For  purposes  of
implementing  this  Agreement and also for purposes of paying and satisfying the
Liabilities, BORROWER hereby designates LENDER or LENDER's representative as its
attorney-in-fact  with  power to  endorse  its name upon any  acceptances,  cash
equivalents, checks, drafts, money orders, notes, instruments for the payment of
money and other  evidences of payment or Collateral  that may come into LENDER's
possession.  BORROWER also designates  LENDER or LENDER's  representative as its
attorney-in-fact  to sign  BORROWER's  name  on any  invoice  or bill of  lading
relating to any of the Accounts Receivable,  drafts against Account Debtors, and
assignments and  verifications of Accounts  Receivable to any Account Debtor and
to do all other acts and things necessary to carry out this Agreement.  All acts
of said  attorney or designee are hereby  ratified and  approved.  This power is
coupled with an interest and is irrevocable while any of the Liabilities remains
unpaid.  As it relates for to action taken by LENDER or LENDER's  representative
while  acting as the  aforesaid  attorney-in-fact,  neither  LENDER nor LENDER's
representative  shall  itself,  nor shall its  respective  directors,  managers,
officers, employees or agents, be liable or responsible, directly or indirectly,
to the other for any action  taken,  or omitted to be taken by it in good faith,
or for the  consequences  of any  oversight  or  error of  judgment  on its part
occurring in good faith, unless the taking of, or omitting to take, such action,
or such oversight or error in judgment by such party or its directors, managers,
officers,   employees  or  agents,   constitutes  gross  negligence  or  willful
misconduct.

     5.11 Verification of Accounts Receivable.

     (a)  LENDER  shall  have  the  right  at  BORROWER's  expense  but no  more
frequently  than  quarterly  (unless an Event of  Default  has  occurred  and is
continuing) to obtain  verifications from Account Debtors relating to the amount
and validity of any Account Receivable.


     (b) Unless an Event of Default has occurred, there shall be no verification
expense.  If an  Event  of  Default  has  occurred,  there  shall be no limit on
LENDER's right to reimbursement.

     (c) By its  execution  of this  Agreement,  BORROWER  authorizes  LENDER to
reimburse itself for any of its expenses associated with the above in the manner
set forth in the Authorization to Charge.

     (d) Any verifications  prepared or conducted by BORROWER or its accountants
shall be supplied to LENDER.

     5.12 Permitted Access to Inspect Collateral and Records.

     (a) LENDER shall have full access during normal  business hours to, and the
right, through its officers,  agents, attorneys or accountants and at BORROWER's
expense  to:  examine,  check,  inspect  and  make  abstracts  and  copies  from
BORROWER's books, accounts,  orders, records,  audits,  correspondence,  and all
other  papers;  confirm  and  verify  all  Accounts  Receivable  and  the  other
Collateral;  enter upon BORROWER's  premises during business hours and from time
to  time,  for the  purpose  of  examining  BORROWER's  records  concerning  the
Collateral and for inspecting the Collateral and any and all records. So long as

<PAGE>

no Event of Default has occurred  and is  continuing,  LENDER's  access shall be
upon reasonable  request and upon prior notice to BORROWER,  provided,  however,
that nothing in the foregoing shall operate to limit or diminish  LENDER's right
to examine  BORROWER's  records concerning the Collateral and for inspecting the
Collateral and any and all records relating thereto.

     (b) BORROWER will reimburse LENDER for all of its examination fees incurred
by LENDER pursuant to the exercise of its rights under this Section.

     (c) Unless an Event of Default has occurred, the reimbursement set forth in
subsection (b) above shall be paid at the rate of $833.34 per month,  payable on
the first day of each and every  calendar month  beginning July 1, 2003,  with a
maximum of $10,000  being paid in any one calendar  year. If an Event of Default
has occurred, there shall be no limit on LENDER's right to reimbursement.

     (d) By its  execution  of this  Agreement,  BORROWER  authorizes  LENDER to
reimburse itself for any of its expenses associated with the above in the manner
set forth in the Authorization to Charge.

     5.13 Collateral  Management Fee.

     (a) In order to compensate LENDER for its expenses in monitoring, reviewing
and analyzing BORROWER's records, financial statements and Collateral,  BORROWER
will pay LENDER a Collateral  Management  Fee of $3,500 a month,  payable on the
first day of each and every  calendar  month  beginning July 1, 2003. (b) By its
execution of this Agreement,  BORROWER authorizes LENDER to reimburse itself for
any of its  expenses  associated  with the above in the  manner set forth in the
Authorization to Charge.

     5.14  Operating  Accounts.  BORROWER  will  maintain its primary  operating
account(s)  at any entity  (including  Fleet  National  Bank) which  directly or
indirectly through one or more intermediaries  controls, or is controlled by, or
is under  common  control  with,  LENDER  or any  entity  under the  control  of
FleetBoston   Financial   Corporation  (or  any  successor  thereto),  it  being
understood  and agreed that all such accounts are agreed to be Deposit  Accounts
for  purposes  of this  Agreement  and shall be  subject  to a  Blocked  Account
agreement  to  the  extent  required  by  LENDER.

     5.15 Disclosure of Certain  Information.  Upon request by LENDER,  BORROWER
agrees to authorize and direct all  accountants  and auditors  employed by it at
any time  during the term of this  Agreement  to exhibit  and  deliver to LENDER
copies of any of its financial  statements,  trial balances or other  accounting
records  of any  sort  in  their  possession,  and to  disclose  to  LENDER  any
information   they  may  have  concerning  its  financial  status  and  business
operations.

     5.16 Warranties relating to Accounts  Receivable and Inventory.  (a) Except
as may otherwise be specifically provided as to a particular Account, invoice or
other writing,  BORROWER  warrants that as to each Account  against which LENDER
has  made or is  making  an  Advance  that  each  such  Account  is an  Eligible
Receivable.  (b)  Except  as  may  otherwise  be  specifically  provided  as  to
particular  Inventory,  BORROWER warrants that as to all Inventory against which
LENDER  has made or is  making  an  Advance  that  such  Inventory  is  Eligible
Inventory.

     5.17  If any of the  Accounts  Receivable  includes  a  charge  for any tax
payable  to any  governmental  tax  authority,  LENDER is hereby  authorized  in
LENDER's reasonable  discretion,  to pay the amount thereof to the proper taxing
authority for BORROWER's  account and to charge the amount of such tax against a
specially  designated  demand  deposit  account of BORROWER at LENDER or, in the
absence of such designation or in the event that there are insufficient funds in
such  designated  account,  then to any demand  deposit  account of  BORROWER at
LENDER as of each due date.  In the event that there are  insufficient  funds in
any such  account on any  applicable  payment  due date,  then  LENDER is hereby

<PAGE>

authorized to effect  payment by charge against the Revolving Loan by increasing
the principal  balance of the Revolving  Loan as though an Advance were taken by
BORROWER  against the  Revolving  Loan in the amount of any payment  effected by
LENDER.  BORROWER shall notify LENDER if any Accounts Receivable include any tax
due to any such taxing authority, and in the absence of notice to LENDER, LENDER
shall have the right to retain the full  proceeds of such  Accounts  Receivable,
and shall not be liable for any taxes that may be due from BORROWER by reason of
the sale and delivery creating such Accounts Receivable.

     5.18  Subordination  Agreement.  BORROWER  will  obtain  the  Subordination
Agreement  required  by this  Agreement  so as to  postpone  the  payment of the
"Claims"  specified  in the  Subordination  Agreement  to the  extent  specified
therein.

     5.19 Minimum Tangible Net Worth.

     (a) As at March 31, 2003 and continuing at all times  thereafter,  BORROWER
shall maintain its Tangible Net Worth at a minimum of $6,000,000.

     (b) For purposes of this covenant, "Tangible Net Worth" shall be determined
by the following formula:

                  the  sum on a  consolidated  basis  of the  par  value  of the
                  capital  stock of GUARANTOR,  BORROWER and NPD Trading  (USA),
                  Inc.  +/-surplus/deficit  (excluding  any  surplus  or deficit
                  representing the cumulative income statement  component of any
                  change in valuation arising under the Master Agreement) + debt
                  whose  payment  is  subordinated  to the prior  payment of the
                  Liabilities (the category "Other Comprehensive Income or Loss"
                  to the  extent  that it  relates  to any value  created by the
                  Master Agreement to be excluded from this calculation)

                                      less

                  the  sum  on  a  consolidated   basis  of  treasury  stock  of
                  GUARANTOR,  BORROWER and NPD Trading (USA), Inc. + unamortized
                  debt   discount   and  expense  +  book  value  of  good  will
                  (excluding,  however,  any negative good will) + book value of
                  trademarks + book value of  tradenames + book value of patents
                  + deferred charges + intangible  assets + all indebtedness due
                  from BORROWER's officers or shareholders  (provided,  however,
                  that the effect of negative  goodwill on the income  statement
                  and  balance  sheet of  GUARANTOR,  BORROWER  and NPD  Trading
                  (USA), Inc. shall be excluded)

     (c) Compliance  with this Section will be tested  annually and quarterly by
reference to GUARANTOR's annual and quarterly  financial  statements required to
be submitted pursuant to Section 5.6 above and by using GAAP.

     (d)  Although  compliance  with this  Section  will be tested  annually and
quarterly as  aforesaid,  nothing in the  foregoing  shall  prevent  LENDER from
determining  that this covenant has been violated  prior to LENDER's  receipt of
any of the  aforementioned  financial  statements  in the event  LENDER  obtains
actual knowledge that BORROWER is not in compliance with this covenant.

     5.20 Total Debt to Tangible Net Worth.

     (a) As at December  31,  2002,  and as at each fiscal year end  thereafter,
BORROWER shall maintain the ratio of its Total Debt to its Tangible Net Worth at
no more than 6.0 to 1.0.

     (b) For purposes of this covenant, "Total Debt" shall include all debt owed
by BORROWER,  including  all debt owed by BORROWER to LENDER but  excluding  any
debt whose payment has been subordinated to the prior payment of

<PAGE>

the Liabilities. For purposes of this covenant, Tangible Net Worth shall have
the meaning given that term in Section 5.19(b) above.

     (c)  Compliance  with this Section will be tested  annually by reference to
GUARANTOR's annual  consolidated  financial  statements required to be submitted
pursuant to Section 5.6 above and by using GAAP.

     (d)  Although  compliance  with this  Section  will be tested  annually  as
aforesaid,  nothing in the foregoing shall prevent LENDER from  determining that
this  covenant  has  been  violated  prior  to  LENDER's  receipt  of any of the
aforementioned financial statements in the event LENDER obtains actual knowledge
that BORROWER is not in compliance with this covenant.

     5.21 Fixed Charge Coverage:

     (a) As at March 31, 2003 and continuing at all times  thereafter,  BORROWER
must maintain its "Fixed Charge Coverage" at a ratio greater than 1.1 to 1.0.

     (b)  Compliance  with this Section will be tested  quarterly  and annually,
using a rolling 12 month basis, by reference to BORROWER's  annual and quarterly
financial  statements required to be submitted pursuant to Section 5.6 above and
by using GAAP.

     (c) (1) For purposes of this covenant,  "Fixed Charge  Coverage"  means the
following ratio:


     BORROWER's earnings before interest,  taxes,  depreciation and amortization
     and before  the  income  statement  component  of any  change in  valuation
     arising under the Master Agreement

                 LESS BORROWER's"Unfunded Capital Expenditures"
                   LESS cash payment of income tax liabilities
                     LESS cash distributions to stockholders

    LESS all scheduled principal payments paid as allowed by the Subordinated
  Seller Note (at the present time there being no scheduled payments allowed by
                          the Subordinated Seller Note)

                                 --divided by--

                 interest expense PLUS the current maturities of
      long term debt as reported in BORROWER's annual financial statements
      for its fiscal year immediately preceding the applicable test period
 PLUS current maturities of Capital Lease Obligations as reported in BORROWER's
annual financial statements for its fiscal year immediately preceding the
                             applicable test period

     (2) For purposes of this covenant,  "Unfunded Capital  Expenditures"  means
BORROWER's  Capital  Expenditures  minus any loans  and/or  leases  incurred  in
financing any such Capital Expenditures.

     (3) For  purposes  of  this  covenant,  "Capital  Expenditures"  means  any
expenditures  (including deposits,  and Capitalized Lease Obligations based upon
the  present  value of all  future  payments)  for  assets  which the  purchaser
contemplates  will be used or usable in fiscal years  subsequent  to the year of
acquisition, all computed in accordance with GAAP.

     (4) For purposes of this covenant,  a "Capitalized  Lease Obligation" means
an  obligation  to pay rent or  other  amounts  under  any  lease  of (or  other
arrangement  conveying  the right to use) real and/or  personal  property  which
obligation is required to be classified  and accounted for as a capital lease on
a balance sheet prepared in accordance  with GAAP,  and for purposes  hereof the
amount of such obligation shall be the capitalized  amount thereof determined in
accordance with GAAP.

<PAGE>

     (d) Although  compliance  with this Section  will be tested  quarterly  and
annually  as  aforesaid,  nothing in the  foregoing  shall  prevent  LENDER from
determining  that this covenant has been violated  prior to LENDER's  receipt of
any of the  aforementioned  financial  statements  in the event  LENDER  obtains
actual  knowledge that BORROWER is not in compliance  with this  covenant.

     5.22 Performance Benchmarks.

     (a) (1) LENDER agrees that  BORROWER  shall be entitled to the reduced rate
of interest set forth in Section 2.6 above in the event that  BORROWER  achieves
and maintains certain performance benchmarks relating to BORROWER's"Fixed Charge
Coverage"  (as defined in this  Article V), such  performance  benchmarks  being
referred to, as  applicable,  as  "Performance  Benchmark  #1" and  "Performance
Benchmark #2" and "Performance Benchmark #3" in this Agreement.

     (2) For purposes of determining  BORROWER's "Fixed Charge  Coverage",  such
"Fixed Charge  Coverage"  shall be determined in accordance  with the definition
set forth in the "Fixed Charge Coverage" covenant of this Article V.

     (b) (1) In order for BORROWER to meet Performance  Benchmark #1, BORROWER's
Fixed  Charge  Coverage  must,  as at the end of  BORROWER's  applicable  fiscal
quarter for the 12 months  ending such fiscal  quarter,  be greater than 1.25 to
1.0.

     (2) In order for  BORROWER to meet  Performance  Benchmark  #2,  BORROWER's
Fixed  Charge  Coverage  must,  as at the end of  BORROWER's  applicable  fiscal
quarter for the 12 months  ending such fiscal  quarter,  be greater than 1.35 to
1.0.

     (3) In order for  BORROWER to meet  Performance  Benchmark  #3,  BORROWER's
Fixed  Charge  Coverage  must,  as at the end of  BORROWER's  applicable  fiscal
quarter for the 12 months  ending such fiscal  quarter,  be greater than 1.40 to
1.0.

     (c) The determination  whether BORROWER has satisfied Performance Benchmark
#1 or  Performance  Benchmark  #2 or  Performance  Benchmark  #3 for purposes of
obtaining the interest rate reduction  allowed by Section 2.6 above will be made
as set forth in said Section 2.6.

     (d)  The   determination   whether  BORROWER  remains  in  compliance  with
Performance  Benchmark #1 and Performance Benchmark #2 and Performance Benchmark
#3 for purposes of continuing the interest rate reduction allowed by Section 2.6
above will be made as set forth in Section 2.6.

     (e) In the event that BORROWER  qualifies for the  aforementioned  interest
rate  reduction,  BORROWER must  continue to satisfy the  requisite  Performance
Benchmark #1 and Performance  Benchmark #2 and  Performance  Benchmark #3 at all
times or the interest rate  reduction will be lost effective upon the earlier to
occur of LENDER's receipt of any financial statements indicating  non-compliance
or LENDER's  receipt of actual knowledge that BORROWER is not in compliance with
the  requisite  Performance  Benchmark.  In the event  that  BORROWER  loses its
entitlement  to an interest rate  reduction as  aforesaid,  BORROWER will not be
entitled to again seek to qualify for an interest rate reduction  until LENDER's
receipt of BORROWER's next quarterly financial statements.

     5.23  Inventory  Appraisals:  On a frequency  requested by LENDER but in no
event more  frequently than once a year unless an Event of Default has occurred,
BORROWER  shall  provide  LENDER at  BORROWER's  expense  such an  appraisal  of
BORROWER's  Inventory  prepared on a "walk-through"  basis (provided no Event of
Default has  occurred,  otherwise  based on an  appraisal  quality  specified by
LENDER)  and  otherwise  in form and  substance  satisfactory  to  LENDER.


<PAGE>

     5.24 Landlord's Consents.  BORROWER will obtain the Landlord's Consents for
the  Collateral  Locations  and any others  which  LENDER  using its  reasonable
commercial judgment deems necessary or desirable, provided, however, that in the
event that  despite  BORROWER's  best  efforts  BORROWER is unable to deliver to
LENDER any  Landlord's  Consent  required  hereunder,  LENDER will  forbear from
requiring such Landlord's  Consent upon the condition that BORROWER shall,  from
time to time upon the  reasonable  request of LENDER (such  request to be deemed
reasonable  if, so long as no Event of Default has occurred  and is  continuing,
made no more than  twice a year),  report to LENDER  all rent  payments  made by
BORROWER to the owner or owners of the Collateral Locations, it being understood
that  BORROWER's  failure to provide  LENDER with proof of any such rent payment
within 15 days of LENDER's request therefor will be sufficient  evidence that an
Event of Default has occurred hereunder. During any period of time that BORROWER
fails to provide  LENDER with proof of its rent payment as aforesaid  and not in
limitation  of any other  right of LENDER  hereunder,  LENDER may  reserve  from
BORROWER's  availability to borrow under the Revolving Loan the amount of rental
which  became  due and  owing  from  the date of the last  proof  submission  by
BORROWER.

                                   ARTICLE VI
                      NEGATIVE COVENANTSNEGATIVE COVENANTS

     BORROWER covenants and agrees, that until the full and final payment of the
Liabilities, unless LENDER waives compliance in writing:

     6.1 Change in  Location:  BORROWER  will not (a) change the location of its
chief  executive  office or where its books and  records are  maintained  or (b)
change the names currently used by it for billing or other business  purposes or
(c)  change or add to any  Collateral  Locations  unless in each case  above (i)
BORROWER  shall have given LENDER 30 days written notice of such change and (ii)
LENDER  shall  have  received  such  instruments  or  documents  as  LENDER  may
reasonably  request so that such change will not impair or negatively affect the
security interests granted to LENDER hereunder.

     6.2 Changes in  Business:  Except as  permitted by the proviso set forth in
Section  5.2  hereof,  BORROWER  will not (a) make any  material  change  in its
business or in the nature of its operation,  or (b) liquidate or dissolve itself
(or suffer any liquidation or dissolution) or (c) convey,  sell, lease,  assign,
transfer or otherwise dispose of any of its property,  assets or business except
sales of Inventory or other  Collateral  in the ordinary  course of business and
for a  fair  consideration  or  (d)  dispose  of  any  shares  of  stock  or any
indebtedness,  whether now owned or hereafter acquired (provided,  however, that
nothing in the foregoing shall prohibit GP Strategies  Corporation and/or any of
its  affiliates  and/or any of its officers or  directors  from  increasing  its
ownership  interest in GUARANTOR,  BORROWER's  parent),  or (e) discount,  sell,
pledge, hypothecate or otherwise dispose of Accounts Receivable.

     6.3 Dissolution, Mergers, Acquisitions, Formation of Subsidiaries: BORROWER
will (a) not dissolve or otherwise  dispose of all or a substantial  part of its
assets,  (b) not  consolidate  with or merge into another  corporation or entity
permit one or more other  corporations or entities to consolidate  with or merge
into it (whether or not  BORROWER or any  Subsidiary  is the  surviving  entity)
except that  GUARANTOR  may merge with and into  BORROWER so long as BORROWER is
the survivor,  (c) not acquire all or substantially  all of the assets or any of
the capital stock of any  corporation or other entity and (d) not form or create
or acquire any Subsidiary.

     6.4 Liens:  Except for Permitted Liens or as disclosed in the Certification
as to Liens, BORROWER will not suffer to exist any lien,  encumbrance,  mortgage
or  security  interest  on  property  on which a lien has been  given to  LENDER
pursuant to this Agreement or any of the other Loan Documents.

     6.5 Indebtedness:  BORROWER will not create, incur, permit to exist or have
outstanding any indebtedness, except:


<PAGE>

     (a)  indebtedness  of  BORROWER  to LENDER  under  this  Agreement  and the
Revolving Note;

     (b) accrued taxes,  assessments  and  governmental  charges not yet due and
payable,  non-interest  bearing  accounts payable and accrued  liabilities,  and
non-interest  bearing deferred  liabilities other than for borrowed money (e.g.,
deferred  compensation and deferred taxes), in each case incurred and continuing
in the ordinary course of business;

     (c)  indebtedness  secured by any purchase money security  interests to the
extent this  Agreement may  expressly  allow any such  purchase  money  security
interest and Capitalized  Lease  Obligations (as defined below in this Article),
in each case incurred only if, after giving effect thereto, the limit on Capital
Expenditures set forth in this Article would not be breached;

     (d) debt under the Subordination Agreement.

     6.6 Guaranties:  (a) BORROWER will not assume, endorse, be or become liable
for,  or  guarantee,  the  obligations  of any person or  entity,  except by the
endorsement of negotiable  instruments for deposit or collection in the ordinary
course of business.

     (b) For the  purposes  hereof,  the  term  "guarantee"  shall  include  any
agreement, whether such agreement is on a contingency or otherwise, to purchase,
repurchase or otherwise  acquire  indebtedness of any other person or entity, or
to purchase,  sell or lease, as lessee or lessor,  property or services,  in any
such case  primarily for the purpose of enabling  another person to make payment
of any  indebtedness,  or to make any payment  (whether  as an advance,  capital
contribution,  purchase of an equity  interest or otherwise) to assure a minimum
equity,  asset  base,  working  capital  or other  balance  sheet  or  financial
condition,  in connection with the indebtedness of another person or entity,  or
to  supply  funds to or in any  manner  invest  in  another  person or entity in
connection with the indebtedness of such person or entity.


     6.7 ERISA:

     (a) BORROWER will not permit the occurrence of any Termination  Event under
ERISA,  or the occurrence of a termination  or partial  termination of a Defined
Contribution  Plan  which  would  result  in a  liability  to  BORROWER  or  any
Subsidiary in excess of $150,000.

     (b)  BORROWER  will not engage,  or permit  BORROWER or any  Subsidiary  to
engage, in any prohibited transaction under Section 406 of ERISA or Section 4975
of the Internal  Revenue  Code,  for which a civil  penalty  pursuant to Section
502(i) of ERISA or a tax pursuant to Section  4975 of the Internal  Revenue Code
is imposed in excess of $150,000.

     (c)  BORROWER  will not  engage or permit  BORROWER  or any  Subsidiary  to
engage, in any breach of fiduciary duty under Part 4 of Title I of ERISA; or

     (d) BORROWER will not permit the establishment of any Employee Benefit Plan
providing  post-retirement  welfare  benefits or establish or amend any Employee
Benefit  Plan which  establishment  or  amendment  could  result in liability to
BORROWER or any Subsidiary individually or together with all similar liabilities
and increases, is material to BORROWER or any Subsidiary; or

     (e) BORROWER will not fail, or permit  BORROWER or any  Subsidiary to fail,
to establish,  maintain and operate each Employee  Benefit Plan in compliance in
all material  respects with the provisions of ERISA,  the Internal  Revenue Code
and all other applicable laws and the regulations and interpretations thereof.



<PAGE>

     6.8 Compromise of Claims:  BORROWER will not  compromise,  settle or adjust
any  claims  which  are part of or which  affect  the  Collateral  except in the
ordinary course of business.

     6.9 Bank  Accounts:  BORROWER  will not establish any deposit or other bank
account  with any  financial  institution  unless  such  account is  approved in
writing by LENDER.


     6.10 Subordinated Debt:

     (a)  BORROWER  will not amend or change,  or consent  to any  amendment  or
change,  with  respect to, the  Subordination  Agreement  or any other  document
evidencing or securing the debt subordinated thereby.

     (b) BORROWER will not directly or indirectly, make any principal payment or
distribution of or on account of any debt  subordinated by the Subordinated Debt
except to the extent expressly allowed therein.

     6.11 Loans and  Investments:  BORROWER  will not make loans or  advances or
make or suffer to exist,  any  investment  in any person or  entity,  including,
without limitation,  any loans to or investments in GUARANTOR and/or NPD Trading
(USA),  Inc.,  or any  shareholder,  director,  officer or employee of BORROWER,
GUARANTOR and NPD Trading (USA), Inc.,  provided however,  that  notwithstanding
the foregoing, BORROWER may make investments in:

                           (a)      obligations issued or guaranteed by the
                                    United States of America;

                           (b)      certificates of deposit, bankers acceptances
                                    and other "money market instruments" issued
                                    by any bank or trust company organized under
                                    the laws of the United States of America or
                                    any State thereof and having capital and
                                    surplus in an aggregate amount of not less
                                    than $100,000,000;

                           (c)      open market commercial paper bearing the
                                    highest credit rating issued by Standard &
                                    Poor's Corporation or by another nationally
                                    recognized credit rating agency;

                           (d)      repurchase agreements entered into with any
                                    bank or trust company organized under the
                                    laws of the United States of America or any
                                    State thereof and having capital and surplus
                                    in an aggregate amount of not less than
                                    $100,000,000 relating to United States of
                                    America government obligations; and

                           (e)      shares of "money market funds", each having
                                    net assets of not less than $100,000,000;

in each case  maturing  or being due or  payable  in full not more than 365
days after BORROWER's acquisition thereof.


     6.12 Fiscal  Year:  BORROWER  will not change its fiscal  year  without the
prior  written  consent  of  LENDER,  which  consent  shall not be  unreasonably
withheld.

     6.13  Amendment of Corporate  Documents:  BORROWER will not modify,  amend,
supplement or terminate, or agree to modify, amend, supplement or terminate, its
certificate of  incorporation  or by-laws  except for amendments  that would not

<PAGE>

adversely  affect any  Liabilities,  any  Collateral,  any rights or remedies of
LENDER  hereunder  or the ability of BORROWER  to perform  its  obligations,  or
conduct its business as previously conducted.

     6.14 No Year-to-Date Net Loss in Excess of $300,000:

     (a) BORROWER will not suffer a year-to-date Net Loss of $300,000 or more in
any fiscal year.

     (b) LENDER will determine compliance with this Section on a quarterly basis
(commencing   with  the  fiscal   quarter  ending  March  31,  2003)  using  the
consolidated  financial  information  required to be submitted by BORROWER under
this Agreement and by using GAAP.

     (c)  Although  compliance  with this  Section  will be tested  quarterly as
aforesaid,  nothing in the foregoing shall prevent LENDER from  determining that
this  covenant  has  been  violated  prior  to  LENDER's  receipt  of any of the
aforementioned financial statements in the event LENDER obtains actual knowledge
that BORROWER is not in compliance with this covenant.

     6.15 Losses in Any Two Consecutive Fiscal Quarters:

     (a)  BORROWER  will not  suffer a Net Loss for any two  consecutive  fiscal
quarters.

     (b) LENDER will determine compliance with this Section on a quarterly basis
(commencing   with  the  fiscal   quarter  ending  March  31,  2003)  using  the
consolidated  financial  information  required to be submitted by BORROWER under
this Agreement and by using GAAP.

     (c)  Although  compliance  with this  Section  will be tested  quarterly as
aforesaid,  nothing in the foregoing shall prevent LENDER from  determining that
this  covenant  has  been  violated  prior  to  LENDER's  receipt  of any of the
aforementioned financial statements in the event LENDER obtains actual knowledge
that  BORROWER  is  not  in  compliance   with  this   covenant.   6.16  Capital
Expenditures:

     (a) BORROWER will not incur  Capital  Expenditures  in an amount  exceeding
$500,000 in any fiscal year.

     (b) For purposes of this covenant,  the term "Capital  Expenditures"  shall
have the meaning given that term in Section 5.21.

     (c) LENDER will determine  compliance  with this Section on an annual basis
(commencing   with  the  fiscal  year  ending   December  31,  2002)  using  the
consolidated  financial  information  required to be submitted by BORROWER under
this Agreement and by using GAAP.

     (d)  Although  compliance  with this  Section  will be tested  annually  as
aforesaid,  nothing in the foregoing shall prevent LENDER from  determining that
this  covenant  has  been  violated  prior  to  LENDER's  receipt  of any of the
aforementioned financial statements in the event LENDER obtains actual knowledge
that BORROWER is not in compliance with this covenant.

     6.17  Margin  Securities:  BORROWER  will not own,  purchase or acquire (or
enter into any contract to purchase or acquire) any "margin security" as defined
by any  regulation of the Board of Governors as now in effect or as the same may
hereafter be in effect  unless,  prior to any such  purchase or  acquisition  or
entering  into any such  contract,  LENDER is to have  received  an  opinion  of
counsel  satisfactory  to LENDER to the effect that such purchase or acquisition
will not  cause  this  Agreement  to  violate  Regulations  G or U or any  other
regulation of the Board of Governors then in effect.

<PAGE>

                                  ARTICLE VII
                                EVENTS OF DEFAULT

                  Regardless of the terms of any of the other Loan Documents,
the occurrence of any of the following events shall be deemed an event of
default (an "Event of Default") hereunder:

     7.1 (a)  BORROWER  shall  fail  to pay on its  due  date  any  interest  or
principal  or premium  due on the  Revolving  Loan or the  Revolving  Note;  (b)
BORROWER  shall fail to pay within 10 days of its due date any other payment due
under this Agreement;

     7.2  BORROWER  shall fail to perform or observe  any  covenant  of BORROWER
contained in Section 5.6,  Section 5.18,  Section 5.19,  Section 5.20 or Section
5.21 or Article VI of this Agreement;

     7.3 (a) any  representation  or warranty herein or in any of the other Loan
Documents or in connection with any transaction  contemplated  hereby or thereby
shall prove to have been false or misleading in any material respect when made;

     (b) to the extent  that any  aforementioned  representation  is made to the
best of the  information,  knowledge  or belief of BORROWER  but the  underlying
representation is nonetheless  false or misleading in any material  respect,  an
Event of Default will be deemed to have occurred  hereunder if BORROWER fails to
make correct the  underlying  representation  30 Business Days after notice from
LENDER to do so;

     7.4 (a) LENDER shall fail to have a legal,  valid and binding first lien on
the Accounts Receivable and Inventory; (b) Except for Permitted Liens and except
as may be set forth on the Certification as to Liens,  LENDER shall fail to have
a legal, valid and binding first lien on any of the other Collateral;

     7.5 (a)  any  consensual  lien or  encumbrance  or any  security  interest,
perfected or otherwise,  other than the security interests specifically provided
for or  permitted  hereunder,  shall  be  created  in the  Collateral;

     (b) any  non-consensual  lien,  including  but not limited to any  judgment
against  BORROWER  or  GUARANTOR,  becomes  an  encumbrance  against  BORROWER's
Accounts or Inventory and BORROWER does not remove or discharge such lien within
10 days after notice from LENDER to do so;

     (c) any  non-consensual  lien,  including  but not limited to any  judgment
against  BORROWER  or  GUARANTOR  in any amount in excess of $50,000  becomes an
encumbrance  against any of the other Collateral and BORROWER does not remove or
discharge such lien within 30 days after notice from LENDER to do so;


     7.6 BORROWER or GUARANTOR  shall admit in writing an inability to pay debts
as they come due or shall  file any  petition  or action  for  relief  under any
bankruptcy,  reorganization,  insolvency or moratorium  law, or any other law or
laws for the relief of, or relating to, debtors;

     7.7 an  involuntary  petition  shall  be  filed  under  any  bankruptcy  or
insolvency  statute  against  BORROWER  or  GUARANTOR  and such  petition is not
discharged or stayed within 60 days from the date of the filing of the petition;

     7.8 a receiver or trustee  shall be  appointed  to take  possession  of the
properties of BORROWER or GUARANTOR;

     7.9  BORROWER  or  GUARANTOR  ceases  all  or  substantially   all  of  its
operations;

     7.10 any  default  shall  occur  under any other loan  agreement  involving
either the  borrowing  of money or the  advance of credit to which  BORROWER  or
GUARANTOR  may be a party as borrower or guarantor  and such default  results in
the acceleration of the money owing under such other loan agreement;

<PAGE>

     7.11 BORROWER or GUARANTOR  shall  breach,  violate or default  under,  any
term,  condition,  provision,  representation  or  warranty  contained  in  this
Agreement  not  specifically  referred to in this  Article VII and such  breach,
default or  violation  is not cured  within the  earlier of (a) the time  period
given by this  Agreement  for  cure or (b) in the  absence  of this  Agreement's
giving any such time period for cure,  30 Business Days after notice from LENDER
to do so;

     7.12 any breach,  default or violation  shall occur under any of the terms,
conditions,  representations,  warranties  or covenants  contained in any of the
other Loan  Documents and such breach,  default or violation is not cured within
the earlier of (a) the time  period  given by any such other Loan  Document  for
cure or (b) in the  absence of any such other  Loan  Document's  giving any such
time period for cure, 30 Business Days after notice from LENDER to do so;

     7.13 any of the Loan  Documents  (or any  provision  thereof) is claimed by
BORROWER or by GUARANTOR to be invalid or unenforceable;

     7.14  BORROWER or GUARANTOR  shall fail to obtain and deliver to LENDER any
mortgage,   financing   statement,   subordination   agreement   or  any   other
documentation  required to be signed or obtained  as part of this  Agreement  or
shall have failed to take any action  requested  by LENDER to perfect or protect
the security  interests provided for herein and such failure is not cured within
the earlier of (a) the time period  given by this  Agreement  for cure or (b) in
the  absence  of this  Agreement's  giving  any such time  period  for cure,  30
Business Days after notice from LENDER to do so;

     7.15 GUARANTOR  disclaims  liability or seeks to terminate  liability under
the  Guaranty  or  GUARANTOR   breaches  any  covenant,   condition,   warranty,
representation or other provision of the Guaranty;

     7.16 BORROWER obtains any loan secured by Accounts  Receivable or Inventory
from any source other than LENDER;

     7.17 if BORROWER is not in compliance with the Lending Formula and BORROWER
fails to come  into  compliance  with such  Lending  Formula  immediately  after
BORROWER receives notice that it is required to do so;

     7.18 BORROWER shall fail to timely remit payment to any of the landlords of
any of the  Collateral  Locations or any default  shall occur under any lease at
such location;

     7.19 any other event occurs or condition  exists  which,  in the opinion of
LENDER,  constitutes a Materially  Adverse  Effect in the business  condition or
financial  status of  BORROWER or which,  in the opinion of LENDER,  impairs the
ability of BORROWER to  discharge  its  obligations  hereunder  or which  causes
LENDER to deem itself insecure;

     7.20 any other event occurs or condition  exists  which,  in the opinion of
LENDER,  constitutes a Materially  Adverse  Effect in the business  condition or
financial  status of GUARANTOR or which,  in the opinion of LENDER,  impairs the
ability of GUARANTOR to discharge  its  obligations  under the Guaranty or which
causes LENDER to deem itself insecure.


<PAGE>

                                  ARTICLE VIII
                                    REMEDIES

     8.1 Upon the occurrence and continuance of an Event of Default,  LENDER may
do any or all of the following at the same time or at different times:

     (a) LENDER may, by written notice to BORROWER, declare the entire principal
amount of the Revolving Loan, or the unpaid balance  thereof,  together with all
accrued  interest and all other lawful and proper charges  thereon,  immediately
due and payable whereupon all such sums shall become immediately due and payable
with  interest  thereafter  at the Default Rate,  without  presentment,  demand,
protest or other notice of any kind, all of which are hereby expressly waived by
BORROWER.


     (b)  LENDER  may,  by  written  notice  to  BORROWER,   declare  all  other
Liabilities,  together with all accrued interest and all other lawful and proper
charges thereon, to be forthwith due and payable with interest thereafter at the
Default Rate,  whereupon all such sums shall become immediately due and payable,
without presentment,  demand,  protest or other notice of any kind, all of which
are hereby expressly waived by BORROWER.


     (c) LENDER may proceed with or without  judicial process to take possession
of all or any part of the  Collateral  not already in the  possession of LENDER.
BORROWER  agrees  that upon  receipt  of notice of  LENDER's  intention  to take
possession  of all or any part of said  Collateral,  BORROWER will do everything
reasonably necessary to make same available to LENDER.

     (d) LENDER may  assign,  transfer  and  deliver at any time or from time to
time, in accordance with the Uniform  Commercial  Code, the whole or any portion
of any Collateral which is subject to the Uniform  Commercial Code or any rights
or  interests  therein;  and  without  limiting  the  scope of  LENDER's  rights
thereunder,  sell such  Collateral  at a public or private sale, or in any other
manner,  at such price or prices as LENDER may deem best, and either for cash or
credit,  or for future delivery,  at the option of LENDER, in bulk or in parcels
and with or without  having such  Collateral  at the sale or other  disposition.
LENDER  shall  have the  right  to be the  purchaser  at any  public  sale.  Any
notification  of a sale or other  disposition  of the Collateral or of any other
action by LENDER  required to be given by LENDER to BORROWER  will be sufficient
if given  not less  than ten (10)  days  prior to the day on which  such sale or
other  disposition will be made and in the manner set forth in Section 9.1; such
notification  shall be deemed reasonable  notice. In the event of a sale of such
Collateral,  or any other disposition  thereof,  LENDER shall apply all proceeds
first to all costs and expenses of disposition,  including  attorneys' fees, and
then to the Liabilities of BORROWER to LENDER.

     (e) LENDER may immediately, and without notice or other action, set-off and
apply against the  Liabilities  (1) any and all deposits,  Deposit  Accounts (as
defined in the UCC) and all other items  described in Section 3.9 hereof  and/or
(2) any sum owed by LENDER in any  capacity to BORROWER  whether due or not. ANY
AND ALL RIGHTS TO REQUIRE LENDER TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT
TO ANY OTHER  COLLATERAL  WHICH SECURES THE REVOLVING LOAN,  PRIOR TO EXERCISING
ITS RIGHT OF  SETOFF  WITH  RESPECT  TO THE  FOREGOING,  ARE  HEREBY  KNOWINGLY,
VOLUNTARILY AND IRREVOCABLY WAIVED. LENDER may do the foregoing even though some
or all of the Liabilities may be unmatured and regardless of the adequacy of any
other  Collateral  securing  the  Liabilities.  LENDER  shall be  deemed to have
exercised  such right of set-off and to have made a charge  against any such sum
immediately upon the occurrence of such Event of Default, even though the actual
book entries may be made at some time subsequent thereto.


     (f) LENDER may send notice of assignment and/or notice of LENDER's security
interest to any and all Account  Debtors or any third party holding or otherwise
concerned with any of the Collateral, and thereafter, LENDER shall have the sole
right  to  collect  the  Accounts  Receivable  and/or  take  possession  of  the
Collateral.  Any and all of LENDER's reasonable  collection expenses,  including

<PAGE>

but not limited to stationery and postage, telephone and telegraph,  secretarial
and clerical  expenses and the salaries of any collection  agencies or attorneys
utilized,  shall be added to the  Liabilities  and  charged  against a specially
designated  demand  deposit  account of BORROWER at LENDER or, in the absence of
such  designation  or in the event  that  there are  insufficient  funds in such
designated account,  then to any demand deposit account of BORROWER at LENDER as
of each due date.

     (g) LENDER may  without  notice to or consent  from  BORROWER,  sue upon or
otherwise  collect,  extend the time of payment of, or  compromise or settle for
cash, credit or otherwise, upon any terms, any of the Accounts Receivable or any
securities,  instruments  or insurance  applicable  thereto  and/or  release the
Account Debtor thereon.  LENDER is authorized and empowered to accept the return
of the Goods represented by any of the Accounts Receivable, without notice to or
consent by BORROWER all without  discharging or in any way affecting  BORROWER's
liability hereunder. LENDER does not, by anything herein or in any assignment or
otherwise,  assume any  obligations of BORROWER  under any Account,  contract or
agreement assigned to LENDER, and LENDER shall not be responsible in any way for
the performance by BORROWER of any of the terms and conditions thereof.


     (h) LENDER may notify the Post Office authorities to change the address for
delivery of mail addressed to BORROWER to such address as LENDER may designate.


     (i) LENDER  may add to the  Liabilities  LENDER's  reasonable  expenses  to
obtain or enforce  payment of any  Liabilities  hereunder and the enforcement or
liquidation of any debt hereunder shall include reasonable attorneys' fees, plus
other legal expenses incurred by LENDER.


     8.2  LENDER is hereby  further  granted  a license  or other  right to use,
without charge at all times on and after the  occurrence  and  continuance of an
Event of Default, BORROWER's labels, patents,  copyrights,  rights of use of any
name,  trade secrets,  trade names,  trademarks and advertising  matter,  or any
property of a similar nature,  as it pertains to the Collateral,  in advertising
for sale and selling any  Collateral,  and BORROWER's  rights under all licenses
and franchise agreements are to inure to LENDER's benefit.

     8.3 BORROWER shall remain liable for any deficiency  resulting from a sale,
lease,  foreclosure  or other  disposal of the Collateral and shall pay any such
deficiency forthwith on demand,  together with per annum interest at the Default
Rate.

     8.4 The rights of LENDER  under this  Article  are in addition to all other
remedies, statutory and otherwise, which are available to it at law or in equity
or  otherwise  and  whether  or not under  the  terms of any of the  other  Loan
Documents. ARTICLE IX

                                  MISCELLANEOUS

9.1      COMMUNICATIONS AND NOTICES:

     (a) Any  communications  between  the  parties  hereto or notices  provided
herein to be given may be given by  mailing  the same,  certified  mail,  return
receipt  requested,  postage prepaid or by confirmed  facsimile  transmission or
hand delivery or by an overnight delivery service, as follows:

                                (1) to LENDER at:
                                      750 Walnut Avenue
                                      Cranford, New Jersey 07016
                                Attn: Account Officer for Five Star Group, Inc.;


<PAGE>

                                (2)    to BORROWER at the address first
                                       above given for BORROWER in this
                                       Agreement;

                                (3)    to such other addresses as any party
                                       may in writing hereafter indicate by
                                       notice given in conformity with this
                                       Section.

     (b) Notices sent by certified mail shall be deemed  received when accepted.
Notices sent by  confirmed  facsimile  transmission  or hand  delivery  shall be
deemed  received when delivered to the address and/or person  designated in this
Section.  Notices sent by overnight  delivery  service shall be deemed  received
upon delivery.

     9.2 LENDER  MAY PAY,  SATISFY,  DISCHARGE  OR BOND  CERTAIN  OF  BORROWER'S
OBLIGATIONS:  In the event that BORROWER shall default in the performance of any
of the  provisions of this Agreement or in the event that BORROWER shall fail to
pay any tax, assessment, government charge or levy, except as the same are being
contested in good faith by appropriate  proceedings,  or shall fail to discharge
any lien,  encumbrance or security interest  prohibited hereby, or shall fail to
comply with any other  obligation of BORROWER to LENDER  hereunder,  LENDER may,
but shall not be required to, pay,  satisfy,  discharge or bond the same for the
account  of  BORROWER  and all  moneys  so paid out  shall be an  obligation  of
BORROWER hereunder, repayable on demand, together with per annum interest at the
Default Rate.

     9.3 PLEDGE TO  FEDERAL  RESERVE:  LENDER may at any time  pledge all or any
portion of its rights under the Loan  Documents  including the Revolving Note to
any of the twelve (12) Federal  Reserve Banks  organized  under Section 4 of the
Federal  Reserve  Act, 12 U.S.C.  Section  341.  No such  pledge or  enforcement
thereof  shall  release  LENDER  from  its  obligations  under  any of the  Loan
Documents.

     9.4 PAYMENTS IN LAWFUL MONEY OF THE UNITED STATES: All payments shall be in
lawful  money  of the  United  States  in  immediately  available  funds  unless
otherwise provided in this Agreement.


     9.5  SUCCESSORS  AND ASSIGNS:  This  Agreement  shall bind and inure to the
benefit of the  parties  hereto and their  respective  successors  and  assigns;
provided,  however,  that BORROWER shall not assign this Agreement or any of its
rights,  duties or obligations  hereunder  without the prior written  consent of
LENDER and any purported  assignment or delegation without such consent shall be
void.

     9.6 LENDER'S RIGHTS NOT IMPAIRED BY DELAY IN EXERCISING RIGHTS: No delay or
omission  to  exercise  any right,  power or remedy  accruing to LENDER upon any
breach or default (whether such breach or default is now or hereafter occurring)
of BORROWER  under this  Agreement,  the Revolving Note or any of the other Loan
Documents  shall (a) impair any such  right,  power or remedy of LENDER,  (b) be
construed  to be a waiver of any such  breach  or  default,  or an  acquiescence
therein, or (c) be construed to be a waiver of or an acquiescence in any similar
breach or default thereafter occurring.  Any waiver, permit, consent or approval
of any kind or  character  on the part of LENDER of any breach or default  under
this Agreement,  the Revolving Note or any of the other Loan  Documents,  or any
waiver on the part of LENDER of any provision or condition of this  Agreement or
any of such other Loan Documents, must be in writing and shall be effective only
to the extent specifically set forth in such writing. All remedies, either under
this Agreement, the Revolving Note or any of the other Loan Documents, or by law
or otherwise afforded to of LENDER shall be cumulative and not alternative.


<PAGE>

     9.7 LENDER'S COSTS AND EXPENSES:

     (a) BORROWER will pay the reasonable fees and the reasonable  out-of-pocket
expenses  incurred  by LENDER in  connection  with (1) the  preparation  of this
Agreement and other related  documents,  whether or not the transactions  hereby
contemplated  shall  be  consummated,  (2)  the  making  of the  Revolving  Loan
hereunder and (3) the determination  and/or  enforcement of the rights of LENDER
in  connection  with  such  documents  and/or  with  the  Revolving  Loan.  Such
out-of-pocket  expenses  include  but  are  not  limited  to,  charges  for  the
examination of title,  inspections  and drawings of paper,  recording and filing
fees, and all reasonable  attorneys' fees,  including the fees and disbursements
of LENDER's counsel.

     (b)  Whenever any  attorney is used to provide  advice to LENDER  regarding
LENDER's  relationship with BORROWER or whenever any attorney is used to collect
any obligation or to determine,  preserve or enforce any right of LENDER against
BORROWER or against the Collateral  under this Agreement,  the Revolving Note or
any of the other Loan Documents, whether by suit or other means, BORROWER agrees
to pay the reasonable  attorney's fees and other costs and expenses  incurred by
LENDER.  BORROWER  also agrees to pay LENDER's  attorneys a  reasonable  fee and
costs and  expenses  for  enforcing  against  third  parties any other rights of
LENDER  pertaining  hereto  including   LENDER's  defending  against  any  claim
pertaining to the  Collateral,  provided,  however,  that BORROWER  shall not be
obligated to pay for more than one attorney  representing  LENDER  except during
such period of time as an Event of Default may have occurred and is continuing.

     (c) Any payment required of BORROWER hereunder shall be made within 10 days
of LENDER's  request that BORROWER do so. In the event that BORROWER fails to do
so, BORROWER by its execution of this Agreement  authorizes  LENDER to reimburse
itself for any of its fees, costs and expenses  associated with the above in the
manner set forth in the Authorization to Charge.  BORROWER's failure to make any
such  payment or LENDER's  inability to charge  against or add to the  Revolving
Loan shall be an Event of Default hereunder.  (d) Until paid by BORROWER, all of
the expenses set forth in this Section  above shall bear interest at the Default
Rate and all such  amounts  shall be added to the  Revolving  Loan and  shall be
secured by the Collateral.

     9.8 NO WAIVER OF LENDER'S RIGHT OF SET-OFF: Nothing in this Agreement shall
be deemed any waiver or prohibition of LENDER's right of set-off.

     9.9  GOVERNING  LAW: This  Agreement  and each of the other Loan  Documents
shall be governed by, and construed under, the laws of the State of New Jersey.

     9.10 FORUM FOR  LITIGATION:  BORROWER agrees that, in addition to any other
available  forum,  any suit,  action or  proceeding  against it arising under or
growing out of, or relating to this Agreement or any note or other instrument or
agreement required  hereunder,  or any other instrument executed by BORROWER for
the benefit of LENDER,  may be  instituted  in any Federal court in the State of
New Jersey or any State  court in the State of New Jersey or in any other  court
having  jurisdiction,  and BORROWER  hereby waives any objection  which it might
have now or  hereafter  to the laying of the venue of any such  suit,  action or
proceeding, and irrevocably submits to the jurisdiction of any such court in any
suit,  action or  proceeding  and waives  any claim or  defense of  inconvenient
forum.

     9.11  AGREEMENT  MUST BE  SIGNED BY  LENDER:  This  Agreement  shall not be
effective against LENDER unless signed by an officer of LENDER.

     9.12 ENTIRE UNDERSTANDING: This Agreement contains the entire understanding
of the parties and any promises or  representations  not herein  contained shall
have no force and  effect,  unless in  writing,  duly  signed by the party to be
charged.


<PAGE>

     9.13 MODIFICATIONS: As it relates to LENDER, neither this Agreement nor any
portion  or  provision  hereof  may  be  changed,  modified,   amended,  waived,
supplemented,  discharged,  canceled  or  terminated  orally or by any course of
dealing,  or in any manner  other than by an  agreement  in  writing,  signed by
LENDER.

     9.14 CONTINUATION OF SECURITY INTERESTS: The security interests, liens, and
rights  granted  to LENDER  hereunder  shall  continue  in full force and effect
notwithstanding  the fact that  BORROWER's  account may,  from time to time,  be
temporarily in a credit position.

     9.15  SURVIVAL  OF  REPRESENTATIONS:   All   representations,   warranties,
covenants,  waivers and  agreements  contained  herein shall  survive  execution
hereof, unless otherwise provided.


     9.16 SEVERABILITY:  The provisions of this Agreement are severable,  and if
any clause or provision  hereof shall be held invalid or  unenforceable in whole
or in part in any jurisdiction,  then such invalidity or unenforceability  shall
affect only such clause or provision,  or part thereof, in such jurisdiction and
shall  not  in  any  manner  affect  such  clause  or  provision  in  any  other
jurisdiction,  or any  other  clause  or  provision  in  this  Agreement  in any
jurisdiction. Each of the covenants, agreements and conditions contained in this
Agreement is  independent  and compliance by BORROWER with any of them shall not
excuse  non-compliance by BORROWER with any other. All covenants hereunder shall
be given  independent  effect so that if a particular action or condition is not
permitted  by any of such  covenants,  the fact that it would be permitted by an
exception to, or be otherwise  within the limitations of, another covenant shall
not avoid  the  occurrence  of an Event of  Default  if such  action is taken or
condition exists.

     9.17 ACTIONS OF LENDER:  Any  requirement in this Agreement that LENDER act
reasonably or any  requirement in this  Agreement  that LENDER show  materiality
shall be broadly and liberally  construed in favor of LENDER bearing in mind the
need of LENDER  to  protect  its  security  interests  and to  realize  upon the
Collateral.

     9.18 RESTATEMENT OF PRIOR AGREEMENTS:

     (a) This  Agreement  and the other  Loan  Documents  restate  and amend the
obligations  of BORROWER  under the "Prior  Agreements",  such Prior  Agreements
consisting of that certain  November 1, 2001 Loan and Security  Agreement by and
among, among others,  BORROWER and LENDER (then known as Summit Business Capital
Corp. and acting at that time in its individual  capacity as a lender and in its
representative  capacity for certain named  co-lenders)  and the Loan  Documents
referred to therein, as from time to time amended.

     (b) This  Agreement  and the other Loan  Documents are intended to restate,
amend, substitute for and replace in their entirety the Prior Agreements.

     (c) All sums  outstanding  on the date  hereof  under the Prior  Agreements
shall be and hereby are restated and recast,  without  more, as an Advance under
the Revolving Loan.

     (d) BORROWER  stipulates and agrees that all sums now owing under the Prior
Agreements are due and payable to LENDER without defense, setoff,  recoupment or
counterclaim or charge of any type or nature, whether asserted or unasserted.

     9.19  INCONSISTENCIES:  In the  event  of any  inconsistency  between  this
Agreement  and any of the other  Loan  Documents  affording  LENDER  rights  and
remedies,  such  inconsistency  shall be  resolved  by an  interpretation  which
expands such rights rather than limits such rights.


<PAGE>

     9.20  CONFIRMATORY  SEARCHES:  BORROWER  understands  that LENDER may order
confirmatory  searches  after the date of this Agreement in order to verify that
all UCC-1  Financing  Statements  have been filed and that LENDER holds the lien
priorities against the Collateral as required by this Agreement. BORROWER agrees
to pay all of LENDER's expenses,  including reasonable attorneys' fees, incurred
in procuring and reviewing  such searches.  By its execution of this  Agreement,
BORROWER  authorizes  LENDER  to  reimburse  itself  for  any  of  its  expenses
associated  with the  above in the  manner  set  forth in the  Authorization  to
Charge.

     9.21  LENDER  NOT  BORROWER'S  AGENT:  Nothing  herein  contained  shall be
construed to constitute  LENDER as BORROWER's agent for any purpose  whatsoever.
In  addition,  LENDER  shall not be  responsible  or liable  for (a) any acts of
omission or commission,  (b) any error of judgment, (c) any mistake of fact, (d)
any shortage,  discrepancy,  impairment, damage, loss or destruction of any part
of the  Collateral  wherever the same may be located and regardless of the cause
thereof  or (e) any  error or  omission  or delay of any kind  occurring  in the
settlement,  collection  or payment  of any of the  Accounts  Receivable  or any
instrument received in payment thereof or for any damage resulting therefrom.

     9.22 LOST LOAN  DOCUMENTS:  Upon  receipt of an  affidavit of an officer of
LENDER as to the loss, theft, destruction or mutilation of the Revolving Note or
any other security document which is not of public record,  BORROWER will issue,
in lieu thereof, a replacement  Revolving Note or other security document in the
same principal amount thereof and otherwise of like tenor.

     9.23  COUNTERPARTS:  This  Agreement  may  be  executed  in any  number  of
counterparts and by different parties hereto in separate  counterparts,  each of
which when so executed  shall be deemed to be an original and all of which taken
together shall  constitute one and the same  agreement.  Delivery of an executed
counterpart  of a signature  page to this  Agreement  by  facsimile  shall be as
effective as delivery of a manually executed counterpart of this Agreement.

     9.24 WAIVER OF JURY TRIAL:  BORROWER AND LENDER MUTUALLY HEREBY  KNOWINGLY,
VOLUNTARILY AND  INTENTIONALLY  WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF
ANY  CLAIM  BASED  HEREON,  ARISING  OUT OF,  UNDER OR IN  CONNECTION  WITH THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENTS  CONTEMPLATED TO BE EXECUTED IN CONNECTION
HEREWITH  OR ANY COURSE OF  CONDUCT,  COURSE OF  DEALINGS,  STATEMENTS  (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY.  THIS WAIVER  CONSTITUTES A MATERIAL
INDUCEMENT FOR LENDER TO ENTER INTO THIS AGREEMENT AND MAKE THE REVOLVING LOAN.



<PAGE>


     IN WITNESS WHEREOF,  BORROWER and LENDER have caused this Loan and Security
Agreement to be executed by their  respective  duly  authorized  officers on the
date and year first above written.

WITNESS:                       FIVE STAR GROUP, INC.


                               By:
-----------------                      ----------------------------------------
                                        Steve Schilit, Executive Vice President

                               FLEET CAPITAL CORPORATION


                               By:
                                        ---------------------------------------
                                        James M. Jordan, Vice President
                                        Address: 750 Walnut Avenue
                                        Cranford, New Jersey 07016
                                        Phone:   908-709-6479
                                        Fax:     908-709-6352


<PAGE>


</TEXT>
</DOCUMENT>
