CELEBRITY INC, 10-Q, 1998-02-17

CELEBRITY INC
10-Q, 1998-02-17
MISCELLANEOUS NONDURABLE GOODS

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<PAGE> 1

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 1997

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File No. 0-20802

CELEBRITY, INC.
(Exact name of registrant as specified in its charter)

Texas 75-1289223
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)

Physical Delivery Address:
4520 Old Troup Road
Tyler, Texas 75707

Mailing Address:
P.O. Box 6666
Tyler, Texas 75711
(903) 561-3981

(Address, including zip code, of principal executive
offices and registrant's telephone number, including
area code)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

YES X NO ______

The registrant had 6,307,419 shares of Common Stock, par value $.01 per share,
outstanding as of January 19, 1998.
<PAGE> 2
PART I - FINANCIAL INFORMATION

<TABLE>
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS
Page

Condensed Consolidated Balance Sheets at
December 31, 1997 and June 30, 1997
(Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Condensed Consolidated Statements of Operations
for the three months ended
December 31, 1997 and 1996 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Condensed Consolidated Statements of Operations
for the six months ended
December 31, 1997 and 1996 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Condensed Consolidated Statements of Cash
Flows for the six months ended
December 31, 1997 and 1996 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Notes to Condensed Consolidated Financial
Statements (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

PART II - OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

</TABLE>
<PAGE> 3
CELEBRITY, INC.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)

<TABLE>
<CAPTION>
ASSETS December 31, June 30,
1997 1997
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 279 $ 530

Accounts receivable, net 16,373 15,620

Inventories 30,919 30,619

Other current assets 2,524 3,493
-------- --------
Total current assets 50,095
50,262

Property, plant and equipment, net 10,919 11,522

Other assets 5,395 5,669
-------- --------
Total assets $ 66,409 $ 67,453
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable $ 9,553 $ 10,405

Accrued expenses and income taxes payable 4,669 3,952

Current portion of notes payable 2,717 27,067
-------- --------
Total current liabilities 16,939 41,424

Notes payable, net of current portion 29,968 4,877
-------- --------
Total liabilities 46,907 46,301
-------- --------
Redeemable common stock 175 175

Shareholders' equity:

Common stock 63 63

Paid-in capital 22,505 22,353

Subscriptions receivable (575) (442)

Accumulated deficit (2,139) (469)

Treasury stock, at cost (525) (525)

Cumulative translation adjustment (2) (3)
-------- --------
Total shareholders' equity 19,327 20,977
-------- --------
Commitments and contingencies

Total liabilities, redeemable common stock
and shareholders' equity $ 66,409 $ 67,453
======== ========
</TABLE>

See accompanying notes to Condensed Consolidated Financial Statements.

-2-
<PAGE> 4
CELEBRITY, INC.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)

<TABLE>
<CAPTION>
Three Months
Ended December 31,
-----------------------------
1997 1996
-------- --------
<S> <C> <C>
Net sales $ 29,854 $ 34,652
-------- --------
Costs and operating expenses:

Cost of goods sold 22,904 26,650

Selling expenses 1,245 1,459

General and administrative 5,370 4,345

Depreciation and amortization 540 587
-------- --------

Total expenses 30,059 33,041
-------- --------
Operating income (loss) (205) 1,611

Interest expense, net (910) (917)

Other, net 8 13
-------- --------

Income (loss) before income taxes (1,107) 707

Provision for income taxes 120 106
-------- --------
Net income (loss) $ (1,227) $ 601
======== ========

Basic and diluted earnings (loss)
per share $ (.19) $ .10
======== ========

Average common and potentially dilutive
common shares outstanding 6,310 6,310
======== ========

</TABLE>

See accompanying notes to Condensed Consolidated Financial Statements.

-3-
<PAGE> 5
CELEBRITY, INC.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)

<TABLE>
<CAPTION>
Six Months
Ended December 31,
-------------------------
1997 1996
-------- --------
<S> <C> <C>
Net sales $ 60,062 $ 66,099
-------- --------

Costs and operating expenses:

Cost of goods sold 45,573 49,834

Selling expenses 2,592 2,870

General and administrative 10,509 9,337

Depreciation and amortization 1,057 1,183
-------- --------

Total expenses 59,731 63,224
-------- --------
Operating income 331 2,875

Interest expense, net (1,715) (1,768)

Other, net (1) 18
-------- --------

Income (loss) before income taxes (1,385) 1,125

Provision for income taxes 285 39
-------- --------
Net income (loss) $ (1,670) $ 1,086
======== ========

Basic and diluted earnings (loss) per share $ (.26) $ .17
======== ========

Average common and potentially dilutive
common shares outstanding 6,310 6,310
======== ========
</TABLE>

See accompanying notes to Condensed Consolidated Financial Statements.

-4-
<PAGE> 6
CELEBRITY, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

<TABLE>
<CAPTION>
Six Months
Ended December 31,
--------------------

1997 1996
------- -------
<S> <C> <C>
Operating activities:

Net income (loss) $(1,670) $ 1,086

Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:

Depreciation and amortization 1,057 1,183

Deferred income taxes (291)

Changes in operating assets and liabilities:

Accounts receivable (753) (2,208)

Inventories (300) 2,833

Other assets, net 1,001 (46)

Accounts payable and accrued expenses (135) 82
------- -------
Net cash provided by (used in) operating
activities (800) 2,639
------- -------

Investing activities:

Additions to property and equipment (211) (553)
------- -------
Net cash used in investing activities (211) (553)
------- -------
Financing activities:

Proceeds from (payments on)
notes payable 182 (1,623)

Net proceeds from (net payments under)
lines of credit 559 (1,138)

Proceeds on subscriptions receivable 19 10

Redemption of common stock (175)
------- -------
Net cash provided by (used in) financing
activities 760 (2,926)
------- -------

Decrease in cash (251) (840)

Cash and cash equivalents, at beginning of period 530 1,166
------- -------

Cash and cash equivalents, at end of period $ 279 $ 326
======= =======

</TABLE>

See accompanying notes to Condensed Consolidated Financial Statements.

-5-
<PAGE> 7
CELEBRITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. THE BUSINESS AND BASIS OF PRESENTATION

Description of Business

Celebrity, Inc. ("Celebrity" or the "Company") is a supplier of high
quality artificial flowers, foliage, flowering bushes and other decorative
accessories to craft store chains and other retailers and to wholesale florists
throughout North America and Europe. Celebrity imports and/or produces
approximately 9,000 home accent, decorative accessory and giftware items,
including artificial floral arrangements, floor planters and trees, a wide
range of decorative brass and textile products and a broad line of seasonal
items such as Christmas trees, wreaths, garlands and other ornamental products.

Basis of Presentation

The Condensed Consolidated Financial Statements include the accounts
of Celebrity (referred to herein as "Celebrity Silk") and its wholly-owned
subsidiaries, Celebrity Exports International Limited ("Celebrity Hong Kong"),
The Cluett Corporation ("Cluett"), India Exotics, Inc. ("India Exotics"),
Magicsilk, Inc. ("Magicsilk"), Star Wholesale Florist, Inc. ("Star Wholesale")
and Value Florist Supplies, Inc. ("Value Florist"). All intercompany accounts
and transactions have been eliminated.

The accompanying Condensed Consolidated Financial Statements are
unaudited and, in the opinion of management, reflect all adjustments that are
necessary for a fair presentation of the financial position and results of
operations for the periods presented. All of such adjustments are of a normal
and recurring nature. The results of operations for the periods presented are
not necessarily indicative of the results to be expected for the entire year.
The Condensed Consolidated Financial Statements should be read in conjunction
with the financial statement disclosures contained in the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1997.

2. INVENTORY

The composition of inventories is as follows (in thousands):
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997

<S> <C> <C>
Raw materials $12,124 $ 8,707

Finished goods 18,795 21,912
------- -------
$30,919 $30,619
======= =======

</TABLE>

-6-

<PAGE> 8
3. REDEEMABLE COMMON STOCK

The Company is obligated to repurchase approximately 13,461 shares of
its common stock ("Common Stock") for an aggregate consideration of $175,000.
The repurchase obligation is pursuant to certain put options issued in
connection with the Magicsilk acquisition in 1992. The holders of such put
options have exercised the put options with respect to such shares. Upon the
Company's repurchase of such shares, the Company will have satisfied its
repurchase obligations under the put options.

4. EARNINGS PER SHARE

The Company adopted statement of Financial Accounting Standard No.
128, "Earnings Per Share", effective December 31, 1997. For all periods
presented there were no differences between basic and diluted earnings per
share.

5. SUBSEQUENT EVENT

In January 1998, the Company entered into a new three-year revolving
credit facility for its Celebrity, Cluett, India Exotics, Star Wholesale and
Value Florist operations in a maximum amount of $31.5 million. This revolving
credit facility replaces the Company's prior revolving line of credit with
another bank. Borrowing limits under the revolving credit facility are based
on specified percentages of eligible accounts receivable and inventories and,
as a result of such limits, the maximum amount the Company was eligible to
borrow at February 3, 1998, the date the new loan was funded, was $28.4
million. After such funding, the amount outstanding under the revolving credit
facility was $27.3 million. In addition to the revolving credit facility, the
lender has made a term loan to the Company in the original principal amount of
$3.5 million. The term loan is payable in monthly installments of principal of
$200,000 commencing April 1, 1998, and the remaining outstanding principal
balance under the term loan is due and payable upon the earlier of (i)
September 1, 1999 or (ii) the termination of the revolving credit facility. The
outstanding balance under the revolving credit facility bears interest at a
reference bank's prime rate of interest plus 1.5% per annum, and the term loan
bears interest at a rate of 12.5% per annum. Interest is payable monthly. On
February 3, 1998, the Company issued to the lender a five-year warrant to
purchase 100,000 shares of Common Stock at $1.00 per share. Amounts borrowed
under the revolving credit facility and the term loan are secured by accounts
receivable, inventory, equipment, certain interests in real property, and
general intangibles (including intellectual property) of Celebrity and its
subsidiary borrowers. In addition, substantially all stock of the Company's
subsidiaries has been pledged to the lender. The revolving credit facility and
the term loan are subject to certain covenants limiting the incurrence of
indebtedness, prohibiting the payment of dividends and requiring the Company to
maintain certain financial ratios.

The Company was not in compliance with certain covenants contained in
its previous revolving line of credit at June 30, 1997 and it had not obtained
waivers for all such violations. Accordingly, the debt was classified as a
current liability at June 30, 1997. As this debt has now been refinanced on a
long-term basis, classification of the debt as a current liability is no longer
required.

-7-
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE
RESULTS

This Quarterly Report on Form 10-Q contains forward-looking statements
about the business, financial condition and prospects of Celebrity. The actual
results of Celebrity could differ materially from those indicated by the
forward-looking statements because of various risks and uncertainties,
including without limitation (i) changes in customer demand for the Company's
products at the retail level, (ii) trends in the retail and wholesale
decorative accessories industries, (iii) inventory risks attributable to
possible changes in customer demand, compounded by extended lead times in
ordering the Company's products from overseas suppliers and the Company's
strategy of maintaining a high merchandise in stock percentage, (iv) the
effects of economic conditions in the United States and Asia, (v) supply and/or
shipment constraints or difficulties, (vi) the impact of competitors' pricing,
(vii) the effects of the Company's accounting policies, (viii) changes in
foreign trade regulations, including changes in duty rates, possible trade
sanctions, import quotas and other restrictions imposed by U.S. and foreign
governments, (ix) the effects of the assumption of control over Hong Kong by
the People's Republic of China (the "PRC") on July 1, 1997, (x) the effects of
the current uncertainties in Asian financial markets and (xi) other risks
detailed in the Company's Securities and Exchange Commission filings. These
risks and uncertainties are beyond the ability of the Company to control, and
in many cases, the Company cannot predict the risks and uncertainties that
could cause its actual results to differ materially from those indicated by the
forward-looking statements. When used herein, the words "believes", "expects",
"plans" and similar expressions as they relate to the Company or its management
generally are intended to identify forward-looking statements.

-8-
<PAGE> 10
RESULTS OF OPERATIONS

The following table sets forth certain items in the condensed
consolidated statements of operations of Celebrity expressed as a percentage of
net sales for the periods indicated:

<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
--------------- ---------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100% 100% 100% 100%
---- ---- ---- ----
Costs and operating expenses:

Cost of goods sold 77% 77% 76% 75%

Selling expenses 4% 4% 4% 4%

General and administrative 18% 13% 18% 14%

Depreciation and amortization 1% 2% 2% 2%
---- ---- ---- ----
Total expenses 100% 96% 100% 95%
---- ---- ---- ----
Operating income (loss) (1)% 4% 0% 5%

Interest expense, net (3)% (2)% (3)% (3)%
---- ---- ---- ----
Income (loss) before income taxes (4)% (2)% (3)% 2%

Provision for income taxes 0% 0% 0% 0%
---- ---- ---- ----
Net income (loss) (4)% 2% (3)% 2%
==== ==== ==== ====

</TABLE>

THREE MONTHS ENDED DECEMBER 31, 1997, COMPARED WITH THREE MONTHS ENDED DECEMBER
31, 1996

Net sales decreased 14% from $34.7 million in fiscal 1997 to $29.9
million in fiscal 1998. The decrease was primarily attributable to lower sales
in the Celebrity Silk and Celebrity Export operations.

Cost of goods sold decreased from $26.7 million in fiscal 1997 to
$22.9 million in fiscal 1998. The decrease was primarily attributable to the
lower sales volume in fiscal 1998. Cost of goods sold as a percentage of net
sales was unchanged at 77%.

-9-
<PAGE> 11
Selling expenses decreased from $1.5 million in fiscal 1997 to $1.2
million in fiscal 1998. The decrease was attributable to the lower sales volume,
which resulted in lower commissions. Selling expenses as a percentage of net
sales remained unchanged at 4%.

General and administrative expenses increased from $4.3 million, or
13% of net sales, in fiscal 1997 to $5.5 million, or 18% of net sales, in
fiscal 1998. The increase was primarily attributable to higher costs of
operating the Star Wholesale location in Dallas, Texas, which opened in May
1997.

Depreciation and amortization expenses decreased from $587,000 in
fiscal 1997 to $540,000 in fiscal 1998.

SIX MONTHS ENDED DECEMBER 31, 1997, COMPARED WITH SIX MONTHS ENDED DECEMBER 31,
1996

Net sales decreased 9% from $66.1 million in fiscal 1997 to $60.1
million in fiscal 1998. The decrease was primarily attributable to lower sales
by the India Exotics and Cluett subsidiaries in the first quarter and lower
sales by the Celebrity Silk and Celebrity Exports operations in the second
quarter.

Cost of goods sold decreased from $49.8 million in fiscal 1997 to
$45.6 million in fiscal 1998. The decrease was attributable to the lower sales
volume in fiscal 1998. Cost of goods sold as a percentage of net sales
remained virtually unchanged at 75% in fiscal 1997 and 76% in fiscal 1998.

Selling expenses decreased from $2.9 million in fiscal 1997 to $2.6
million in fiscal 1998. The decrease was attributable to the lower sales
volume in fiscal 1998. Selling expenses as a percentage of net sales remained
unchanged at 4%.

General and administrative expenses increased from $9.3 million, or
14% of net sales, in fiscal 1997 to $10.5 million, or 18% of net sales, in
fiscal 1998. The increase was primarily attributable to higher costs of
operating the Star Wholesale location in Dallas, Texas, which opened in May
1997.

Depreciation and amortization expenses decreased from $1.2 million in
fiscal 1997 to $913,000 million in fiscal 1998.

LIQUIDITY AND CAPITAL RESOURCES

Celebrity's sales and marketing strategy and the growth of its
business have required a significantly increased investment in inventory.
Additionally, the Company follows the industry practice of offering extended
terms to qualified customers for sales of Christmas merchandise. These sales
generally take place between the months of June and October on terms not
requiring payment until December 1. The Company has traditionally relied on
borrowings under its revolving credit facility and cash flows from operations to
fund these and other working capital needs.

-10-
<PAGE> 12

Celebrity Hong Kong generally makes full cash payments for products
ordered for Celebrity's account or for direct shipment to customers after the
manufacturers deliver products in Hong Kong for export. Celebrity Hong Kong
finances cash payments to its vendors through a credit facility with a Hong
Kong bank. Generally, under the terms of this facility the bank finances, with
recourse, export bills for specific shipments by Celebrity Hong Kong to its
customers. The bank is reimbursed when payment for these shipments is
received. The bank notified Celebrity Hong Kong on December 31, 1997 that it
was reducing to $4.5 million the maximum aggregate amount of export bills it
was committed to finance at any time. At December 31, 1997, export bills of
Celebrity Hong Kong aggregating $5.0 million were being financed by the bank.
All of these bills were related to direct shipments to customers and Celebrity
Hong Kong's related potential recourse liability was accounted for as a
contingent obligation.

In June 1997, the Company entered into a separate revolving credit
facility with an additional bank, which matures in June 2004. Under the
facility, the maximum amount the lender is obligated to lend to the Company is
$4.9 million. At December 31, 1997, the outstanding balance under this facility
was approximately $4.8 million. Interest accrues on the principal amount
outstanding under the facility at the rate of LIBOR plus 2.65% per annum.
Amounts borrowed under the facility are secured by certain real estate owned by
the Company, and the facility contains covenants requiring the Company to
maintain certain financial ratios. While the Company was not in compliance with
certain of these financial covenants at December 31, 1997, it had previously
obtained a waiver from the lender with respect to noncompliance with the
applicable covenants through June 30, 1998.

-11-

<PAGE> 13

In September 1997, Celebrity borrowed $500,000 from RHP Management,
LLC ("RHP"), an entity controlled by Robert H. Patterson, Jr., President and
Chief Executive Officer of the Company. In December 1997, the parties amended
the promissory note to extend the repayment date to June 10, 1998. The
promissory note was amended again in February 1998 to extend the repayment date
to September 30, 1999. The principal amount outstanding accrues interest at a
fluctuating rate per annum equal to RHP's cost of borrowing, which is currently
the prime rate of a reference bank plus 1.5% per annum. The proceeds from this
loan were used to pay certain intercompany accounts payable to Celebrity Hong
Kong.

The Company does not plan to make any capital expenditures in fiscal
1998 other than those incurred in the normal course of business for replacement
of transportation and warehouse equipment and those in connection with the
Company's continuing program to upgrade its management information systems.

The Company's business is subject to U.S. law relating to imports,
including those imposing import duties. If the U.S. government were to
terminate most favored nation treatment for the People's Republic of China (the
"PRC") or impose punitive tariff rates on products imported by the Company in
retaliation for market access barriers in the PRC, the duty on products
imported by the Company from the PRC would increase significantly. If the
Company were to face an increase in tariff rates on the products it imports
into the U.S., it would (i) attempt to increase the prices charged to its
customers, (ii) ask its suppliers to reduce the prices charged to the Company
and (iii) seek to identify more favorable sources; however, unless and until
these efforts were successful, the Company's results of operations could be
affected adversely.

The Company believes that its current financial position, credit
facilities and cash flows from operations will be adequate to fund its
operations for the foreseeable future. There is no assurance, however, that
these sources will be sufficient to fund its operations or that any necessary
additional financing will be available, if at all, in amounts required or on
terms satisfactory to the Company.

YEAR 2000 ISSUES

The Company has undertaken various initiatives intended to ensure that
the computer equipment and software used by the Company will function properly
with respect to dates in the Year 2000 and thereafter. Based upon its
assessments to date, the Company believes that certain of the computer
equipment and software it currently uses will require replacement or
modification. In addition, in the ordinary course of replacing computer
systems, the Company attempts to utilize replacement systems that are Year 2000
compliant. Utilizing both internal and external resources to identify needs
for Year 2000 modifications, the Company currently anticipates that the
modification and conversion efforts will be completed no later than June 1998,
which is prior to any currently anticipated impact of Year 2000 issues on its
systems.

The Company is also in the process of initiating communications with
its significant suppliers and customers to determine the extent to which
interfaces with such entities are vulnerable to Year 2000 issues.

-12-
<PAGE> 14

The Company believes that the costs to modify its systems to be Year
2000 compliant, as well as the currently anticipated costs with respect to Year
2000 issues of third parties, will not exceed $100,000, which expenditures will
be funded form operating cash flows. The Company presently believes that Year
2000 issues will not pose significant operational problems for the Company.
However, if modifications and conversions are not made as they are identified,
or not completed timely, there can be no assurance that the Year 2000 issues
will not have a material adverse effect on the Company or adversely affect the
Company's relationships with customers, suppliers, or others. Additionally,
there can be no assurance that the Year 2000 issues of such entities will not
have an adverse effect on the Company's systems or business.

The costs of the efforts to be expended by the Company and the date on
which the Company believes it will complete the Year 2000 modifications are
based upon management's best estimates, which are derived utilizing numerous
assumptions of future events. However, there can be no assurance that these
estimates will be achieved, and actual results could differ materially from
those currently anticipated.

-13-
<PAGE> 15
PART II - OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company held its annual meeting of shareholders on December 10,
1997. The following are the results of the matters voted upon at the meeting:

(a) With respect to the election of directors whose terms expired in 1997,
shares were voted as follows:

<TABLE>
<CAPTION>
Robert H. Richard B.D. C.A. Valerie Anne
Patterson, Jr. Yuen Hunter Langner Mars
-------------- ----------------- ---------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
For 5,568,822 5,566,672 5,576,272 5,576,272 5,576,272

Withheld 214,574 216,724 207,124 207,124 216,724
-------------- ----------------- ---------------- ----------------- ------------------

Total 5,783,396 5,783,396 5,783,396 5,783,396 5,783,396
============== ================= ================ ================= ==================
</TABLE>

(b) With respect to the ratification of the selection of Price Waterhouse
LLP as the Company's independent auditors for the Company's 1998
fiscal year, shares were voted as follows:

<TABLE>
<S> <C>
For . . . . . . . . . . . . . . . . . . . . . . . . . . 5,684,146

Against . . . . . . . . . . . . . . . . . . . . . . . . 83,450

Abstentions . . . . . . . . . . . . . . . . . . . . . . 15,800
-----------

Total . . . . . . . . . . . . . . . . . . . . . . . 5,783,396
===========
</TABLE>

-14-
<PAGE> 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits:

4.1 Warrant dated February 3, 1998 issued by Registrant to Foothill Capital
Corporation.

10.1 Loan and Security Agreement dated as of January 30, 1998 among
Registrant, The Cluett Corporation, Star Wholesale Florist, Inc.,
Value Florist Supplies, Inc. and India Exotics, Inc., as borrowers, on
the one hand, and Foothill Capital Corporation, on the other hand.

10.2 Promissory Note of Registrant, amended and restated as of February 16,
1998, in the principal amount of $500,000 payable to the order of RHP
Management, LLC.

(b) Reports on Form 8-K:

None.

-15-
<PAGE> 17

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

CELEBRITY, INC.

Dated: February 14, 1998 By /s/ Robert H. Patterson, Jr.
----------------------------------------
Robert H. Patterson, Jr., Chairman
of the Board, President and Chief
Executive Officer
(Authorized Officer and Principal
Financial Officer)

-16-
<PAGE> 18
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------ ----------------------
<S> <C>
4.1 Warrant dated February 3, 1998 issued by Registrant to Foothill Capital Corporation.

10.1 Loan and Security Agreement dated as of January 30, 1998 among Registrant, The Cluett
Corporation, Star Wholesale Florist, Inc., Value Florist Supplies, Inc. and India Exotics,
Inc., as borrowers, on the one hand, and Foothill Capital Corporation, on the other hand.

10.2 Promissory Note of Registrant, amended and restated as of February 16, 1998, in the principal
amount of $500,000 payable to the order of RHP Management, LLC.

27 Financial Data Schedule
</TABLE>

<PAGE> 1

EXHIBIT 4.1

THE OFFERING AND SALE OF THIS WARRANT AND THE SHARES OF
COMMON STOCK ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAWS AND THIS WARRANT AND SUCH
SHARES MUST BE HELD INDEFINITELY UNLESS THE OFFERING AND
SALE THEREOF ARE SUBSEQUENTLY REGISTERED UNDER SAID ACT
AND ANY APPLICABLE STATE SECURITIES LAWS OR THIS WARRANT
AND SUCH SHARES ARE DISPOSED OF PURSUANT TO AN EXEMPTION
FROM SUCH REGISTRATION REQUIREMENTS.

WARRANT

Company: Celebrity, Inc.
a Texas corporation

Number of Shares: 100,000, subject to adjustment as provided
herein

Class of Stock: Common Stock

Initial Exercise Price: $1.00 per share

Issued as of: February 3, 1998

Expiration Date: February 3, 2003

FOR VALUE RECEIVED, the adequacy and receipt of which are hereby
acknowledged, Celebrity, Inc., a Texas corporation, hereby certifies that
FOOTHILL CAPITAL CORPORATION, a California corporation, and its successors and
assigns, are entitled to purchase from the Company at any time and from time to
time on and after the date hereof until 12:00 midnight California local time on
the Expiration Date at an initial exercise price of One Dollar ($1.00) per
share of Common Stock of One Hundred Thousand (100,000) fully paid and
nonassessable shares of Common Stock of the Company; on the terms and
conditions hereinafter set forth. The number of such shares of Common Stock
and the Exercise Price are subject to adjustment as provided in this Warrant.

1. Certain Definitions. As used in this Warrant, the following
terms have the following definitions:

"Additional Shares of Common Stock" means all shares of Common Stock
issued or issuable by the Company after the date of this Warrant, excluding an
amount not to exceed
<PAGE> 2
5% of the Company's outstanding Common Stock on a fully diluted basis
(determined at the time the calculation is being made) issued pursuant to the
Celebrity, Inc. 1992 Stock Option Plan and the Celebrity, Inc. 1993 Stock
Purchase Plan at a price per share less than the Current Market Price or
Exercise Price.

"Common Stock" means the Company's Common Stock, par value $0.01 per
share, and includes any common stock of the Company of any class or classes
resulting from any reclassification or reclassifications thereof which is not
limited to a fixed sum or percentage of par value in respect of the rights of
the holders thereof to participate in dividends and in the distribution of
assets upon the voluntary or involuntary liquidation, dissolution or winding up
of the Company.

"Company" means Celebrity, Inc., a Texas corporation.

"Convertible Securities" means evidence of indebtedness, shares of
stock or other securities which are at any time directly or indirectly
convertible into or exchangeable for Additional Shares of Common Stock.

"Current Market Price" of a share of Common Stock or of any other
security as of a relevant date means: (i) the Fair Value thereof as determined
in accordance with clause (ii) of the definition of Fair Value with respect to
common stock or any other security that is not listed on a national securities
exchange or traded on the over-the-counter market or quoted on NASDAQ, and (ii)
the average of the daily closing prices for the ten (10) trading days before
such date (excluding any trades which are not bona fide arm's length
transactions) with respect to Common Stock or any other security that is listed
on a national securities exchange or traded on the over-the-counter market or
quoted on NASDAQ. The closing price for each day shall be (i) the last sale
price of shares of Common Stock or such other security, regular way, on such
date or, if no such sale takes place on such date, the average of the closing
bid and asked prices thereof on such date, in each case as officially reported
on the principal national securities exchange on which the same are then listed
or admitted to trading, or (ii) if no shares of Common Stock or if no
securities of the same class as such other security are then listed or admitted
to trading on any national securities exchange, the average of the reported
closing bid and asked prices thereof on such date in the over-the-counter
market as shown by the National Association of Securities Dealers automated
quotation system or, if no shares of Common Stock or if no securities of the
same class as such other security are then quoted in such system, as published
by the National Quotation Bureau, Incorporated or any similar successor
organization, and in either case as reported by any member firm of the New York
Stock Exchange selected by the Warrantholders.

"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor Federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
Reference to a particular section of the Exchange Act

2
<PAGE> 3
shall include a reference to the comparable section, if any, of any such
successor Federal statute.

"Exercise Period" means the period commencing on the date hereof and
ending at 12:00 midnight California local time on the Expiration Date.

"Exercise Price" means initially $1.00 per share, subject to
adjustment as provided in this Warrant.

"Expiration Date" means the February 3, 2003.

"Fair Value" means: (i) with respect to a share of Common Stock or any
other security, the Current Market Price thereof, and (ii) with respect to any
other property, assets, business or entity, an amount determined in accordance
with the following procedure: The Company and the holders of the Warrants and
Warrant Shares, as applicable, shall use their best efforts to mutually agree
to a determination of Fair Value within ten (10) days of the date of the event
requiring that such a determination be made. If the Company and such holders
are unable to reach agreement within said ten (10) day period, the Company and
such holders shall within ten (10) days of the expiration of the ten (10) day
period referred to above each retain a separate independent investment banking
firm (which firm shall not be the investment banking firm regularly retained by
the Company). If either the Company or such holders fails to retain such an
investment banking firm during such period, then the independent investment
banking firm retained by such holders or the Company, as the case may be,
acting alone, shall take the actions outlined below. Such firms shall
determine (within thirty (30) days of their being retained) the Fair Value of
the security, property, assets, business or entity, as the case may be, in
question and deliver their opinion in writing to the Company and to such
holders. If such firms cannot jointly make the determination, then, unless
otherwise directed by agreement of the Company and such holders, such firms, in
their sole discretion, shall choose another investment banking firm independent
of the Company and such holders, which firm shall make the determination and
render an opinion as promptly as practicable. In either case, the
determination so made shall be conclusive and binding on the Company and such
holders. The fees and expenses of any such determination made by any and all
such independent investment banking firms shall be paid by the Company. If
there is more than one holder of Warrants, and/or Warrant Shares entitled to a
determination of Fair Value in any particular instance, each action to be taken
by the holders of such Warrants and/or Warrant Shares under this Section shall
be taken by a majority in interest of such holders and the action taken by such
majority (including as to any mutual agreement with the Company with respect to
Fair Value and as to any selection of investment banking firms) shall be
binding upon all such holders. In the case of a determination of the Fair
Value per share of Common Stock, the Company and such holders shall not take
into consideration, and shall instruct all such investment banking firms not to
take into consideration, any premium for shares representing control of the
Company, any discount for any minority interest therein or any restrictions on
transfer under applicable federal and state securities laws or otherwise.

3
<PAGE> 4

"Foothill" means Foothill Capital Corporation, a California
corporation.

"Indemnified Party" and "Indemnifying Party" have the meanings set
forth in Section 11(e)(iii).

"Registrable Stock" means: (i) all Warrant Shares which are issuable
to the Warrantholders pursuant to the Warrants, whether or not the Warrants
have in fact been exercised and whether or not such Warrant Shares have in fact
been issued, (ii) all Warrant Shares acquired by the Warrantholders pursuant to
the Warrants, (iii) any shares of Common Stock, whether or not such shares of
Common Stock have in fact been issued, and stock or other securities of the
Company issued upon conversion of, in a stock split or reclassification of, or
a stock dividend or other distribution on, or in substitution or exchange for,
or otherwise in connection with, such Warrant Shares. For purposes of Section
11, a Warrantholder of record shall be treated as the record holder of the
related Warrant Shares and other securities issuable pursuant to the Warrants.
Registrable Stock shall not include Warrant Shares or Common Stock that the
holder is entitled to sell without restriction under Rule 144(k) promulgated
under the Securities Act.

"Regulated Warrantholder" means any Warrantholder which is, or the
parent of which is, subject to the Bank Holding Company Act, or any successor
statute, or any other federal or state banking laws and regulations.

"Securities Act" means the Securities Act of 1933, as amended.

"Warrant(s)" means this Warrant and any warrants issued in exchange or
replacement of this Warrant or upon transfer hereof.

"Warrantholder(s)" means Foothill and its successors and assigns.

"Warrant Shares" means shares of Common Stock issuable to
Warrantholders pursuant to the Warrants.

2. Exercise of Warrant. This Warrant may be exercised, in whole
or in part, at any time and from time to time during the Exercise Period by
written notice to the Company and upon payment to the Company of the Exercise
Price (subject to adjustment as provided herein) for the shares of Common Stock
in respect of which the Warrant is exercised.

3. Form of Payment of Exercise Price. Anything contained herein
to the contrary notwithstanding, at the option of the Warrantholders, the
Exercise Price may be paid in any one or a combination of the following forms:
(a) by wire transfer to the Company, (b) by the Warrantholder's check to the
Company, (c) by the cancellation of any indebtedness owed by the Company and/or
any subsidiaries of the Company to the Warrantholder, and/or (d) by the
surrender to the Company of Warrants, Warrant Shares, Common Stock and/or other

4
<PAGE> 5
securities of the Company and/or any subsidiaries of the Company having a Fair
Value equal to the Exercise Price.

4. Cashless Exercise/Conversion. In lieu of exercising this
Warrant as specified in Sections 2 and 3 above, the Warrantholders may from
time to time at the Warrantholders' option convert this Warrant, in whole or in
part, into a number of shares of Common Stock of the Company determined by
dividing (A) the aggregate Fair Value of such shares or other securities
otherwise issuable upon exercise of this Warrant minus the aggregate Exercise
Price of such shares by (B) the Fair Value of one such share.

5. Certificates for Warrant Shares; New Warrant. The Company
agrees that the Warrant Shares shall be deemed to have been issued to the
Warrantholders as the record owner of such Warrant Shares as of the close of
business on the date on which payment for such Warrant Shares has been made (or
deemed to be made by conversion) in accordance with the terms of this Warrant.
Certificates for the Warrant Shares shall be delivered to the Warrantholders
within a reasonable time, not exceeding five (5) days, after this Warrant has
been exercised or converted. A new Warrant representing the number of shares,
if any, with respect to which this Warrant remains exercisable also shall be
issued to the Warrantholders within such time so long as this Warrant has been
surrendered to the Company at the time of exercise.

6. Adjustment of Exercise Price, Number of Shares and Nature of
Securities Issuable Upon Exercise of Warrants.

(a) Exercise Price: Adjustment of Number of Shares. The
Exercise Price shall be subject to adjustment from time to time as hereinafter
provided. Upon each adjustment of the Exercise Price, the Warrantholders shall
thereafter be entitled to purchase, at the Exercise Price resulting from such
adjustment, a number of shares determined by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment and dividing the product
thereof by the Exercise Price resulting from such adjustment.

(b) Adjustment of Exercise Price Upon Issuance of Common
Stock. If and whenever after the date hereof the Company shall issue or sell
Additional Shares of Common Stock without consideration or for a consideration
per share less than the Current Market Price or the Exercise Price then in
effect immediately prior to the issuance or sale of such shares, then the
Exercise Price in effect immediately prior to such issuance or sale of such
shares shall be reduced to a number which shall be calculated by dividing (A)
an amount equal to the sum of (1) the number of shares of Common Stock
outstanding immediately prior to such issue or sale multiplied by the then
existing Exercise Price plus (2) the aggregate consideration, if any, received
by the Company upon such issue or sale, by (B) the total number of shares of
Common Stock outstanding immediately after such issue or sale.

5
<PAGE> 6

No adjustment of the Exercise Price, however, shall
be made in an amount less than $.01 per share, but any such lesser adjustment
shall be carried forward and shall be made at the time and together with the
next subsequent adjustment which, together with any adjustments so carried
forward, shall amount to $.01 per share or more.

The provisions of this Section 6(b) shall not apply
to any Additional Shares of Common Stock which are distributed to holders of
Common Stock pursuant to a stock split for which an adjustment is provided
under Section 6(f).

(c) Further Provisions for Adjustment of Exercise Price
Upon Issuance of Additional Shares of Common Stock and Convertible Securities.
For purposes of Section 6(b), the following provisions shall also be
applicable:

(i) In case at any time on or after the date
hereof, the Company shall declare any dividend, or authorize any other
distribution, upon any stock of the Company of any class, payable in Additional
Shares of Common Stock or by the issuance of Convertible Securities, such
declaration or distribution shall be deemed to have been issued or sold (as of
the record date) without consideration and shall thereby cause an adjustment in
the Exercise Price as required by Section 6(b).

(ii) (A) In case at any time on or after the
date hereof, the Company shall in any manner issue or sell any Convertible
Securities, whether or not the rights to exchange or convert thereunder are
immediately exercisable, there shall be determined the price per share for
which Additional Shares of Common Stock are issuable upon the conversion or
exchange thereof, such determination to be made by dividing (a) the total
amount received or receivable by the Company as consideration for the issue or
sale of such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the conversion or
exchange thereof by (b) the maximum aggregate number of Additional Shares of
Common Stock issuable upon conversion or exchange of all such Convertible
Securities for such minimum aggregate amount of additional consideration; and
such issue or sale shall be deemed to be an issue or sale for cash (as of the
date of issue or sale of such Convertible Securities) of such maximum number of
Additional Shares of Common Stock at the price per share so determined, and
shall thereby cause an adjustment in the Exercise Price, if such an adjustment
is required by Section 6(b).

(B) If such Convertible Securities shall
by their terms provide for an increase or increases, with the passage of time,
in the amount of additional consideration, if any, payable to the Company, or
in the rate of exchange upon the conversion or exchange thereof, the adjusted
Exercise Price shall, upon any such increase becoming effective, be increased
to such Exercise Price as would have been in effect had the adjustments made
upon the issuance of such Convertible Securities been made upon the basis of
(a) the issuance of the number of shares of Common Stock theretofore actually
delivered upon the conversion or exchange of such Convertible Securities (and
the total consideration

6
<PAGE> 7
received upon issuance of such Convertible Securities and upon the conversion
or exchange thereof), (b) the issuance of all Common Stock, all Convertible
Securities and all rights and options to purchase Common Stock issued after the
issuance of such Convertible Securities (and the total consideration received
upon the issuance thereof and received or to be received upon the conversion,
exchange or exercise thereof), and (c) the original issuance at the time of
such change of any such Convertible Securities then still outstanding (and the
total consideration received upon the issuance thereof and received or to be
received upon the conversion or exchange thereof); provided, however, that any
such increase or increases shall not exceed, in the aggregate, the amount of
the original reduction of the Exercise Price attributable to the Convertible
Securities.

(C) If any rights of conversion or
exchange evidenced by such Convertible Securities shall expire without having
been exercised, the adjusted Exercise Price shall forthwith be readjusted to
such Exercise Price as would have been in effect had an adjustment with respect
to such Convertible Securities been made on the basis that the only Additional
Shares of Common Stock issued or sold were those actually issued upon the
conversion or exchange of such Convertible Securities, and that they were
issued or sold for the consideration actually received by the Company upon such
exercise, plus the consideration, if any, actually received by the Company for
the granting of such Convertible Securities.

(iii) (A) In case at any time on or after the
date hereof, the Company shall in any manner grant or issue any rights or
options to subscribe for, purchase or otherwise acquire Additional Shares of
Common Stock, whether or not such rights or options are immediately
exercisable, there shall be determined the price per share for which Additional
Shares of Common Stock are issuable upon the exercise of such rights or
options, such determination to be made by dividing (a) the total amount, if
any, received or receivable by the Company as consideration for the granting of
such rights or options, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the exercise of such rights
or options if the maximum number of Additional Shares were issued pursuant to
such rights or options for such minimum aggregate amount of additional
consideration, by (b) the maximum number of Additional Shares of Common Stock
of the Company issuable upon the exercise of all such rights or options for
such minimum aggregate amount of additional consideration; and the granting of
such rights or options shall be deemed to be an issue or sale for cash (as of
the date of the granting of such rights or options) of such maximum number of
Additional Shares of Common Stock at the price per share so determined, and
shall thereby cause an adjustment in the Exercise Price, if such an adjustment
is required by Section 6(b).

(B) If such rights or options shall by
their terms provide for an increase or increases, with passage of time, in the
amount of additional consideration payable to the Company upon the exercise
thereof, the adjusted Exercise Price shall, upon any such increases becoming
effective, be increased to such Exercise Price as would have

7
<PAGE> 8
been in effect had the adjustments made upon the issuance of such rights or
options been made upon the basis of (a) the issuance of the number of shares of
Common Stock theretofore actually delivered upon the exercise of such rights or
options (and the total consideration received upon the issuance of such rights
or options and upon the exercise thereof), (b) the issuance of all Common
Stock, all rights and options and all Convertible Securities issued after the
issuance of such rights and options (and the total consideration received upon
the issuance thereof and received or to be received upon the conversion,
exchange or exercise thereof), and (c) the original issuance at the time of
such change of any such rights or options then still outstanding (and the total
consideration received upon the issuance of the rights or options and received
or to be received upon the exercise thereof); provided, however, that any such
increase or increases in the Exercise Price shall not exceed, in the aggregate,
the amount of the original reduction of the Exercise Price attributable to the
grant of such rights or options.

(C) If any such rights or options shall
expire without having been exercised, the adjusted Exercise Price shall
forthwith be readjusted to such Exercise Price as would have been in effect had
an adjustment with respect to such rights or options been made on the basis
that the only Additional Shares of Common Stock so issued or sold were those
actually issued or sold upon the exercise of such rights or options and that
they were issued or sold for the consideration actually received by the Company
upon such exercise, plus the consideration, if any, actually received by the
Company for the granting of such rights or options.

(iv) (A) In case at any time on or after the
date hereof, the Company shall grant any rights or options to subscribe for,
purchase or otherwise acquire Convertible Securities, there shall be determined
the price per share for which Additional Shares of Common Stock are issuable
upon the exchange or conversion of such Convertible Securities if such rights
or options were exercised, such determination to be made by dividing (a) the
total amount, if any, received or receivable by the Company as consideration
for the issuance of such rights or options, plus the minimum aggregate amount
of additional consideration, if any, payable to the Company upon the exercise
of such rights or options if the maximum number of Convertible Securities were
issued pursuant to such rights or options for such minimum aggregate amount of
additional consideration, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the exchange or conversion
of such Convertible Securities if the maximum number of Additional Shares were
issued pursuant to such Convertible Securities for such minimum aggregate
amount of additional consideration, by (b) the maximum aggregate number of
Additional Shares of Common Stock issuable upon the exchange or conversion of
the Convertible Securities for such minimum aggregate amount of additional
consideration; and the issue or sale of such rights or options shall be deemed
to be an issue or sale for cash (as of the date of the granting of such rights
or options) of such maximum number of Additional Shares of Common Stock at the
price per share so determined, and thereby shall cause an adjustment in the
Exercise Price, if such an adjustment is required by Section 6(b).

8
<PAGE> 9

(B) If such rights or options to
subscribe for or otherwise acquire Convertible Securities shall by their terms
provide for an increase or increases, with the passage of time, in the amount
of additional consideration payable to the Company upon the exercise of such
rights or options or the exchange or conversion of such Convertible Securities,
the adjusted Exercise Price shall, forthwith upon any such increase becoming
effective, be increased to such Exercise Price as would have been in effect had
the adjustments made upon the issuances of such rights or options been made
upon the basis of (a) the issuance of the number of shares of Common Stock
theretofore actually delivered upon the exchange or conversion of such
Convertible Securities (and the total consideration received upon the issuance
of such Convertible Securities and received or to be received upon the
conversion or exchange thereof), (b) the issuance of all Common Stock and all
rights, options and Convertible Securities issued after the issuance of such
rights and options (and the total consideration received upon the issuance of
such Convertible Securities, rights and options and received or to be received
upon the exercise, conversion or exchange thereof) and (c) the original
issuances at the time of such change of any such rights, options and
Convertible Securities issued upon exercise of such rights or options which are
then still outstanding (and the total consideration received upon the issuance
of such Convertible Securities, rights and options and received or to be
received upon the exercise of such rights or options); provided, however, that
any such increase or increases shall not exceed, in the aggregate, the amount
of the original reduction of the Exercise Price attributable to the grant of
such rights or options.

(C) If any such rights, options or
rights of conversion or exchange of such Convertible Securities shall expire
without having been exercised, exchanged or converted, the adjusted Exercise
Price shall forthwith be readjusted to such Exercise Price as would have been
in effect had an adjustment been made with respect to such rights, options or
rights of conversion or exchange of such Convertible Securities on the basis
that the only Additional Shares of Common Stock so issued or sold were those
actually issued or sold upon the exercise of such rights or options and
exchange or conversion of such Convertible Securities and that they were issued
or sold for the consideration actually received by the Company upon exercise of
such rights and options and exchange or conversion of such Convertible
Securities, plus the consideration, if any, actually received by the Company
for the granting of such rights, options or Convertible Securities.

(v) In any case where an adjustment has been made
in the Exercise Price upon the issuance of Convertible Securities or any rights
or options to purchase Convertible Securities or Additional Shares of Common
Stock pursuant to this Section 6(c), no further adjustment shall be made at the
time of the conversion of any such Convertible Securities or at the time of the
exercise of any such rights or options.

(vi) In case at any time on or after the issuance
of this Warrant any shares of Common Stock or Convertible Securities shall be
issued or sold for a consideration other than cash, the amount of the
consideration other than cash payable to the Company shall

9
<PAGE> 10
be deemed to be the Fair Value of such consideration. Whether or not the
consideration so received is cash, the amount thereof shall be determined after
deducting therefrom any expenses incurred or any underwriting commissions or
concessions or discounts paid or allowed by the Company in connection
therewith.

(vii) In case at any time the Company shall fix a
record date of the holders of its Common Stock for the purpose of entitling
them (a) to receive a dividend or other distribution payable in Common Stock,
Convertible Securities or rights or options to purchase either thereof, or (b)
to subscribe for or purchase Common Stock, Convertible Securities or rights or
options to purchase either thereof, then such record date shall be deemed to be
the date of the issue or sale of the shares of Common Stock deemed, pursuant to
this Section 6(c), to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of the granting
of such right of subscription or purchase, as the case may be.

(viii) The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock for the purposes of this Section
6(c).

(d) Reorganization, Reclassification, Consolidation,
Merger or Sale. If any capital reorganization or reclassification of the
capital stock of the Company, or any consolidation or merger of the Company
with another corporation, or the sale of all or substantially all of its assets
to another corporation shall be effected in such a way that holders of Common
Stock shall be entitled to receive cash, stock, securities or assets with
respect to or in exchange for Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger or sale, lawful and
adequate provisions shall be made whereby the Warrantholders shall thereafter
have the right to purchase and receive upon the basis and upon the terms and
conditions specified in this Warrant upon exercise of this Warrant and in lieu
of the shares of the Common Stock of the Company immediately theretofore
purchasable and receivable upon the exercise of the rights represented hereby,
such cash, shares of stock, securities or assets as may be issued or payable
with respect to or in exchange for a number of outstanding shares of Common
Stock equal to the number of shares of such Common Stock immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby, and in any such case appropriate provision shall be made
with respect to the rights and interest of the Warrantholders to the end that
the provisions hereof (including, without limitation, provisions for
adjustments of the Exercise Price and of the number of shares purchasable and
receivable upon the exercise of this Warrant) shall thereafter be applicable,
as nearly as may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise hereof. The Company shall not effect
any consolidation, merger or sale of all or substantially all of the assets of
the Company unless prior to or simultaneous with the consummation thereof the
successor corporation (if other than the Company) resulting from such
consolidation, merger or

10
<PAGE> 11
purchase of such assets shall assume, by written instrument executed and mailed
or delivered to the Warrantholders, the obligation to deliver to such
Warrantholders such cash (or cash equivalent), shares of stock, securities or
assets as, in accordance with the foregoing provisions, the Warrantholders may
be entitled to receive and containing the express assumption of such successor
corporation of the due and punctual performance and observance of each
provision of this Warrant to be performed and observed by the Company and of
all liabilities and obligations of the Company hereunder.

In case any Additional Shares of Common Stock or
Convertible Securities or any rights or options to purchase any Additional
Shares of Common Stock or Convertible Securities shall be issued in connection
with any merger of another corporation into the Company, the amount of
consideration therefor shall be deemed to be the Fair Value of such portion of
the assets of such merged corporation as the Board of Directors of the Company
shall in good faith determine to be attributable to such Additional Shares of
Common Stock, Convertible Securities or rights or options, as the case may be,
and the Exercise Price shall be adjusted if such an adjustment is required in
accordance with Section 6(b).

(e) Company to Prevent Dilution. In case at any time or
from time to time conditions arise by reason of action taken by the Company
which are not adequately covered by the provisions of this Section 6, and which
might materially and adversely affect the exercise rights of the Warrantholders
under any provision of this Warrant, unless the adjustment necessary shall be
agreed upon by the Company and the Warrantholders, the Board of Directors of
the Company shall appoint a firm of independent certified public accountants of
recognized national standing (who have not been employed by the Company within
the last five years), acceptable to the Warrantholders, who at the Company's
expense shall give their opinion upon the adjustment, if any, on a basis
consistent with the standards established in the other provisions of this
Section 6, necessary with respect to the Exercise Price and the number of
shares purchasable upon exercise of the Warrants, so as to preserve, without
dilution, the exercise rights of the Warrantholders. Upon receipt of such
opinion, such Board of Directors shall forthwith make the adjustments described
therein.

(f) Stock Splits and Reverse Splits. In case at any time
the Company shall subdivide its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to
such subdivision shall be proportionately reduced and the number of shares of
Common Stock purchasable pursuant to this Warrant immediately prior to such
subdivision shall be proportionately increased, and conversely, in case at any
time the Company shall combine its outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price in effect immediately prior to
such combination shall be proportionately increased and the number of shares of
Common Stock purchasable upon the exercise of this Warrant immediately prior to
such combination shall be proportionately reduced.

11
<PAGE> 12

(g) Dissolution, Liquidation and Wind-Up. In case the
Company shall, at any time prior to the expiration of this Warrant, dissolve,
liquidate or wind up its affairs, the Warrantholders shall be entitled, upon
the exercise of this Warrant, to receive, in lieu of the shares of Common Stock
of the Company which such Warrantholders would have been entitled to receive,
the same kind and amount of assets as would have been issued, distributed or
paid to such Warrantholders upon any such dissolution, liquidation or winding
up with respect to such shares of Common Stock of the Company, had such
Warrantholders been the holders of record of the Warrant Shares receivable upon
the exercise of this Warrant on the record date for the determination of those
persons entitled to receive any such liquidating distribution. After any such
dissolution, liquidation or winding up which shall result in any cash
distribution in excess of the Exercise Price provided for by this Warrant, the
Warrantholders may, at each such Warrantholder's option, exercise the same
without making payment of the Exercise Price, and in such case the Company
shall, upon the distribution to said Warrantholders, consider that said
Exercise Price has been paid in full to it and in making settlement to said
Warrantholders, shall deduct from the amount payable to such Warrantholders an
amount equal to such Exercise Price.

(h) Accountants' Certificate. In each case of an
adjustment in the number of shares of Common Stock or other stock, securities
or property receivable on the exercise of the Warrants, the Company at its
expense shall cause independent public accountants of recognized standing
selected by the Company and acceptable to the Warrantholders to compute such
adjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such adjustment and showing in detail the facts upon
which such adjustment is based, including a statement of (a) the consideration
received or to be received by the Company for any Additional Shares of Common
Stock, rights, options or Convertible Securities issued or sold or deemed to
have been issued or sold, (b) the number of shares of Common Stock of each
class outstanding or deemed to be outstanding, (c) the adjusted Exercise Price
and (d) the number of shares issuable upon exercise of this Warrant. The
Company will forthwith mail a copy of each such certificate to each
Warrantholder.

7. Special Agreements of the Company.

(a) Reservation of Shares. The Company covenants and
agrees that all Warrant Shares will, upon issuance in accordance with the terms
of this Warrant, be validly issued, fully paid and nonassessable and free from
all preemptive rights of any stockholder, and from all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees
that during the period within which the rights represented by this Warrant may
be exercised, the Company will at all times have authorized, and reserved, a
sufficient number of shares of Common Stock to provide for the exercise of the
rights represented by this Warrant. The Company hereby covenants and agrees to
take all such action as may be necessary to assure that the par value per share
of the Common Stock is at all times equal to or less than the Exercise Price.

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<PAGE> 13

(b) Avoidance of Certain Actions. The Company will not,
by amendment of its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, issue or sale of securities or
otherwise, avoid or take any action which would have the effect of avoiding the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith assist in
carrying out all of the provisions of this Warrant and in taking all of such
action as may be necessary or appropriate in order to protect the rights of the
Warrantholders against dilution or other impairment of their rights hereunder.

(c) Securing Governmental Approvals. If any shares of
Common Stock required to be reserved for the purposes of exercise of this
Warrant require registration with or approval of any governmental authority
under any federal law (other than the Securities Act) or under any state law
before such shares may be issued upon exercise of this Warrant, the Company
will, at its expense, as expeditiously as possible, cause such shares to be
duly registered or approved, as the case may be.

(d) Listing on Securities Exchanges; Registration. If,
and so long as, any class of the Company's Common Stock shall be listed on any
national securities exchange (as defined in the Exchange Act), the Company
will, at its expense, obtain and maintain the approval for listing upon
official notice of issuance of all Warrant Shares and maintain the listing of
Warrant Shares after their issuance; and the Company will so list on such
national securities exchange, will register under the Exchange Act (or any
similar statute then in effect), and will maintain such listing of, any other
securities that at any time are issuable upon exercise of this Warrant if and
at the time any securities of the same class shall be listed on such national
securities exchange by the Company.

(e) Information Rights. So long as the Warrantholders
hold this Warrant and/or any of the Warrant Shares, the Company shall deliver
to the Warrantholders (i) promptly after mailing, copies of all communications
to the stockholders of the Company, (ii) within ninety-five (95) days after the
end of each fiscal year of the Company, the annual audited financial statements
of the Company certified by the independent public accountants of recognized
standing, and (iii) within fifty (50) days after the end of each of the first
three quarters of each fiscal year, the Company's quarterly, unaudited
financial statements.

(f) Restrictions on Public Sale by the Company. The
Company will not effect any public or private sale or distribution of its
convertible debt or equity securities, including a sale pursuant to Regulation
D under the Securities Act, during the ten (10) day period prior to, and during
the ninety (90) day period beginning on, the closing date of each underwritten
offering by the Company made pursuant to a registration statement filed
pursuant to Sections 11(a) or 11(b); and the Company shall cause each holder of
its privately placed convertible debt or equity securities issued by it at any
time on or after the date of this Warrant to agree not to effect any public
sale or distribution of any such securities during such period, including a
sale pursuant to Rule 144 or Rule 144A under the Securities Act.

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<PAGE> 14

(g) Preemptive Rights. In the event the Company offers
to the Company's stockholders the right to purchase any securities of the
Company, then all shares of Common Stock issuable pursuant to the Warrants
shall be deemed to be issued and outstanding and held by the Warrantholders and
the Warrantholders shall be entitled to participate in such rights offering.

(h) Compliance with Law. The Company shall comply with
all applicable laws, rules and regulations of the United States and of all
states, municipalities and agencies and of any other jurisdiction applicable to
the Company and shall do all things necessary to preserve, renew and keep in
full force and effect and in good standing its corporate existence and
authority necessary to continue its business.

8. Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon exercise hereof, the Company
shall pay to the Warrantholder an amount in cash equal to such fraction
multiplied by the Current Market Value of one share of Common Stock.

9. Notices of Stock Dividends, Subscriptions, Reclassifications,
Consolidations, Mergers, etc. If at any time: (i) the Company shall declare a
cash dividend (or an increase in the then existing dividend rate), or declare a
dividend on Common Stock payable otherwise than in cash out of its net earnings
after taxes for the prior fiscal year; or (ii) the Company shall authorize the
granting to the holders of Common Stock of rights to subscribe for or purchase
any shares of capital stock of any class or of any other rights; or (iii) there
shall be any capital reorganization, or reclassification, or redemption of the
capital stock of the Company, or consolidation or merger of the Company with,
or sale of all or substantially all of its assets to, another corporation or
firm; or (iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company, then the Company shall give to the
Warrantholders at the addresses of such Warrantholders as shown on the books of
the Company, at least twenty (20) days prior to the applicable record date
hereinafter specified, a written notice summarizing such action or event and
stating the record date for any such dividend or rights (or, if a record date
is not to be selected, the date as of which the holders of Common Stock of
record entitled to such dividend or rights are to be determined), the date on
which any such reorganization, reclassification, consolidation, merger, sale of
assets, dissolution, liquidation or winding up is expected to become effective,
and the date as of which it is expected the holders of Common Stock of record
shall be entitled to effect any exchange of their shares of Common Stock for
cash (or cash equivalent), securities or other property deliverable upon any
such reorganization, reclassification, consolidation, merger, sale of assets,
dissolution, liquidation or winding up.

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<PAGE> 15

10. Registered Holder; Transfer of Warrants or Warrant Shares.

(a) Maintenance of Registration Books; Ownership of this
Warrant. The Company shall keep at its principal office a register in which
the Company shall provide for the registration, transfer and exchange of this
Warrant. The Company shall not at any time, except upon the dissolution,
liquidation or winding-up of the Company, close such register so as to result
in preventing or delaying the exercise or transfer of this Warrant.

(b) Exchange and Replacement. This Warrant is
exchangeable upon surrender hereof by the registered holder to the Company at
its principal office for new Warrants of like tenor and date representing in
the aggregate the right to purchase the number of shares purchasable hereunder,
each of such new Warrants to represent the right to purchase such number of
shares as shall be designated by said registered holder at the time of
surrender. This Warrant and all rights hereunder are transferable in whole or
in part upon the books of the Company by the registered holder hereof in person
or by duly authorized attorney, and new Warrants shall be made and delivered by
the Company, of the same tenor and date as this Warrant but registered in the
name of the transferee(s), upon surrender of this Warrant, duly endorsed, to
said office of the Company. Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and upon surrender and cancellation of this Warrant, if mutilated, the
Company will make and deliver a new Warrant of like tenor, in lieu of this
Warrant, without requiring the posting of any bond or the giving of any other
security. This Warrant shall be promptly cancelled by the Company upon the
surrender hereof in connection with any exchange, transfer or replacement. The
Company shall pay all expenses, taxes and other charges payable in connection
with the preparation, execution and delivery of Warrants pursuant to this
Section 10.

(c) Warrants and Warrant Shares Not Registered. The
holder of this Warrant, by accepting this Warrant, represents and acknowledges
that the offering and sale of this Warrant and the Warrant Shares are not being
registered under the Securities Act on the grounds that the offering and sale
of this Warrant and the offering and sale of such Warrant Shares are exempt
from registration under Section 4(2) of the Securities Act as not involving any
public offering.

11. Registration.

(a) Required Registration. Whenever the Company shall
receive a written request therefor from any holder or holders of at least 10%
of the Registrable Stock, the Company shall promptly prepare and file a
registration statement under the Securities Act covering the offering and sale
of the Registrable Stock which is the subject of such request and shall use its
best efforts to cause such registration statement to become effective as
expeditiously as possible. Upon the receipt of such request, the Company shall
promptly give written notice to all holders of Registrable Stock that such
registration is to be effected. The

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<PAGE> 16
Company shall include in such registration statement such Registrable Stock for
which it has received written requests to register such shares by the holders
thereof within thirty (30) days after the effectiveness of the Company's
written notice to such other holders. Except as hereinafter expressly
provided, without the written consent of the holders of a majority of the
shares of Registrable Stock for which registration has been requested pursuant
to this Section, neither the Company nor any other holder of securities of the
Company may include securities in such registration.

(b) Incidental Registration. Each time the Company shall
determine to file a registration statement under the Securities Act (other than
on Form S-8 or Form S-4) in connection with the proposed offer and sale for
money of any of its securities by it or by any of its security holders, the
Company will give written notice of its determination to all holders of
Registrable Stock. Upon the written request of a holder of any Registrable
Stock, the Company will cause all such Registrable Stock, the holders of which
have so requested registration thereof, to be included in such registration
statement, all to the extent requisite to permit the sale or other disposition
by the prospective seller or sellers of the Registrable Stock to be so
registered in accordance with the terms of the proposed offering. If the
registration statement is to cover an underwritten distribution, the Company
shall use its best efforts to cause the Registrable Stock requested for
inclusion pursuant to this Section 11(b) to be included in the underwriting on
the same terms and conditions as the securities otherwise being sold through
the underwriters. If, in the good faith judgment of the managing underwriter
of such public offering, the inclusion of all of the Registrable Stock
requested to be registered would materially and adversely affect the successful
marketing of the other shares proposed to be offered, then the amount of the
Registrable Stock to be included in the offering shall be reduced and the
Registrable Stock and the other shares to be offered shall participate in such
offering as follows: the shares to be sold by the Company, the Registrable
Stock to be included in such offering and the other shares of Common Stock to
be included in such offering shall each be reduced pro rata in proportion to
the number of shares of Common Stock proposed to be included in such offering
by each holder of such shares and by the Company.

(c) Registration Procedures. If and whenever the Company
is required by the provisions of Section 11(a) or 11(b) to effect the
registration of the offering and sale of Registrable Stock under the Securities
Act, the Company will, at its expense, as expeditiously as possible:

(i) In accordance with the Securities Act and the
rules and regulations of the Commission, prepare and file with the Commission a
registration statement on the form of registration statement appropriate with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective until the securities covered by such
registration statement have been sold, and prepare and file with the Commission
such amendments to such registration statement and supplements to the
prospectus contained therein as may be necessary to keep such registration
statement effective

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<PAGE> 17
and such registration statement and prospectus accurate and complete until the
securities covered by such registration statement have been sold;

(ii) If the offering is to be underwritten, in
whole or in part, enter into a written underwriting agreement with the holders
of the Registrable Stock participating in such offering and the underwriter in
form and substance reasonably satisfactory to the managing underwriter of the
public offering and the holders of the Registrable Stock participating in such
offering;

(iii) Furnish to the holders of securities
participating in such registration and to the underwriters of the securities
being registered such reasonable number of copies of the registration
statement, preliminary prospectus, final prospectus and such other documents as
such underwriters and holders may reasonably request in order to facilitate the
public offering of such securities;

(iv) Use its best efforts to register or qualify
the securities covered by such registration statement under such state
securities or blue sky laws of such jurisdictions as such participating holders
and underwriters may reasonably request;

(v) Notify the holders participating in such
registration, promptly after it shall receive notice thereof, of the date and
time when such registration statement and each post-effective amendment thereto
has become effective or a supplement to any prospectus forming a part of such
registration statement has been filed;

(vi) Notify such holders promptly of any request
by the Commission for the amending or supplementing of such registration
statement or prospectus or for additional information;

(vii) Prepare and file with the Commission,
promptly upon the request of any such holders, any amendments or supplements to
such registration statement or prospectus which, in the opinion of counsel for
such holders, is required under the Securities Act or the rules and regulations
thereunder in connection with the distribution of the Registrable Stock by such
holders;

(viii) Prepare and promptly file with the
Commission, and promptly notify such holders of the filing of, such amendments
or supplements to such registration statement or prospectus as may be necessary
to correct any statements or omissions if, at the time when a prospectus
relating to such securities is required to be delivered under the Securities
Act, any event has occurred as the result of which any such prospectus or any
other prospectus as then in effect may include an untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading;

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<PAGE> 18

(ix) In case any of such holders or any
underwriter for any such holders is required to deliver a prospectus at a time
when the prospectus then in circulation is not in compliance with the
Securities Act or the rules and regulations of the Commission, prepare promptly
upon request such amendments or supplements to such registration statement and
such prospectus as may be necessary in order for such prospectus to comply with
the requirements of the Securities Act and such rules and regulations;

(x) Advise such holders, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of any stop order
by the Commission suspending the effectiveness of such registration statement
or the initiation or threatening of any proceeding for that purpose and
promptly use its best efforts to prevent the issuance of any stop order or to
obtain its withdrawal if such stop order should be issued;

(xi) If requested by the managing underwriter or
underwriters or a holder of Registrable Stock being sold in connection with an
underwritten offering, immediately incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriters and the
holders of a majority of the Registrable Stock being sold agree should be
included therein relating to the plan of distribution with respect to such
Registrable Stock, including information with respect to the Registrable Stock
being sold to such underwriters, the purchase price being paid therefor by such
underwriters and with respect to any other terms of the underwritten (or best
efforts underwritten) offering of the Registrable Stock to be sold in such
offering; and make all required filings of such prospectus supplement or
post-effective amendment as soon as notified of the matters to be incorporated
in such prospectus supplement or post-effective amendment;

(xii) Cooperate with the selling holders of
Registrable Stock and the managing underwriters, if any, to facilitate the
timely preparation and delivery of certificates representing Registrable Stock
to be sold and not bearing any restrictive legends; and enable such Registrable
Stock to be in such denominations and registered in such names as the managing
underwriters may request at least two business days prior to any sale of
Registrable Securities to the underwriters;

(xiii) Prepare a prospectus supplement or
post-effective amendment to the registration statement or the related
prospectus or any document incorporated therein by reference or file any other
required documents so that, as thereafter delivered to the purchasers of the
Registrable Stock, the prospectus will not contain an untrue statement of
material fact or omit to state any material fact necessary to make the
statements therein not misleading;

(xiv) Enter into such agreements (including an
underwriting agreement) and take all such other actions in connection therewith
in order to expedite or facilitate the disposition of such Registrable
Securities and in such connection, whether or not

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<PAGE> 19
an underwriting agreement is entered into and whether or not the registration
is an underwritten registration:

(A) make such representations and
warranties to the holders of such Registrable Stock and the underwriters, if
any, in form, substance and scope as are customarily made by issuers to
underwriters in primary underwritten offerings;

(B) If an underwriting agreement is
entered into, the same shall set forth in full the indemnification provisions
and procedures of Section 11(e) hereof with respect to all parties to be
indemnified pursuant to said Section; and

(C) The Company shall deliver such
documents and certificates as may be requested by the holders of the majority
of the Registrable Stock being sold and the managing underwriters, if any, to
evidence compliance with the terms of this Section 11(c) and with any customary
conditions contained in the underwriting agreement or other agreement entered
into by the Company.

The above shall be done at each closing under
such underwriting or similar agreement or as and to the extent required
thereunder;

(xv) Make available for inspection by a
representative of the holders of a majority of the Registrable Stock, any
underwriter participating in any disposition pursuant to a registration
statement, and any attorney or accountant retained by the sellers or
underwriter, all financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such
representative, underwriter, attorney or accountant in connection with the
preparation of the registration statement; provided, that any records,
information or documents that are designated by the Company in writing as
confidential shall be kept confidential by such persons unless disclosure of
such records, information or documents is required by court or administrative
order;

(xvi) Otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission, and make generally
available to the Company's security holders, earning statements satisfying the
provisions of Section 11(a) of the Securities Act, no later than forty-five
(45) days after the end of any twelve (12) month period (or ninety (90) days,
if such a period is a fiscal year) (i) commencing at the end of any fiscal
quarter in which Registrable Stock is sold to underwriters in an underwritten
offering, or, if not sold to underwriters in such an offering, (ii) beginning
with the first month of the Company's first fiscal quarter commencing after the
effective date of a registration statement;

(xvii) Not file any amendment or supplement to such
registration statement or prospectus to which a majority in interest of such
holders has objected on the grounds that such amendment or supplement does not
comply in all material respects with the

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<PAGE> 20
requirements of the Securities Act or the rules and regulations thereunder,
after having been furnished with a copy thereof at least five (5) business days
prior to the filing thereof; provided, however, that the failure of such
holders or their counsel to review or object to any amendment or supplement to
such registration statement or prospectus shall not affect the rights of such
holders or any controlling person or persons thereof or any underwriter or
underwriters therefor under Section 11(e) hereof; and

(xviii) At the request of any such holder (i) furnish
to such holder on the effective date of the registration statement or, if such
registration includes an underwritten public offering, at the closing provided
for in the underwriting agreement, an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, addressed to
the underwriters, if any, and to the holder or holders making such request,
covering such matters with respect to the registration statement, the
prospectus and each amendment or supplement thereto, proceedings under state
and federal securities laws, other matters relating to the Company, the
securities being registered and the offer and sale of such securities as are
customarily the subject of opinions of issuer's counsel provided to
underwriters in underwritten public offerings, and such opinion of counsel
shall additionally cover such legal and factual matters with respect to the
registration as such requesting holder or holders may reasonably request, and
(ii) use its best effort to furnish to such holder letters dated each such
effective date and such closing date, from the independent certified public
accountants of the Company, addressed to the underwriters, if any, and to the
holder or holders making such request, stating that they are independent
certified public accountants within the meaning of the Securities Act and
dealing with such matters as the underwriters may request, or, if the offering
is not underwritten, that in the opinion of such accountants the financial
statements and other financial data of the Company included in the registration
statement or the prospectus or any amendment or supplement thereto comply in
all material respects with the applicable accounting requirements of the
Securities Act, and additionally covering such other financial matters,
including information as to the period ending immediately prior to the date of
such letter with respect to the registration statement and prospectus, as such
requesting holder or holders may reasonably request.

(d) Expenses of Registration. All expenses incident to
the Company's performance of or compliance with this Warrant, including,
without limitation, the following shall be borne by the Company, regardless of
whether the registration statement becomes effective:

(i) All registration and filing fees (including
those with respect to filings required to be made with the National Association
of Securities Dealers, Inc.);

(ii) Fees and expenses of compliance with all
securities or blue sky laws (including fees and disbursements of counsel for
the underwriters or selling holders in connection with blue sky qualifications
of the Registrable Stock and in determination of their

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<PAGE> 21
eligibility for investment under the laws of such jurisdictions as the managing
underwriters or holders of a majority of the Registrable Stock being sold may
designate);

(iii) Printing, messenger, telephone and delivery
expenses;

(iv) Fees and disbursements of counsel for the
Company and for the sellers of the Registrable Stock as hereinafter provided;

(v) Fees and disbursements of all independent
certified public accountants of the Company (including the expenses of any
special audit and "comfort" letters required by or incident to such
performance);

(vi) Fees and disbursements of underwriters
(excluding discounts, commissions or fees of underwriters, selling brokers,
dealer managers or similar securities industry professionals relating to the
distribution of the Registrable Stock and legal expenses of any person other
than the Company and the selling holders); and

(vii) Fees and expenses of other persons retained
by the Company.

The Company will, in any event, pay its
internal expenses (including without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), the expense
of any annual audit, the fees and expenses incurred in connection with the
listing of the securities to be registered on each securities exchange on which
similar securities issued by the Company are then listed, rating agency fees
and the fees and expenses of any person, including special experts, retained by
the Company.

In connection with the registration statement
required hereunder, the Company will reimburse the holders of Registrable
Stock, the offering and sale of which are being registered pursuant to the
registration statement for the reasonable fees and disbursements of not more
than one counsel (or more than one counsel if conflict exists among such
selling holders in the exercise of the reasonable judgment of counsel for the
selling holders and counsel for the Company) chosen by the holders of a
majority of such Registrable Stock.

(e) Indemnification.

(i) The Company hereby agrees to indemnify each
of the holders of Registrable Stock against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any registration statement, preliminary or final prospectus, or other document
incident to any such registration, qualification or compliance (or in any
related registration statement, notification or the like) or any omission (or
alleged omission) to state

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<PAGE> 22
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or any violation by the Company of any rule
or regulation promulgated under the Securities Act applicable to the Company
and relating to action or inaction required of the Company in connection with
any such registration, qualification or compliance, and to reimburse the
holders of Registrable Stock (including officers and directors of the same and
controlling persons) for any legal and any other expenses reasonably incurred
in connection with investigating or defending any such claim, loss, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that any such claim, loss, damage or liability
arises out of or is based on any untrue statement or omission based upon
written information furnished to the Company by Warrantholders in an instrument
duly executed by Warrantholders and stated to be specifically for use therein.

(ii) The Warrantholders severally and not jointly
agree to indemnify the Company and its officers and directors and each person,
if any, who controls any thereof within the meaning of Section 15 of the
Securities Act and their respective successors against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement of a material fact contained in any prospectus,
offering circular or other document incident to any registration, qualification
or compliance relating to securities purchased pursuant to the Warrants (or in
any related registration statement, notification or the like) or any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading and will
reimburse the Company and each other person indemnified pursuant to this
subsection (ii) for any legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action; provided, however, that this subsection (ii) shall apply
only if (and only to the extent that) such statement or omission was made in
reliance upon information (including, without limitation, written negative
responses to inquiries) furnished to the Company by an instrument duly executed
by Warrantholders and stated to be specifically for use in such prospectus, or
other document (or related registration statement, notification or the like) or
any amendment or supplement thereto.

(iii) Each party entitled to indemnification
hereunder (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may
be sought, and shall permit the Indemnifying Party (at such Indemnifying
Party's expense) to assume the defense of any claim or any litigation resulting
therefrom, provided that counsel for the Indemnifying Party, who shall conduct
the defense of such claim or litigation, shall be satisfactory to the
Indemnified Party, and the Indemnified Party may participate in such defense at
such party's expense, and provided, further, that the omission by any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 11(e) except to the
extent that the omission results in a failure of actual notice to the
Indemnifying Party and such Indemnifying Party is materially damaged solely as
a result of the failure to give notice. No Indemnifying

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Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation.

(iv) If the indemnification provided for in this
Section 11(e) is unavailable or insufficient to hold harmless an Indemnified
Party in respect of any losses, claims, damages, liabilities, expenses or
actions in respect thereof referred to herein, then the Indemnifying Party
shall contribute to the amount paid or payable by such Indemnified Party as a
result of such losses, claims, damages, liabilities, expenses or actions in
such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand, and the Indemnified Party on the other, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities, expenses or actions as well as any other relevant
equitable considerations, including the failure to give the notice required
hereunder. The relative fault of the Indemnifying Party and the Indemnified
Party shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact relates to information
supplied by the Indemnifying Party or the Indemnified Party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Warrantholders agree
that it would not be just and equitable if contributions pursuant to this
Section 11(e) were determined by pro rata allocation or by any other method of
allocation which did not take account of the equitable considerations referred
to above. The amount paid or payable to an Indemnified Party as a result of
the losses, claims, damages, liabilities or actions in respect thereof,
referred to above, shall be deemed to include any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any such action or claim. Notwithstanding the contribution
provisions of this Section 11(e), in no event shall the amount contributed by
any seller of Registrable Stock exceed the aggregate net offering proceeds
received by such seller from the sale of Registrable Stock to which such
contribution or indemnification claim relates. No person guilty of fraudulent
misrepresentations (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation.

(v) The indemnification required by this Section
11(e) shall be made by periodic payments during the course of the investigation
or defense, as and when bills are received or expenses incurred. Anything
contained herein to the contrary notwithstanding, the maximum aggregate
liability of any holder of Registrable Stock under this Section 11(e) shall not
exceed the amount of the net proceeds actually received by such holder from the
sale of its Registrable Stock pursuant to the registration, qualification,
notification or compliance in respect of which such liability arose.

(f) Reporting Requirements Under Exchange Act. The
Company shall maintain the registration of its Common Stock under Section 12 of
the Exchange Act and shall keep effective such registration and shall timely
file such information, documents and reports

23
<PAGE> 24
as the Commission may require or prescribe under Section 13 of the Exchange
Act, or otherwise. From and after the date hereof, the Company shall (whether
or not it shall then be required to do so) timely file such information,
documents and reports as the Commission may require or prescribe under Section
13 or 15(d) (whichever is applicable) of the Exchange Act. The Company shall
forthwith upon request furnish any holder of Registrable Stock (i) a written
statement by the Company that it has complied with such reporting requirements,
(ii) a copy of the most recent annual or quarterly report of the Company, and
(iii) such other reports and documents filed by the Company with the Commission
as such holder may reasonably request in availing itself of an exemption for
the sale of Registrable Stock without registration under the Securities Act.
The Company acknowledges and agrees that the purpose of the requirements
contained in this Section 11(f) is to enable any such holder to comply with the
current public information requirement contained in Rule 144 under the
Securities Act should such holder ever wish to dispose of any of the securities
of the Company acquired by it without registration under the Securities Act in
reliance upon Rule 144 (or any other similar exemptive provision). In
addition, the Company shall take such other measures and file such other
information, documents and reports as shall hereafter be required by the
Commission as a condition to the availability of Rule 144 and Rule 144A under
the Securities Act (or any similar exemptive provision hereafter in effect).

(g) Stockholder Information. The Company may require
each holder of Registrable Stock as to which any registration is to be effected
pursuant to this Section 11 to furnish the Company such information with
respect to such holder and the distribution of such Registrable Stock as shall
be required by law or by the Commission in connection therewith.

12. Representation and Warranties. The Company hereby represents
and warrants to and covenants with Foothill, each Warrantholder, and each
holder of Warrant Shares that:

(a) Organization and Capitalization of the Company. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Texas. As of the date hereof, the authorized
capital of the Company consists of 25,000,000 shares of Common Stock and
10,000,000 shares of Preferred Stock, of which 6,307,419 shares of Common Stock
and no shares of Preferred Stock are issued and outstanding. The Company has,
and at all times during the Exercise Period will have, reserved for issuance
pursuant to the Warrants that number of shares of Common Stock that are issuable
pursuant to the Warrants. Except in respect of the Celebrity, Inc. 1992 Stock
Option Plan and the Celebrity, Inc. 1993 Stock Purchase Plan, no unissued shares
of Common Stock are reserved for any purpose other than for issuance upon the
exercise of the Warrants. Except as to the Celebrity, Inc. 1992 Stock Option
Plan, as of the date hereof, the Company has not issued or agreed to issue any
stock purchase rights, options, convertible securities, warrants (other than
this Warrant) or any other securities or indebtedness convertible into shares of
Common Stock, and there are no preemptive rights in effect with respect to the
issuance of any shares of Common Stock. All the outstanding shares of Common
Stock have been validly issued without violation of any preemptive or similar
rights,

24
<PAGE> 25
are fully paid and nonassessable and have been issued in compliance with all
federal and applicable state securities laws.

(b) Authority. The Company has full corporate power and
authority to execute and deliver this Warrant, to issue the shares of Common
Stock issuable upon exercise of this Warrant, and to perform all of its
obligations hereunder, and the execution, delivery and performance hereof has
been duly authorized by all necessary corporate action on its part. This
Warrant has been duly executed on behalf of the Company and constitutes the
legal, valid and binding obligation of the Company enforceable in accordance
with its terms.

(c) No Legal Bar. Neither the execution, delivery or
performance of this Warrant nor the issuance of the shares of Common Stock
issuable upon exercise of this Warrant will (a) conflict with or result in a
violation of the Articles of Incorporation or Bylaws of the Company, (b)
conflict with or result in a violation of any law, statute, regulation, order
or decree applicable to the Company or any affiliate, (c) require any consent
or authorization or filing with, or other act by or in respect of any
governmental authority or (d) result in a breach of, constitute a default under
or constitute an event creating rights of acceleration, termination or
cancellation under any mortgage, lease, contract, franchise, instrument or
other agreement to which the Company is a party or by which it is bound.

(d) Validity of Shares. When issued upon the exercise of
this Warrant as contemplated herein, the shares of Common Stock so issued will
have been validly issued and will be fully paid and nonassessable. On the date
hereof, the par value of the Common Stock is less than the Exercise Price per
share of Common Stock.

13. Continuing Validity. Foothill and each holder of Warrant
Shares shall continue to be entitled to all rights to which a Warrantholder is
entitled pursuant to the provisions of this Warrant except such rights as by
their terms apply solely to a Warrantholder, notwithstanding the fact that this
Warrant has been exercised or the period of exercisability has expired. The
Company will, at any time upon the request of Foothill or a holder of the
Warrant Shares, acknowledge in writing, in form reasonably satisfactory to
Foothill or such holder, the Company's continuing obligation to afford to
Foothill or such holder all rights to which Foothill or such holder shall
continue to be entitled in accordance with the provisions of this Warrant;
provided, however, that if Foothill or such holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to Foothill and such holder all such rights.

14. Miscellaneous Provisions.

(a) Notice of Expiration. The Company shall give written
notice to the Warrantholders specifically advising them of the Expiration Date
and of their right to exercise the Warrants not more than one hundred eighty
(180) days and not less than ninety (90) days before the Expiration Date. If
such written notice is not so given, the Expiration Date shall

25
<PAGE> 26
automatically be extended until ninety (90) days after the date that the
Company gives the Warrantholders such written notice.

(b) Judicial Reference.

(i) Other than the appointment of a receiver, or
the exercise of other provisional remedies (any and all of which may be
initiated pursuant to applicable law), each controversy, dispute or claim
arising out of or relating to this Warrant, which controversy, dispute or claim
is not settled in writing within thirty (30) days after the "Claim Date"
(defined as the date on which the Company or a Warrantholder gives written
notice to the other that a controversy, dispute or claim exists), will be
settled by a reference proceeding in California in accordance with the
provisions of Section 638 et seq. of the California Code of Civil Procedure, or
their successor section ("CCP"), which shall constitute the exclusive remedy
for the settlement of any controversy, dispute or claim concerning this
Warrant, including whether such controversy, dispute or claim is subject to the
reference proceeding and except as set forth above, the parties waive their
rights to initiate any legal proceedings against each other in any court or
jurisdiction other than the Superior Court in counties of Los Angeles or
Orange, California (the "Court"). The referee shall be a retired Judge of the
Court selected by mutual agreement of the parties, and if they cannot so agree
within forty-five (45) days after the Claim Date, the referee shall be promptly
selected by the Presiding Judge of the Court (or his or her representative).
The referee shall be appointed to sit as a temporary judge, with all of the
powers for a temporary judge, as authorized by law, and upon selection should
take and subscribe to the oath of office as provided for in Rule 244 of the
California Rules of Court (or any subsequently enacted Rule). Each party shall
have one peremptory challenge pursuant to CCP Section 170.6. The referee shall
(i) be requested to set the matter for hearing within sixty (60) days after the
Claim Date and (ii) try any and all issues of law or fact and report a
statement of decision upon them, if possible, within ninety (90) days of the
Claim Date. Any decision rendered by the referee will be final, binding and
conclusive and judgment shall be entered pursuant to CCP Section 644 in any
court in the State of California having jurisdiction. Any party may apply for
a reference proceeding at any time after thirty (30) days following notice to
any other party of the nature of the controversy, dispute or claim, by filing a
petition for a hearing and/or trial. All discovery permitted by this Warrant
shall be completed no later than fifteen (15) days before the first hearing
date established by the referee. The referee may extend such period in the
event of a party's refusal to provide requested discovery for any reason
whatsoever, including, without limitation, legal objections raised to such
discovery or unavailability of a witness due to absence or illness. No party
shall be entitled to "priority" in conducting discovery. Depositions may be
taken by either party upon seven (7) days written notice, and request for
production or inspection of documents shall be responded to within ten (10)
days after service. All disputes relating to discovery which cannot be
resolved by the parties shall be submitted to the referee whose decision shall
be final and binding upon the parties. Pending appointment of the referee as
provided herein, the Court is empowered to issue temporary and/or provisional
remedies, as appropriate.

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<PAGE> 27

(ii) Except as expressly set forth in this
Warrant, the referee shall determine the manner in which the reference
proceeding is conducted, including the time and place of all hearings, the
order of presentation of evidence, and all other questions that arise with
respect to the course of the reference proceeding. All proceedings and
hearings conducted before the referee, except for trial, shall be conducted
without a court reporter except that when any party so requests, a court
reporter will be used at any hearing conducted before the referee. The party
making such a request shall have the obligation to arrange for and pay for the
court reporter. The costs of the court reporter at the trial shall be borne
equally by the parties.

(iii) The referee shall be required to determine
all issues in accordance with existing case law and the statutory laws of the
State of California. The rules of evidence applicable to proceedings at law in
the State of California will be applicable to the reference proceeding. The
referee shall be empowered to enter equitable as well as legal relief, to
provide all temporary and/or provisional remedies and to enter equitable orders
that will be binding upon the parties. The referee shall issue a single
judgment at the close of the reference proceeding which shall dispose of all of
the claims of the parties that are the subject of the reference. The parties
hereto expressly reserve the right to contest or appeal from the final judgment
or any appealable order or appealable judgment entered by the referee. The
parties hereto expressly reserve the right to findings of fact, conclusions of
laws, a written statement of decision, and the right to move for a new trial or
a different judgment, which new trial, if granted, is also to be a reference
proceeding under this provision.

(iv) In the event that the enabling legislation
which provides for appointment of a referee is repealed (and no successor
statute is enacted), any dispute between the parties that would otherwise be
determined by the reference procedure herein described will be resolved and
determined by arbitration. The arbitration will be conducted by a retired
judge of the Court, in accordance with the California Arbitration Act, Section
1280 through Section 1294.2 of the CCP as amended from time to time. The
limitations with respect to discovery as set forth hereinabove shall apply to
any such arbitration proceeding.

(c) Notices. Unless otherwise provided in this Warrant,
all notices or demands by any party relating to this Warrant shall be in
writing and (except for financial statements and other informational documents
which may be sent by first-class mail, postage prepaid) shall be personally
delivered or sent by registered or certified mail (postage prepaid, return
receipt requested), overnight courier, or telefacsimile to the Warrantholders
or holder of Warrant Shares, as the case may be, at its address set forth
below:

If to Company: CELEBRITY, INC.
4520 Old Troup Highway
Tyler, Texas 75711
Attn: Robert H. Patterson, Jr.
Fax No. 903.509.3631

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<PAGE> 28
with copies to: THOMPSON & KNIGHT, P.C.
1700 Pacific Avenue, Suite 3300
Dallas, Texas 75201
Attn: Fred W. Fulton, Esq.
Fax No. 214.969.1751

If to Foothill: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn: Business Finance Division Manager
Fax No. 310.478.9788

with copies to: BUCHALTER, NEMER, FIELDS & YOUNGER
601 South Figueroa, Suite 2400
Los Angeles, California 90017
Attn: Robert C. Colton, Esq.
Fax No. 213.896.0400

The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner given
to the other.

(d) Successors and Assigns. This Warrant shall be
binding upon and inure to the benefit of the Company, Foothill, the
Warrantholders and the holders of Warrant Shares and the successors, assigns
and transferees of the Company, Foothill, the Warrantholders and the holders of
Warrant Shares.

(e) Attorneys' Fees. The Company agrees to pay, on
demand, all attorneys' fees (including attorneys' fees incurred pursuant to
proceedings arising under Bankruptcy Code) and all other costs and expenses
which may be incurred by Foothill, the Warrantholders and the holders of
Warrant Shares in connection with any amendment to this Warrant and/or in
connection with the enforcement of this Warrant, whether or not suit is
brought.

(f) Entire Agreement; Amendments and Waivers. This
Warrant sets forth the entire understanding of the parties with respect to the
transactions contemplated hereby. The failure of any party to seek redress for
the violation or to insist upon the strict performance of any term of this
Warrant shall not constitute a waiver of such term and such party shall be
entitled to enforce such term without regard to such forbearance. This Warrant
may be amended, the Company may take any action herein prohibited or omit to
take action herein required to be performed by it, and any breach of or
compliance with any covenant, agreement, warranty or representation may be
waived, only if the Company has obtained the written consent or written waiver
of the majority in interest of the Warrantholders, and then

28
<PAGE> 29
such consent or waiver shall be effective only in the specific instance and for
the specific purpose for which given.

(g) Severability. If any term of this Warrant as applied
to any person or to any circumstance is prohibited, void, invalid or
unenforceable in any jurisdiction, such term shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or invalidity without in any way
affecting any other term of this Warrant or affecting the validity or
enforceability of this Warrant or of such provision in any other jurisdiction.

(h) Headings. The headings in this Warrant are inserted
only for convenience of reference and shall not be used in the construction of
any of its terms.

IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officers effective as of the date first set forth above.

CELEBRITY, INC.,
a Texas corporation

By /s/ DAVID J. HUFFMAN
----------------------------------------
Name: David J. Huffman
-----------------------------------
Title: EVP
----------------------------------

ATTEST:

/s/ LISA K. BORK
- ---------------------------------------
Lisa Bork, Assistant Secretary

<PAGE> 1
EXHIBIT 10.1
===============================================================================

LOAN AND SECURITY AGREEMENT

AMONG

CELEBRITY, INC.,
THE CLUETT CORPORATION,
STAR WHOLESALE FLORIST, INC.,
VALUE FLORIST SUPPLIES, INC.,

AND
INDIA EXOTICS, INC.,
AS BORROWERS, ON THE ONE HAND,

AND

FOOTHILL CAPITAL CORPORATION,
ON THE OTHER HAND

DATED AS OF JANUARY 30, 1998

===============================================================================
<PAGE> 2
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page(s)
-------
<S> <C> <C>
1. DEFINITIONS AND CONSTRUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
1.3 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
1.4 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
1.5 Schedules and Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

2. LOAN AND TERMS OF PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.1 Revolving Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.2 Letters of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.3 Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.4 [Intentionally Deleted] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.5 Overadvances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.6 Interest and Letter of Credit Fees: Rates, Payments, and Calculations. . . . . . . . . . . . . . . 24
2.7 Collection of Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.8 Crediting Payments; Application of Collections . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.9 Designated Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.10 Maintenance of Loan Account; Statements of Obligations. . . . . . . . . . . . . . . . . . . . . . . 27
2.11 Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

3. CONDITIONS; TERM OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.1 Conditions Precedent to the Initial Advance, the Initial Letter of Credit, and the Term Loan. . . . 28
3.2 Conditions Precedent to all Advances, all Letters of Credit, and the Term Loan. . . . . . . . . . . 31
3.3 Condition Subsequent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.4 Term; Automatic Renewal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.5 Effect of Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.6 Early Termination by Borrowers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.7 Termination Upon Event of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

4. CREATION OF SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.1 Grant of Security Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.2 Negotiable Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.3 Collection of Accounts, General Intangibles, and Negotiable Collateral. . . . . . . . . . . . . . . 33
4.4 Delivery of Additional Documentation Required. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.5 Power of Attorney. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.6 Right to Inspect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>

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<PAGE> 3
<TABLE>
<S> <C> <C>
5. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.1 No Encumbrances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.2 Eligible Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.3 Eligible Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.4 Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.5 Location of Inventory and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.6 Inventory Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.7 FEIN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.8 Due Organization and Qualification; Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.9 Due Authorization; No Conflict. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.10 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.11 No Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.12 Solvency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.13 Employee Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.14 Environmental Condition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

6. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.1 Accounting System. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.2 Collateral Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.3 Financial Statements, Reports, Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.4 Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.5 Guarantor Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.6 Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.7 Title to Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.8 Maintenance of Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.9 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.10 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.11 No Setoffs or Counterclaims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.12 Location of Inventory and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.13 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.14 Employee Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.15 Leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

7. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.1 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.2 Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.3 Restrictions on Fundamental Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
7.4 Disposal of Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
7.5 Change Name. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
7.6 Guarantee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
7.7 Nature of Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
7.8 Prepayments and Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
</TABLE>

ii
<PAGE> 4
<TABLE>
<S> <C> <C>
7.9 Change of Control. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
7.10 Consignments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.11 Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.12 Accounting Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.13 Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.14 Transactions with Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.15 Suspension. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.16 Intentionally Deleted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.17 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.18 Change in Location of Chief Executive Office; Inventory and Equipment with Bailees. . . . . . . . . 49
7.19 No Prohibited Transactions Under ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.20 Financial Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.21 Capital Expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

8. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

9. FOOTHILL'S RIGHTS AND REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.1 Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.2 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

10. TAXES AND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

11. WAIVERS; INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
11.1 Demand; Protest; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
11.2 Foothill's Liability for Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
11.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
11.4 Joint Borrowers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

12. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

14. DESTRUCTION OF BORROWERS' DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

15. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
15.1 Effectiveness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
15.2 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
15.3 Section Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
15.4 Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
15.5 Severability of Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
15.6 Amendments in Writing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
15.7 Counterparts; Telefacsimile Execution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
15.8 Revival and Reinstatement of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
15.9 Integration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
</TABLE>

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<PAGE> 5
SCHEDULES AND EXHIBITS

<TABLE>
<S> <C>
Schedule E-1 Eligible Inventory Locations
Schedule P-1 Permitted Liens
Schedule R-1 Real Property Collateral
Schedule 5.8 Subsidiaries
Schedule 5.10 Litigation
Schedule 6.12 Location of Inventory and Equipment
Schedule 7.1 Existing Indebtedness

Exhibit C-1 Form of Compliance Certificate
</TABLE>

iv
<PAGE> 6
LOAN AND SECURITY AGREEMENT

THIS LOAN AND SECURITY AGREEMENT (THIS "AGREEMENT"), is entered into
as of January 30, 1998, among FOOTHILL CAPITAL CORPORATION, a California
corporation ("Foothill"), with a place of business located at 11111 Santa
Monica Boulevard, Suite 1500, Los Angeles, California 90025-3333, on the one
hand, and each of the Borrowers, with their chief executive offices all at 4520
Old Troup Highway, Tyler, Texas 75707, on the other hand.

The parties agree as follows:

1. DEFINITIONS AND CONSTRUCTION.

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

"Account Debtor" means any Person who is or who may
become obligated under, with respect to, or on account of, an Account.

"Accounts" means all currently existing and hereafter
arising accounts, contract rights, and all other forms of obligations owing to
a Person arising out of the sale or lease of goods or the rendition of services
by such Person, irrespective of whether earned by performance, and any and all
credit insurance, guaranties, or security therefor.

"Advances" has the meaning set forth in Section
2.1(a).

"Affiliate" means, as applied to any Person, any
other Person who directly or indirectly controls, is controlled by, is under
common control with or is a director or officer of such Person. For purposes
of this definition, "control" means the possession, directly or indirectly, of
the power to vote 20% or more of the securities having ordinary voting power
for the election of directors or the direct or indirect power to direct the
management and policies of a Person.

"Agreement" has the meaning set forth in the preamble
hereto.

"Authorized Person" means any officer or other
employee of Borrower.

"Average Unused Portion of Maximum Revolving Amount"
means, as of any date of determination, (a) the Maximum Revolving Amount, less
(b) the sum

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<PAGE> 7
of (i) the average Daily Balance of Advances that were outstanding during the
immediately preceding month, plus (ii) the average Daily Balance of the undrawn
Letters of Credit that were outstanding during the immediately preceding month.

"Bankruptcy Code" means the United States Bankruptcy
Code (11 U.S.C. Section 101 et seq.), as amended, and any successor statute.

"Benefit Plan" means a "defined benefit plan" (as
defined in Section 3(35) of ERISA) for which any Borrower, any Subsidiary of
any Borrower, or any ERISA Affiliate has been an "employer" (as defined in
Section 3(5) of ERISA) within the past six years.

"Borrower" means any one of Celebrity, Cluett,
Exotics, Florist Supplies, or Star.

"Borrowers' Books" means all of Borrowers' books and
records including: ledgers; records indicating, summarizing, or evidencing
Borrowers' properties or assets (including the Collateral) or liabilities; all
information relating to Borrowers' business operations or financial condition;
and all computer programs, disk or tape files, printouts, runs, or other
computer prepared information.

"Borrowing Base" has the meaning set forth in Section
2.1(a).

"Business Day" means any day that is not a Saturday,
Sunday, or other day on which national banks are authorized or required to
close.

"Celebrity" means Celebrity, Inc., a Texas
corporation.

"Celebrity Hong Kong" means Celebrity Exports
International Limited, a Hong Kong corporation.

"Change of Control" shall be deemed to have occurred
at such time as: (a) Robert H. Patterson, Jr., any corporation or partnership
under the control of Mr. Patterson, or the trustee of any trust of which Mr.
Patterson is the settlor or primary beneficiary) ceases to own more than 40% of
the total voting power of all classes of stock then outstanding of Celebrity
entitled to vote in the election of directors ("Voting Stock"); provided,
however, that a Change of Control shall be deemed to occur if, during a time
when Mr. Patterson's holdings of Voting Stock are 50% or less, any other
"person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934 (the "Act")) shall become the "beneficial
owner" (as defined in Rule 13d-3 under the Act) of more than 20% of the Voting
Stock; (b) Celebrity ceases to own, directly or indirectly, all of the voting
power of all of the Voting Stock of each other

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<PAGE> 8
Borrower or (c) Robert H. Patterson, Jr., the existing chief executive officer
of Celebrity, shall no longer serve in such capacity; or the Person acting as
the existing interim chief financial officer of Celebrity, shall (prior to the
hiring of a permanent chief financial officer of Celebrity) no longer serve in
such capacity.

"Closing Date" means the date of the first to occur
of the making of the initial Advance, the issuance of the initial Letter of
Credit, or the funding of the Term Loan.

"Closing Fee" has the meaning set forth in Section
2.11(a).

"Cluett" means The Cluett Corporation, a California
corporation.

"Code" means the California Uniform Commercial Code.

"Collateral" means each Borrower's right, title, and
interest in each of the following:

(a) Accounts,

(b) Borrowers' Books,

(d) General Intangibles,

(e) Inventory,

(f) Investment Property,

(g) Negotiable Collateral,

(h) Real Property Collateral,

(i) any money, or other assets of Borrowers that
now or hereafter come into the possession, custody, or control of Foothill, and

(j) the proceeds and products, whether tangible
or intangible, of any of the foregoing, including proceeds of insurance
covering any or all of the Collateral of Borrowers, and any and all Accounts,
Borrowers' Books, Equipment, General Intangibles, Inventory, Investment
Property, Negotiable Collateral, Real Property, money, deposit accounts, or
other tangible or intangible property resulting from the sale,

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<PAGE> 9
exchange, collection, or other disposition of any of the foregoing, or any
portion thereof or interest therein, and the proceeds thereof.

"Collateral Access Agreement" means a landlord
waiver, mortgagee waiver, bailee letter, or acknowledgement agreement of any
warehouseman, processor, lessor, consignee, or other Person in possession of,
having a Lien upon, or having rights or interests in the Equipment or Inventory
of any Borrower, in each case, in form and substance satisfactory to Foothill.

"Collections" means all cash, checks, notes,
instruments, and other items of payment (including, insurance proceeds,
proceeds of cash sales, rental proceeds, and tax refunds).

"Compliance Certificate" means a certificate
substantially in the form of Exhibit C-1 and delivered by the chief accounting
officer of a Borrower to Foothill.

"Daily Balance" means, with respect to each day
during the term of this Agreement, the amount of an Obligation owed at the end
of such day.

"deems itself insecure" means that the Person deems
itself insecure in accordance with the provisions of Section 1208 of the Code.

"Default" means an event, condition, or default that,
with the giving of notice, the passage of time, or both, would be an Event of
Default.

"Designated Account" means account number 182215394
of Borrowers maintained with Borrowers' Designated Account Bank, or such other
deposit account of Borrowers (located within the United States) which has been
designated, in writing and from time to time, by Borrowers to Foothill.

"Designated Account Bank" means Bank One Texas, N.A.,
whose office is located at Dallas, Texas, and whose ABA number is 111000614.

"Dilution" means, for any Borrower, in each case
based upon the experience of the immediately prior 3 months, the result of
dividing the Dollar amount of (a) bad debt write-downs, discounts, advertising,
returns, promotions, credits, or other dilutive items with respect to the
Accounts of such Borrower, by (b) such Borrower's Collections (excluding
extraordinary items) plus the Dollar amount of clause (a).

"Dilution Reserve" means, as of any date of
determination, an aggregate amount sufficient to reduce Foothill's advance
rates against Eligible Accounts

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<PAGE> 10
of each Borrower by the amount, expressed as a percent, by which Dilution for
such Borrower is in excess of 4.0%. As an example, if Dilution for Cluett were
4.75%, then such advance rate for Cluett would be reduced by 0.75 percentage
points.

"Disbursement Letter" means an instructional letter
executed and delivered by Borrowers to Foothill regarding the extensions of
credit to be made on the Closing Date, the form and substance of which shall be
satisfactory to Foothill.

"Dollars or $" means United States dollars.

"Early Termination Premium" has the meaning set forth
in Section 3.6.

"EBITDA" means, at any time of determination, the
consolidated net income of Celebrity and its Subsidiaries (excluding
extraordinary items) for the prior 12 month period (a) plus all interest
expense, income tax expense, depreciation and amortization (including
amortization of any goodwill or other intangibles) for the period, (b) plus or
minus any other non-cash charges which have been subtracted or amounts which
have been added in calculating consolidated net income for the period.

"Eligible Accounts" means those Accounts created by a
Borrower in the ordinary course of business, that arise out of such Borrower's
sale of goods or rendition of services, that strictly comply with each and all
of the representations and warranties respecting Accounts made by such Borrower
to Foothill in the Loan Documents, and that are and at all times continue to be
acceptable to Foothill in all respects; provided, however, that standards of
eligibility may be fixed and revised from time to time by Foothill in
Foothill's reasonable credit judgment. In determining the amount to be so
included, Accounts shall be valued net of any sales taxes thereon or debit
memos. Eligible Accounts shall not include the following:

(a) Accounts with selling terms of more than 180
days, or Accounts that the Account Debtor has failed to pay within 60 days
after their due date (or within 30 days after their due date with respect to
Accounts with selling terms of greater than 90 days); provided, however, that
the MJDesigns Account shall not be ineligible, prior to April 1, 1998, solely
as a result of this clause (a);

(b) Accounts owed by an Account Debtor or its
Affiliates where 50% or more of all Accounts owed by that Account Debtor (or
its Affiliates) are deemed ineligible under clause (a) above;

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<PAGE> 11
(d) Accounts with respect to which goods are
placed on consignment, guaranteed sale, sale or return, sale on approval, bill
and hold, or other terms by reason of which the payment by the Account Debtor
may be conditional;

(e) Accounts that are not payable in Dollars or
with respect to which the Account Debtor: (i) does not maintain its chief
executive office in the United States, or (ii) is not organized under the laws
of the United States or any State thereof, or (iii) is the government of any
foreign country or sovereign state, or of any state, province, municipality, or
other political subdivision thereof, or of any department, agency, public
corporation, or other instrumentality thereof, unless (y) the Account is
supported by an irrevocable letter of credit satisfactory to Foothill (as to
form, substance, and issuer or domestic confirming bank) that has been
delivered to Foothill and is directly drawable by Foothill, or (z) the Account
is covered by credit insurance in form and amount, and by an insurer,
satisfactory to Foothill;

(f) Accounts with respect to which the Account
Debtor is either (i) the United States or any department, agency, or
instrumentality of the United States (exclusive, however, of Accounts owing by
AAFES or any other military post exchange, or Accounts with respect to which
the relevant Borrower has complied, to the satisfaction of Foothill, with the
Assignment of Claims Act, 31 U.S.C. Section 3727), or (ii) any State of the
United States (exclusive, however, of Accounts owed by any State that does not
have a statutory counterpart to the Assignment of Claims Act);

(g) Accounts with respect to which the Account
Debtor is a creditor of any Borrower, has or has asserted a right of setoff,
has disputed its liability, or has made any claim with respect to the Account;

(h) Accounts with respect to an Account Debtor
whose total obligations owing to Borrowers exceed 10% of all Eligible Accounts
of Borrowers in the aggregate (except where the Account Debtor is Wal-Mart
Stores, Inc. (exclusive of the Sam's Club division), the Sam's Club division of
Wal-Mart Stores, Inc., Kmart Corporation, Hobby Lobby Stores, Inc., or
MJDesigns, in which case such percentage shall be 15% for each, or, where the
Account Debtor is Michaels Stores, Inc., in which case such percentage shall be
35%), to the extent of the obligations owing by such Account Debtor in excess
of such percentage;

(i) Accounts with respect to which the Account
Debtor is subject to any Insolvency Proceeding, or becomes insolvent, or goes
out of business;

(j) Accounts the collection of which Foothill, in
its reasonable credit judgment, believes to be doubtful by reason of the
Account Debtor's financial condition;

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<PAGE> 12
(k) Accounts with respect to which the goods
giving rise to such Account have not been shipped and billed to the Account
Debtor, the services giving rise to such Account have not been performed and
accepted by the Account Debtor, or the Account otherwise does not represent a
final sale;

(l) Accounts that represent progress payments or
other advance billings that are due prior to the completion of performance by a
Borrower of the subject contract for goods or services.

"Eligible In-Transit Inventory" means those items of
Inventory of a Borrower that do not qualify as Eligible Landed Inventory solely
because they are not in a location set forth on Schedule E-1 but: (a) such
Inventory is currently in-transit from a location not set forth on Schedule E-1
to a location set forth on Schedule E-1, (b) title to such Inventory has passed
to a Borrower, (c)(i) either documents of title with respect to such Inventory
have been delivered to Foothill or its agent, or Foothill is satisfied that its
security interest in such documents (and the Inventory represented thereby) has
been perfected and is not subject to another Lien, and (ii) upon Foothill's
request, any such documents of title shall have been issued naming Foothill as
consignee; (d) such Inventory is insured against types of loss, damage,
hazards, and risks, and in amounts, satisfactory to Foothill in its discretion,
and (e) such Inventory either (i) has been paid for or, (ii) if purchased under
an Inventory Letter of Credit, such Inventory Letter of Credit either has been
drawn upon in full and reimbursed, or expired undrawn, or (iii) if purchased on
open account, the seller has disclaimed (or Foothill is otherwise satisfied
that there does not exist) any lien on or security interest in such Inventory
or the documents of title therefor; in each case, with documentation therefor
(including agreements with shippers, customs brokers or other holders of
documents of title) in form and substance satisfactory to Foothill in its
discretion.

"Eligible Inventory" means the Eligible In-Transit
Inventory and the Eligible Landed Inventory.

"Eligible Landed Inventory" means Inventory
consisting of first quality finished goods held for sale in the ordinary course
of a Borrower's business and raw materials for such finished goods, that are
located at or in-transit between such Borrower's premises identified on
Schedule E-1, that strictly comply with each and all of the representations and
warranties respecting Inventory made by such Borrower to Foothill in the Loan
Documents, and that are and at all times continue to be acceptable to Foothill
in all respects; provided, however, that standards of eligibility may be fixed
and revised from time to time by Foothill in Foothill's reasonable credit
judgment. An item of Inventory shall not be included in Eligible Landed
Inventory if:

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<PAGE> 13
(a) it is not owned solely by such Borrower or
such Borrower does not have good, valid, and marketable title thereto;

(b) it is not located at one of the locations set
forth on Schedule E-1 and is not in transit between any such locations;

(c) it is not located on property owned or leased
by a Borrower or in a contract warehouse, in each case, subject to a Collateral
Access Agreement executed by the mortgagee, lessor, the warehouseman, or other
third party, as the case may be, and segregated or otherwise separately
identifiable from goods of others, if any, stored on the premises;

(d) it is not subject to a valid and perfected
first priority security interest in favor of Foothill;

(e) it consists of goods returned or rejected by
such Borrower's customers; and

(f) it is obsolete or slow moving, out of season,
work-in-process, a component that is not part of finished goods, or constitutes
spare parts, packaging and shipping materials, supplies used or consumed in
such Borrower's business, Inventory subject to a Lien in favor of any third
Person, bill and hold goods, defective goods, "seconds," or Inventory acquired
on consignment.

"Equipment" means all of a Person's present and
hereafter acquired machinery, machine tools, motors, equipment, furniture,
furnishings, fixtures, vehicles (including motor vehicles and trailers), tools,
parts, goods (other than consumer goods, farm products, or Inventory), wherever
located, including all attachments, accessories, accessions, replacements,
substitutions, additions, and improvements to any of the foregoing.

"ERISA" means the Employee Retirement Income Security
Act of 1974, 29 U.S.C. Sections 1000 et seq., amendments thereto, successor
statutes, and regulations or guidance promulgated thereunder.

"ERISA Affiliate" means (a) any corporation subject
to ERISA whose employees are treated as employed by the same employer as the
employees of a Borrower under IRC Section 414(b), (b) any trade or business
subject to ERISA whose employees are treated as employed by the same employer
as the employees of a Borrower under IRC Section 414(c), (c) solely for
purposes of Section 302 of ERISA and Section 412 of the IRC, any organization
subject to ERISA that is a member of an affiliated service group of which a
Borrower is a member under IRC Section 414(m), or

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<PAGE> 14
(d) solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any
party subject to ERISA that is a party to an arrangement with a Borrower and
whose employees are aggregated with the employees of such Borrower under IRC
Section 414(o).

"ERISA Event" means (a) a Reportable Event with
respect to any Benefit Plan or Multiemployer Plan, (b) the withdrawal of a
Borrower, any of its Subsidiaries or ERISA Affiliates from a Benefit Plan
during a plan year in which it was a "substantial employer" (as defined in
Section 4001(a)(2) of ERISA), (c) the providing of notice of intent to
terminate a Benefit Plan in a distress termination (as described in Section
4041(c) of ERISA), (d) the institution by the PBGC of proceedings to terminate
a Benefit Plan or Multiemployer Plan, (e) any event or condition (i) that
provides a basis under Section 4042(a)(1), (2), or (3) of ERISA for the
termination of, or the appointment of a trustee to administer, any Benefit Plan
or Multiemployer Plan, or (ii) that may result in termination of a
Multiemployer Plan pursuant to Section 4041A of ERISA, (f) the partial or
complete withdrawal within the meaning of Sections 4203 and 4205 of ERISA, of a
Borrower, any of its Subsidiaries or ERISA Affiliates from a Multiemployer
Plan, or (g) providing any security to any Plan under Section 401(a)(29) of the
IRC by a Borrower or its Subsidiaries or any of their ERISA Affiliates.

"Event of Default" has the meaning set forth in
Section 8.

"Excess Availability" means the amount, as determined
by Foothill at any time, equal to: (a) (i) the amount of the Advances available
to Borrowers as of such time based upon the applicable lending formulas set
forth in Section 2.1, subject to the sublimits and reserves from time to time
established in accordance with Sections 2.1(b), 6.15 and 10, minus (b) the sum
of (i) the amount of the outstanding Obligations (including Letters of Credit),
plus (ii) the aggregate amount of trade payables payable by Borrowers that are
more than 90 days from invoice date.

"Existing Lender" means National Canada Finance Corp.

"Exotics" means India Exotics, Inc., a Texas
corporation.

"FEIN" means Federal Employer Identification Number.

"Florist Supplies" means Value Florist Supplies,
Inc., a Texas corporation.

"Foothill" has the meaning set forth in the preamble
to this Agreement.

"Foothill Account" has the meaning set forth in
Section 2.7.

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<PAGE> 15
"Foothill Expenses" means all: costs or expenses
(including taxes, and insurance premiums) required to be paid by a Borrower
under any of the Loan Documents that are paid or incurred by Foothill; fees or
charges paid or incurred by Foothill in connection with Foothill's transactions
with Borrowers, including, fees or charges for photocopying, notarization,
couriers and messengers, telecommunication, public record searches (including
tax lien, litigation, and UCC searches and including searches with the patent
and trademark office, the copyright office, or the department of motor
vehicles), filing, recording, publication, appraisal (including periodic
Personal Property Collateral or Real Property Collateral appraisals), real
estate surveys, real estate title policies and endorsements, and environmental
audits; costs and expenses incurred by Foothill in the disbursement of funds to
Borrowers (by wire transfer or otherwise); charges paid or incurred by Foothill
resulting from the dishonor of checks; costs and expenses paid or incurred by
Foothill to correct any default or enforce any provision of the Loan Documents,
or in gaining possession of, maintaining, handling, preserving, storing,
shipping, selling, preparing for sale, or advertising to sell the Personal
Property Collateral or the Real Property Collateral, or any portion thereof,
irrespective of whether a sale is consummated; costs and expenses paid or
incurred by Foothill in examining Borrowers' Books; costs and expenses of third
party claims or any other suit paid or incurred by Foothill in enforcing or
defending the Loan Documents or in connection with the transactions
contemplated by the Loan Documents or Foothill's relationship with Borrowers or
any guarantor; and Foothill's reasonable attorneys fees and expenses incurred
in advising, structuring, drafting, reviewing, administering, amending,
terminating, enforcing, defending, or concerning the Loan Documents (including
attorneys fees and expenses incurred in connection with a "workout," a
"restructuring," or an Insolvency Proceeding concerning Borrowers or any
guarantor of the Obligations), irrespective of whether suit is brought.

"GAAP" means generally accepted accounting principles
as in effect from time to time in the United States, consistently applied.

"General Intangibles" means all of any Person's
present and future general intangibles and other personal property (including
contract rights, rights arising under common law, statutes, or regulations,
choses or things in action, goodwill, patents, trade names, trademarks,
servicemarks, copyrights, blueprints, drawings, purchase orders, customer
lists, monies due or recoverable from pension funds, route lists, rights to
payment and other rights under any royalty or licensing agreements,
infringement claims, computer programs, information contained on computer disks
or tapes, literature, reports, catalogs, deposit accounts, insurance premium
rebates, tax refunds, and tax refund claims), other than goods, Accounts, and
Negotiable Collateral.

"Governing Documents" means the certificate or
articles of incorporation, by-laws, or other organizational or governing
documents of any Person.

10
<PAGE> 16
"Governmental Authority" means any nation or
government, any state or other political subdivision thereof and any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.

"Guaranty" means that certain Continuing Guaranty, of
even date herewith, by Magicsilk in favor of Foothill.

"Hazardous Materials" means (a) substances that are
defined or listed in, or otherwise classified pursuant to, any applicable laws
or regulations as "hazardous substances," "hazardous materials," "hazardous
wastes," "toxic substances," or any other formulation intended to define, list,
or classify substances by reason of deleterious properties such as
ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity,
or "EP toxicity", (b) oil, petroleum, or petroleum derived substances, natural
gas, natural gas liquids, synthetic gas, drilling fluids, produced waters, and
other wastes associated with the exploration, development, or production of
crude oil, natural gas, or geothermal resources, (c) any flammable substances
or explosives or any radioactive materials, and (d) asbestos in any form or
electrical equipment that contains any oil or dielectric fluid containing
levels of polychlorinated biphenyls in excess of 50 parts per million.

"Indebtedness" means: (a) all obligations of a
Person for borrowed money, (b) all obligations of a Person evidenced by bonds,
debentures, notes, or other similar instruments and all reimbursement or other
obligations of a Person in respect of letters of credit, bankers acceptances,
interest rate swaps, or other financial products, (c) all obligations of a
Person under capital leases, (d) all obligations or liabilities of others
secured by a Lien on any property or asset of a Person, irrespective of whether
such obligation or liability is assumed, and (e) any obligation of a Person
guaranteeing or intended to guarantee (whether guaranteed, endorsed, co-made,
discounted, or sold with recourse to such Person) any indebtedness, lease,
dividend, letter of credit, or other obligation of any other Person.

"Insolvency Proceeding" means any proceeding
commenced by or against any Person under any provision of the Bankruptcy Code
or under any other bankruptcy or insolvency law, assignments for the benefit of
creditors, formal or informal moratoria, compositions, extensions generally
with creditors, or proceedings seeking reorganization, arrangement, or other
similar relief.

"Intellectual Property Security Agreement" means each
of the agreements so denominated, of even date herewith, between Foothill, on
the one hand, and a Borrower or Magicsilk, on the other hand.

11
<PAGE> 17
"Intangible Assets" means, with respect to any
Person, that portion of the book value of all of such Person's assets that
would be treated as intangibles under GAAP.

"Inventory" means all present and future inventory in
which a Person has any interest, including goods held for sale or lease or to
be furnished under a contract of service and all of such Person's present and
future raw materials, work in process, finished goods, and packing and shipping
materials, wherever located.

"Inventory Letter of Credit" means a documentary
Letter of Credit issued to support the purchase by a Borrower of Inventory
prior to transit to a location set forth on Schedule E-1, that provides that
all draws thereunder must require presentation of customary documentation
(including, if applicable, commercial invoices, packing list, certificate of
origin, bill of lading or airwaybill, customs clearance documents, quota
statement, inspection certificate, beneficiaries statement, and bill of
exchange, bills of lading, dock warrants, dock receipts, warehouse receipts, or
other documents of title) in form and substance satisfactory to Foothill and
reflecting the passage to such Borrower of title to first quality Inventory
conforming to such Borrower's contract with the seller thereof. Any such
Letter of Credit shall cease to be an "Inventory Letter of Credit" at such
time, if any, as the goods purchased thereunder become Eligible Landed
Inventory.

"Inventory Reserves" means reserves (determined from
time to time by Foothill in its discretion) for (a) the estimated costs
relating to unpaid freight charges, warehousing or storage charges, taxes,
duties, and other similar unpaid costs associated with the acquisition of
Eligible In-Transit Inventory by Borrowers, plus (b) the estimated reclamation
claims of unpaid sellers of Inventory sold to Borrowers, plus (c) commissions
payable by any Borrower in respect of its Inventory, plus (d) ad valorem taxes,
if any, that would result in a choate or inchoate Lien that is or could be
prior to the Foothill security interest.

"Investment Property" has the meaning set forth in
Section 9115 of the Code.

"IRC" means the Internal Revenue Code of 1986, as
amended, and the regulations thereunder.

"L/C" has the meaning set forth in Section 2.2(a).

"L/C Guaranty" has the meaning set forth in Section
2.2(a).

"Letter of Credit" means an L/C or an L/C Guaranty,
as the context requires.

12
<PAGE> 18
"Lien" means any interest in property securing an
obligation owed to, or a claim by, any Person other than the owner of the
property, whether such interest shall be based on the common law, statute, or
contract, whether such interest shall be recorded or perfected, and whether
such interest shall be contingent upon the occurrence of some future event or
events or the existence of some future circumstance or circumstances, including
the lien or security interest arising from a mortgage, deed of trust,
encumbrance, pledge, hypothecation, assignment, deposit arrangement, security
agreement, adverse claim or charge, conditional sale or trust receipt, or from
a lease, consignment, or bailment for security purposes and also including
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases, and other title exceptions and encumbrances
affecting Real Property.

"Loan Account" has the meaning set forth in Section
2.10.

"Loan Documents" means this Agreement, the
Disbursement Letter, the Letters of Credit, the Lockbox Agreements, the
Guaranty, the Mortgages, the Intellectual Property Security Agreements, the
Stock Pledges, any note or notes executed by any Borrower and payable to
Foothill, and any other agreement entered into, now or in the future, in
connection with this Agreement.

"Lockbox Account" shall mean a depositary account
established pursuant to one of the Lockbox Agreements.

"Lockbox Agreements" means those certain Lockbox
Operating Procedural Agreements and those certain Depository Account
Agreements, in form and substance satisfactory to Foothill, each of which is
among a Borrower or Borrowers, Foothill, and one of the Lockbox Banks.

"Lockbox Banks" means Bank One Texas, N.A., or such
other banks as may be agreed to by Foothill and Borrowers from time to time.

"Lockboxes" has the meaning set forth in Section 2.7.

"Magicsilk" means Magicsilk, Inc. a Texas
corporation.

"Material Adverse Change" means (a) a material
adverse change in the business, prospects, operations, results of operations,
assets, liabilities or condition (financial or otherwise) of a Borrower, (b)
the material impairment of a Borrower's ability to perform its obligations
under the Loan Documents to which it is a party or of Foothill to enforce the
Obligations or realize upon the Collateral, (c) a material adverse effect on
the value of the Collateral or the amount that Foothill would be likely to
receive (after giving consideration to delays in payment and costs of
enforcement) in the liquidation

13
<PAGE> 19
of such Collateral, or (d) a material impairment of the priority of Foothill's
Liens with respect to the Collateral.

"Maximum Amount" means, as of any date of
determination, the sum of (a) the Maximum Revolving Amount, and (b) the then
outstanding principal balance of the Term Loan.

"Maximum Revolving Amount" means $31,500,000.

"MJDesigns Account" means those certain Accounts
owing on the Closing Date by MJDesigns to Celebrity and Exotics, in the
aggregate amount of $432,000, and originally due December 1, 1997.

"Mortgages" means one or more mortgages, deeds of
trust, or deeds to secure debt, executed by a Borrower in favor of Foothill,
the form and substance of which shall be satisfactory to Foothill, that
encumber the Real Property Collateral and the related improvements thereto.

"Multiemployer Plan" means a "multiemployer plan" (as
defined in Section 4001(a)(3) of ERISA) to which a Borrower, any of its
Subsidiaries, or any ERISA Affiliate has contributed, or was obligated to
contribute, within the past six years.

"Negotiable Collateral" means all of a Person's
present and future letters of credit, notes, drafts, instruments, Investment
Property, securities (including the shares of stock of Subsidiaries of such
Person), documents, personal property leases (wherein such Person is the
lessor), and chattel paper.

"Obligations" means all loans, Advances, debts,
principal, interest (including any interest that, but for the provisions of the
Bankruptcy Code, would have accrued), contingent reimbursement obligations
under any outstanding Letters of Credit, premiums (including Early Termination
Premiums), liabilities (including all amounts charged to Borrowers' Loan
Account pursuant hereto), obligations, fees, charges, costs, or Foothill
Expenses (including any fees or expenses that, but for the provisions of the
Bankruptcy Code, would have accrued), lease payments, guaranties, covenants,
and duties owing by a Borrower to Foothill of any kind and description (whether
pursuant to or evidenced by the Loan Documents or pursuant to any other
agreement between Foothill and any Borrower, and irrespective of whether for
the payment of money), whether direct or indirect, absolute or contingent, due
or to become due, now existing or hereafter arising, and including any debt,
liability, or obligation owing from a Borrower to others that Foothill may have
obtained by assignment or otherwise, and further including all interest not
paid when due and all Foothill Expenses that a Borrower is required to pay or
reimburse by the Loan Documents, by law, or otherwise.

14
<PAGE> 20
"OLV" means, with respect to a Borrower's Inventory,
the orderly liquidation value of such Inventory as determined by one or more
appraisers acceptable to Foothill.

"OLV Multiplier" means the following numbers for the
following periods:

<TABLE>
<CAPTION>
Period Multiplier
------ ----------
<S> <C>
01/30/98 - 08/31/98 1.00
09/01/98 - 11/30/98 0.98
12/01/98 - 02/28/99 0.94
03/01/99 - 05/31/99 0.90
06/01/99 - 08/31/99 0.85
09/01/99 - thereafter 0.80
</TABLE>

"Overadvance" has the meaning set forth in Section
2.5.

"Participant" means any Person to which Foothill has
sold a participation interest in its rights under the Loan Documents.

"Pay-Off Letter" means a letter, in form and
substance reasonably satisfactory to Foothill, from Existing Lender respecting
the amount necessary to repay in full all of the obligations of Borrowers owing
to Existing Lender and obtain a termination or release of all of the Liens
existing in favor of Existing Lender in and to the properties or assets of
Borrowers.

"PBGC" means the Pension Benefit Guaranty Corporation
as defined in Title IV of ERISA, or any successor thereto.

"Permitted Equipment Dispositions" means a sale or
disposition of Equipment that is no longer used or useful in the business of a
Borrower; provided, however, that (a) in the event of any such sale or
disposition of Equipment effected without replacement of such Equipment, or
where replacement Equipment is leased or purchased subject to a Permitted Lien,
then such Borrower shall deliver all cash proceeds of any such sale or
disposition to Foothill to be applied to the Obligations, (b) in the event of
any such sale or disposition of Equipment that is not covered by the preceding
clause (a), then such Borrower shall give Foothill evidence of the use of the
proceeds of such sale or disposition to finance replacement Equipment which
shall be subject to a first priority Lien in favor of Foothill, and (c) the
aggregate amount of all Permitted Equipment Dispositions during any calendar
year may not exceed $250,000.

15
<PAGE> 21
"Permitted Liens" means (a) Liens held by Foothill,
(b) Liens for unpaid taxes that either (i) are not yet due and payable or (ii)
are the subject of Permitted Protests, (c) Liens set forth on Schedule P-1, (d)
the interests of lessors under operating leases and purchase money security
interests and Liens of lessors under capital leases to the extent that the
acquisition or lease of the underlying asset is permitted under Section 7.21
and so long as the Lien only attaches to the asset purchased or acquired and
only secures the purchase price of the asset, (e) Liens arising by operation of
law in favor of warehousemen, landlords, carriers, mechanics, materialmen,
laborers, or suppliers, incurred in the ordinary course of business of a
Borrower and not in connection with the borrowing of money, and which Liens
either (i) are for sums not yet due and payable, or (ii) are the subject of
Permitted Protests, (f) Liens arising from deposits made in connection with
obtaining worker's compensation or other unemployment insurance, (g) Liens or
deposits to secure performance of bids, tenders, or leases (to the extent
permitted under this Agreement), incurred in the ordinary course of business of
a Borrower and not in connection with the borrowing of money, (h) Liens arising
by reason of security for surety or appeal bonds in the ordinary course of
business of a Borrower, (i) Liens of or resulting from any judgment or award
that would not cause a Material Adverse Change and as to which the time for the
appeal or petition for rehearing of which has not yet expired, or in respect of
which a Borrower is in good faith prosecuting an appeal or proceeding for a
review, and in respect of which a stay of execution pending such appeal or
proceeding for review has been secured, (j) Liens with respect to the Real
Property Collateral that are exceptions to the commitments for title insurance
issued in connection with the Mortgages, as accepted by Foothill, and (k) with
respect to any Real Property that is not part of the Real Property Collateral,
easements, rights of way, zoning and similar covenants and restrictions, and
similar encumbrances that customarily exist on properties of Persons engaged in
similar activities and similarly situated and that in any event do not
materially interfere with or impair the use or operation of the Collateral by
any Borrower or the value of Foothill's Lien thereon or therein, or materially
interfere with the ordinary conduct of the business of a Borrower.

"Permitted Protest" means the right of a Borrower to
protest any Lien (other than any such Lien that secures the Obligations), tax
(other than payroll taxes or taxes that are the subject of a United States
federal tax lien), or rental payment, provided that (a) a reserve with respect
to such obligation is established on the books of such Borrower in an amount
that is reasonably satisfactory to Foothill, (b) any such protest is instituted
and diligently prosecuted by such Borrower in good faith, and (c) Foothill is
satisfied that, while any such protest is pending, there will be no impairment
of the enforceability, validity, or priority of any of the Liens of Foothill in
and to the Collateral.

"Permitted Sale/Leaseback" means a sale by
Celebrity, and Celebrity's lease back, of either or both of the Tyler, Texas
Real Property Collateral or

16
<PAGE> 22
the Winston-Salem, North Carolina Real Property Collateral, where no Event of
Default has occurred and is continuing at the time of any such sale.

"Person" means and includes natural persons,
corporations, limited liability companies, limited partnerships, general
partnerships, limited liability partnerships, joint ventures, trusts, land
trusts, business trusts, or other organizations, irrespective of whether they
are legal entities, and governments and agencies and political subdivisions
thereof.

"Personal Property Collateral" means all Collateral
other than the Real Property Collateral.

"Plan" means any employee benefit plan, program, or
arrangement maintained or contributed to by a Borrower or with respect to which
it may incur liability.

"Real Property" means any estates or interests in
real property now owned or hereafter acquired by a Borrower.

"Real Property Collateral" means the parcel or
parcels of real property and the related improvements thereto identified on
Schedule R-1, and any Real Property hereafter acquired by a Borrower.

"Reference Rate" means the variable rate of interest,
per annum, most recently announced by Norwest Bank Minnesota, National
Association, or any successor thereto, as its "base rate," irrespective of
whether such announced rate is the best rate available from such financial
institution.

"Renewal Date" has the meaning set forth in Section
3.4.

"Reportable Event" means any of the events described
in Section 4043(c) of ERISA or the regulations thereunder other than a
Reportable Event as to which the provision of 30 days notice to the PBGC is
waived under applicable regulations.

"Retiree Health Plan" means an "employee welfare
benefit plan" within the meaning of Section 3(1) of ERISA that provides
benefits to individuals after termination of their employment, other than as
required by Section 601 of ERISA.

"Senior Real Estate Loan" means the Indebtedness
owing by Celebrity to Merrill Lynch Business Financial Services, Inc., as more
completely described on Schedule 7.1.

17
<PAGE> 23
"Star" means Star Wholesale Florist, Inc., a Texas
corporation.

"Solvent" means, with respect to any Person on a
particular date, that on such date (a) at fair valuations, all of the
properties and assets of such Person are greater than the sum of the debts,
including contingent liabilities, of such Person, (b) the present fair salable
value of the properties and assets of such Person is not less than the amount
that will be required to pay the probable liability of such Person on its debts
as they become absolute and matured, (c) such Person is able to realize upon
its properties and assets and pay its debts and other liabilities, contingent
obligations and other commitments as they mature in the normal course of
business, (d) such Person does not intend to, and does not believe that it
will, incur debts beyond such Person's ability to pay as such debts mature, and
(e) such Person is not engaged in business or a transaction, and is not about
to engage in business or a transaction, for which such Person's properties and
assets would constitute unreasonably small capital after giving due
consideration to the prevailing practices in the industry in which such Person
is engaged. In computing the amount of contingent liabilities at any time, it
is intended that such liabilities will be computed at the amount that, in light
of all the facts and circumstances existing at such time, represents the amount
that reasonably can be expected to become an actual or matured liability.

"Stock Pledges" means either of the Security
Agreement Stock Pledges, of even date herewith, by Celebrity and Star,
respectively, in favor of Foothill.

"Subsidiary" of a Person means a corporation,
partnership, limited liability company, or other entity in which that Person
directly or indirectly owns or controls the shares of stock or other ownership
interests having ordinary voting power to elect a majority of the board of
directors (or appoint other comparable managers) of such corporation,
partnership, limited liability company, or other entity.

"Subordination Agreement" means that certain
Subordination Agreement, of even date herewith, between RHP Management, LLC and
Foothill.

"Tangible Net Worth" means, as of any date of
determination, the difference of (a) a Person's total stockholder's equity,
minus (b) the sum of: (i) all Intangible Assets of such Person, (ii) all of
such Person's prepaid expenses, and (iii) all amounts due to such Person from
Affiliates.

"Term Loan" has the meaning set forth in Section 2.3.

"Term Loan Fee" has the meaning set forth in Section
2.11(c).

18
<PAGE> 24
"Value" means, with respect to a Borrower's
Inventory, the lower of such Borrower's cost or market value, determined on a
basis consistent with such Borrower's current and historical accounting
practices.

"Value Multiplier" means the following numbers for
the following periods:

<TABLE>
<CAPTION>
Period Multiplier
------ ----------
<S> <C>
01/30/98 - 08/31/98 0.60
09/01/98 - 11/30/98 0.59
12/01/98 - 02/28/99 0.57
03/01/99 - 05/31/99 0.54
06/01/99 - 08/31/99 0.51
09/01/99 - thereafter 0.48
</TABLE>

"Voidable Transfer" has the meaning set forth in
Section 15.8.

1.2 ACCOUNTING TERMS. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP. When
used herein, the term "financial statements" shall include the notes and
schedules thereto. Whenever the term "Borrower" is used in respect of a
financial covenant or a related definition, it shall be understood to mean
Borrowers on a consolidated basis unless the context clearly requires
otherwise.

1.3 CODE. Any terms used in this Agreement that are
defined in the Code shall be construed and defined as set forth in the Code
unless otherwise defined herein.

1.4 CONSTRUCTION. Unless the context of this Agreement
clearly requires otherwise, references to the plural include the singular,
references to the singular include the plural, the term "including" is not
limiting, and the term "or" has, except where otherwise indicated, the
inclusive meaning represented by the phrase "and/or." The words "hereof,"
"herein," "hereby," "hereunder," and similar terms in this Agreement refer to
this Agreement as a whole and not to any particular provision of this
Agreement. An Event of Default shall "continue" or be "continuing" until such
Event of Default has been waived in writing by Foothill. Section, subsection,
clause, schedule, and exhibit references are to this Agreement unless otherwise
specified. Any reference in this Agreement or in the Loan Documents to this
Agreement or any of the Loan Documents shall include all alterations,
amendments, changes, extensions, modifications, renewals, replacements,
substitutions, and supplements, thereto and thereof, as applicable.

19
<PAGE> 25
1.5 SCHEDULES AND EXHIBITS. All of the schedules and
exhibits attached to this Agreement shall be deemed incorporated herein by
reference.

2. LOAN AND TERMS OF PAYMENT.

2.1 REVOLVING ADVANCES.

(a) Subject to the terms and conditions of this
Agreement, Foothill agrees to make advances ("Advances") to Borrowers in an
amount outstanding not to exceed at any one time the lesser of (i) the Maximum
Revolving Amount less the outstanding balance of all undrawn or unreimbursed
Letters of Credit, or (ii) the Borrowing Base less (A) the aggregate amount of
all undrawn or unreimbursed Letters of Credit (other than Inventory Letters of
Credit), less (B) 35% of the aggregate amount of all undrawn or unreimbursed
Inventory Letters of Credit issued respecting Inventory of Celebrity, Florist
Supplies, or Star, and less (C) 50% of the aggregate amount of all undrawn and
unreimbursed Inventory Letters of Credit issued respecting Inventory of Cluett,
and less (D) 70% of the aggregate amount of all undrawn or unreimbursed
Inventory Letters of Credit issued respecting Inventory of Exotics. For
purposes of this Agreement, "Borrowing Base", as of any date of determination,
shall mean the result of:

(x) the lesser of (i) (1) 50% of the
value of the MJDesigns Account (so long as it remains an
Eligible Account) plus (2) 85% of all other Eligible Accounts,
less (3) the amount, if any, of the Dilution Reserve, and (ii)
an amount equal to Borrowers' Collections with respect to
Accounts for the immediately preceding 90 day period, plus

(y) the least of (i) 1.50 times the
credit availability created by clause (x) above, (ii)
$17,500,000, and (iii) 65% of the Value of Eligible Inventory
of Celebrity, Florist Supplies, and Star plus 50% of the Value
of Eligible Inventory of Cluett plus 30% of the Value of
Eligible Inventory of Exotics (but in no event shall Advances
against Eligible In-Transit Inventory of Borrowers exceed, in
the aggregate at any one time, $2,500,000, and in no event
shall the aggregate Advances against Eligible Inventory of
Borrowers, plus the outstanding principal balance of the Term
Loan, exceed, at any one time, the lower of: (1) the
applicable OLV Multiplier times the OLV of Borrowers'
Inventory or (2) the applicable Value Multiplier times the
Value of Borrowers' Inventory) minus the amount of the
Inventory Reserve (if any), minus

(z) the aggregate amount of reserves, if
any, established by Foothill under Sections 2.1(b), 6.15 and
10.

20
<PAGE> 26
(b) Anything to the contrary in Section 2.1(a)
above notwithstanding, Foothill may create reserves against the Borrowing Base
or reduce its advance rates based upon Eligible Accounts or Eligible Inventory
without declaring an Event of Default if it determines that there has occurred
a Material Adverse Change.

(c) Foothill shall have no obligation to make
Advances hereunder to the extent they would cause the outstanding Obligations
(other than under the Term Loan) to exceed the Maximum Revolving Amount.

(d) Amounts borrowed pursuant to this Section 2.1
may be repaid and, subject to the terms and conditions of this Agreement,
reborrowed at any time during the term of this Agreement.

2.2 LETTERS OF CREDIT.

(a) Subject to the terms and conditions of this
Agreement, Foothill agrees to issue letters of credit for the account of a
Borrower (each, an "L/C") or to issue guarantees of payment (each such
guaranty, an "L/C Guaranty") with respect to letters of credit issued by an
issuing bank for the account of a Borrower. Foothill shall have no obligation
to issue a Letter of Credit if any of the following would result:

(i) the sum of 35% of the aggregate
amount of all undrawn and unreimbursed Inventory Letters of
Credit issued respecting Inventory of Celebrity, Florist
Supplies, or Star, plus 50% of the aggregate amount of all
undrawn and unreimbursed Inventory Letters of Credit issued
respecting Inventory of Cluett, plus 70% of the aggregate
amount of all undrawn and unreimbursed Inventory Letters of
Credit issued respecting Inventory of Exotics, plus 100% of
the aggregate amount of all other types of undrawn and
unreimbursed Letters of Credit, would exceed the Borrowing
Base less the amount of outstanding Advances; or

(ii) the aggregate amount of all undrawn
or unreimbursed Letters of Credit (including Inventory Letters
of Credit) would exceed the lower of: (x) the Maximum
Revolving Amount less the amount of outstanding Advances; or
(y) $1,000,000; or

(iii) the outstanding Obligations (other
than under the Term Loan) would exceed the Maximum Revolving
Amount.

Each Borrower expressly understands and agrees that Foothill shall have no
obligation to arrange for the issuance by issuing banks of the letters of
credit that are to be the subject of L/C Guarantees. Each Borrower and
Foothill acknowledge and agree that certain of

21
<PAGE> 27
the letters of credit that are to be the subject of L/C Guarantees may be
outstanding on the Closing Date. Each Letter of Credit shall have an expiry
date no later than 60 days prior to the date on which this Agreement is
scheduled to terminate under Section 3.4 (without regard to any potential
renewal term) and all such Letters of Credit shall be in form and substance
acceptable to Foothill in its sole discretion. If Foothill is obligated to
advance funds under a Letter of Credit, Borrowers immediately shall reimburse
such amount to Foothill and, in the absence of such reimbursement, the amount
so advanced immediately and automatically shall be deemed to be an Advance
hereunder and, thereafter, shall bear interest at the rate then applicable to
Advances under Section 2.6.

(b) Each Borrower hereby agrees to indemnify,
save, defend, and hold Foothill harmless from any loss, cost, expense, or
liability, including payments made by Foothill, expenses, and reasonable
attorneys fees incurred by Foothill arising out of or in connection with any
Letter of Credit. Each Borrower agrees to be bound by the issuing bank's
regulations and interpretations of any letters of credit guarantied by Foothill
and opened to or for such Borrower's account or by Foothill's interpretations
of any Letter of Credit issued by Foothill to or for such Borrower's account,
even though this interpretation may be different from such Borrower's own, and
Borrowers understand and agree that Foothill shall not be liable for any error,
negligence, or mistake, whether of omission or commission, in following any
Borrower's instructions or those contained in the Letter of Credit or any
modifications, amendments, or supplements thereto. Each Borrower understands
that the L/C Guarantees may require Foothill to indemnify the issuing bank for
certain costs or liabilities arising out of claims by a Borrower against such
issuing bank. Each Borrower hereby agrees to indemnify, save, defend, and hold
Foothill harmless with respect to any loss, cost, expense (including reasonable
attorneys fees), or liability incurred by Foothill under any L/C Guaranty as a
result of Foothill's indemnification of any such issuing bank.

(c) Each Borrower hereby authorizes and directs
any bank that issues a letter of credit guaranteed by Foothill to deliver to
Foothill all instruments, documents, and other writings and property received
by the issuing bank pursuant to such letter of credit, and to accept and rely
upon Foothill's instructions and agreements with respect to all matters arising
in connection with such letter of credit and the related application. A
Borrower may or may not be the "applicant" or "account party" with respect to
such letter of credit.

(d) Any and all charges, commissions, fees, and
costs incurred by Foothill relating to the letters of credit guaranteed by
Foothill shall be considered Foothill Expenses for purposes of this Agreement
and immediately shall be reimbursable by Borrowers to Foothill.

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(e) Immediately upon the termination of this
Agreement, Borrowers agree to either (i) provide cash collateral to be held by
Foothill in an amount equal to 102% of the maximum amount of Foothill's
obligations under outstanding Letters of Credit, or (ii) cause to be delivered
to Foothill releases of all of Foothill's obligations under outstanding Letters
of Credit. At Foothill's discretion, any proceeds of Collateral received by
Foothill after the occurrence and during the continuation of an Event of
Default may be held as the cash collateral required by this Section 2.2(e).

(f) If by reason of (i) any change in any
applicable law, treaty, rule, or regulation or any change in the interpretation
or application by any governmental authority of any such applicable law,
treaty, rule, or regulation, or (ii) compliance by the issuing bank or Foothill
with any direction, request, or requirement (irrespective of whether having the
force of law) of any governmental authority or monetary authority including,
without limitation, Regulation D of the Board of Governors of the Federal
Reserve System as from time to time in effect (and any successor thereto):

(A) any reserve, deposit, or similar
requirement is or shall be imposed or modified in respect of any Letters of
Credit issued hereunder, or

(B) there shall be imposed on the
issuing bank or Foothill any other condition regarding any letter of credit, or
Letter of Credit, as applicable, issued pursuant hereto;

and the result of the foregoing is to increase, directly or indirectly, the
cost to the issuing bank or Foothill of issuing, making, guaranteeing, or
maintaining any letter of credit, or Letter of Credit, as applicable, or to
reduce the amount receivable in respect thereof by such issuing bank or
Foothill, then, and in any such case, Foothill may, at any time within a
reasonable period after the additional cost is incurred or the amount received
is reduced, notify Borrowers, and Borrowers shall pay on demand such amounts as
the issuing bank or Foothill may specify to be necessary to compensate the
issuing bank or Foothill for such additional cost or reduced receipt, together
with interest on such amount from the date of such demand until payment in full
thereof at the rate set forth in Section 2.6(a)(i) or (c)(i), as applicable.
The determination by the issuing bank or Foothill, as the case may be, of any
amount due pursuant to this Section 2.2(f), as set forth in a certificate
setting forth the calculation thereof in reasonable detail, shall, in the
absence of manifest or demonstrable error, be final and conclusive and binding
on all of the parties hereto.

2.3 TERM LOAN. Foothill has agreed to make a term loan
(the "Term Loan") to Borrowers in the original principal amount of $3,500,000.
The Term Loan shall be repaid in monthly installments of principal commencing
April 1, 1998 and continuing on the first day of each succeeding month until
and including the date on which the unpaid balance of the Term Loan is paid in
full. The first 17 installments shall be in

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the amount of $200,000 each, and the final installment shall be in the amount
of $100,000. The outstanding principal balance and all accrued and unpaid
interest under the Term Loan shall be due and payable upon the earlier of (a)
September 1, 1999 or (b) the termination of this Agreement, whether by its
terms, by prepayment, by acceleration, or otherwise. The unpaid principal
balance of the Term Loan: (y) shall be prepaid in whole or in part, without
penalty or premium, upon the consummation of any Permitted Sale/Leaseback in an
amount equal to the greater of $500,000 (or $250,000 if only the Tyler, Texas
or the Winston-Salem, North Carolina Real Property Collateral is included in
such Permitted Sale/Leaseback) or 50% of the net cash proceeds of such sale
(after taking into account any repayment of the Senior Real Estate Loan); and
(z) may be prepaid in whole or in part without penalty or premium at any time
during the term of this Agreement upon 30 days prior written notice by
Borrowers to Foothill, all such prepaid amounts to be applied to the
installments due on the Term Loan in the inverse order of their maturity. All
amounts outstanding under the Term Loan shall constitute Obligations.

2.4 [INTENTIONALLY DELETED]

2.5 OVERADVANCES. If, at any time or for any reason, the
amount of Obligations owed by Borrowers to Foothill pursuant to Sections 2.1
and 2.2 is greater than either the Dollar or percentage limitations set forth
in Sections 2.1 or 2.2 (an "Overadvance"), Borrowers immediately shall pay to
Foothill, in cash, the amount of such excess to be used by Foothill first, to
repay Advances outstanding under Section 2.1 and, thereafter, to be held by
Foothill as cash collateral to secure Borrower's obligation to repay Foothill
for all amounts paid pursuant to Letters of Credit.

2.6 INTEREST AND LETTER OF CREDIT FEES: RATES, PAYMENTS,
AND CALCULATIONS.

(a) Interest Rate. Except as provided in clause
(c) below, (i) all Obligations (except for undrawn Letters of Credit and the
Term Loan) shall bear interest on the Daily Balance at a per annum rate of 1.50
percentage points above the Reference Rate, and (ii) the Term Loan shall bear
interest at a per annum rate of 12.5%.

(b) Letter of Credit Fee. Borrowers shall pay
Foothill a fee (in addition to the charges, commissions, fees, and costs set
forth in Section 2.2(d)) equal to 1.50% per annum times the aggregate undrawn
amount of all Letters of Credit outstanding as of the end of each day.

(c) Default Rate. Upon the occurrence and during
the continuation of an Event of Default, (i) all Obligations (except for
undrawn Letters of Credit and the Term Loan) shall bear interest on the Daily
Balance at a per annum rate equal to 4.50 percentage points above the Reference
Rate, and (ii) the Term Loan shall

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bear interest at a per annum rate equal to 15.5%, and (iii) the Letter of
Credit fee provided in Section 2.6(b) shall be increased to 4.50% per annum
times the aggregate undrawn amount of all Letters of Credit outstanding as of
the end of each day.

(d) Minimum Interest. In no event shall the rate
of interest chargeable hereunder for any day be less than 7.0% per annum. To
the extent that interest accrued hereunder at the rate set forth herein would
be less than the foregoing minimum daily rate, the interest rate chargeable
hereunder for such day automatically shall be deemed increased to the minimum
rate.

(e) Payments. Interest and Letter of Credit fees
payable hereunder shall be due and payable, in arrears, on the first day of
each month during the term hereof. Each Borrower hereby authorizes Foothill,
at its option, without prior notice to such Borrower, to charge such interest
and Letter of Credit fees, all Foothill Expenses (as and when incurred), the
charges, commissions, fees, and costs provided for in Section 2.2(d) (as and
when accrued or incurred), the fees and charges provided for in Section 2.11
(as and when accrued or incurred), and all installments or other payments due
under the Term Loan, or any Loan Document to Borrowers' Loan Account, which
amounts thereafter shall accrue interest at the rate then applicable to
Advances hereunder. Any interest not paid when due shall be compounded and
shall thereafter accrue interest at the rate then applicable to Advances
hereunder.

(f) Computation. The Reference Rate as of the
date of this Agreement is ___% per annum. In the event the Reference Rate is
changed from time to time hereafter, the applicable rate of interest hereunder
automatically and immediately shall be increased or decreased by an amount
equal to such change in the Reference Rate. All interest and fees chargeable
under the Loan Documents shall be computed on the basis of a 360 day year for
the actual number of days elapsed.

(g) Intent to Limit Charges to Maximum Lawful
Rate. In no event shall the interest rate or rates payable under this
Agreement, plus any other amounts paid in connection herewith, exceed the
highest rate permissible under any law that a court of competent jurisdiction
shall, in a final determination, deem applicable. Borrowers and Foothill, in
executing and delivering this Agreement, intend legally to agree upon the rate
or rates of interest and manner of payment stated within it; provided, however,
that, anything contained herein to the contrary notwithstanding, if said rate
or rates of interest or manner of payment exceeds the maximum allowable under
applicable law, then, ipso facto as of the date of this Agreement, Borrowers
are and shall be liable only for the payment of such maximum as allowed by law,
and payment received from Borrowers in excess of such legal maximum, whenever
received, shall be applied to reduce the principal balance of the Obligations
to the extent of such excess.

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2.7 COLLECTION OF ACCOUNTS. Borrowers shall at all times
maintain lockboxes (the "Lockboxes") and, immediately after the Closing Date,
shall instruct all Account Debtors with respect to the Accounts, General
Intangibles, and Negotiable Collateral of Borrowers to remit all Collections in
respect thereof to such Lockboxes. Borrowers, Foothill, and the Lockbox Banks
shall enter into the Lockbox Agreements, which among other things shall provide
for the opening of a Lockbox Account for the deposit of Collections at a
Lockbox Bank. Each Borrower agrees that all Collections and other amounts
received by such Borrower from any Account Debtor or any other source
immediately upon receipt shall be deposited into a Lockbox Account. No Lockbox
Agreement or arrangement contemplated thereby shall be modified by a Borrower
without the prior written consent of Foothill. Upon the terms and subject to
the conditions set forth in the Lockbox Agreements, all amounts received in
each Lockbox Account shall be wired each Business Day into an account (the
"Foothill Account") maintained by Foothill at a depositary selected by
Foothill.

2.8 CREDITING PAYMENTS; APPLICATION OF COLLECTIONS. The
receipt of any Collections by Foothill (whether from transfers to Foothill by
the Lockbox Banks pursuant to the Lockbox Agreements or otherwise) immediately
shall be applied provisionally to reduce the Obligations outstanding under
Section 2.1, but shall not be considered a payment on account unless such
Collection item is a wire transfer of immediately available federal funds and
is made to the Foothill Account or unless and until such Collection item is
honored when presented for payment. From and after the Closing Date, Foothill
shall be entitled to charge Borrowers for one Business Day of `clearance' or
`float' at the rate set forth in Section 2.6(a)(i) or Section 2.6(c)(i), as
applicable, on all Collections that are received by Foothill (regardless of
whether forwarded by the Lockbox Banks to Foothill, whether provisionally
applied to reduce the Obligations under Section 2.1, or otherwise). This
across-the-board one Business Day clearance or float charge on all Collections
is acknowledged by the parties to constitute an integral aspect of the pricing
of Foothill's financing of Borrowers, and shall apply irrespective of the
characterization of whether receipts are owned by a Borrower or Foothill, and
whether or not there are any outstanding Advances, the effect of such clearance
or float charge being the equivalent of charging one Business Day of interest
on such Collections. Should any Collection item not be honored when presented
for payment, then Borrowers shall be deemed not to have made such payment, and
interest shall be recalculated accordingly. Anything to the contrary contained
herein notwithstanding, any Collection item shall be deemed received by
Foothill only if it is received into the Foothill Account on a Business Day on
or before 11:00 a.m. California time. If any Collection item is received into
the Foothill Account on a non-Business Day or after 11:00 a.m. California time
on a Business Day, it shall be deemed to have been received by Foothill as of
the opening of business on the immediately following Business Day.

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2.9 DESIGNATED ACCOUNT. Foothill is authorized to make
the Advances, the Letters of Credit, and the Term Loan under this Agreement
based upon telephonic or other instructions received from anyone purporting to
be an Authorized Person, or without instructions if pursuant to Section 2.6(e).
Borrowers agree to establish and maintain a single Designated Account with the
Designated Account Bank for the purpose of receiving the proceeds of the
Advances and the Term Loan requested by Borrowers and made by Foothill
hereunder. Unless otherwise agreed by Foothill and Borrowers, the Term Loan
and any Advance requested by Borrowers and made by Foothill hereunder shall be
made to the Designated Account.

2.10 MAINTENANCE OF LOAN ACCOUNT; STATEMENTS OF
OBLIGATIONS. At the request of Borrowers, to facilitate and expedite the
administration and accounting processes and procedures of their borrowings
under this Agreement, Foothill has agreed, in lieu of maintaining separate loan
accounts on Foothill's books in the name of each of the Borrowers, that
Foothill shall maintain a single account on its books in the names of all of
the Borrowers (the "Loan Account"). All Advances and the Term Loan made by
Foothill to Borrowers or for Borrower's account, including accrued interest,
Foothill Expenses, and any other payment Obligations of Borrowers shall be made
jointly and severally to the Borrowers and shall be charged to the Loan
Account. In accordance with Section 2.8, the Loan Account will be credited
with all payments received by Foothill from any Borrower or for any Borrowers'
account, including all amounts received in the Foothill Account from any
Lockbox Bank. Foothill shall render one statement regarding the Loan Account
to Celebrity on behalf of Borrowers, including principal, interest, fees, and
including an itemization of all charges and expenses constituting Foothill
Expenses owing, and such statements shall be conclusively presumed to be
correct and accurate and constitute an account stated between Borrowers and
Foothill unless, within 30 days after receipt thereof by Borrowers, Borrowers
shall deliver to Foothill written objection thereto describing the error or
errors contained in any such statements. Each Borrower hereby expressly agrees
and acknowledges that Foothill shall have no obligation to account separately
to such Borrower.

2.11 FEES. Borrowers shall pay to Foothill the following
fees:

(a) Closing Fee. A fee (the "Closing Fee") in
the total amount of $350,000, all of which is earned as of the Closing Date.
$175,000 of the Closing Fee shall be payable on the Closing Date and the
$175,000 balance on the first anniversary of the Closing Date;

(b) Unused Line Fee. On the first day of each
month during the term of this Agreement, an unused line fee in an amount equal
to 0.25% per annum times the Average Unused Portion of the Maximum Revolving
Amount;

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(c) Term Loan Fee. A fee (the "Term Loan Fee"),
comprised of a one time payment of $80,000, which shall be fully earned and due
and payable on the Closing Date, and an ongoing payment of $10,000 per month
commencing on April 1, 1998 and continuing on the first day of each month
thereafter until the Term Loan has been fully repaid;

(d) Financial Examination, Documentation, and
Appraisal Fees. Foothill's customary fee of $650 per day per examiner, plus
out-of-pocket expenses for each financial analysis and examination (i.e.,
audits) of Borrowers performed by personnel employed by Foothill; Foothill's
customary appraisal fee of $1,500 per day per appraiser, plus out-of-pocket
expenses for each appraisal of the Collateral performed by personnel employed
by Foothill; and, the actual charges paid or incurred by Foothill if it elects
to employ the services of one or more third Persons to perform such financial
analyses and examinations (i.e., audits) of Borrowers or to appraise the
Collateral; provided that there will be no fewer than three appraisals per year
(with the first to be completed in April 1998); and, on each anniversary of the
Closing Date, Foothill's customary fee of $1,000 per year for its loan
documentation review; and

(e) Servicing Fee. On the first day of each
month during the term of this Agreement, and thereafter so long as any
Obligations are outstanding, a servicing fee in an amount equal to $5,000.

3. CONDITIONS; TERM OF AGREEMENT.

3.1 CONDITIONS PRECEDENT TO THE INITIAL ADVANCE, THE
INITIAL LETTER OF CREDIT, AND THE TERM LOAN. The obligation of Foothill to
make the initial Advance, to issue the initial Letter of Credit, and to make
the Term Loan, is subject to the fulfillment, to the satisfaction of Foothill
and its counsel, of each of the following conditions on or before the Closing
Date:

(a) the Closing Date shall occur on or before
February 15, 1998;

(b) Foothill shall have received UCC searches
reflecting the filing of its financing statements and fixture filings or
otherwise satisfactory to Foothill;

(c) Foothill shall have received each of the
following documents, duly executed, and each such document shall be in full
force and effect:

a. the Lockbox Agreements;

b. the Disbursement Letter;

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c. the Pay-Off Letter, together with
documentation evidencing the termination by Existing Lender of
its Liens in and to the properties and assets of Borrowers;

d. the Intellectual Property Security
Agreements;

e. the Mortgages;

f. Continuing Guaranty by Magicsilk in
favor of Foothill, together with Magicsilk's Intellectual
Property Security Agreement;

g. the Subordination Agreement; and

h. the Stock Pledges;

(d) Foothill shall have received a certificate
from the Secretary or Assistant Secretary of each Borrower attesting to the
resolutions of each Borrower's Board of Directors authorizing its execution,
delivery, and performance of this Agreement and the other Loan Documents to
which such Borrower is a party and authorizing specific officers of such
Borrower to execute the same;

(e) Foothill shall have received copies of each
Borrower's Governing Documents, as amended, modified, or supplemented to the
Closing Date, certified by the Secretary or Assistant Secretary of such
Borrower;

(f) Foothill shall have received a certificate of
status with respect to each Borrower, dated within 10 days of the Closing Date,
such certificate to be issued by the appropriate officer of the jurisdiction of
organization of such Borrower, which certificate shall indicate that such
Borrower is in good standing in such jurisdiction;

(g) Foothill shall have received certificates of
status with respect to each Borrower, each dated within 15 days of the Closing
Date, such certificates to be issued by the appropriate officer of the
jurisdictions in which its failure to be duly qualified or licensed would
constitute a Material Adverse Change, which certificates shall indicate that
such Borrower is in good standing in such jurisdictions;

(h) Foothill shall have received a certificate of
insurance, together with the endorsements thereto, as are required by Section
6.10, the form and substance of which shall be satisfactory to Foothill and its
counsel;

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(i) Foothill shall have received duly executed
certificates of title with respect to that portion of the Collateral that is
subject to certificates of title;

(j) Foothill shall have received such Collateral
Access Agreements from lessors, warehousemen, bailees, and other third persons
as Foothill may require, and shall have received a waiver and consent from
Merrill Lynch Business Financial Services, Inc. respecting the Real Property
Collateral;

(k) Foothill shall have received an opinion of
Borrowers' counsel in form and substance satisfactory to Foothill in its sole
discretion;

(l) Foothill shall have received a warrant for
the purchase of 100,000 shares of Celebrity's common stock on terms (including
exercise price, registration rights and anti-dilution provision) satisfactory
to Foothill;

(m) On the Closing Date, Borrower shall have not
less than $2,500,000 of Excess Availability and unrestricted cash on hand after
making the payments described in Section 7.17 (a);

(n) Foothill shall have received satisfactory
evidence that all tax returns required to be filed by Borrowers have been
timely filed and all taxes upon each Borrower or its properties, assets,
income, and franchises (including real property taxes and payroll taxes) have
been paid prior to delinquency, except such taxes that are the subject of a
Permitted Protest;

(o) Foothill shall have completed its final audit
review of Borrowers, which shall be satisfactory to Foothill; and

(p) all other documents and legal matters in
connection with the transactions contemplated by this Agreement shall have been
delivered, executed, or recorded and shall be in form and substance
satisfactory to Foothill and its counsel.

3.2 CONDITIONS PRECEDENT TO ALL ADVANCES, ALL LETTERS OF
CREDIT, AND THE TERM LOAN. The following shall be conditions precedent to all
Advances, all Letters of Credit, and the Term Loan:

(a) the representations and warranties contained
in this Agreement and the other Loan Documents shall be true and correct in all
respects on and as of the date of such extension of credit, as though made on
and as of such date (except to the extent that such representations and
warranties relate solely to an earlier date);

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(b) no Default or Event of Default shall have
occurred and be continuing on the date of such extension of credit, nor shall
either result from the making thereof; and

(c) no injunction, writ, restraining order, or
other order of any nature prohibiting, directly or indirectly, the extending of
such credit shall have been issued and remain in force by any governmental
authority against any Borrower, Foothill, or any of their Affiliates.

3.3 CONDITION SUBSEQUENT. As a condition subsequent to
initial closing hereunder, Borrowers shall perform or cause to be performed the
following (the failure by Borrowers to so perform or cause to be performed
constituting an Event of Default):

(a) within 60 days of the Closing Date, deliver
to Foothill the certified copies of the policies of insurance, together with
the endorsements thereto, as are required by Section 6.10, the form and
substance of which shall be satisfactory to Foothill and its counsel;

(b) within 60 days of the Closing Date, (i) hire
a new chief financial officer of Celebrity, and (ii) deliver to Foothill
mortgagee title insurance policies (or marked commitments to issue the same)
for the Real Property Collateral issued by a title insurance company
satisfactory to Foothill (each a "Mortgage Policy" and, collectively, the
"Mortgage Policies") in amounts satisfactory to Foothill assuring Foothill that
the Mortgages on such Real Property Collateral are valid and enforceable second
priority mortgage Liens on such Real Property Collateral free and clear of all
defects and encumbrances except Permitted Liens, and the Mortgage Policies
shall otherwise be in form and substance reasonably satisfactory to Foothill;

(d) within 21 days of the Closing Date, deliver
original stock certificates, with stock powers endorsed in blank, for the
largest whole number of shares of stock that is less than 66.5% of the
outstanding shares of Celebrity Hong Kong, together with an opinion of Hong
Kong counsel to the effect that all necessary legal steps have been taken in
connection with the perfection of Foothill's Lien on the Celebrity Hong Kong
shares, and the practical realization of such collateral; and

(e) by April 15, 1998 Foothill shall have
received from Celebrity a business plan (with projections) for Borrowers
reflecting periods through June 30, 1999, all of which shall be acceptable to
Foothill in its sole discretion.

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3.4 TERM; AUTOMATIC RENEWAL. This Agreement shall become
effective upon the execution and delivery hereof by Borrowers and Foothill and
shall continue in full force and effect for a term ending on the date (the
"Renewal Date") that is three years from the Closing Date and automatically
shall be renewed for successive one year periods thereafter, unless sooner
terminated pursuant to the terms hereof. Either party may terminate this
Agreement effective on the Renewal Date or on any one year anniversary of the
Renewal Date by giving the other party at least 90 days prior written notice.
The foregoing notwithstanding, Foothill shall have the right to terminate its
obligations under this Agreement immediately and without notice upon the
occurrence and during the continuation of an Event of Default.

3.5 EFFECT OF TERMINATION. On the date of termination of
this Agreement, all Obligations (including contingent reimbursement obligations
of Borrowers with respect to any outstanding Letters of Credit, and the accrued
and unpaid amount of any fees (including the Closing Fee)) immediately shall
become due and payable without notice or demand. No termination of this
Agreement, however, shall relieve or discharge Borrowers of Borrowers' duties,
Obligations, or covenants hereunder, and Foothill's continuing security
interests in the Collateral shall remain in effect until all Obligations have
been fully and finally discharged and Foothill's obligation to provide
additional credit hereunder is terminated. If Borrowers have sent a notice of
termination pursuant to the provisions of Section 3.4, but fail to pay the
Obligations in full on the date set forth in said notice, then Foothill may,
but shall not be required to, renew this Agreement for an additional term of
one year.

3.6 EARLY TERMINATION BY BORROWERS. The provisions of
Section 3.4 that allow termination of this Agreement by Borrowers only on the
Renewal Date and certain anniversaries thereof notwithstanding, Borrowers have
the option, at any time upon 90 days prior written notice to Foothill, to
terminate this Agreement by paying to Foothill, in cash, the Obligations
(including an amount equal to 102% of the undrawn amount of the Letters of
Credit, and the accrued and unpaid amount of any fees (including the Closing
Fee)), in full, together with a premium (the "Early Termination Premium") equal
to (a) 3% of the Maximum Revolving Amount if the termination is effective on or
before the first anniversary of the Closing Date, (b) 2% of the Maximum
Revolving Amount if the termination is effective after the first anniversary of
the Closing Date but on or before the second anniversary of the Closing Date,
(c) 1% of the Maximum Revolving Amount if the termination is effective after
the second anniversary of the Closing Date but before the third anniversary of
the Closing Date.

3.7 TERMINATION UPON EVENT OF DEFAULT. If Foothill
terminates this Agreement upon the occurrence of an Event of Default, in view
of the impracticability and extreme difficulty of ascertaining actual damages
and by mutual agreement of the parties as to a reasonable calculation of
Foothill's lost profits as a result thereof,

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Borrowers shall pay to Foothill upon the effective date of such termination, a
premium in an amount equal to the Early Termination Premium. The Early
Termination Premium shall be presumed to be the amount of damages sustained by
Foothill as the result of the early termination and Borrowers agree that it is
reasonable under the circumstances currently existing. The Early Termination
Premium provided for in this Section 3.7 shall be deemed included in the
Obligations.

4. CREATION OF SECURITY INTEREST.

4.1 GRANT OF SECURITY INTEREST. Each Borrower hereby
grants to Foothill a continuing security interest in all of such Borrower's
currently existing and hereafter acquired or arising Personal Property
Collateral in order to secure prompt repayment of any and all Obligations and
in order to secure prompt performance by such Borrower of each of its covenants
and duties under the Loan Documents. Foothill's security interests in the
Personal Property Collateral shall attach to all Personal Property Collateral
without further act on the part of Foothill or Borrowers. Anything contained
in this Agreement or any other Loan Document to the contrary notwithstanding,
except as specifically permitted by Section 7.3, no Borrower has any authority,
express or implied, to dispose of any item or portion of the Personal Property
Collateral or the Real Property Collateral.

4.2 NEGOTIABLE COLLATERAL. In the event that any
Collateral, including proceeds, is evidenced by or consists of Negotiable
Collateral, Borrowers, immediately upon the request of Foothill, shall endorse
and deliver physical possession of such Negotiable Collateral to Foothill.

4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, AND
NEGOTIABLE COLLATERAL. At any time, Foothill or Foothill's designee may, after
the occurrence of an Event of Default, (a) notify customers or Account Debtors
of any Borrower that the Accounts, General Intangibles, or Negotiable
Collateral of such Borrower have been assigned to Foothill or that Foothill has
a security interest therein, and (b) collect the Accounts, General Intangibles,
and Negotiable Collateral of such Borrower directly and charge the collection
costs and expenses to the Loan Account. Each Borrower agrees that it will hold
in trust for Foothill, as Foothill's trustee, any Collections that it receives
and immediately will deliver said Collections to Foothill in their original
form as received by Borrower.

4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. At
any time upon the request of Foothill, Borrowers shall execute and deliver to
Foothill all financing statements, continuation financing statements, fixture
filings, security agreements, pledges, assignments, control agreements,
endorsements of certificates of title, applications for title, affidavits,
reports, notices, schedules of accounts, letters of

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authority, and all other documents that Foothill reasonably may request, in
form satisfactory to Foothill, to perfect and continue perfected Foothill's
security interests in the Collateral, and in order to fully consummate all of
the transactions contemplated hereby and under the other the Loan Documents.

4.5 POWER OF ATTORNEY. Each Borrower hereby irrevocably
makes, constitutes, and appoints Foothill (and any of Foothill's officers,
employees, or agents designated by Foothill) as such Borrower's true and lawful
attorney, with power to (a) if such Borrower refuses to, or fails timely to
execute and deliver any of the documents described in Section 4.4, sign the
name of such Borrower on any of the documents described in Section 4.4, (b) at
any time that an Event of Default has occurred and is continuing or Foothill
deems itself insecure, sign such Borrower's name on any invoice or bill of
lading relating to any Account of such Borrower, drafts against Account
Debtors, schedules and assignments of Accounts of such Borrower, verifications
of Accounts of such Borrower, and notices to Account Debtors, (c) send requests
for verification of Accounts of such Borrower, (d) endorse such Borrower's name
on any Collection item that may come into Foothill's possession, (e) at any
time that an Event of Default has occurred and is continuing or Foothill deems
itself insecure, notify the post office authorities to change the address for
delivery of such Borrower's mail to an address designated by Foothill, to
receive and open all mail addressed to such Borrower, and to retain all mail
relating to the Collateral of such Borrower and forward all other mail to such
Borrower, (f) at any time that an Event of Default has occurred and is
continuing or Foothill deems itself insecure, make, settle, and adjust all
claims under such Borrower's policies of insurance and make all determinations
and decisions with respect to such policies of insurance, and (g) at any time
that an Event of Default has occurred and is continuing or Foothill deems
itself insecure, settle and adjust disputes and claims respecting the Accounts
of such Borrower directly with Account Debtors, for amounts and upon terms that
Foothill determines to be reasonable, and Foothill may cause to be executed and
delivered any documents and releases that Foothill determines to be necessary.
The appointment of Foothill as such Borrower's attorney, and each and every one
of Foothill's rights and powers, being coupled with an interest, is irrevocable
until all of the Obligations have been fully and finally repaid and performed
and Foothill's obligation to extend credit hereunder is terminated.

4.6 RIGHT TO INSPECT. Foothill (through any of its
officers, employees, or agents) shall have the right, from time to time
hereafter to inspect Borrowers' Books and to check, test, and appraise the
Collateral in order to verify Borrowers' financial condition or the amount,
quality, value, condition of, or any other matter relating to, the Collateral.

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5. REPRESENTATIONS AND WARRANTIES.

In order to induce Foothill to enter into this Agreement, each
Borrower makes the following representations and warranties which shall be
true, correct, and complete in all respects as of the date hereof, and shall be
true, correct, and complete in all respects as of the Closing Date, and at and
as of the date of the making of each Advance, Letter of Credit, or Term Loan,
made thereafter, as though made on and as of the date of such Advance, Letter
of Credit, or Term Loan (except to the extent that such representations and
warranties relate solely to an earlier date) and such representations and
warranties shall survive the execution and delivery of this Agreement:

5.1 NO ENCUMBRANCES. Each Borrower has good and
indefeasible title to its Collateral, free and clear of Liens except for
Permitted Liens.

5.2 ELIGIBLE ACCOUNTS. The Eligible Accounts of each
Borrower are bona fide existing obligations created by the sale and delivery of
Inventory or the rendition of services to Account Debtors in the ordinary
course of such Borrower's business, unconditionally owed to such Borrower
without defenses, disputes, offsets, counterclaims, or rights of return or
cancellation except in the ordinary course of business with respect to
immaterial claims and disputes. The property giving rise to such Eligible
Accounts has been delivered to the Account Debtor, or to the Account Debtor's
agent for immediate shipment to the Account Debtor. Borrowers have not
received notice of actual or imminent bankruptcy, insolvency, or material
impairment of the financial condition of any Account Debtor regarding any
Eligible Account.

5.3 ELIGIBLE INVENTORY. All Eligible Inventory of
Borrowers is of good and merchantable quality, free from defects.

5.4 EQUIPMENT. All of the Equipment of Borrowers is used
or held for use in Borrowers' business and is fit for such purposes.

5.5 LOCATION OF INVENTORY AND EQUIPMENT. The Inventory
and Equipment of Borrowers are not stored with a bailee, warehouseman, or
similar party (without Foothill's prior written consent) and are located only
at the locations identified on Schedule 6.12 or otherwise permitted by Section
6.12.

5.6 INVENTORY RECORDS. Each Borrower keeps correct and
accurate records itemizing and describing the kind, type, and quantity of its
Inventory, and such Borrower's cost therefor.

5.7 FEIN. Each Borrower's FEIN is set forth below:

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<PAGE> 41
<TABLE>
<CAPTION>
Borrower FEIN
-------- ----
<S> <C>
Celebrity 75-1289223
Cluett 33-0063809
Exotics 75-2578734
Star 75-2122345
Florist Supplies 01135-6462
</TABLE>

5.8 DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.

(a) Each Borrower is duly organized and existing
and in good standing under the laws of the jurisdiction of its incorporation
and qualified and licensed to do business in, and in good standing in, any
state where the failure to be so licensed or qualified reasonably could be
expected to cause a Material Adverse Change.

(b) Set forth on Schedule 5.8, is a complete and
accurate list of each Borrower's direct and indirect Subsidiaries, showing:
(i) the jurisdiction of their incorporation; (ii) the number of shares of each
class of common and preferred stock authorized for each of such Subsidiaries;
and (iii) the number and the percentage of the outstanding shares of each such
class owned directly or indirectly by such Borrower. All of the outstanding
capital stock of each such Subsidiary has been validly issued and is fully paid
and non-assessable.

(c) Except as set forth on Schedule 5.8, no
capital stock (or any securities, instruments, warrants, options, purchase
rights, conversion or exchange rights, calls, commitments or claims of any
character convertible into or exercisable for capital stock) of any direct or
indirect Subsidiary of any Borrower is subject to the issuance of any security,
instrument, warrant, option, purchase right, conversion or exchange right,
call, commitment or claim of any right, title, or interest therein or thereto.

5.9 DUE AUTHORIZATION; NO CONFLICT.

(a) The execution, delivery, and performance by
each Borrower of this Agreement and the Loan Documents to which it is a party
have been duly authorized by all necessary corporate action.

(b) The execution, delivery, and performance by
each Borrower of this Agreement and the Loan Documents to which it is a party
do not and will not (i) violate any provision of federal, state, or local law
or regulation (including Regulations G, T, U, and X of the Federal Reserve
Board) applicable to such Borrower, the Governing Documents of such Borrower,
or any order, judgment, or decree of any court or other Governmental Authority
binding on such Borrower, (ii) conflict with, result

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<PAGE> 42
in a breach of, or constitute (with due notice or lapse of time or both) a
default under any material contractual obligation or material lease of such
Borrower, (iii) result in or require the creation or imposition of any Lien of
any nature whatsoever upon any properties or assets of such Borrower, other
than Permitted Liens, or (iv) require any approval of stockholders or any
approval or consent of any Person under any material contractual obligation of
such Borrower.

(c) Other than the filing of appropriate
financing statements, fixture filings, and mortgages, the execution, delivery,
and performance by each Borrower of this Agreement and the Loan Documents to
which such Borrower is a party do not and will not require any registration
with, consent, or approval of, or notice to, or other action with or by, any
federal, state, foreign, or other Governmental Authority or other Person.

(d) This Agreement and the Loan Documents to
which any Borrower is a party, and all other documents contemplated hereby and
thereby, when executed and delivered by such Borrower, will be the legally
valid and binding obligations of such Borrower, enforceable against such
Borrower in accordance with their respective terms, except as enforcement may
be limited by equitable principles or by bankruptcy, insolvency,
reorganization, moratorium, or similar laws relating to or limiting creditors'
rights generally.

(e) The Liens granted by each Borrower to
Foothill in and to its properties and assets pursuant to this Agreement and the
other Loan Documents are validly created, perfected, and first priority Liens,
subject only to Permitted Liens.

5.10 LITIGATION. There are no actions or proceedings
pending by or against any Borrower before any court or administrative agency
and no Borrower has any knowledge or belief of any pending, threatened, or
imminent litigation, governmental investigations, or claims, complaints,
actions, or prosecutions involving any Borrower or any guarantor of the
Obligations, except for: (a) ongoing collection matters in which a Borrower is
the plaintiff; (b) matters disclosed on Schedule 5.10; and (c) matters arising
after the date hereof that, if decided adversely to a Borrower, would not cause
a Material Adverse Change.

5.11 GAAP FINANCIAL STATEMENTS; NO MATERIAL ADVERSE
CHANGE. All financial statements relating to any Borrower or any guarantor of
the Obligations that have been delivered by any Borrower to Foothill have been
prepared in accordance with GAAP (except, in the case of unaudited financial
statements, for the lack of footnotes and being subject to year-end audit
adjustments) and fairly present such Borrower's (or such guarantor's, as
applicable) financial condition as of the date thereof and such Borrower's
results of operations for the period then ended. There has not been a Material
Adverse

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<PAGE> 43
Change with respect to any Borrower (or such guarantor, as applicable) since
the date of the latest financial statements submitted to Foothill on or before
the Closing Date.

5.12 SOLVENCY. Each Borrower is Solvent. No transfer of
property is being made by any Borrower and no obligation is being incurred by
any Borrower in connection with the transactions contemplated by this Agreement
or the other Loan Documents with the intent to hinder, delay, or defraud either
present or future creditors of any Borrower.

5.13 EMPLOYEE BENEFITS. None of Borrowers, any of their
Subsidiaries, or any of their ERISA Affiliates maintains or contributes to any
Benefit Plan. Each Borrower, each of its Subsidiaries and each ERISA Affiliate
have satisfied the minimum funding standards of ERISA and the IRC with respect
to each Benefit Plan to which it is obligated to contribute. No ERISA Event
has occurred nor has any other event occurred that may result in an ERISA Event
that reasonably could be expected to result in a Material Adverse Change. None
of Borrowers or their Subsidiaries, any ERISA Affiliate, or any fiduciary of
any Plan is subject to any direct or indirect liability with respect to any
Plan under any applicable law, treaty, rule, regulation, or agreement. None of
Borrowers or their Subsidiaries or any ERISA Affiliate is required to provide
security to any Plan under Section 401(a)(29) of the IRC.

5.14 ENVIRONMENTAL CONDITION. None of Borrowers'
properties or assets has ever been used by any Borrower or, to the best of each
Borrower's knowledge, by previous owners or operators in the disposal of, or to
produce, store, handle, treat, release, or transport, any Hazardous Materials,
except in compliance with applicable law. None of Borrowers' properties or
assets has ever been designated or identified in any manner pursuant to any
environmental protection statute as a Hazardous Materials disposal site, or a
candidate for closure pursuant to any environmental protection statute. No
Lien arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned or operated by any Borrower.
No Borrower has received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal or state governmental
agency concerning any action or omission by any Borrower resulting in the
releasing or disposing of Hazardous Materials into the environment.

6. AFFIRMATIVE COVENANTS.

Each Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, such Borrower shall do all of the following:

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<PAGE> 44
6.1 ACCOUNTING SYSTEM. Maintain a standard and accurate
system of accounting that enables such Borrower to produce financial statements
in accordance with GAAP, and maintain records pertaining to its Collateral that
contain information as from time to time may be requested by Foothill. Such
Borrower also shall keep a modern inventory reporting system that shows all
additions, sales, claims, returns, and allowances with respect to its
Inventory.

6.2 COLLATERAL REPORTING. Provide Foothill with the
following documents at the following times in form satisfactory to Foothill:
(a) on each Business Day, a sales journal, collection journal, and credit
register for each of Exotics, Cluett, and Celebrity since the last such
schedule and a calculation of the Borrowing Base as of such date, (b) on a
monthly basis and, in any event, by no later than the 10th day of each month
during the term of this Agreement, (1) a detailed calculation of the Borrowing
Base for each of Exotics, Cluett, and Celebrity and on a consolidated basis,
and (2) a detailed aging, by total, of such Borrower's Accounts, together with
a reconciliation to the detailed calculation of the Borrowing Base previously
provided to Foothill, (c) on a monthly basis and, in any event, by no later
than the 10th day of each month during the term of this Agreement, a summary
aging, by vendor, of such Borrower's accounts payable and any book overdraft,
(d) on a weekly basis, Inventory reports specifying such Borrower's cost of its
Inventory by category, with additional detail showing additions to and
deletions from its Inventory, (e) upon request, notice of all returns,
disputes, or claims, (f) upon request, copies of invoices in connection with
its Accounts, customer statements, credit memos, remittance advices and
reports, deposit slips, shipping and delivery documents in connection with its
Accounts and for Inventory and Equipment acquired by such Borrower, purchase
orders and invoices, (g) on a quarterly basis, a detailed list of such
Borrower's customers, (h) upon request, such Borrower's electronic data; and
(i) such other reports as to the Collateral or the financial condition of such
Borrower or the financial condition and agings of Celebrity Hong Kong, as
Foothill may request from time to time.

6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Deliver
or cause to be delivered to Foothill: (a) as often as available, but in any
event not less frequently than weekly, Celebrity's "Weekly Consolidated
Tactical Cash Model"; (b) as soon as available, but in any event within 30 days
after the end of each month (except that such statements for the months of
December 1997 and January and February 1998 may be delivered on or before
February 15, 1998, March 15, 1998, and April 15, 1998, respectively), a company
prepared balance sheet as of month end, and an income statement and statement
of cash flows covering each Borrower's operations during such period; and (c)
as soon as available, but in any event within 90 days after the end of
Celebrity's fiscal years, consolidated financial statements of Celebrity for
each such fiscal year, audited by independent certified public accountants
reasonably acceptable to Foothill and certified, without any qualifications, by
such accountants to have been prepared in accordance with

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<PAGE> 45
GAAP, together with a certificate of such accountants addressed to Foothill
stating that such accountants have reviewed Sections 6.1, 6.11, 6.14, 6.15,
7.1, 7.2, 7.4, 7.10, 7.11, 7.12, 7.14, 7.16, 7.18, 7.20, and 7.21 of this
Agreement, insofar as such Sections relate to financial and accounting matters,
and that as a result of such review such accountants do not have knowledge of
any failure to comply with such Sections on the part of Borrowers. Such
audited financial statements shall include a balance sheet, income statement,
and statement of cash flows and, if prepared, such accountants' letter to
management. All such monthly financial statements required under clause (b) of
the first sentence of Section 6.3 shall be prepared on a consolidated basis and
shall be accompanied by a consolidating income statement prepared so as to
present Celebrity and each of its Subsidiaries separately.

Together with the above, Celebrity also shall deliver
to Foothill its Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and Form
8-K Current Reports, and any other filings it makes with the Securities and
Exchange Commission, as soon as the same are filed, or any other information
that is provided by Celebrity to its shareholders generally, and any other
report reasonably requested by Foothill relating to the financial condition of
any Borrower.

Each month, together with the financial statements
provided pursuant to Section 6.3, such Borrower shall deliver to Foothill a
Compliance Certificate signed by its chief financial officer to the effect
that: (i) all financial statements delivered or caused to be delivered to
Foothill hereunder have been prepared in accordance with GAAP (except, in the
case of unaudited financial statements, for the lack of footnotes and being
subject to year- end audit adjustments) and fairly present the financial
condition of such Borrower, (ii) the representations and warranties of such
Borrower contained in this Agreement and the other Loan Documents are true and
correct in all material respects on and as of the date of such certificate, as
though made on and as of such date (except to the extent that such
representations and warranties relate solely to an earlier date), (iii) for
each month that also is the date on which a financial covenant in Section 7.20
is to be tested, such Borrower is in compliance at the end of such period with
the applicable financial covenants contained in Section 7.20 (and demonstrating
such compliance in reasonable detail), and (iv) on the date of delivery of such
certificate to Foothill there does not exist any condition or event that
constitutes a Default or Event of Default (or, in the case of clauses (i),
(ii), or (iii), to the extent of any non-compliance, describing such
non-compliance as to which he or she may have knowledge and what action such
Borrower has taken, is taking, or proposes to take with respect thereto).

Such Borrower shall issue written instructions to its
independent certified public accountants authorizing them to communicate with
Foothill and to release to Foothill whatever financial information concerning
such Borrower that Foothill may request. Such Borrower hereby irrevocably
authorizes and directs all auditors,

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<PAGE> 46
accountants, or other third parties to deliver to Foothill, at such Borrower's
expense, copies of such Borrower's financial statements, papers related
thereto, and other accounting records of any nature in their possession, and to
disclose to Foothill any information they may have regarding such Borrower's
business affairs and financial conditions.

6.4 TAX RETURNS. Deliver to Foothill copies of each of
such Borrower's future federal income tax returns, and any amendments thereto,
within 30 days of the filing thereof with the Internal Revenue Service.

6.5 GUARANTOR REPORTS. Cause any guarantor of any of the
Obligations to deliver its annual financial statements (to the extent not
included in the financial statements delivered under Section 6.3) at the time
when Celebrity provides its audited financial statements to Foothill and copies
of all federal income tax returns as soon as the same are available and in any
event no later than 30 days after the same are required to be filed by law.

6.6 RETURNS. Cause returns and allowances, if any, as
between such Borrower and its Account Debtors to be on the same basis and in
accordance with the usual customary practices of such Borrower, as they exist
at the time of the execution and delivery of this Agreement. If, at a time
when no Event of Default has occurred and is continuing, any Account Debtor
returns any Inventory to such Borrower, such Borrower promptly shall determine
the reason for such return and, if such Borrower accepts such return, issue a
credit memorandum (with a copy to be sent to Foothill upon Foothill's request)
in the appropriate amount to such Account Debtor. If, at a time when an Event
of Default has occurred and is continuing, any Account Debtor returns any
Inventory to such Borrower, such Borrower promptly shall determine the reason
for such return and, if Foothill consents (which consent shall not be
unreasonably withheld), issue a credit memorandum (with a copy to be sent to
Foothill upon Foothill's request) in the appropriate amount to such Account
Debtor.

6.7 TITLE TO EQUIPMENT. Upon Foothill's request, such
Borrower immediately shall deliver to Foothill, properly endorsed, any and all
evidences of ownership of, certificates of title, or applications for title to
any items of its Equipment.

6.8 MAINTENANCE OF EQUIPMENT. Maintain its Equipment in
good operating condition and repair (ordinary wear and tear excepted), and make
all necessary replacements thereto so that the value and operating efficiency
thereof shall at all times be maintained and preserved. Other than those items
of Equipment that constitute fixtures or accessions on the Closing Date, such
Borrower shall not permit any item of its Equipment to become a fixture to real
estate or an accession to other property (other than

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<PAGE> 47
to repair or replace any such fixture or accession), and such Equipment shall
at all times remain personal property.

6.9 TAXES. Cause all assessments and taxes, whether
real, personal, or otherwise, due or payable by, or imposed, levied, or
assessed against such Borrower or any of its property to be paid in full,
before delinquency or before the expiration of any extension period, except to
the extent that the validity of such assessment or tax shall be the subject of
a Permitted Protest. Such Borrower shall make due and timely payment or
deposit of all such federal, state, and local taxes, assessments, or
contributions required of it by law, and will execute and deliver to Foothill,
on demand, appropriate certificates attesting to the payment thereof or deposit
with respect thereto. Such Borrower will make timely payment or deposit of all
tax payments and withholding taxes required of it by applicable laws, including
those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state,
and federal income taxes, and will, upon request, furnish Foothill with proof
satisfactory to Foothill indicating that such Borrower has made such payments
or deposits.

6.10 INSURANCE.

(a) At its expense, keep its Personal Property
Collateral insured against loss or damage by fire, theft, explosion,
sprinklers, and all other hazards and risks, and in such amounts, all as are
ordinarily insured against by other owners in similar businesses. Such
Borrower also shall maintain business interruption, public liability, product
liability, and property damage insurance relating to such Borrower's ownership
and use of its Personal Property Collateral, as well as insurance against
larceny, embezzlement, and criminal misappropriation.

(b) At its expense, obtain and maintain (i)
insurance of the type necessary to insure the Improvements and Chattels (as
such terms are defined in the Mortgages), for the full replacement cost
thereof, against any loss by fire, lightning, windstorm, hail, explosion,
aircraft, smoke damage, vehicle damage, earthquakes (other than in respect of
California or Missouri), elevator collision, and other risks from time to time
included under "extended coverage" policies, in such amounts as Foothill may
require, but in any event in amounts sufficient to prevent such Borrower from
becoming a co-insurer under such policies, (ii) combined single limit bodily
injury and property damages insurance against any loss, liability, or damages
on, about, or relating to each parcel of Real Property Collateral, in an amount
of not less than $1,000,000; and (iii) insurance for such other risks as
Foothill may reasonably require. Replacement costs, at Foothill's option, may
be redetermined by an insurance appraiser, satisfactory to Foothill, not more
frequently than once every 12 months at such Borrower's cost.

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<PAGE> 48
(d) All such policies of insurance shall be in
such form, with such companies, and in such amounts as may be reasonably
satisfactory to Foothill. All insurance required herein shall be written by
companies which are authorized to do insurance business in the State of
California. All hazard insurance and such other insurance as Foothill shall
specify, shall contain a California Form 438BFU (NS) mortgagee endorsement, or
an equivalent endorsement satisfactory to Foothill, showing Foothill as a loss
payee thereof, and shall contain a waiver of warranties. Every policy of
insurance referred to in this Section 6.10 shall contain an agreement by the
insurer that it will not cancel such policy except after 30 days prior written
notice to Foothill and that any loss payable thereunder shall be payable
notwithstanding any act or negligence of such Borrower or Foothill which might,
absent such agreement, result in a forfeiture of all or a part of such
insurance payment and notwithstanding (i) occupancy or use of the Real Property
Collateral for purposes more hazardous than permitted by the terms of such
policy, (ii) any foreclosure or other action or proceeding taken by Foothill
pursuant to the Mortgages upon the happening of an Event of Default, or (iii)
any change in title or ownership of the Real Property Collateral. Such
Borrower shall deliver to Foothill certified copies of such policies of
insurance and evidence of the payment of all premiums therefor.

(e) Certificates satisfactory to Foothill
evidencing such insurance shall be delivered to Foothill at least 30 days prior
to the expiration of the existing or preceding policies. Such Borrower shall
give Foothill prompt notice of any single loss (in excess of $25,000) covered
by such insurance. Foothill shall have the exclusive right to adjust any
losses in excess of $25,000 (or, if an Event of Default has occurred and is
continuing, or Foothill deems itself insecure, to adjust all losses) payable
under any such insurance policies without any liability to such Borrower
whatsoever in respect of such adjustments. Any monies received as payment for
any loss under any insurance policy including the insurance policies mentioned
above, shall be paid over to Foothill to be applied at the option of Foothill
either to the prepayment of the Obligations without premium, in such order or
manner as Foothill may elect, or shall be disbursed to such Borrower under
stage payment terms satisfactory to Foothill for application to the cost of
repairs, replacements, or restorations. All repairs, replacements, or
restorations shall be effected with reasonable promptness and shall be of a
value at least equal to the value of the items or property destroyed prior to
such damage or destruction. Upon the occurrence of an Event of Default,
Foothill shall have the right to apply all prepaid premiums to the payment of
the Obligations in such order or form as Foothill shall determine.

(f) Such Borrower shall not take out separate
insurance concurrent in form or contributing in the event of loss with that
required to be maintained under this Section 6.10, unless Foothill is included
thereon as named insured with the loss payable to Foothill under a standard
California 438BFU (NS) Mortgagee endorsement, or its local equivalent. Such
Borrower immediately shall notify Foothill whenever such

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<PAGE> 49
separate insurance is taken out, specifying the insurer thereunder and full
particulars as to the policies evidencing the same, and originals of such
policies immediately shall be provided to Foothill.

6.11 NO SETOFFS OR COUNTERCLAIMS. Make payments hereunder
and under the other Loan Documents by or on behalf of such Borrower without
setoff or counterclaim and free and clear of, and without deduction or
withholding for or on account of, any federal, state, or local taxes.

6.12 LOCATION OF INVENTORY AND EQUIPMENT. Keep its
Inventory (other than In-Transit Inventory) and Equipment only at the locations
identified on Schedule 6.12 (or in transit between them); provided, however,
that Borrowers may amend Schedule 6.12 so long as such amendment occurs by
written notice to Foothill not less than 30 days prior to the date on which the
Inventory or Equipment of Borrowers is moved to such new location, so long as
such new location is within the continental United States, and so long as, at
the time of such written notification, Borrowers provide any financing
statements or fixture filings necessary to perfect and continue perfected
Foothill's security interests in such assets and also provides to Foothill a
Collateral Access Agreement.

6.13 COMPLIANCE WITH LAWS. Comply with the requirements
of all applicable laws, rules, regulations, and orders of any governmental
authority, including the Fair Labor Standards Act and the Americans With
Disabilities Act, other than laws, rules, regulations, and orders the
non-compliance with which, individually or in the aggregate, would not have and
could not reasonably be expected to cause a Material Adverse Change.

6.14 EMPLOYEE BENEFITS.

(a) Deliver to Foothill: (i) promptly, and in
any event within 10 Business Days after such Borrower or any of its
Subsidiaries knows or has reason to know that an ERISA Event has occurred that
reasonably could be expected to result in a Material Adverse Change, a written
statement of the chief financial officer of such Borrower describing such ERISA
Event and any action that is being taking with respect thereto by such
Borrower, any such Subsidiary or ERISA Affiliate, and any action taken or
threatened by the IRS, Department of Labor, or PBGC. Such Borrower or such
Subsidiary, as applicable, shall be deemed to know all facts known by the
administrator of any Benefit Plan of which it is the plan sponsor, (ii)
promptly, and in any event within 3 Business Days after the filing thereof with
the IRS, a copy of each funding waiver request filed with respect to any
Benefit Plan and all communications received by such Borrower, any of its
Subsidiaries or, to the knowledge of such Borrower, any ERISA Affiliate with
respect to such request, and (iii) promptly, and in any event within 3

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Business Days after receipt by such Borrower, any of its Subsidiaries or, to
the knowledge of such Borrower, any ERISA Affiliate, of the PBGC's intention to
terminate a Benefit Plan or to have a trustee appointed to administer a Benefit
Plan, copies of each such notice.

(b) Cause to be delivered to Foothill, upon
Foothill's request, each of the following: (i) a copy of each Plan (or, where
any such plan is not in writing, complete description thereof) (and if
applicable, related trust agreements or other funding instruments) and all
amendments thereto, all written interpretations thereof and written
descriptions thereof that have been distributed to employees or former
employees of such Borrower or its Subsidiaries; (ii) the most recent
determination letter issued by the IRS with respect to each Benefit Plan; (iii)
for the three most recent plan years, annual reports on Form 5500 Series
required to be filed with any governmental agency for each Benefit Plan; (iv)
all actuarial reports prepared for the last three plan years for each Benefit
Plan; (v) a listing of all Multiemployer Plans, with the aggregate amount of
the most recent annual contributions required to be made by such Borrower or
any ERISA Affiliate to each such plan and copies of the collective bargaining
agreements requiring such contributions; (vi) any information that has been
provided to such Borrower or any ERISA Affiliate regarding withdrawal liability
under any Multiemployer Plan; and (vii) the aggregate amount of the most recent
annual payments made to former employees of such Borrower or its Subsidiaries
under any Retiree Health Plan.

6.15 LEASES. Pay when due all rents and other amounts
payable under any leases to which such Borrower is a party or by which such
Borrower's properties and assets are bound, unless such payments are the
subject of a Permitted Protest. To the extent that such Borrower fails timely
to make payment of such rents and other amounts payable when due under its
leases, Foothill shall be entitled, in its discretion, to reserve an amount
equal to such unpaid amounts against the Borrowing Base.

7. NEGATIVE COVENANTS.

Each Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, such Borrower will not do any of the following:

7.1 INDEBTEDNESS. Create, incur, assume, permit,
guarantee, or otherwise become or remain, directly or indirectly, liable with
respect to any Indebtedness to any Person other than a Borrower, except:

(a) Indebtedness evidenced by this Agreement,
together with Indebtedness to issuers of letters of credit that is the subject
of L/C Guarantees;

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<PAGE> 51
(b) Indebtedness set forth in the latest
financial statements of Borrowers submitted to Foothill on or prior to the
Closing Date, or in Schedule 7.1;

(d) the guaranty of Indebtedness of Celebrity
Hong Kong, which shall not exceed $7,000,000 outstanding at any one time; and

(e) refinancings, renewals, or extensions of
Indebtedness permitted under clauses (b), (c) or (d) of this Section 7.1 (and
continuance or renewal of any Permitted Liens associated therewith) so long as:
(i) the terms and conditions of such refinancings, renewals, or extensions do
not materially impair the prospects of repayment of the Obligations by
Borrowers, (ii) the net cash proceeds of such refinancings, renewals, or
extensions do not result in an increase in the aggregate principal amount of
the Indebtedness so refinanced, renewed, or extended, (iii) such refinancings,
renewals, refundings, or extensions do not result in a shortening of the
average weighted maturity of the Indebtedness so refinanced, renewed, or
extended, and (iv) to the extent that Indebtedness that is refinanced was
subordinated in right of payment to the Obligations, then the subordination
terms and conditions of the refinancing Indebtedness must be at least as
favorable to Foothill as those applicable to the refinanced Indebtedness.

7.2 LIENS. Create, incur, assume, or permit to exist,
directly or indirectly, any Lien on or with respect to any of its property or
assets, of any kind, whether now owned or hereafter acquired, or any income or
profits therefrom, except for Permitted Liens (including Liens that are
replacements of Permitted Liens to the extent that the original Indebtedness is
refinanced under Section 7.1(e) and so long as the replacement Liens only
encumber those assets or property that secured the original Indebtedness).

7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES. Enter into any
merger, consolidation, reorganization, or recapitalization (other than reverse
stock splits), or reclassify its capital stock, or liquidate, wind up, or
dissolve itself (or suffer any liquidation or dissolution), or convey, sell,
assign, lease, transfer, or otherwise dispose of, in one transaction or a
series of transactions, all or any substantial part of its property or assets;
provided, however, that any Borrower may be merged or liquidated into any other
Borrower upon 30 day's advance written notice to Foothill.

7.4 DISPOSAL OF ASSETS. Sell, lease, assign, transfer,
or otherwise dispose of any of such Borrower's properties or assets other than:
(a) sales of Inventory to buyers in the ordinary course of such Borrower's
business as currently conducted; (b) Permitted Sale/Leasebacks; and (c)
Permitted Equipment Dispositions.

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7.5 CHANGE NAME. Change such Borrower's name, FEIN,
corporate structure (within the meaning of Section 9402(7) of the Code), or
identity, or add any new fictitious name.

7.6 GUARANTEE. Guarantee or otherwise become in any way
liable with respect to the obligations of any third Person except (a) as
permitted by Section 7.1, and (b) by endorsement of instruments or items of
payment for deposit to the account of such Borrower or which are transmitted or
turned over to Foothill.

7.7 NATURE OF BUSINESS. Make any change in the principal
nature of such Borrower's business.

7.8 PREPAYMENTS AND AMENDMENTS.

(a) Except (i) in connection with a refinancing
permitted by Section 7.1(e); (ii) prepayments of the Senior Real Estate Loan
from a Permitted Sale/Leaseback and (iii) in connection with Permitted
Equipment Dispositions, prepay, redeem, retire, defease, purchase, or otherwise
acquire any Indebtedness owing to any third Person, other than the Obligations
in accordance with this Agreement and the repayment of the $500,000
Indebtedness owing to RHP Management, LLC, in monthly installments not to
exceed $125,000 each, pursuant to the terms of the Subordination Agreement, and

(b) Directly or indirectly, amend, modify, alter,
increase, or change any of the terms or conditions of any agreement,
instrument, document, indenture, or other writing evidencing or concerning
Indebtedness for borrowed money.

7.9 CHANGE OF CONTROL. Cause, permit, or suffer,
directly or indirectly, any Change of Control.

7.10 CONSIGNMENTS. Consign any Inventory or sell any of
its Inventory on bill and hold, sale or return, sale on approval, or other
conditional terms of sale.

7.11 DISTRIBUTIONS. Make any distribution or declare or
pay any dividends (in cash or other property, other than capital stock) on, or
purchase, acquire, redeem, or retire any of such Borrower's capital stock, of
any class, whether now or hereafter outstanding, except for (i) dividends
payable to a Borrower; (ii) purchases, acquisitions, or redemptions of a
Borrower's stock from, or retirements of a Borrower's stock held by, another
Borrower; and (iii) the repurchase of up to $175,000 of common stock pursuant
to existing stock purchase obligations.

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<PAGE> 53
7.12 ACCOUNTING METHODS. Modify or change its method of
accounting or enter into, modify, or terminate any agreement whether currently
existing or at any time hereafter entered into, with any third party accounting
firm or service bureau for the preparation or storage of such Borrower's
accounting records without said accounting firm or service bureau agreeing to
provide Foothill information regarding the Collateral or such Borrower's
financial condition. Such Borrower waives the right to assert a confidential
relationship, if any, it may have with any accounting firm or service bureau in
connection with any information requested by Foothill pursuant to or in
accordance with this Agreement, and agrees that Foothill may contact directly
any such accounting firm or service bureau in order to obtain such information.

7.13 INVESTMENTS. Directly or indirectly make, acquire,
or incur any liabilities (including contingent obligations) for or in
connection with (a) the acquisition of the securities (whether debt or equity)
of, or other interests in, a Person (other than a Borrower), (b) loans,
advances, capital contributions, or transfers of property to a Person (other
than a Borrower), or (c) the acquisition of all or substantially all of the
properties or assets of a Person (other than a Borrower), except for (i) trade
credit in the ordinary course; and (ii) up to $50,000 per month of advances to
employees for expenses in the ordinary course of business.

7.14 TRANSACTIONS WITH AFFILIATES. Directly or indirectly
enter into or permit to exist any material transaction with any Affiliate of
such Borrower (other than another Borrower) except for transactions that are in
the ordinary course of such Borrower's business, upon fair and reasonable
terms, that are fully disclosed to Foothill, and that are no less favorable to
such Borrower than would be obtained in an arm's length transaction with a
non-Affiliate.

7.15 SUSPENSION. Suspend or go out of a substantial
portion of its business.

7.16 INTENTIONALLY DELETED.

7.17 USE OF PROCEEDS. Use the proceeds of the Advances
and the Term Loan made hereunder for any purpose other than (a) on the Closing
Date, (i) to repay in full the outstanding principal, accrued interest, and
accrued fees and expenses owing to Existing Lender, and (ii) to pay
transactional costs and expenses incurred in connection with this Agreement,
and (b) thereafter, consistent with the terms and conditions hereof, for its
lawful and permitted corporate purposes.

7.18 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE;
INVENTORY AND EQUIPMENT WITH BAILEES. Relocate its chief executive office to a
new location without providing 30 days prior written notification thereof to
Foothill and so long as, at the time

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<PAGE> 54
of such written notification, such Borrower provides any financing statements
or fixture filings necessary to perfect and continue perfected Foothill's
security interests and also provides to Foothill a Collateral Access Agreement
with respect to such new location. The Inventory and Equipment of such
Borrower shall not at any time now or hereafter be stored with a bailee,
warehouseman, or similar party without Foothill's prior written consent.

7.19 NO PROHIBITED TRANSACTIONS UNDER ERISA. Directly or
indirectly:

(a) engage, or permit any Subsidiary of such
Borrower to engage, in any prohibited transaction which is reasonably likely to
result in a civil penalty or excise tax described in Sections 406 of ERISA or
4975 of the IRC for which a statutory or class exemption is not available or a
private exemption has not been previously obtained from the Department of
Labor;

(b) permit to exist with respect to any Benefit
Plan any accumulated funding deficiency (as defined in Sections 302 of ERISA
and 412 of the IRC), whether or not waived;

(c) fail, or permit any Subsidiary of such
Borrower to fail, to pay timely required contributions or annual installments
due with respect to any waived funding deficiency to any Benefit Plan;

(d) terminate, or permit any Subsidiary of such
Borrower to terminate, any Benefit Plan where such event would result in any
liability of such Borrower, any of its Subsidiaries or any ERISA Affiliate
under Title IV of ERISA;

(e) fail, or permit any Subsidiary of such
Borrower to fail, to make any required contribution or payment to any
Multiemployer Plan;

(f) fail, or permit any Subsidiary of such
Borrower to fail, to pay any required installment or any other payment required
under Section 412 of the IRC on or before the due date for such installment or
other payment;

(g) amend, or permit any Subsidiary of such
Borrower to amend, a Plan resulting in an increase in current liability for the
plan year such that either of such Borrower, any Subsidiary of such Borrower or
any ERISA Affiliate is required to provide security to such Plan under Section
401(a)(29) of the IRC; or

(h) withdraw, or permit any Subsidiary of such
Borrower to withdraw, from any Multiemployer Plan where such withdrawal is
reasonably likely to result in any liability of any such entity under Title IV
of ERISA;

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<PAGE> 55
which, individually or in the aggregate, results in or reasonably would be
expected to result in a claim against or liability of such Borrower, any of its
Subsidiaries or any ERISA Affiliate in excess of $100,000.

7.20 FINANCIAL COVENANTS. Have Celebrity fail to
maintain:

(a) [Intentionally Deleted.]

(b) [Intentionally Deleted.]

<TABLE>
<CAPTION>
Date Minimum Tangible Net Worth
---- --------------------------
<S> <C>
February 28, 1998 $13,000,000
March 31, 1998 $13,000,000
</TABLE>

Borrowers acknowledge that Foothill will establish appropriate levels for this
financial covenant for quarterly periods beyond March 31, 1998 upon receipt and
approval of the Borrowers' business plan required under Section 3.3 (e). Such
extensions of this financial covenant will be determined by Foothill in its
reasonable credit judgment (based on no more than 85% of projected performance)
and this Section 7.20 will be amended accordingly upon Foothill's notification
to Celebrity of such levels without any requirement of Borrowers' further
consent thereto.

(d) EBITDA. EBITDA of at least the following
amounts for the 12 month periods ending on the following dates:

<TABLE>
<CAPTION>
Ending Minimum EBITDA
------ --------------
<S> <C>
February 28, 1998 $1,500,000
March 31, 1998 $1,500,000
</TABLE>

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7.21 CAPITAL EXPENDITURES. Borrowers shall, in the
aggregate, make capital expenditures in any fiscal year in excess of
$2,000,000.

8. EVENTS OF DEFAULT.

Any one or more of the following events shall constitute an
event of default (each, an "Event of Default") under this Agreement:

8.1 If Borrowers fail to pay when due and payable or when
declared due and payable, any portion of the Obligations (whether of principal,
interest (including any interest which, but for the provisions of the
Bankruptcy Code, would have accrued on such amounts), fees and charges due
Foothill, reimbursement of Foothill Expenses, or other amounts constituting
Obligations);

8.2 If any Borrower fails to perform, keep, or observe
any term, provision, condition, covenant, or agreement contained in this
Agreement, in any of the Loan Documents, or in any other present or future
agreement between such Borrower and Foothill; provided, however, that
Borrowers' failure to perform, keep, or observe the terms of Sections 6.2, 6.3,
6.4, 6.7, 6.8, 6.13 or 6.15 shall not constitute an Event of Default unless
such failure continues for five days or more;

8.3 If there is a Material Adverse Change;

8.4 If any material portion of any Borrower's properties
or assets is attached, seized, subjected to a writ or distress warrant, or is
levied upon, or comes into the possession of any third Person;

8.5 If an Insolvency Proceeding is commenced by any
Borrower;

8.6 If an Insolvency Proceeding is commenced against any
Borrower and any of the following events occur: (a) such Borrower consents to
the institution of the Insolvency Proceeding against it; (b) the petition
commencing the Insolvency Proceeding is not timely controverted; (c) the
petition commencing the Insolvency Proceeding is not dismissed within 45
calendar days of the date of the filing thereof; provided, however, that,
during the pendency of such period, Foothill shall be relieved of its
obligation to extend credit hereunder; (d) an interim trustee is appointed to
take possession of all or a substantial portion of the properties or assets of,
or to operate all or any substantial portion of the business of, such Borrower;
or (e) an order for relief shall have been issued or entered therein;

8.7 If any Borrower is enjoined, restrained, or in any
way prevented by court order from continuing to conduct all or any material
part of its business affairs;

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8.8 If a notice of Lien, levy, or assessment (other than
a Permitted Lien) is filed of record with respect to any of any Borrower's
properties or assets by the United States Government, or any department,
agency, or instrumentality thereof, or by any state, county, municipal, or
governmental agency, or if any taxes or debts owing at any time hereafter to
any one or more of such entities becomes a Lien (other than a Permitted Lien),
whether choate or otherwise, upon any of such Borrower's properties or assets
and the same is not paid on the payment date thereof; provided, however, that
no such notice of Lien, levy, or assessment, and no such Lien, shall constitute
an Event of Default under this Section 8.8 to the extent that Borrower is
diligently pursuing the cure thereof by appropriate means and that (a) the
aggregate amount in respect of all such Liens or notices under this provision
is less than $50,000, (b) such Lien, levy, or assessment is not a federal tax
lien, and (c) such Lien, levy, or assessment is satisfied within 30 days of the
date that it arose; provided further, however, that Foothill may establish a
reserve as provided under Section 10 during the pendency of such period;

8.9 If a judgment or other claim becomes a Lien or
encumbrance upon any material portion of any Borrower's properties or assets;
provided, however, that no such Lien or encumbrance shall constitute an Event
of Default under this Section 8.9 to the extent that Borrower is diligently
pursuing the cure thereof by appropriate means and that (a) the aggregate
amount of all judgments and claims subject to such Liens or encumbrances does
not exceed at any one time $50,000; and (b) such Lien or encumbrance is
satisfied or released within 30 days of the date thereof or has been and
remains stayed pending appeal; provided further, however, that Foothill may
establish a reserve as provided in Section 10 during the pendency of such
period;

8.10 If there is a default in any agreement concerning
Indebtedness of more than $100,000 or any other material agreement to which any
Borrower is a party with one or more third Persons and such default (a) occurs
at the final maturity of the obligations thereunder, or (b) results in a right
by such third Person(s), irrespective of whether exercised, to accelerate the
maturity of such Borrower's obligations thereunder or terminate such contract;

8.11 If any Borrower makes any payment on account of
Indebtedness that has been contractually subordinated in right of payment to
the payment of the Obligations, except to the extent such payment is permitted
by the terms of the subordination provisions applicable to such Indebtedness;

8.12 If any material misstatement or misrepresentation
exists now or hereafter in any warranty, representation, statement, or report
made to Foothill by any Borrower or any officer, employee, agent, or director
of any Borrower, or if any such warranty or representation is withdrawn in any
material respect; or

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8.13 If the obligation of any guarantor under its
guaranty, of RHP Management, LLC under the Subordination Agreement, or of other
third Person under any Loan Document is breached, limited or terminated by
operation of law or by the guarantor, the subordinating creditor, or other
third Person thereunder, or any such guarantor, such subordinating creditor or
other third Person becomes the subject of an Insolvency Proceeding.

9. FOOTHILL'S RIGHTS AND REMEDIES.

9.1 RIGHTS AND REMEDIES. Upon the occurrence, and during
the continuation, of an Event of Default Foothill may, at its election, without
notice of its election and without demand, do any one or more of the following,
all of which are authorized by Borrowers:

(a) Declare all Obligations, whether evidenced by
this Agreement, by any of the other Loan Documents, or otherwise, immediately
due and payable;

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

(c) Terminate this Agreement and any of the other
Loan Documents as to any future liability or obligation of Foothill, but
without affecting Foothill's rights and security interests in the Personal
Property Collateral or the Real Property Collateral and without affecting the
Obligations;

(d) Settle or adjust disputes and claims directly
with Account Debtors for amounts and upon terms which Foothill considers
advisable, and in such cases, Foothill will credit Borrowers' Loan Account with
only the net amounts received by Foothill in payment of such disputed Accounts
after deducting all Foothill Expenses incurred or expended in connection
therewith;

(e) Cause Borrowers to hold all of their returned
Inventory in trust for Foothill, segregate all such returned Inventory from all
other property of any Borrower or in any Borrower's possession and
conspicuously label said returned Inventory as the property of Foothill;

(f) Without notice to or demand upon any Borrower
or any guarantor, make such payments and do such acts as Foothill considers
necessary or reasonable to protect its security interests in the Collateral.
Borrowers agree to assemble the Personal Property Collateral if Foothill so
requires, and to make the Personal Property

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Collateral available to Foothill as Foothill may designate. Each Borrower
authorizes Foothill to enter the premises where the Personal Property
Collateral is located, to take and maintain possession of the Personal Property
Collateral, or any part of it, and to pay, purchase, contest, or compromise any
encumbrance, charge, or Lien that in Foothill's determination appears to
conflict with its security interests and to pay all expenses incurred in
connection therewith. With respect to any of Borrowers' owned or leased
premises, each Borrower hereby grants Foothill a license to enter into
possession of such premises and to occupy the same, without charge, for up to
120 days in order to exercise any of Foothill's rights or remedies provided
herein, at law, in equity, or otherwise;

(g) Without notice to any Borrower (such notice
being expressly waived), and without constituting a retention of any collateral
in satisfaction of an obligation (within the meaning of Section 9505 of the
Code), set off and apply to the Obligations any and all (i) balances and
deposits of any Borrower held by Foothill (including any amounts received in
the Lockbox Accounts), or (ii) indebtedness at any time owing to or for the
credit or the account of any Borrower held by Foothill;

(h) Hold, as cash collateral, any and all
balances and deposits of any Borrower held by Foothill, and any amounts
received in the Lockbox Accounts, to secure the full and final repayment of all
of the Obligations;

(i) Ship, reclaim, recover, store, finish,
maintain, repair, prepare for sale, advertise for sale, and sell (in the manner
provided for herein) the Personal Property Collateral. Foothill is hereby
granted a license or other right to use, without charge, any Borrower's labels,
patents, copyrights, rights of use of any name, trade secrets, trade names,
trademarks, service marks, and advertising matter, or any property of a similar
nature, as it pertains to the Personal Property Collateral, in completing
production of, advertising for sale, and selling any Personal Property
Collateral and each Borrower's rights under all licenses and all franchise
agreements shall inure to Foothill's benefit;

(j) Sell the Personal Property Collateral at
either a public or private sale, or both, by way of one or more contracts or
transactions, for cash or on terms, in such manner and at such places
(including any Borrower's premises) as Foothill determines is commercially
reasonable. It is not necessary that the Personal Property Collateral be
present at any such sale;

(k) Foothill shall give notice of the disposition
of the Personal Property Collateral as follows:

(1) Foothill shall give Borrowers and
each holder of a security interest in the Personal Property Collateral who has
filed with Foothill a written

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<PAGE> 60
request for notice, a notice in writing of the time and place of public sale,
or, if the sale is a private sale or some other disposition other than a public
sale is to be made of the Personal Property Collateral, then the time on or
after which the private sale or other disposition is to be made;

(2) The notice shall be personally
delivered or mailed, postage prepaid, to Borrowers as provided in Section 12,
at least 5 days before the date fixed for the sale, or at least 5 days before
the date on or after which the private sale or other disposition is to be made;
no notice needs to be given prior to the disposition of any portion of the
Personal Property Collateral that is perishable or threatens to decline
speedily in value or that is of a type customarily sold on a recognized market.
Notice to Persons other than Borrowers claiming an interest in the Personal
Property Collateral shall be sent to such addresses as they have furnished to
Foothill;

(3) If the sale is to be a public sale,
Foothill also shall give notice of the time and place by publishing a notice
one time at least 5 days before the date of the sale in a newspaper of general
circulation in the county in which the sale is to be held;

(l) Foothill may credit bid and purchase at any
public sale; and

(m) Any deficiency that exists after disposition
of the Personal Property Collateral as provided above will be paid immediately
by Borrowers. Any excess will be returned, without interest and subject to the
rights of third Persons, by Foothill to Borrowers.

9.2 REMEDIES CUMULATIVE. Foothill's rights and remedies
under this Agreement, the Loan Documents, and all other agreements shall be
cumulative. Foothill shall have all other rights and remedies not inconsistent
herewith as provided under the Code, by law, or in equity. No exercise by
Foothill of one right or remedy shall be deemed an election, and no waiver by
Foothill of any Event of Default shall be deemed a continuing waiver. No delay
by Foothill shall constitute a waiver, election, or acquiescence by it.

10. TAXES AND EXPENSES.

If any Borrower fails to pay any monies (whether taxes,
assessments, insurance premiums, or, in the case of leased properties or
assets, rents or other amounts payable under such leases) due to third Persons,
or fails to make any deposits or furnish any required proof of payment or
deposit, all as required under the terms of this Agreement, then, to the extent
that Foothill determines that such failure by such Borrower could result in a
Material Adverse Change, in its discretion and without prior notice to

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Borrowers, Foothill may do any or all of the following: (a) make payment of
the same or any part thereof unless such payment obligations are subject of a
Permitted Protest; (b) set up such reserves in Borrowers' Loan Account as
Foothill deems necessary to protect Foothill from the exposure created by such
failure; or (c) obtain and maintain insurance policies of the type described in
Section 6.10, and take any action with respect to such policies as Foothill
deems prudent. Any such amounts paid by Foothill shall constitute Foothill
Expenses. Any such payments made by Foothill shall not constitute an agreement
by Foothill to make similar payments in the future or a waiver by Foothill of
any Event of Default under this Agreement. Foothill need not inquire as to, or
contest the validity of, any such expense, tax, or Lien and the receipt of the
usual official notice for the payment thereof shall be conclusive evidence that
the same was validly due and owing.

11. WAIVERS; INDEMNIFICATION.

11.1 DEMAND; PROTEST; ETC. Each Borrower waives demand,
protest, notice of protest, notice of default or dishonor, notice of payment
and nonpayment, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Foothill on which such Borrower may in any way
be liable.

11.2 FOOTHILL'S LIABILITY FOR COLLATERAL. So long as
Foothill complies with its obligations, if any, under Section 9207 of the Code,
Foothill shall not in any way or manner be liable or responsible for: (a) the
safekeeping of the Collateral; (b) any loss or damage thereto occurring or
arising in any manner or fashion from any cause; (c) any diminution in the
value thereof; or (d) any act or default of any carrier, warehouseman, bailee,
forwarding agency, or other Person. All risk of loss, damage, or destruction
of the Collateral shall be borne by Borrowers.

11.3 INDEMNIFICATION. Borrowers shall pay, indemnify,
defend, and hold Foothill, each Participant, and each of their respective
officers, directors, employees, counsel, agents, and attorneys-in-fact (each,
an "Indemnified Person") harmless (to the fullest extent permitted by law) from
and against any and all claims, demands, suits, actions, investigations,
proceedings, and damages, and all reasonable attorneys fees and disbursements
and other costs and expenses actually incurred in connection therewith (as and
when they are incurred and irrespective of whether suit is brought), at any
time asserted against, imposed upon, or incurred by any of them in connection
with or as a result of or related to the execution, delivery, enforcement,
performance, and administration (including any of the foregoing arising out of
the administration of the credit facilities hereunder on a joint borrowing
basis) of this Agreement and any other Loan Documents or the transactions
contemplated herein, and with respect to any investigation, litigation, or
proceeding related to this Agreement, any other Loan

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<PAGE> 62
Document, or the use of the proceeds of the credit provided hereunder
(irrespective of whether any Indemnified Person is a party thereto), or any
act, omission, event or circumstance in any manner related thereto (all the
foregoing, collectively, the "Indemnified Liabilities"). Borrowers shall have
no obligation to any Indemnified Person under this Section 11.3 with respect to
any Indemnified Liability that a court of competent jurisdiction finally
determines to have resulted from the gross negligence or willful misconduct of
such Indemnified Person. This provision shall survive the termination of this
Agreement and the repayment of the Obligations.

11.4 JOINT BORROWERS.

(a) Each Borrower agrees that it is jointly and
severally, directly and primarily liable to Foothill for payment in full of all
Obligations, whether for principal, interest or otherwise and that such
liability is independent of the duties, obligations, and liabilities of the
other Borrowers. Foothill may bring a separate action or actions on each, any,
or all of the Obligations against any Borrower, whether action is brought
against the other Borrowers or whether the other Borrowers are joined in such
action. In the event that any Borrower fails to make any payment of any
Obligations on or before the due date thereof, the other Borrowers immediately
shall cause such payment to be made or each of such Obligations to be
performed, kept, observed, or fulfilled.

(b) The Loan Documents are a primary and original
obligation of each Borrower, are not the creation of a surety relationship, and
are an absolute, unconditional, and continuing promise of payment and
performance which shall remain in full force and effect without respect to
future changes in conditions, including any change of law or any invalidity or
irregularity with respect to the Loan Documents. Each Borrower agrees that its
liability under the Loan Documents shall be immediate and shall not be
contingent upon the exercise or enforcement by Foothill of whatever remedies it
may have against the other Borrowers, or the enforcement of any lien or
realization upon any security Foothill may at any time possess. Each Borrower
consents and agrees that Foothill shall be under no obligation (under Section
2899 or 3433 of the California Civil Code or otherwise) to marshal any assets
of any Borrower against or in payment of any or all of the Obligations.

(c) Each Borrower acknowledges that it is
presently informed as to the financial condition of the other Borrowers and of
all other circumstances which a diligent inquiry would reveal and which bear
upon the risk of nonpayment of the Obligations. Each Borrower hereby covenants
that it will continue to keep informed as to the financial condition of the
other Borrowers, the status of the other Borrowers and of all circumstances
which bear upon the risk of nonpayment of the Obligations. Absent a written
request from any Borrower to Foothill for information, such Borrower hereby
waives any and all rights it may have to require Foothill to disclose to such
Borrower any

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information which Foothill may now or hereafter acquire concerning the
condition or circumstances of the other Borrowers.

(d) The liability of each Borrower under the Loan
Documents includes Obligations arising under successive transactions
continuing, compromising, extending, increasing, modifying, releasing, or
renewing the Obligations, changing the interest rate, payment terms, or other
terms and conditions thereof, or creating new or additional Obligations after
prior Obligations have been satisfied in whole or in part. To the maximum
extent permitted by law, each Borrower hereby waives any right to revoke its
liability under the Loan Documents as to future indebtedness, and in connection
therewith, each Borrower hereby waives any rights it may have under Section
2815 of the California Civil Code. If such a revocation is effective
notwithstanding the foregoing waiver, each Borrower acknowledges and agrees
that (a) no such revocation shall be effective until written notice thereof has
been received by Foothill, (b) no such revocation shall apply to any
Obligations in existence on such date (including, any subsequent continuation,
extension, or renewal thereof, or change in the interest rate, payment terms,
or other terms and conditions thereof), (c) no such revocation shall apply to
any Obligations made or created after such date to the extent made or created
pursuant to a legally binding commitment of Foothill in existence on the date
of such revocation, (d) no payment by such Borrower or from any other source
prior to the date of such revocation shall reduce the maximum obligation of the
other Borrowers hereunder, and (e) any payment by such Borrower or from any
source other than Borrowers, subsequent to the date of such revocation, shall
first be applied to that portion of the Obligations as to which the revocation
is effective and which are not, therefore, guaranteed hereunder, and to the
extent so applied shall not reduce the maximum obligation of each Borrower
hereunder.

(e) (i) Each Borrower absolutely,
unconditionally, knowingly, and expressly waives:

(1) (A) notice of acceptance hereof; (B)
notice of any loans or other financial accommodations made or extended
under the Loan Documents or the creation or existence of any
Obligations; (C) notice of the amount of the Obligations, subject,
however, to each Borrower's right to make inquiry of Foothill to
ascertain the amount of the Obligations at any reasonable time; (D)
notice of any adverse change in the financial condition of the other
Borrowers or of any other fact that might increase such Borrower's
risk hereunder; (E) notice of presentment for payment, demand,
protest, and notice thereof as to any instruments among the Loan
Documents; and (F) all notices (except if such notice is specifically
required to be given to Borrowers hereunder or under the Loan
Documents) and demands to which such Borrower might otherwise be
entitled.

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(2) its right, under Sections 2845 or
2850 of the California Civil Code, or otherwise, to require Foothill
to institute suit against, or to exhaust any rights and remedies which
Foothill has or may have against, the other Borrowers or any third
party, or against any Collateral provided by the other Borrowers, or
any third party. In this regard, each Borrower agrees that it is
bound to the payment of all Obligations, whether now existing or
hereafter accruing, as fully as if such Obligations were directly
owing to Foothill by such Borrower. Each Borrower further waives any
defense arising by reason of any disability or other defense (other
than the defense that the Obligations shall have been fully and
finally performed and indefeasibly paid) of the other Borrowers or by
reason of the cessation from any cause whatsoever of the liability of
the other Borrowers in respect thereof.

(3) (A) any rights to assert against
Foothill any defense (legal or equitable), set-off, counterclaim, or
claim which such Borrower may now or at any time hereafter have
against the other Borrowers or any other party liable to Foothill; (B)
any defense, set-off, counterclaim, or claim, of any kind or nature,
arising directly or indirectly from the present or future lack of
perfection, sufficiency, validity, or enforceability of the
Obligations or any security therefor; (C) any defense such Borrower
has to performance hereunder, and any right such Borrower has to be
exonerated, provided by Sections 2819, 2822, or 2825 of the California
Civil Code, or otherwise, arising by reason of: the impairment or
suspension of Foothill's rights or remedies against the other
Borrowers; the alteration by Foothill of the Obligations; any
discharge of the other Borrowers' obligations to Foothill by operation
of law as a result of Foothill's intervention or omission; or the
acceptance by Foothill of anything in partial satisfaction of the
Obligations; (D) the benefit of any statute of limitations affecting
such Borrower's liability hereunder or the enforcement thereof, and
any act which shall defer or delay the operation of any statute of
limitations applicable to the Obligations shall similarly operate to
defer or delay the operation of such statute of limitations applicable
to such Borrower's liability hereunder.

(ii) Each Borrower absolutely, unconditionally,
knowingly, and expressly waives any defense arising by reason of or deriving
from (i) any claim or defense based upon an election of remedies by Foothill
including any defense based upon an election of remedies by Foothill under the
provisions of Sections 580a, 580b, 580d, and 726 of the California Code of
Civil Procedure or any similar law of California or any other jurisdiction; or
(ii) any election by Foothill under Bankruptcy Code Section 1111(b) to limit
the amount of, or any collateral securing, its claim against the Borrowers.
Pursuant to California Civil Code Section 2856(b):

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"Each Borrower waives all rights and defenses
arising out of an election of remedies by the creditor, even
though that election of remedies, such as a nonjudicial
foreclosure with respect to security for a guaranteed
obligation, has destroyed such Borrower's rights of
subrogation and reimbursement against the other Borrowers by
the operation of Section 580(d) of the California Code of
Civil Procedure or otherwise.

"Each Borrower waives all rights and defenses
arising out of an election of remedies by the creditor, even
though that election of remedies, such as a nonjudicial
foreclosure with respect to security for a guaranteed
obligation, has destroyed such Borrower's rights of
subrogation and reimbursement against the other Borrowers by
the operation of Section 580(d) of the California Code of
Civil Procedure or otherwise."

"Each Borrower waives all rights and defenses
that Guarantor may have because another Borrower's Obligations
are secured by real property. This means, among other things:

"(1) Foothill may collect from such
Borrower without first foreclosing on any real or
personal property collateral pledged by another
Borrower.

"(2) If Foothill forecloses on any real
property collateral pledged by another Borrower:

(A) The amount of the Obligations
may be reduced only by the price for which that
collateral is sold at the foreclosure sale, even if
the collateral is worth more than the sale price.

(B) Foothill may collect from such
Borrower even if Foothill, by foreclosing on the real
property collateral, has destroyed any right such
Borrower may have to collect from another Borrower.

"This is an unconditional and irrevocable
waiver of any rights and defenses such Borrower may
have because the Obligations are secured by real
property. These rights and defenses include, but are
not limited to, any rights or defenses based upon
Section 580a, 580b, 580d, or 726 of the California
Code of Civil Procedure."

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If any of the Obligations at any time is secured by a mortgage or deed of trust
upon real property, Foothill may elect, in its sole discretion, upon a default
with respect to the Obligations, to foreclose such mortgage or deed of trust
judicially or nonjudicially in any manner permitted by law, before or after
enforcing the Loan Documents, without diminishing or affecting the liability of
any Borrower hereunder except to the extent the Obligations are repaid with the
proceeds of such foreclosure. Each Borrower understands that (a) by virtue of
the operation of California's antideficiency law applicable to nonjudicial
foreclosures, an election by Foothill nonjudicially to foreclose such a
mortgage or deed of trust probably would have the effect of impairing or
destroying rights of subrogation, reimbursement, contribution, or indemnity of
such Borrower against the other Borrowers or other guarantors or sureties, and
(b) absent the waiver given by such Borrower, such an election would prevent
Foothill from enforcing the Loan Documents against such Borrower.
Understanding the foregoing, and understanding that such Borrower is hereby
relinquishing a defense to the enforceability of the Loan Documents, such
Borrower hereby waives any right to assert against Foothill any defense to the
enforcement of the Loan Documents, whether denominated "estoppel" or otherwise,
based on or arising from an election by Foothill nonjudicially to foreclose any
such mortgage or deed of trust. Each Borrower understands that the effect of
the foregoing waiver may be that each Borrower may have liability hereunder for
amounts with respect to which such Borrower may be left without rights of
subrogation, reimbursement, contribution, or indemnity against the other
Borrower or other guarantors or sureties. Each Borrower also agrees that the
"fair market value" provisions of Section 580a of the California Code of Civil
Procedure shall have no applicability with respect to the determination of such
Borrower's liability under the Loan Documents.

(iii) Until such time as all Obligations have been
fully, finally, and indefeasibly paid in full, in cash, each Borrower hereby
absolutely, unconditionally, knowingly, and expressly postpones: (1) any right
of subrogation such Borrower has or may have as against the other Borrowers
with respect to the Obligations; (2) any right to proceed against the other
Borrowers or any other Person, now or hereafter, for contribution, indemnity,
reimbursement, or any other suretyship rights and claims, whether direct or
indirect, liquidated or contingent, whether arising under express or implied
contract or by operation of law, which such Borrower may now have or hereafter
have as against the other Borrowers with respect to the Obligations; and (3)
any right to proceed or seek recourse against or with respect to any property
or asset of the other Borrowers.

(iv) WITHOUT LIMITING THE GENERALITY OF ANY OTHER
WAIVER OR OTHER PROVISION SET FORTH IN THIS SECTION 11.4, EACH BORROWER HEREBY
ABSOLUTELY, KNOWINGLY, UNCONDITIONALLY, AND EXPRESSLY WAIVES AND AGREES NOT TO
ASSERT ANY AND ALL BENEFITS OR DEFENSES ARISING DIRECTLY OR

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INDIRECTLY UNDER ANY ONE OR MORE OF CALIFORNIA CIVIL CODE SECTIONS 2799, 2808,
2809, 2810, 2815, 2819, 2820, 2821, 2822, 2825, 2839, 2845, 2848, 2849, AND
2850, CALIFORNIA CODE OF CIVIL PROCEDURE SECTIONS 580A, 580B, 580C, 580D, AND
726, AND CHAPTER 2 OF TITLE 14 OF THE CALIFORNIA CIVIL CODE.

(f) Each Borrower consents and agrees that,
without notice to or by such Borrower, and without affecting or impairing the
liability of such Borrower hereunder, Foothill may, by action or inaction:

(i) compromise, settle, extend the
duration or the time for the payment
of, or discharge the performance of,
or may refuse to or otherwise not
enforce the Loan Documents, or any
part thereof, with respect to the
other Borrowers;

(ii) release the other Borrowers or grant
other indulgences to the other
Borrowers in respect thereof; or

(iii) release or substitute any guarantor,
if any, of the Obligations, or
enforce, exchange, release, or waive
any security for the Obligations or
any guaranty of the Obligations, or
any portion thereof.

(g) Foothill shall have the right to seek
recourse against each Borrower to the fullest extent provided for herein, and
no election by Foothill to proceed in one form of action or proceeding, or
against any party, or on any obligation, shall constitute a waiver of
Foothill's right to proceed in any other form of action or proceeding or
against other parties unless Foothill has expressly waived such right in
writing. Specifically, but without limiting the generality of the foregoing,
no action or proceeding by Foothill under the Loan Documents shall serve to
diminish the liability of any Borrower thereunder except to the extent that
Foothill finally and unconditionally shall have realized indefeasible payment
by such action or proceeding.

(h) The Obligations shall not be considered
indefeasibly paid for purposes of this Section 11.4 unless and until all
payments to Foothill are no longer subject to any right on the part of any
person, including any Borrower, any Borrower as a debtor in possession, or any
trustee (whether appointed pursuant to 11 U.S.C., or otherwise) of any
Borrower's assets to invalidate or set aside such payments or to seek to recoup
the amount of such payments or any portion thereof, or to declare same to be
fraudulent or preferential. Upon such full and final performance and
indefeasible payment

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of the Obligations, Foothill shall have no obligation whatsoever to transfer or
assign its interest in the Loan Documents to any Borrower. In the event that,
for any reason, any portion of such payments to Foothill is set aside or
restored, whether voluntarily or involuntarily, after the making thereof, then
the obligation intended to be satisfied thereby shall be revived and continued
in full force and effect as if said payment or payments had not been made, and
each Borrower shall be liable for the full amount Foothill is required to repay
plus any and all costs and expenses (including attorneys' fees and attorneys'
fees incurred pursuant to 11 U.S.C.) paid by Foothill in connection therewith.

Borrowers and each of them warrant and agree that each of the
waivers and consents set forth herein are made after consultation with legal
counsel and with full knowledge of their significance and consequences, with
the understanding that events giving rise to any defense or right waived may
diminish, destroy or otherwise adversely affect rights which Borrowers
otherwise may have against other Borrowers, the Lender Group or others, or
against Collateral. If any of the waivers or consents herein are determined to
be contrary to any applicable law or public policy, such waivers and consents
shall be effective to the maximum extent permitted by law.

12. NOTICES.

Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other Loan Document
shall be in writing and (except for financial statements and other
informational documents which may be sent by first-class mail, postage prepaid)
shall be personally delivered or sent by registered or certified mail (postage
prepaid, return receipt requested), overnight courier, or telefacsimile to
Borrower or to Foothill, as the case may be, at its address set forth below:

IF TO BORROWERS: C/O CELEBRITY, INC.
MAILING ADDRESS: P.O. Box 6666
Tyler, Texas 75711
Attn: Robert H. Patterson, Jr.

PHYSICAL DELIVERY
ADDRESS: 4520 Old Troup Highway
Tyler, Texas 75707
Attn: Robert H. Patterson, Jr.
Fax No. 903.509.3631

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WITH COPIES TO: THOMPSON & KNIGHT, P.C.
1700 Pacific Avenue, Suite 3300
Dallas, Texas 75201
Attn: Fred W. Fulton, Esq.
Fax No. 214.969.1751

IF TO FOOTHILL: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn: Business Finance Division Manager
Fax No. 310.478.9788

WITH COPIES TO: BUCHALTER, NEMER, FIELDS &
YOUNGER
601 South Figueroa, Suite 2400
Los Angeles, California 90017
Attn: Robert C. Colton, Esq.
Fax No. 213.896.0400

The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner given
to the other. All notices or demands sent in accordance with this Section 12,
other than notices by Foothill in connection with Sections 9504 or 9505 of the
Code, shall be deemed received on the earlier of the date of actual receipt or
3 days after the deposit thereof in the mail. Each Borrower acknowledges and
agrees that notices sent by Foothill in connection with Sections 9504 or 9505
of the Code shall be deemed sent when deposited in the mail or personally
delivered, or, where permitted by law, transmitted by telefacsimile or other
similar method set forth above.

13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.

THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
(UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN AN ANOTHER LOAN DOCUMENT), THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE
RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING
HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER,
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN
CONNECTION WITH THIS AGREEMENT AND

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THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND
FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA OR, AT
THE SOLE OPTION OF FOOTHILL, IN ANY OTHER COURT IN WHICH FOOTHILL SHALL
INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER
JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH BORROWER AND FOOTHILL WAIVE,
TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT
THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY
PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13. EACH BORROWER AND
FOOTHILL HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY
OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.
EACH BORROWER AND FOOTHILL REPRESENTS THAT THEY HAVE REVIEWED THIS WAIVER AND
EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

14. DESTRUCTION OF BORROWERS' DOCUMENTS.

All documents, schedules, invoices, agings, or other papers
delivered to Foothill may be destroyed or otherwise disposed of by Foothill 4
months after they are delivered to or received by Foothill, unless Borrowers
request, in writing, the return of said documents, schedules, or other papers
and makes arrangements, at Borrowers' expense, for their return.

15. GENERAL PROVISIONS.

15.1 EFFECTIVENESS. This Agreement shall be binding and
deemed effective when executed by Borrowers and Foothill.

15.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind
and inure to the benefit of the respective successors and assigns of each of
the parties; provided, however, that no Borrower may assign this Agreement or
any rights or duties hereunder without Foothill's prior written consent and any
prohibited assignment shall be absolutely void. No consent to an assignment by
Foothill shall release the assigning Borrower from its Obligations. Foothill
may assign this Agreement and its rights and duties hereunder

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and no consent or approval by Borrowers is required in connection with any such
assignment. Foothill reserves the right to sell, assign, transfer, negotiate,
or grant participations in all or any part of, or any interest in Foothill's
rights and benefits hereunder. In connection with any such assignment or
participation, Foothill may disclose all documents and information which
Foothill now or hereafter may have relating to any Borrower or any Borrower's
business. To the extent that Foothill assigns its rights and obligations
hereunder to a third Person, Foothill thereafter shall be released from such
assigned obligations to Borrowers and such assignment shall effect a novation
between Borrowers and such third Person.

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

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

15.5 SEVERABILITY OF PROVISIONS. Each provision of this
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.

15.6 AMENDMENTS IN WRITING. This Agreement can only be
amended by a writing signed by both Foothill and Borrowers.

15.7 COUNTERPARTS; TELEFACSIMILE EXECUTION. This
Agreement may be executed in any number of counterparts and by different
parties on separate counterparts, each of which, when executed and delivered,
shall be deemed to be an original, and all of which, when taken together, shall
constitute but one and the same Agreement. Delivery of an executed counterpart
of this Agreement by telefacsimile shall be equally as effective as delivery of
an original executed counterpart of this Agreement. Any party delivering an
executed counterpart of this Agreement by telefacsimile also shall deliver an
original executed counterpart of this Agreement but the failure to deliver an
original executed counterpart shall not affect the validity, enforceability,
and binding effect of this Agreement.

15.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the
incurrence or payment of the Obligations by any Borrower or any guarantor of
the Obligations or the transfer by either or both of such parties to Foothill
of any property of either or both of

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such parties should for any reason subsequently be declared to be void or
voidable under any state or federal law relating to creditors' rights,
including provisions of the Bankruptcy Code relating to fraudulent conveyances,
preferences, and other voidable or recoverable payments of money or transfers
of property (collectively, a "Voidable Transfer"), and if Foothill is required
to repay or restore, in whole or in part, any such Voidable Transfer, or elects
to do so upon the reasonable advice of its counsel, then, as to any such
Voidable Transfer, or the amount thereof that Foothill is required or elects to
repay or restore, and as to all reasonable costs, expenses, and attorneys fees
of Foothill related thereto, the liability of Borrowers or such guarantor
automatically shall be revived, reinstated, and restored and shall exist as
though such Voidable Transfer had never been made.

15.9 INTEGRATION. This Agreement, together with the other
Loan Documents, reflects the entire understanding of the parties with respect
to the transactions contemplated hereby and shall not be contradicted or
qualified by any other agreement, oral or written, before the date hereof.

IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in Los Angeles, California.

CELEBRITY, INC.,
a Texas corporation