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COAST

                          LOAN AND SECURITY AGREEMENT


BORROWER:           TRANSCEND SERVICES, INC.

ADDRESS:            3353 PEACHTREE ROAD, N.E., SUITE 1000
                    ATLANTA, GEORGIA  30326

DATE:               APRIL 3, 1997


THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between COAST
BUSINESS CREDIT, a division of Southern Pacific Thrift & Loan Association
("Coast"), a California corporation, with offices at 12121 Wilshire Boulevard,
Suite 1111, Los Angeles, California 90025, and the borrower named above (the
"Borrower"), whose chief executive office is located at the above address
("Borrower's Address").  The Schedule to this Agreement (the "Schedule") shall
for all purposes be deemed to be a part of this Agreement, and the same is an
integral part of this Agreement.  (Definitions of certain terms used in this
Agreement are set forth in Section 8 below.)

1.  LOANS.

  1.1  LOANS.  Coast will make loans to Borrower (the "Loans"), in amounts
determined by Coast in its good faith discretion, up to the amounts (the "Credit
Limit") shown on the Schedule, provided no Default or Event of Default has
occurred and is continuing.

  1.2  INTEREST.  All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement.  Interest shall be payable monthly, on the last
day of the month.  Interest may, in Coast's discretion, be charged to Borrower's
loan account, and the same shall thereafter bear interest at the same rate as
the other Loans.  Regardless of the amount of Obligations that may be
outstanding from time to time, Borrower shall pay Coast minimum monthly interest
during the term of this Agreement with respect to the Loans in the amount set
forth on the Schedule (the "Minimum Monthly Interest").

  1.3  FEES.  Borrower shall pay Coast the fee(s) shown on the Schedule, which
are in addition to all interest and other sums payable to Coast and are not
refundable.

  1.4  [INTENTIONALLY OMITTED]

2.  SECURITY INTEREST.

  2.1  SECURITY INTEREST.  To secure the payment and performance of all of the
Obligations when due, Borrower hereby grants to Coast a security interest in all
of Borrower's interest in the following, whether now owned or hereafter
acquired, and wherever located:  All Receivables, Inventory, Equipment, and
General Intangibles, including, without limitation, all of Borrower's Deposit
Accounts, and all money, and all property now or at any time in the future in
Coast's possession (including claims and credit balances), and all proceeds of
any of the foregoing (including proceeds of any insurance policies, proceeds of
proceeds, and claims against third parties), all products of any of the
foregoing, and all books and records 


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related to any of the foregoing (all of the foregoing, together with all other
property in which Coast may now or in the future be granted a lien or security
interest, is referred to herein, collectively, as the "Collateral").

3.  REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.  In order to
induce Coast to enter into this Agreement and to make Loans, Borrower represents
and warrants to Coast as follows, and Borrower covenants that the following
representations will continue to be true, and that Borrower will at all times
comply with all of the following covenants:

  3.1  CORPORATE EXISTENCE AND AUTHORITY.  Borrower, if a corporation, is and
will continue to be, duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation.  Borrower is and will
continue to be qualified and licensed to do business in all jurisdictions in
which any failure to do so would have a material adverse effect on Borrower.
The execution, delivery and performance by Borrower of this Agreement, and all
other documents contemplated hereby (i) have been duly and validly authorized,
(ii) are enforceable against Borrower in accordance with their terms (except as
enforcement may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to creditors'
rights generally), and (iii) do not violate Borrower's articles or certificate
of incorporation, or Borrower's by-laws, or any law or any material agreement or
instrument which is binding upon Borrower or its property, and (iv) do not
constitute grounds for acceleration of any material indebtedness or obligation
under any material agreement or instrument which is binding upon Borrower or its
property.

  3.2  NAME; TRADE NAMES AND STYLES.  The name of Borrower set forth in the
heading to this Agreement is its correct name.  Listed on the Schedule are all
prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give Coast 30 days' prior written notice before changing its name
or doing business under any other name.  Borrower has complied, and will in the
future comply, with all laws relating to the conduct of business under a
fictitious business name.

  3.3  PLACE OF BUSINESS; LOCATION OF COLLATERAL.  The address set forth in the
heading to this Agreement is Borrower's chief executive office.  In addition,
Borrower has places of business and Collateral is located only at the locations
set forth on the Schedule.  Borrower will give Coast at least 30 days prior
written notice before opening any additional place of business, changing its
chief executive office, or moving any of the Collateral to a location other than
Borrower's Address or one of thelocations set forth on the Schedule.

  3.4  TITLE TO COLLATERAL; PERMITTED LIENS.  Borrower is now, and will at all
times in the future be, the sole owner of all the Collateral, except for items
of Equipment which are leased by Borrower.  The Collateral now is and will
remain free and clear of any and all liens, charges, security interests,
encumbrances and adverse claims, except for Permitted Liens.  Coast now has, and
will continue to have, a first-priority perfected and enforceable security
interest in all of the Collateral, subject only to the Permitted Liens, and
Borrower will at all times defend Coast and the Collateral against all claims of
others.  None of the Collateral now is or will be affixed to any real property
in such a manner, or with such intent, as to become a fixture.  Borrower is not
and will not become a lessee under any real property lease pursuant to which the
lessor may obtain any rights in any of the Collateral and no such lease now
prohibits, restrains, impairs or will prohibit, restrain or impair Borrower's
right to remove any Collateral from the leased premises.  Whenever any
Collateral is located upon premises in which any third party has an interest
(whether as owner, mortgagee, beneficiary under a deed of trust, lien or
otherwise), Borrower shall, whenever requested by Coast, use its best efforts to
cause such third party to execute and deliver to Coast, in form acceptable to
Coast, such waivers and subordinations as Coast shall specify, so as to ensure
that Coast's rights in the Collateral are, and will continue to be, superior to
the rights of any such third party.  Borrower will keep in full force and
effect, and will comply with all the terms of, any lease of real property where
any of the Collateral now or in the future may be located.

  3.5  MAINTENANCE OF COLLATERAL.  Borrower will maintain the Collateral in good
working condition, and Borrower will not use the Collateral for any unlawful
purpose. Borrower will immediately advise Coast in writing of any material loss
or damage to the Collateral.

  3.6  BOOKS AND RECORDS.  Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with generally accepted accounting principles.

  3.7  FINANCIAL CONDITION, STATEMENTS AND REPORTS.  All financial statements
now or in the future delivered to Coast have been, and will be, prepared in
conformity with generally accepted accounting principles (except, in the case of
unaudited financial statements, for the absence of footnotes and subject to
normal year-end adjustments) and now and in the future will fairly reflect the
financial condition of Borrower on a consolidated basis, at the times and for
the periods therein stated.  Between the last date


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covered by any such statement provided to Coast and the date hereof, there has
been no material adverse change in the financial condition or business of
Borrower. Borrower is now and will continue to be solvent.

  3.8  TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has timely
filed, and will timely file, all tax returns and reports required by foreign,
federal, state and local law, and Borrower has timely paid, and will timely pay,
all foreign, federal, state and local taxes, assessments, deposits and
contributions now or in the future owed by Borrower.  Borrower may, however,
defer payment of any contested taxes, provided that Borrower (i) in good faith
contests Borrower's obligation to pay the taxes by appropriate proceedings
promptly and diligently instituted and conducted, (ii) notifies Coast in writing
of the commencement of, and any material development in, the proceedings, and
(iii) posts bonds or takes any other steps required to keep the contested taxes
from becoming a lien upon any of the Collateral.  As of the date hereof,
Borrower is unaware of any claims or adjustments proposed for any of Borrower's
prior tax years which could result in additional taxes becoming due and payable
by Borrower.  Borrower has paid, and shall continue to pay all amounts necessary
to fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not and will not withdraw
from participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could result
in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or its successors or any other governmental agency.
Borrower shall, at all times, utilize the services of an outside payroll service
providing for the automatic deposit of all payroll taxes payable by Borrower.

  3.9  COMPLIANCE WITH LAW.  Borrower has complied, and will comply, in all
material respects, with all provisions of all material foreign, federal, state
and local laws and regulations relating to Borrower, including, but not limited
to, those relating to Borrower's ownership of real or personal property, the
conduct and licensing of Borrower's business, and environmental matters.

  3.10  LITIGATION.  Except as disclosed in the Schedule, there is no claim,
suit, litigation, proceeding or investigation pending or (to best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or before
any governmental agency (or any basis therefor known to Borrower) which may
result, either separately or in the aggregate, in any material adverse change in
the financial condition or business of Borrower, or in any material impairment
in the ability of Borrower to carry onits business in substantially the same
manner as it is now being conducted.  Borrower will promptly inform Coast in
writing of any claim, proceeding, litigation or investigation in the future
threatened or instituted by or against Borrower involving any single claim of
Fifty Thousand Dollars ($50,000) or more, or involving One Hundred Thousand
Dollars ($100,000) or more in the aggregate.

  3.11  USE OF PROCEEDS.  All proceeds of all Loans shall be used for working
capital purposes only including the refinancing of Borrower's obligations to
Silicon Valley Bank.  Borrower agrees that the proceeds of the Loans shall not
be used to fund either stock or asset acquisitions of other entities, without
the express written consent of Coast.  Borrower is not purchasing or carrying
any "margin stock" (as defined in Regulation G of the Board of Governors of the
Federal Reserve System) and no part of the proceeds of any Loan will be used to
purchase or carry any "margin stock" or to extend credit to others for the
purpose of purchasing or carrying any "margin stock."

4.  RECEIVABLES.

  4.1  REPRESENTATIONS RELATING TO RECEIVABLES.  Borrower represents and
warrants to Coast as follows:  Each Receivable with respect to which Loans are
requested by Borrower shall, on the date each Loan is requested and made,
represent an undisputed bona fide existing unconditional obligation of the
Account Debtor created by the sale, delivery, and acceptance of goods or the
rendition of services in the ordinary course of Borrower's business.

  4.2  REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE.  Borrower
represents and warrants to Coast as follows:  All statements made and all unpaid
balances appearing in all invoices, instruments and other documents evidencing
the Receivables are and shall be true and correct and all such invoices,
instruments and other documents and all of Borrower's books and records are and
shall be genuine and in all respects what they purport to be.  All sales and
other transactions underlying or giving rise to each Receivable shall fully
comply with all applicable laws and governmental rules and regulations. All
signatures and endorsements on all documents, instruments, and agreements
relating to all Receivables are and shall be genuine, and all such documents,
instruments and agreements are and shall be legally enforceable in accordance
with their terms.

  4.3  SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES.  Borrower shall deliver
to Coast transaction reports and loan requests, schedules of Receivables, and
schedules of collections, all on Coast's standard forms; provided, however, that
Borrower's failure to execute and deliver the


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same shall not affect or limit Coast's security interest and other rights in all
of Borrower's Receivables, nor shall Coast's failure to advance or lend against
a specific Receivable affect or limit Coast's security interest and other rights
therein. Loan requests received after 10:30 AM Pacific Time will not be
considered by Coast until the next Business Day. Together with each such
schedule, or later if requested by Coast, Borrower shall furnish Coast with
copies (or, at Coast's request, originals) of all contracts, orders, invoices,
and other similar documents, and all original shipping instructions, delivery
receipts, bills of lading, and other evidence of delivery, for any goods the
sale or disposition of which gave rise to such Receivables, and Borrower
warrants the genuineness of all of the foregoing. Borrower shall also furnish to
Coast an aged accounts receivable trial balance in such form and at such
intervals as Coast shall request. In addition, Borrower shall deliver to Coast
the originals of all instruments, chattel paper, security agreements, guarantees
and other documents and property evidencing or securing any Receivables, upon
receipt thereof and in the same form as received, with all necessary
endorsements, all of which shall be with recourse. Borrower shall also provide
Coast with copies of all credit memos as and when requested by Coast.

  4.4  COLLECTION OF RECEIVABLES.  Borrower shall have the right to collect all
Receivables, unless and until an Event of Default has occurred.  Borrower shall
hold all payments on, and proceeds of, Receivables in trust for Coast, and
Borrower shall deliver all such payments and proceeds to Coast within one
Business Day after receipt by Borrower, in their original form, duly endorsed to
Coast, to be applied to the Obligations in such order as Coast shall determine.
Coast may, in its discretion, require that all proceeds of Collateral be
deposited by Borrower into a lockbox account, or such other "blocked account" as
Coast may specify, pursuant to a blocked account agreement in such form as Coast
may specify.  Coast or its designee may, at any time, notify Account Debtors
that Coast has been granted a security interest in the Receivables.

  4.5.  REMITTANCE OF PROCEEDS.  All proceeds arising from the disposition of
any Collateral shall be delivered to Coast within one Business Day after receipt
by Borrower, in their original form, duly endorsed to Coast, to be applied to
the Obligations in such order as Coast shall determine. Borrower agrees that it
will not commingle proceeds of Collateral with any of Borrower's other funds or
property, but will hold such proceeds separate and apart from such other funds
and property and in an express trust for Coast. Nothing in this Section limits
the restrictions on disposition of Collateral set forth elsewhere in this
Agreement.

  4.6  DISPUTES.  Borrower shall notify Coast promptly of all disputes or claims
relating to Receivables.  Borrower shall not forgive (completely or partially),
compromise or settle any Receivable for less than payment in full, or agree to
do any of the foregoing, except that Borrower may do so, provided that: (i)
Borrower does so in good faith, in a commercially reasonable manner, in the
ordinary course of business, and in arm's length transactions, which are
reported to Coast on the regular reports provided to Coast; (ii) no Default or
Event of Default has occurred and is continuing; and (iii) taking into account
all such discounts settlements and forgiveness, the total outstanding Loans will
not exceed the Credit Limit.  Coast may, at any time after the occurrence of an
Event of Default, settle or adjust disputes or claims directly with Account
Debtors for amounts and upon terms which Coast considers advisable in its
reasonable credit judgment and, in all cases, Coast shall credit Borrower's loan
account with only the net amounts received by Coast in payment of any
Receivables.

  4.7  RETURNS.  Provided no Event of Default has occurred and is continuing, if
any Account Debtor returns any Inventory to Borrower in the ordinary course of
its business, Borrower shall promptly determine the reason for such return and
promptly issue a credit memorandum to the Account Debtor in the appropriate
amount.  In the event any attempted return occurs after the occurrence of any
Event of Default, Borrower shall (i) hold the returned Inventory in trust for
Coast, (ii) segregate all returned Inventory from all of Borrower's other
property, (iii) conspicuously label the returned Inventory as subject to Coast's
security interest, and (iv) immediately notify Coast of the return of any
Inventory, specifying the reason for such return, the location and condition of
the returned Inventory, and on Coast's request deliver such returned Inventory
to Coast.

  4.8  VERIFICATION.  Coast may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Receivables, by means of mail, telephone or otherwise, either in the name of
Borrower or Coast or such other name as Coast may choose.

  4.9  NO LIABILITY.  Coast shall not under any circumstances be responsible or
liable for any shortage or discrepancy in, damage to, or loss or destruction of,
any goods, the sale or other disposition of which gives rise to a Receivable, or
for any error, act, omission, or delay of any kind occurring in the settlement,
failure to settle, collection or failure to collect any Receivable, or for
settling any Receivable in good faith for less than the full amount thereof, nor
shall Coast be deemed to be responsible for any of Borrower's obligations under
any


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contract or agreement giving rise to a Receivable.  Nothing herein shall,
however, relieve Coast from liability for its own gross negligence or willful
misconduct.

5.  ADDITIONAL DUTIES OF THE BORROWER.

  5.1  FINANCIAL AND OTHER COVENANTS; CONDITIONS PRECEDENT.  Borrower shall at
all times comply with the financial and other covenants set forth in this
Agreement. The obligation of Coast to make the initial Loans hereunder is
subject to the fulfillment, to the satisfaction of Coast and its counsel, of
each of the conditions as set forth in the Schedule as of the date of initial
funding of the Receivable Loans hereunder.

  5.2  INSURANCE.  Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Coast, in such form and amounts as Coast may
reasonably require, and Borrower shall provide evidence of such insurance to
Coast, so that Coast is satisfied that such insurance is, at all times, in full
force and effect.  All liability insurance policies of Borrower shall name Coast
as an additional insured, and all property casualty and related insurance
policies of Borrower shall name Coast as a loss payee thereon and Borrower shall
cause a lenders loss payee endorsement to be delivered to Coast in form
reasonably acceptable to Coast.  Upon receipt of the proceeds of any such
insurance, Coast shall apply such proceeds in reduction of the Obligations as
Coast shall determine in its sole discretion, except that, provided no Default
or Event of Default has occurred and is continuing, Coast shall release to
Borrower insurance proceeds with respect to Equipment totaling less than One
Hundred Thousand Dollars ($100,000), which shall be utilized by Borrower for the
replacement of the Equipment with respect to which the insurance proceeds were
paid. Coast may require reasonable assurance that the insurance proceeds so
released will be so used.  If Borrower fails to provide or pay for any
insurance, Coast may, but is not obligated to, obtain the same at Borrower's
expense. Borrower shall promptly deliver to Coast copies of all reports made to
insurance companies.

  5.3  REPORTS.  Borrower, at its expense, shall provide Coast with the written
reports set forth in the Schedule, and such other written reports with respect
to Borrower (including budgets, sales projections, operating plans and other
financial documentation), as Coast shall from time to time reasonably specify.

  5.4  ACCESS TO COLLATERAL, BOOKS AND RECORDS.  At reasonable times, and on one
Business Day's notice, Coast, or its agents, shall have the right to inspect,
audit and copyBorrower's books and records and the Collateral (the "Audits").
Coast shall take reasonable steps to keep confidential all confidential
information obtained in any Audit, but Coast shall have the right to disclose
any such information to its auditors, regulatory agencies, and attorneys, and
pursuant to any subpoena or other legal process.  The Audits shall be at
Borrower's expense and the charge for the Audits shall be Seven Hundred Fifty
Dollars ($750) per person per day (or such higher amount as shall represent
Coast's then current standard charge for the same), plus reasonable out of
pocket expenses. Borrower will not enter into any agreement with any accounting
firm, service bureau or third party to store Borrower's books or records at any
location other than Borrower's Address, without first notifying Coast of the
same and obtaining the written agreement from such accounting firm, service
bureau or other third party to give Coast the same rights with respect to access
to books and records and related rights as Coast has under this Loan Agreement.

  5.5  NEGATIVE COVENANTS.  Borrower shall not, without Coast's prior written
consent, do any of the following:

     (i) merge or consolidate with another corporation or entity, except in a
transaction in which (A) the shareholders of the Borrower hold at least 50% of
the common stock and all other capital stock of the surviving corporation
immediately after such merger or consolidation, and (B) the Borrower is the
surviving corporation;

     (ii) acquire any assets, except (A) in the ordinary course of business, or
(B)  in a transaction or a series of transactions not involving the payment of
an aggregate amount in excess of Fifty Thousand Dollars ($50,000);

     (iii) enter into any other transaction outside the ordinary course of
business;

     (iv) sell or transfer any Collateral, except for the sale of finished
Inventory in the ordinary course of Borrower's business, and except for the sale
of obsolete or unneeded Equipment in the ordinary course of business;

     (v) store any Inventory or other Collateral with any warehouseman or other
third party;

     (vi) sell any Inventory on a sale-or-return, guaranteed sale, consignment,
or other contingent basis;

     (vii) make any loans of any money or other assets, except (A) advances to
customers or suppliers in the ordinary course of business, (B) travel advances,
employee


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relocation loans and other employee loans and advances in the ordinary
course of business, and (C) loans to employees, officers and directors for the
purpose of purchasing equity securities of the Borrower;

     (viii) incur any debts, outside the ordinary course of business, which
would have a material, adverse effect on Borrower or on the prospect of
repayment of the Obligations;

     (ix) guarantee or otherwise become liable with respect to the obligations
of another party or entity;

     (x) pay or declare any dividends on Borrower's stock (except for dividends
payable solely in stock of Borrower);

     (xi) redeem, retire, purchase or otherwise acquire, directly or indirectly,
any of Borrower's stock, except that Borrower may repurchase stock owned by
employees, directors and consultants of Borrower pursuant to terms of
employment, consulting or other stock restriction agreements at such time as any
such employee, director or consultant terminates his or her affiliation with the
Borrower, for an aggregate purchase price not to exceed One Hundred Thousand
Dollars ($100,000) in any fiscal year;

     (xii) make any change in Borrower's capital structure which would have a
material adverse effect on Borrower or on the prospect of repayment of the
Obligations; or

     (xiii) dissolve or elect to dissolve.

Transactions permitted by the foregoing provisions of this Section are only
permitted if no Default or Event of Default would occur as a result of such
transaction.

  5.6  LITIGATION COOPERATION.  Should any third-party suit or proceeding be
instituted by or against Coast with respect to any Collateral or relating to
Borrower, Borrower shall, without expense to Coast, make available Borrower and
its officers, employees and agents and Borrower's books and records, to the
extent that Coast may deem them reasonably necessary in order to prosecute or
defend any such suit or proceeding.

  5.7  INDEMNITY.  Borrower hereby agrees to indemnify Coast and hold Coast
harmless from and against any and all claims, debts, liabilities, demands,
obligations, actions, causes of action, penalties, reasonable costs and expenses
(including reasonable attorneys' fees), of every nature, character and
description, which Coast may sustain orincur based upon or arising out of any of
the Obligations, any actual or alleged failure to collect and pay over any
withholding or other tax relating to Borrower or its employees, any relationship
or agreement between Coast and Borrower, any actual or alleged failure of Coast
to comply with any writ of attachment or other legal process relating to
Borrower or any of its property, or any other matter, cause or thing whatsoever
occurred, done, omitted or suffered to be done by Coast relating to Borrower or
the Obligations (except any such amounts sustained or incurred as the result of
the gross negligence or willful misconduct of Coast).  Notwithstanding any
provision in this Agreement to the contrary, the indemnity agreement set forth
in this Section shall survive any termination of this Agreement and shall for
all purposes continue in full force and effect.

  5.8  FURTHER ASSURANCES.  Borrower agrees, at its expense, on request by
Coast, to execute all documents and take all actions, as Coast, may deem
reasonably necessary or useful in order to perfect and maintain Coast's
perfected security interest in the Collateral, and in order to fully consummate
the transactions contemplated by this Agreement.

6.   TERM.

  6.1  MATURITY DATE.  This Agreement shall continue in effect until the
maturity date set forth on the Schedule (the "Maturity Date"); provided that the
Maturity Date shall automatically be extended, and this Agreement shall
automatically and continuously renew, for successive additional terms of one
year each, unless one party gives written notice to the other, not less than
sixty days prior to the next Maturity Date, that such party elects to terminate
this Agreement effective on the next Maturity Date.

  6.2  EARLY TERMINATION.  This Agreement may be terminated prior to the
Maturity Date as follows:  (i) by Borrower, effective upon ninety (90) days
prior written notice of termination given by Borrower to Coast; or (ii) by Coast
at any time after the occurrence of an Event of Default, without notice,
effective immediately.  If this Agreement is terminated by Borrower or by Coast
under this Section 6.2, Borrower shall pay to Coast a termination fee (the
"Early Termination Fee") in the amount shown on the Schedule.  The Early
Termination Fee shall be due and payable on the effective date of termination
and thereafter shall bear interest at a rate equal to the rate applicable to the
Loans.

  6.3  PAYMENT OF OBLIGATIONS.  On the Maturity Date or on any earlier effective
date of termination, Borrower shall pay and perform in full all Obligations,
whether evidenced


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by installment notes or otherwise, and whether or not all or any part of such
Obligations are otherwise then due and payable. Notwithstanding any termination
of this Agreement, all of Coast's security interests in all of the Collateral
and all of the terms and provisions of this Agreement shall continue in full
force and effect until all Obligations have been paid and performed in full;
provided that, without limiting the fact that Loans are subject to the
discretion of Coast, Coast may, in its sole discretion, refuse to make any
further Loans after termination. No termination shall in any way affect or
impair any right or remedy of Coast, nor shall any such termination relieve
Borrower of any Obligation to Coast, until all of the Obligations have been paid
and performed in full. Upon payment and performance in full of all the
Obligations and termination of this Agreement, Coast shall promptly deliver to
Borrower termination statements, requests for reconveyance and such other
documents as may be required to fully terminate Coast's security interests.

7.  EVENTS OF DEFAULT AND REMEDIES.

  7.1  EVENTS OF DEFAULT.  The  occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and Borrower shall give
Coast immediate written notice thereof: (a) any material warranty,
representation, statement, report or certificate made or delivered to Coast by
Borrower or any of Borrower's officers, employees or agents, now or in the
future, shall be untrue or misleading in a material respect; or (b) Borrower
shall fail to pay when due any Loan or any interest thereon or any other
monetary Obligation; or (c) the total Loans and other Obligations outstanding at
any time shall exceed the Credit Limit; or (d) Borrower shall fail to deliver
the proceeds of Collateral to Coast as provided in Section 4.5 above, or shall
fail to give Coast access to its books and records or Collateral as provided in
Section 5.4 above, or shall breach any negative covenant set forth in Section
5.5 above; or (e) Borrower shall fail to comply with the financial covenants (if
any) set forth in the Schedule or shall fail to perform any other non-monetary
Obligation which by its nature cannot be cured; or (f) Borrower shall fail to
perform any other non-monetary Obligation, which failure is not cured within
fifteen (15) Business Days after the date due, provided that, (i) such failure
                                               -------------                  
is not intentional, (ii) such non-monetary Obligation is capable of being
performed by Borrower in accordance with its terms, and (iii) such non-monetary
Obligation has not been breached more than once by Borrower during the
immediately preceding twelve (12) months; or (g) any levy, assessment,
attachment, seizure, lien or encumbrance (other than a Permitted Lien) is made
on all or any part of the Collateral which is not cured within 10 days after the
occurrence of the same; or (h) any default or event ofdefault occurs under any
obligation secured by a Permitted Lien, which is not cured within any applicable
cure period or waived in writing by the holder of the Permitted Lien; or (i)
Borrower breaches any material contract or obligation, which has or may
reasonably be expected to have a material adverse effect on Borrower's business
or financial condition; or (j) dissolution, termination of existence, insolvency
or business failure of Borrower; or appointment of a receiver, trustee or
custodian, for all or any part of the property of, assignment for the benefit of
creditors by, or the commencement of any proceeding by Borrower under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect; or (k) the commencement of any proceeding against Borrower or
any guarantor of any of the Obligations under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect, which is not cured
by the dismissal thereof within 30 days after the date commenced; or (l)
revocation or termination of, or limitation or denial of liability upon, any
guaranty of the Obligations or any attempt to do any of the foregoing, or
commencement of proceedings by any guarantor of any of the Obligations under any
bankruptcy or insolvency law; or (m) revocation or termination of, or limitation
or denial of liability upon, any pledge of any certificate of deposit,
securities or other property or asset of any kind pledged by any third party to
secure any or all of the Obligations, or any attempt to do any of the foregoing,
or commencement of proceedings by or against any such third party under any
bankruptcy or insolvency law; or (n) Borrower makes any payment on account of
any indebtedness or obligation which has been subordinated to the Obligations,
other than as permitted in the applicable subordination agreement, or if any
Person who has subordinated such indebtedness or obligations terminates or in
any way limits his subordination agreement; or (o) there shall be a change in
the record or beneficial ownership of an aggregate of more than 20% of the
outstanding shares of stock of Borrower, in one or more transactions, compared
to the ownership of outstanding shares of stock of Borrower in effect on the
date hereof, without the prior written consent of Coast; or (p) Borrower shall
generally not pay its debts as they become due, or Borrower shall conceal,
remove or transfer any part of its property, with intent to hinder, delay or
defraud its creditors, or make or suffer any transfer of any of its property
which may be fraudulent under any bankruptcy, fraudulent conveyance or similar
law; or (q) there shall be a material adverse change in Borrower's business or
financial condition; or (r) Coast, acting in good faith and in a commercially
reasonable manner, deems itself insecure because of the occurrence of an event 
prior


                                       7
<PAGE>
 
to the effective date hereof of which Coast had no knowledge on the effective
date or because of the occurrence of an event on or subsequent to the effective
date. Coast in its reasonable discretion may cease making any Loans hereunder
during any of the above cure periods, and thereafter if an Event of Default has
occurred.

  7.2  REMEDIES.  Upon the occurrence, and during the continuance, of any Event
of Default, Coast, at its option, and without notice or demand of any kind (all
of which are hereby expressly waived by Borrower), may do any one or more of the
following: (a) Cease making Loans or otherwise extending credit to Borrower
under this Agreement or any other document or agreement; (b) Accelerate and
declare all or any part of the Obligations to be immediately due, payable, and
performable, notwithstanding any deferred or installment payments allowed by any
instrument evidencing or relating to any Obligation; (c) Take possession of any
or all of the Collateral wherever it may be found, and for that purpose Borrower
hereby authorizes Coast without judicial process to enter onto any of Borrower's
premises without interference to search for, take possession of, keep, store, or
remove any of the Collateral, and remain on the premises or cause a custodian to
remain on the premises in exclusive control thereof, without charge for so long
as Coast deems it reasonably necessary in order to complete the enforcement of
its rights under this Agreement or any other agreement; provided, however, that
should Coast seek to take possession of any of the Collateral by Court process,
Borrower hereby irrevocably waives: (i) any bond and any surety or security
relating thereto required by any statute, court rule or otherwise as an incident
to such possession; (ii) any demand for possession prior to the commencement of
any suit or action to recover possession thereof; and (iii) any requirement that
Coast retain possession of, and not dispose of, any such Collateral until after
trial or final judgment; (d) Require Borrower to assemble any or all of the
Collateral and make it available to Coast at places designated by Coast which
are reasonably convenient to Coast and Borrower, and to remove the Collateral to
such locations as Coast may deem advisable; (e) Complete the processing,
manufacturing or repair of any Collateral prior to a disposition thereof and,
for such purpose and for the purpose of removal, Coast shall have the right to
use Borrower's premises, vehicles, hoists, lifts, cranes, equipment and all
other property without charge; (f) Sell, lease or otherwise dispose of any of
the Collateral, in its condition at the time Coast obtains possession of it or
after further manufacturing, processing or repair, at one or more public and/or
private sales, in lots or in bulk, for cash, exchange or other property, or on
credit, and to adjourn any such sale from time to time without notice other than
oral announcement at the timescheduled for sale.  Coast shall have the right to
conduct such disposition on Borrower's premises without charge, for such time or
times as Coast deems reasonable, or on Coast's premises, or elsewhere and the
Collateral need not be located at the place of disposition.  Coast may directly
or through any affiliated company purchase or lease any Collateral at any such
public disposition, and if permissible under applicable law, at any private
disposition.  Any sale or other disposition of Collateral shall not relieve
Borrower of any liability Borrower may have if any Collateral is defective as to
title or physical condition or otherwise at the time of sale; (g) Demand payment
of, and collect any Receivables and General Intangibles comprising Collateral
and, in connection therewith, Borrower irrevocably authorizes Coast to endorse
or sign Borrower's name on all collections, receipts, instruments and other
documents, to take possession of and open mail addressed to Borrower and remove
therefrom payments made with respect to any item of the Collateral or proceeds
thereof, and, in Coast's sole discretion, to grant extensions of time to pay,
compromise claims and settle Receivables and the like for less than face value;
(h) Offset against any sums in any of Borrower's general, special or other
Deposit Accounts with Coast; and (i) Demand and receive possession of any of
Borrower's federal and state income tax returns and the books and records
utilized in the preparation thereof or referring thereto.  All reasonable
attorneys' fees, expenses, costs, liabilities and obligations incurred by Coast
with respect to the foregoing shall be due from the Borrower to Coast on demand.
Coast may charge the same to Borrower's loan account, and the same shall
thereafter bear interest at the same rate as is applicable to the Loans. Without
limiting any of Coast's rights and remedies, from and after the occurrence of
any Event of Default, the interest rate applicable to the Obligations shall be
increased by an additional three percent per annum.

  7.3  STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS.  Borrower and Coast
agree that a sale or other disposition (collectively, "sale") of any Collateral
which complies with the following standards will conclusively be deemed to be
commercially reasonable: (a) Notice of the sale is given to Borrower at least
seven (7) days prior to the sale, and, in the case of a public sale, notice of
the sale is published at least ten (10) days before the sale in a newspaper of
general circulation in the county where the sale is to be conducted; (b) Notice
of the sale describes the collateral in general, non-specific terms; (c) The
sale is conducted at a place designated by Coast, with or without the Collateral
being present; (d) The sale commences at any time between 8:00 a.m. and 6:00
p.m; (e) Payment of the purchase price in cash or by cashier's check or wire
transfer is required; (f) With respect to any sale of any of the Collateral,
Coast may (but is not


                                       8
<PAGE>
 
obligated to) direct any prospective purchaser to ascertain directly from
Borrower any and all information concerning the same. Coast shall be free to
employ other methods of noticing and selling the Collateral, in its discretion,
if they are commercially reasonable.

  7.4  POWER OF ATTORNEY.  Upon the occurrence, and during the continuance, of
any Event of Default, without limiting Coast's other rights and remedies,
Borrower grants to Coast an irrevocable power of attorney coupled with an
interest, authorizing and permitting Coast (acting through any of its employees,
attorneys or agents) at any time, at its option, but without obligation, with or
without notice to Borrower, and at Borrower's expense, to do any or all of the
following, in Borrower's name or otherwise, but Coast agrees to exercise the
following powers in a commercially reasonable manner:  (a) Execute on behalf of
Borrower any documents that Coast may, in its sole discretion, deem advisable in
order to perfect and maintain Coast's security interest in the Collateral, or in
order to exercise a right of Borrower or Coast, or in order to fully consummate
all the transactions contemplated under this Agreement, and all other present
and future agreements; (b) Execute on behalf of Borrower any document
exercising, transferring or assigning any option to purchase, sell or otherwise
dispose of or to lease (as lessor or lessee) any real or personal property which
is part of Coast's Collateral or in which Coast has an interest; (c) Execute on
behalf of Borrower, any invoices relating to any Receivable, any draft against
any Account Debtor and any notice to any Account Debtor, any proof of claim in
bankruptcy, any Notice of Lien, claim of mechanic's, materialman's or other
lien, or assignment or satisfaction of mechanic's, materialman's or other lien;
(d) Take control in any manner of any cash or non-cash items of payment or
proceeds of Collateral; endorse the name of Borrower upon any instruments, or
documents, evidence of payment or Collateral that may come into Coast's
possession; (e) Endorse all checks and other forms of remittances received by
Coast; (f) Pay, contest or settle any lien, charge, encumbrance, security
interest and adverse claim in or to any of the Collateral, or any judgment based
thereon, or otherwise take any action to terminate or discharge the same; (g)
Grant extensions of time to pay, compromise claims and settle Receivables and
General Intangibles for less than face value and execute all releases and other
documents in connection therewith; (h) Pay any sums required on account of
Borrower's taxes or to secure the release of any liens therefor, or both; (i)
Settle and adjust, and give releases of, any insurance claim that relates to any
of the Collateral and obtain payment therefor; (j) Instruct any third party
having custody or control of any books or records belonging to, or relating to,
Borrower to give Coast the same rights of access andother rights with respect
thereto as Coast has under this Agreement; and (k) Take any action or pay any
sum required of Borrower pursuant to this Agreement and any other present or
future agreements.  Any and all reasonable sums paid and any and all reasonable
costs, expenses, liabilities, obligations and attorneys' fees incurred by Coast
with respect to the foregoing shall be added to and become part of the
Obligations, and shall be payable on demand. Coast may charge the foregoing to
Borrower's loan account and the foregoing shall thereafter bear interest at the
same rate applicable to the Loans.  In no event shall Coast's rights under the
foregoing power of attorney or any of Coast's other rights under this Agreement
be deemed to indicate that Coast is in control of the business, management or
properties of Borrower.

  7.5  APPLICATION OF PROCEEDS.  All proceeds realized as the result of any sale
of the Collateral shall be applied by Coast first to the reasonable costs,
expenses, liabilities, obligations and attorneys' fees incurred by Coast in the
exercise of its rights under this Agreement, second to the interest due upon any
of the Obligations, and third to the principal of the Obligations, in such order
as Coast shall determine in its sole discretion.  Any surplus shall be paid to
Borrower or other persons legally entitled thereto; Borrower shall remain liable
to Coast for any deficiency. If, Coast, in its sole discretion, directly or
indirectly enters into a deferred payment or other credit transaction with any
purchaser at any sale of Collateral, Coast shall have the option, exercisable at
any time, in its sole discretion, of either reducing the Obligations by the
principal amount of purchase price or deferring the reduction of the Obligations
until the actual receipt by Coast of the cash therefor.

  7.6  REMEDIES CUMULATIVE.  In addition to the rights and remedies set forth in
this Agreement, Coast shall have all the other rights and remedies accorded a
secured party under the California Uniform Commercial Code and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between Coast and Borrower, and all of such rights and
remedies are cumulative and none is exclusive.  Exercise or partial exercise by
Coast of one or more of its rights or remedies shall not be deemed an election,
nor bar Coast from subsequent exercise or partial exercise of any other rights
or remedies.  The failure or delay of Coast to exercise any rights or remedies
shall not operate as a waiver thereof, but all rights and remedies shall
continue in full force and effect until all of the Obligations have been fully
paid and performed.

8.  DEFINITIONS.  As used in this agreement, the following terms have the
following meanings:


                                       9
<PAGE>
 
     "Account Debtor" means the obligor on a Receivable.
      --------------                                    

     "Affiliate" means, with respect to any Person, a relative, partner,
      ---------                                                         
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.

     "Business Day" means a day on which Coast is open for business.
      ------------                                                  

     "Code" means the Uniform Commercial Code as adopted and in effect in the
      ----                                                                   
State of California  from time to time.

     "Collateral" has the meaning set forth in Section 2.1 above.
      ----------                                                 

     "Default" means any event which with notice or passage of time or both,
      -------                                                               
would constitute an Event of Default.

     "Deposit Account" has the meaning set forth in Section 9105 of the Code.
      ---------------                                                        

     "Eligible Receivables" means Receivables arising in the ordinary course of
      --------------------                                                     
Borrower's business from the sale of goods or rendition of services, which
Coast, in its good faith business judgment, shall deem eligible for borrowing,
based on such considerations as Coast may from time to time deem appropriate.

     "Equipment" means all of Borrower's present and hereafter acquired
      ---------                                                        
machinery, molds, machine tools, motors, furniture, equipment, furnishings,
fixtures, trade fixtures, motor vehicles, tools, parts, dyes, jigs, goods and
other tangible personal property (other than Inventory) of every kind and
description used in Borrower's operations or owned by Borrower and any interest
in any of the foregoing, and all attachments, accessories, accessions,
replacements, substitutions, additions or improvements to any of the foregoing,
wherever located.

     "Event of Default" means any of the events set forth in Section 7.1 of this
      ----------------                                                          
Agreement.

     "General Intangibles" means all general intangibles of Borrower, whether
      -------------------                                                    
now owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, Deposit Accounts, inventions, designs, drawings, blueprints, patents,
patent applications, trademarks and the goodwill of the business
symbolizedthereby, names, trade names, trade secrets, goodwill, copyrights,
registrations, licenses, franchises, customer lists, security  and other
deposits, rights in all litigation presently or hereafter pending for any cause
or claim (whether in contract, tort or otherwise), and all judgments now or
hereafter arising therefrom, all claims of Borrower against Coast, rights to
purchase or sell real or personal property, rights as a licensor or licensee of
any kind, royalties, telephone numbers, proprietary information, purchase
orders, and all insurance policies and claims (including without limitation life
insurance, key man insurance, credit insurance, liability insurance, property
insurance and other insurance), tax refunds and claims, computer programs,
discs, tapes and tape files, claims under guaranties, security interests or
other security held by or granted to Borrower, all rights to indemnification and
all other intangible property of every kind and nature (other than Receivables).

     "Inventory" means all of Borrower's now owned and hereafter acquired goods,
      ---------                                                                 
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease (including without limitation
all raw materials, work in process, finished goods and goods in transit, and
including without limitation all farm products), and all materials and supplies
of every kind, nature and description which are or might be used or consumed in
Borrower's business or used in connection with the manufacture, packing,
shipping, advertising, selling or finishing of such goods, merchandise or other
personal property, and all warehouse receipts, documents of title and other
documents representing any of the foregoing.

     "Maximum Dollar Amount" has the meaning set forth in Section 1 of the
      ---------------------                                               
Schedule.

     "Obligations" means all present and future Loans, advances, debts,
      -----------                                                      
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Coast, whether evidenced by this Agreement or any note
or other instrument or document, whether arising from an extension of credit,
opening of a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment and any participation by Coast in
Borrower's debts owing to others), absolute or contingent, due or to become due,
including, without limitation, all interest, charges, expenses, fees, attorney's
fees, expert witness fees, audit fees, letter of credit fees, collateral
monitoring fees, closing fees, facility fees, termination fees, minimum interest
charges and any other sums chargeable to Borrower under this Agreement or under
any other present


                                      10
<PAGE>
 
or future instrument or agreement between Borrower and Coast.

     "Permitted Liens" means the following:  (i) purchase money security
      ---------------                                                   
interests in specific items of Equipment; (ii) leases of specific items of
Equipment; (iii) liens for taxes not yet payable; (iv) additional security
interests and liens consented to in writing by Coast, which consent shall not be
unreasonably withheld; (v) security interests being terminated substantially
concurrently with this Agreement; (vi) liens of materialmen, mechanics,
warehousemen, carriers, or other similar liens arising in the ordinary course of
business and securing obligations which are not delinquent; (vii) liens incurred
in connection with the extension, renewal or refinancing of the indebtedness
secured by liens of the type described above in clauses (i) or (ii) above,
provided that any extension, renewal or replacement lien is limited to the
property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase; (viii)
liens in favor of customs and revenue authorities which secure payment of
customs duties in connection with the importation of goods; (ix) purchase money
security interests and liens of lessors under capitalized leases so long as such
security interest or lien secures only the purchase price of the purchased or
leased asset; and (x) those liens set forth on Exhibit "A" attached hereto and
incorporated herein by this reference. Coast will have the right to require, as
a condition to its consent under clause (iv) above, that the holder of the
additional security interest or lien sign an intercreditor agreement on Coast's
then standard form, acknowledge that the security interest is subordinate to the
security interest in favor of Coast, and agree not to take any action to enforce
its subordinate security interest so long as any Obligations remain outstanding,
and that Borrower agree that any uncured default in any obligation secured by
the subordinate security interest shall also constitute an Event of Default
under this Agreement.

     "Person" means any individual, sole proprietorship, partnership, joint
      ------                                                               
venture, trust, unincorporated organization, association, corporation,
government, or any agency or political division thereof, or any other entity.

     "Receivables" means all of Borrower's now owned and hereafter acquired
      -----------                                                          
accounts (whether or not earned by performance), letters of credit, contract
rights, chattel paper, instruments, securities, documents and all other forms of
obligations at any time owing to Borrower, all guaranties and other security
therefor, all merchandise returned to or repossessed by Borrower, and all rights
of stoppage in transit and all other rights or remedies of anunpaid vendor,
lienor or secured party.

     Other Terms.  All accounting terms used in this Agreement, unless otherwise
     -----------                                                                
indicated, shall have the meanings given to such terms in accordance with
generally accepted accounting principles, consistently applied.  All other terms
contained in this Agreement, unless otherwise indicated, shall have the meanings
provided by the Code, to the extent such terms are defined therein.

9.  GENERAL PROVISIONS.

  9.1  INTEREST COMPUTATION.  In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by Coast (including
proceeds of Receivables and payment of the Obligations in full) shall be deemed
applied by Coast on account of the Obligations three Business Days after receipt
by Coast of immediately available funds, and, for purposes of the foregoing, any
such funds received after 10:30 AM Pacific time on any day shall be deemed
received on the next Business Day. Coast shall not, however, be required to
credit Borrower's account for the amount of any item of payment which is
unsatisfactory to Coast in its sole discretion, and Coast may charge Borrower's
loan account for the amount of any item of payment which is returned to Coast
unpaid.

  9.2  APPLICATION OF PAYMENTS.  All payments with respect to the Obligations
may be applied, and in Coast's sole discretion reversed and re-applied, to the
Obligations, in such order and manner as Coast shall determine in its sole
discretion.

  9.3  CHARGES TO ACCOUNTS.  Coast may, in its discretion, require that Borrower
pay monetary Obligations in cash to Coast, or charge them to Borrower's loan
account, in which event they will bear interest at the same rate applicable to
the Loans.  Coast may also, in its discretion, charge any monetary Obligations
to Borrower's Deposit Accounts maintained with Coast.

  9.4  MONTHLY ACCOUNTINGS.  Coast shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Coast), unless Borrower
notifies Coast in writing to the contrary within thirty days after each account
is rendered, describing the nature of any alleged errors or omissions.

  9.5  NOTICES.  All notices to be given under this Agreement shall be in
writing and shall be given either


                                      11
<PAGE>
 
personally or by reputable private delivery service or by regular first-class
mail, or certified mail return receipt requested, addressed to Coast or Borrower
at the addresses shown in the heading to this Agreement, or at any other address
designated in writing by one party to the other party. Notices to Coast shall be
directed to the Commercial Finance Division, to the attention of the Division
Manager or the Division Credit Manager. All notices shall be deemed to have been
given upon delivery in the case of notices personally delivered, or at the
expiration of one Business Day following delivery to the private delivery
service, or two Business Days following the deposit thereof in the United States
mail, with postage prepaid.

  9.6  SEVERABILITY.  Should any provision of this Agreement be held by any
court of competent jurisdiction to be void or unenforceable, such defect shall
not affect the remainder of this Agreement, which shall continue in full force
and effect.

  9.7  INTEGRATION.  This Agreement and such other written agreements, documents
and instruments as may be executed in connection herewith are the final, entire
and complete agreement between Borrower and Coast and supersede all prior and
contemporaneous negotiations and oral representations and agreements, all of
which are merged and integrated in this Agreement.  There are no oral
                                                    -----------------
understandings, representations or agreements between the parties which are not
-------------------------------------------------------------------------------
set forth in this Agreement or in other written agreements signed by the parties
--------------------------------------------------------------------------------
in connection herewith.
-----------------------

  9.8  WAIVERS.  The failure of Coast at any time or times to require Borrower
to strictly comply with any of the provisions of this Agreement or any other
present or future agreement between Borrower and Coast shall not waive or
diminish any right of Coast later to demand and receive strict compliance
therewith.  Any waiver of any default shall not waive or affect any other
default, whether prior or subsequent, and whether or not similar.  None of the
provisions of this Agreement or any other agreement now or in the future
executed by Borrower and delivered to Coast shall be deemed to have been waived
by any act or knowledge of Coast or its agents or employees, but only by a
specific written waiver signed by an authorized officer of Coast and delivered
to Borrower.  Borrower waives demand, protest, notice of protest and notice of
default or dishonor, notice of payment and nonpayment, release, compromise,
settlement, extension or renewal of any commercial paper, instrument, account,
General Intangible, document or guaranty at any time held by Coast on which
Borrower is or may in any way be liable, and notice of any action taken by
Coast, unless expresslyrequired by this Agreement.

  9.9  NO LIABILITY FOR ORDINARY NEGLIGENCE.  Neither Coast, nor any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Coast shall be liable for any claims, demands, losses or
damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower
or any other party through the ordinary negligence of Coast, or any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Coast, but nothing herein shall relieve Coast from
liability for its own gross negligence or willful misconduct.

  9.10  AMENDMENT.  The terms and provisions of this Agreement may not be waived
or amended, except in a writing executed by Borrower and a duly authorized
officer of Coast.

  9.11  TIME OF ESSENCE.  Time is of the essence in the performance by Borrower
of each and every obligation under this Agreement.

  9.12  ATTORNEYS FEES, COSTS AND CHARGES.  Borrower shall reimburse Coast for
all reasonable attorneys' fees and all filing, recording, search, title
insurance, appraisal, audit, and other reasonable costs incurred by Coast,
pursuant to, or in connection with, or relating to this Agreement (whether or
not a lawsuit is filed), including, but not limited to, any reasonable
attorneys' fees and costs Coast incurs in order to do the following: prepare and
negotiate this Agreement and the documents relating to this Agreement; obtain
legal advice in connection with this Agreement or Borrower; enforce, or seek to
enforce, any of its rights; prosecute actions against, or defend actions by,
Account Debtors; commence, intervene in, or defend any action or proceeding;
initiate any complaint to be relieved of the automatic stay in bankruptcy; file
or prosecute any probate claim, bankruptcy claim, third-party claim, or other
claim; examine, audit, copy, and inspect any of the Collateral or any of
Borrower's books and records; protect, obtain possession of, lease, dispose of,
or otherwise enforce Coast's security interest in, the Collateral; and otherwise
represent Coast in any litigation relating to Borrower.  If either Coast or
Borrower files any lawsuit against the other predicated on a breach of this
Agreement, the prevailing party in such action shall be entitled to recover its
reasonable costs and attorneys' fees, including (but not limited to) reasonable
attorneys' fees and costs incurred in the enforcement of, execution upon or
defense of any order, decree, award or judgment. Borrower shall also pay Coast's
standard charges for returned checks and for wire transfers, in effect from time
to time.  All attorneys' fees, costs and charges to which


                                      12
<PAGE>
 
Coast may be entitled pursuant to this Paragraph may be charged by Coast to
Borrower's loan account and shall thereafter bear interest at the same rate as
the Loans.

  9.13  BENEFIT OF AGREEMENT.  The provisions of this Agreement shall be binding
upon and inure to the benefit of the respective successors, assigns, heirs,
beneficiaries and representatives of Borrower and Coast; provided, however, that
Borrower may not assign or transfer any of its rights under this Agreement
without the prior written consent of Coast, and any prohibited assignment shall
be void.  No consent by Coast to any assignment shall release Borrower from its
liability for the Obligations.

  9.14  PUBLICITY.  Coast is hereby authorized, at its expense, to issue
appropriate press releases and to cause a tombstone to be published announcing
the consummation of this transaction and the aggregate amount thereof.

  9.15  JOINT AND SEVERAL LIABILITY.  If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.

  9.16  LIMITATION OF ACTIONS.  Any claim or cause of action by Borrower against
Coast, its directors, officers, employees, agents, accountants or attorneys,
based upon, arising from, or relating to this Loan Agreement, or any other
present or future document or agreement, or any other transaction contemplated
hereby or thereby or relating hereto or thereto, or any other matter, cause or
thing whatsoever, occurred, done, omitted or suffered to be done by Coast, its
directors, officers, employees, agents, accountants or attorneys, shall be
barred unless asserted by Borrower by the commencement of an action or
proceeding in a court of competent jurisdiction by the filing of a complaint
within one year after the first act, occurrence or omission upon which such
claim or cause of action, or any part thereof, is based, and the service of a
summons and complaint on an officer of Coast, or on any other person authorized
to accept service on behalf of Coast, within thirty (30) days thereafter.
Borrower agrees that such one-year period is a reasonable and sufficient time
for Borrower to investigate and act upon any such claim or cause of action.  The
one-year period provided herein shall not be waived, tolled, or extended except
by the written consent of Coast in its sole discretion.  This provision shall
survive any termination of this Loan Agreement or any other present or future
agreement.

  9.17  PARAGRAPH HEADINGS; CONSTRUCTION.  Paragraph headings are only used in
this Agreement for convenience. Borrower and Coast acknowledge that the headings
maynot describe completely the subject matter of the applicable paragraph, and
the headings shall not be used in any manner to construe, limit, define or
interpret any term or provision of this Agreement.  The term "including",
whenever used in this Agreement, shall mean "including (but not limited to)".
This Agreement has been fully reviewed and negotiated between the parties and no
uncertainty or ambiguity in any term or provision of this Agreement shall be
construed strictly against Coast or Borrower under any rule of construction or
otherwise.

  9.18  GOVERNING LAW; JURISDICTION; VENUE.  This Agreement and all acts and
transactions hereunder and all rights and obligations of Coast and Borrower
shall be governed by the laws of the State of California.  As a material part of
the consideration to Coast to enter into this Agreement, Borrower (i) agrees
that all actions and proceedings relating directly or indirectly to this
Agreement shall, at Coast's option, be litigated in courts located within
California, and that the exclusive venue therefor shall be Los Angeles County;
(ii) consents to the jurisdiction and venue of any such court and consents to
service of process in any such action or proceeding by personal delivery or any
other method permitted by law; and (iii) waives any and all rights Borrower may
have to object to the jurisdiction of any such court, or to transfer or change
the venue of any such action or proceeding.


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<PAGE>
 
  9.19  MUTUAL WAIVER OF JURY TRIAL.  BORROWER AND COAST EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN COAST AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF COAST OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH COAST OR BORROWER, IN ALL
OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.

BORROWER:
---------

     TRANSCEND SERVICES, INC., A DELAWARE CORPORATION


     BY /s/ DAVID W. MURPHY
        -------------------------------------------
          PRESIDENT OR VICE PRESIDENT

     BY /s/ JENNIFER KIRK
        -------------------------------------------
          SECRETARY OR ASS'T SECRETARY

COAST:
------

     COAST BUSINESS CREDIT, A DIVISION OF 
     SOUTHERN PACIFIC THRIFT & LOAN ASSOCIATION


     BY /s/ ROBERT PETE
       -----------------------------------------
     TITLE PRESIDENT OR VICE PRESIDENT
          --------------------------------------


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