EXHIBIT 10.52
                            LINE OF CREDIT AGREEMENT

         This Line of Credit  Agreement  (the  "Agreement")  is made and entered
into this  ___________________  day of May _______,  1997,  by and between SANWA
BANK CALIFORNIA (the "Bank") and ELEXSYS  INTERNATIONAL,  INC. (the "Borrower"),
on the terms and conditions that follow:

                                    SECTION I
                                   DEFINITIONS

         1.01 Certain Defined Terms: Unless elsewhere defined in this Agreement,
the  following  terms shall have the  following  meanings  (such  meanings to be
generally applicable to the singular and plural forms of the terms defined):

                  "Advance":  shall mean an advance  to the  Borrower  under the
Line of Credit described in Section 2.

                  "Alternate  Currency":  shall mean any lawful  currency  other
than Dollars which is freely transferable and convertible into Dollars.

                  "Business  Day":  shall mean a day other  than a  Saturday  or
Sunday on which commercial banks are open for business in California,  USA, and,
with respect to Eurocurrency  Advances,  on which dealings are carried on in the
London  interbank  market and banks are open for  business  in London and in the
country of issue of the currency of such Advance.

                  "Cash  Flow":  shall mean the sum of net income  after tax and
exclusive of extraordinary  gains,  plus  depreciation and amortization  expense
minus dividends and distributions.

                  "Collateral":  shall mean the  property  described  in Section
3.01.

                  "Cost of Funds Advance",  "Cost of Funds Interest  Period" and
"Fixed Rate": shall have the meanings provided in Section 2.4 hereof.

                  "Debt":  shall  mean  all  liabilities  of the  Borrower  less
Subordinated Debt.

                  "Effective  Tangible  Net  Worth":  shall mean the  Borrower's
stated  net  worth  plus  Subordinated  Debt less all  intangible  assets of the
Borrower (i.e., goodwill, trademarks, patents, copyrights,  organization expense
and similar intangible items).

                  "Dollars"  and the sign "$":  shall mean  lawful  money of the
United States.

                  "ERISA":  shall mean the Employee  Retirement  Income Security
Act of 1974,  as  amended  from  time to time,  including  (unless  the  context
otherwise requires) any rules or regulations promulgated thereunder.

                  "Eurocurrency  Advance",  "Eurocurrency  Interest Period " and
"Eurocurrency Rate": shall have the meanings provided in Section 2.4 hereof.

                  "Event  of  Default":  shall  have the  meaning  set  forth in
Section 7.

                  "Expiration  Date": shall mean January 31, 1998 or the date of
termination of the Bank's  commitment to lend under this  Agreement  pursuant to
Section 8, whichever shall occur first.

                  "Indebtedness":  shall mean, with respect to the Borrower, (i)
all  indebtedness  for  borrowed  money or for the  deferred  purchase  price of
property or services in respect of which the Borrower is liable, contingently or
otherwise,  as  obligor,  guarantor  or  otherwise,  or in  respect of which the
Borrower  otherwise  assures a creditor against loss and (ii) obligations  under
leases which shall have been or should be, in accordance with generally accepted
accounting  principles,  reported  as  capital  leases in  respect  of which the
Borrower  is  liable,  contingently  or  otherwise,  or in  respect of which the
Borrower otherwise assures a creditor against loss.

                  "Line  Account":  shall have the  meaning  provided in Section
2.12 hereof.

                  "Line of Credit":  shall mean the credit facility described in
Section 2.

                                      -1-
<PAGE>

                  "Obligations": shall mean all amounts owing by the Borrower to
the Bank pursuant to this  Agreement  including,  but not limited to, the unpaid
principal amount of Advances.

                  "Permitted  Indebtedness":  shall  mean  (i)  Indebtedness  of
Borrower  in favor of Bank  arising  under  this  Agreement  or any  other  Loan
Document; (ii) Indebtedness existing on the date hereof and disclosed in writing
to the Bank;  (iii)  Subordinated  Debt; (iv)  Indebtedness to trade  creditors,
including, without limitation,  affiliates of Borrower, incurred in the ordinary
course  of  business;   (v)  Other   Indebtedness   of  Borrower  not  exceeding
$1,000,000.00  in  the  aggregate  outstanding  at  any  time;  (vi)  Contingent
obligations of Borrowing  consisting of guarantees (and other credit support) of
the  obligations of vendors and suppliers of Borrower in respect of transactions
entered into in the ordinary course of business; (vii) Indebtedness with respect
to capital  lease  obligations  and  purchase  money  indebtedness  incurred  in
connection  with the  acquisition of assets secured by Permitted  Liens;  (viii)
Extensions, renewals, refundings,  refinancings,  modifications,  amendments and
restatements of any of the items of Permitted Indebtedness.

                  "Permitted Investment": shall mean (i) investments existing on
the date hereof and  disclosed in writing to the Bank;  (ii)  marketable  direct
obligations issued or unconditionally guaranteed by the United States of America
or any agency or any State thereof maturing within one (1) year from the date of
acquisition  thereof;  (iii)commercial  paper maturing no more than one (1) year
from the date of  creation  thereof  and  currently  having the  highest  rating
obtainable  from  either  Standard & Poor's  Corporation  or  Moody's  Investors
Service, Inc.; (iv) investments consisting of deposits maturing no more than one
(1) year from the date of investment  therein  issued by Bank; (v) extensions of
credit in the nature of accounts receivable or notes receivable arising from the
sale or lease of goods or  services in the  ordinary  course of  business;  (vi)
investments  consisting of the endorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of business;  (vii)
investments,  including  debt  obligations,  received  in  connection  with  the
bankruptcy  or  reorganization  of customers or suppliers  and in  settlement of
delinquent  obligations  of, and other  disputes  with,  customers  or suppliers
arising in the ordinary  course of business;  (viii)  investments  consisting of
compensation  of  employees,  officers and  directors of Borrower so long as the
Board of Directors of Borrower  determines that such compensation is in the best
interest of Borrower,  and travel advances,  employee relocation loans and other
employee  loans and  advances in the  ordinary  course of  business;  (ix) other
investments aggregating not in excess of $250,000.00 at any time.

                  "Permitted   Liens":   shall  mean:  (i)  liens  and  security
interests securing indebtedness owed by the Borrower to the Bank; (ii) liens for
taxes,  assessments or similar  charges either not yet due or being contested in
good faith; (iii) liens of materialmen,  mechanics, warehousemen, or carriers or
other like  liens  arising  in the  ordinary  course of  business  and  securing
obligations which are not yet delinquent;  (iv) purchase money liens or purchase
money  security  interests  upon  or in any  property  acquired  or  held by the
Borrower in the ordinary course of business to secure  Indebtedness  outstanding
on the date hereof or permitted to be incurred  under  Section 6.09 hereof;  (v)
liens and security  interests which, as of the date hereof,  have been disclosed
to and approved by the Bank in writing;  (vi) those liens and security interests
which in the  aggregate  constitute  an immaterial  and  insignificant  monetary
amount with respect to the net value of the  Borrower's  assets;  liens securing
capital lease obligations on assets subject to such capital leases;  (vii) liens
arising from judgments, decrees or attachments to the extent and only so long as
such  judgment,  decree or attachment  has not caused or resulted in an Event of
Default,  (viii) easements,  reservations,  rights-of-way,  restrictions,  minor
defects  or  irregularities  in title and other  similar  liens  affecting  real
property not  interfering in any material  respect with the ordinary  conduct of
the business of Borrower, (ix) liens in favor of customs and revenue authorities
arising as a mater of law to secure payment of customs duties in connection with
the importation of goods, (x) liens arising solely by virtue of any statutory or
common law  provision  relating to banker's  liens,  rights of setoff or similar
rights and  remedies as to deposit  accounts or other  funds  maintained  with a
creditor depository institutions; (xi) liens not otherwise permitted which liens
do not in the aggregate exceed $250,000.00 at any time.

                  "Redenominate",  "Redenomination"  and  "Redenominated":  each
refers to redenomination of each Advance from Dollars into an Alternate Currency
or from an  Alternate  Currency  into  Dollars  or  another  Alternate  Currency
pursuant to Section 2.06.

                  "Reference Rate":  shall have the meanings provided in Section
2.4 hereof.

                  "Variable  Rate Advance" and "Variable  Rate":  shall have the
meanings provided in Section 2.4 hereof.

         1.2 Accounting Terms: All references to financial  statements,  assets,
liabilities,  and similar accounting items not specifically defined herein shall
mean  such  financial  statements  or  such  items  prepared  or  determined  in
accordance with generally accepted accounting  principles  consistently  applied
and, except where otherwise specified,  all financial data submitted pursuant to
this Agreement shall be prepared in accordance with such principles.

         1.3 Other  Terms:  Other  terms not  otherwise  defined  shall have the
meanings attributed to such terms in the California Uniform Commercial Code.

                                      -2-
<PAGE>

         1.4 Currency Equivalents Generally:  For all purposes of this Agreement
other than Section 2, the  equivalent in any Alternate  Currency of an amount in
Dollars shall be  determined  at the rate of exchange  quoted by the Bank in Los
Angeles, at 9:00 A.M. on the date of determination, for the spot purchase in the
relevant  foreign  exchange market of such amount of Dollars with such Alternate
Currency.

                                    SECTION 2
                               THE LINE OF CREDIT

         2.1 The Line of Credit:  On terms and  conditions  as set forth herein,
the Bank  agrees to make  Advances  in Dollars or in  Alternate  Currency to the
Borrower from time to time from the date hereof to the Expiration Date, provided
the aggregate  amount of such Advances  outstanding  at any time does not exceed
$5,000,000 or the Dollar  equivalent in Alternate  Currency of $5,000,000 ("Line
of Credit").  Within the foregoing limits, the Borrower may borrow, partially or
wholly prepay, and reborrow under this Section 2.01.

         2.2 Making Line Advances:  Each Advance shall be conclusively deemed to
have been made at the  request of and for the benefit of the  Borrower  (i) when
credited to any deposit account of the Borrower maintained with the Bank or (ii)
when paid in accordance with the Borrower's written instructions. Subject to the
requirements of Section 5, Advances shall be made by the Bank upon telephonic or
facsimile  request  received from the Borrower,  and confirmed in writing within
two Business  Days,  which  request  shall be received not later than 12:00 p.m.
(Pacific  Standard  Time) on the date  specified for a Variable Rate Advance and
7:00 a.m.  (Pacific Standard Time) two business days prior to the date specified
for a Eurocurrency Advance or a Cost of Funds Advance, each of which dates shall
be a  Business  Day.  The rates for a  Eurocurrency  Advance  or a Cost of Funds
Advance  shall be set on the same  Business  Day as the  request is  received if
received by 7:00 a.m. and on the next Business Day if received  after 7:00 a.m..
Requests for Advances  received  after such time may, at the Bank's  option,  be
deemed to be a request for an Advance to be made on the next succeeding Business
Day for a Variable  Rate  Advance and the third  succeeding  Business  Day for a
Eurocurrency Advance or a Cost of Funds Advance.

         2.3 Repayment: On the Expiration Date, the Borrower hereby promises and
agrees to pay to the Bank in full the aggregate  unpaid  principal amount of all
Advances  then  outstanding,  together  with all  accrued  and  unpaid  interest
thereon,  provided,  however,  that any Advance  denominated  in Dollars must be
repaid in Dollars and any Advance  denominated in an Alternate  Currency must be
repaid in the same Alternate Currency.

         2.4 Interest on Advances:  Interest  shall accrue from the date of each
Advance under the Line of Credit at one of the following rates, as quoted by the
Bank and as elected by the Borrower pursuant to paragraph 2.05 or paragraph 2.06
below:

                  (a)  Variable  Rate  Advances:  For  Advances  denominated  in
Dollars,  a  variable  rate per  annum  equivalent  to an index  for a  variable
interest rate which is quoted,  published or announced  from time to time by the
Bank as its  reference  rate and as to which  loans  may be made by the Bank at,
below or above  such  reference  rate  (the  "Reference  Rate")  plus  .50% (the
"Variable Rate"). Interest shall be adjusted concurrently with any change in the
Reference  Rate.  An  Advance  which  bears  interest  at the  Variable  Rate is
hereinafter referred to as a "Variable Rate Advance".

                  (b) Eurocurrency Advances: For Advances denominated in Dollars
or in Alternate  Currency,  a fixed rate quoted by the Bank for one, three, six,
nine or twelve  months or for such other  period of time that the Bank may quote
and offer  (provided  that any such  period of time does not  extend  beyond the
Expiration  Date) [the  "Eurocurrency  Interest  Period"]  for  Advances  in the
minimum amount of $500,000 and in $100,000 increments thereafter.  Such interest
rate shall be a percentage,  rounded upward to the nearest  one-hundredth of one
percent,  equivalent  to 2.50% in excess  of the  Bank's  Eurocurrency  Rate for
Dollars or such Alternate  Currency which is that rate  determined by the Bank's
Treasury  Desk as being the  approximate  rate at which the Bank could  purchase
Dollars or Alternate Currency deposits in an amount  approximately  equal to the
amount of the relevant Advance and for a period of time  approximately  equal to
the relevant Eurocurrency Interest Period (adjusted for any and all assessments,
surcharges  and reserve  requirements  pertaining to the purchase by the Bank of
such Alternate  Currency  deposits [the  "Eurocurrency  Rate"]. An Advance which
bears  interest  at the  Eurocurrency  Rate is  hereinafter  referred  to as the
"Eurocurrency Advance".

                  (c)  Cost of  Funds  Advances.  For  Advances  denominated  in
Dollars, the Bank hereby agrees to make Advances to the Borrower,  at Borrower's
election, at a fixed rate quoted by Bank in its sole discretion for each Advance
(the "Cost of Funds  Rate") and for such  period of time that the Bank may quote
and offer, provided that any such period of time shall be for at least ____ days
and  provided  further  that any such period of time does not extend  beyond the
Expiration  Date (the  "Cost of Funds  Interest  Period")  for  Advances  in the
minimum amount $500,000 and in $100,000  increments  thereafter.  Advances based
upon the  Cost of  Funds  Rate  are  hereinafter  referred  to as "Cost of Funds
Advances".  Eurocurrency  Advances  and Cost of  Funds  Advances  are  sometimes
hereinafter referred to as a "Fixed Rate Advance".

                                      -3-
<PAGE>

                  Interest on Variable Rate Advances and Cost of Funds  Advances
shall be paid in Dollars in monthly installments  commencing on the first day of
the month  following  the date of the first such Advance and  continuing  on the
first day of each month thereafter.

                  Interest on any Eurocurrency Advance shall be paid on the last
day of the Eurocurrency  Interest Period pertaining to such Eurocurrency Advance
and shall be paid in Dollars or in the relevant  Alternate  Currency as the case
may be. The Borrower further promises and agrees to pay the Bank interest on any
Eurocurrency  Advance with an Eurocurrency  Interest Period in excess of 90 days
on a quarterly basis (i.e.,  on the last day of each 90-day period  occurring in
such  Eurocurrency  Interest  Period)  and on  the  last  day  of  the  relevant
Eurocurrency Interest Period.

                  If  interest  is not paid as and  when it is due,  it shall be
added to the  principal,  become  and be treated  as a part  thereof,  and shall
thereafter bear like interest.

         2.5 Notice of Election to Adjust  Interest Rate: The Borrower may elect
that interest on a Fixed Rate Advance shall continue to accrue at a newly quoted
Eurocurrency  Rate or Cost of Funds Rate;  provided,  however,  that such notice
shall be received by the Bank no later than 7:00 a.m. two business days prior to
the last day of the Eurocurrency  Interest Period for a Eurocurrency Advance and
1:00 p.m.  one  business  day prior to the last day of a Cost of Funds  Interest
Period for a Cost of Funds Advance. Such notice may be by telephone if confirmed
in writing by telecopy  with the  original of such  writing  deposited in the US
mail or with an air  courier  on the same  day.  The Bank  shall  not  incur any
liability to the Borrower in acting upon any telephonic notice referred to above
that the Bank  believes  in good faith to have been  given by a duly  authorized
officer or other person authorized to act on behalf of the Borrower and upon any
borrowing,  Redenomination  or  continuation by the Bank in accordance with this
Agreement  pursuant to any telephonic  notice,  the Borrower shall have effected
the  borrowing,  redenomination  or  continuation  of  Advances  hereunder.  The
Borrower  may elect that  interest on a Fixed Rate  Advance  shall accrue at the
Variable Rate; provided, however, that such notice shall be received by the Bank
no later  than one  business  day prior to the last day of the  Interest  Period
pertaining to such Fixed Rate Advance, and provided further,  however, that such
Fixed Rate Advance shall be in Dollars or  Redenominated  in Dollars pursuant to
the terms of  Section  2.06.  If the Bank  shall not have  received  notice  (as
prescribed  herein)  of  Borrower's  election  that  interest  on any Fixed Rate
Advance shall continue to accrue at the newly quoted  Eurocurrency  Rate or Cost
of Funds Rate or Variable Rate as the case may be, the Borrower  shall be deemed
to have  elected  that  interest  thereon  shall be  adjusted  to  accrue at the
Variable Rate then in effect and any Alternate  Currency shall be  Redenominated
in Dollars.

         2.6 Redenomination of Advances:

                  The Borrower  may, upon notice given to the Bank at least four
Business Days prior to the date of the proposed  Redenomination,  request that a
Eurocurrency Advance be Redenominated from Dollars into an Alternate Currency or
from an Alternate Currency into Dollars or another Alternate Currency; provided,
however,  that any Redenomination shall be made on, and only on, the last day of
an  Interest  Period  for such  Advances.  Each  such  notice  of  request  of a
Redenomination ( "Notice of  Redenomination")  shall be by telecopier,  telex or
cable,  confirmed immediately in writing, or may be by telephone if confirmed in
writing by telecopy  with the original of such writing  deposited in the US mail
or with an air  courier  on the same  day,  and the Bank  shall  not  incur  any
liability to the Borrower in acting upon any telephonic notice referred to above
that the Bank  believes  in good faith to have been  given by a duly  authorized
officer or other person authorized to act on behalf of the Borrower and upon any
borrowing,  Redenomination  or  continuation by the Bank in accordance with this
Agreement  pursuant to any telephonic  notice,  the Borrower shall have effected
the borrowing,  redenomination or continuation of Advances hereunder, specifying
(i) the  Eurocurrency  Advance(s)  to be  Redenominated,  (ii)  the  date of the
proposed  Redenomination,  (iii) the Alternate currency into which such Advances
are to be  Redenominated,  and (iv) the duration of the Interest Period for such
Advances upon being so Redenominated.  In the case of a Notice of Redenomination
which requests a  Redenomination  of Advances into an Alternate  Currency,  such
Redenomination  is  subject  to  confirmation  by Bank not later  than the third
Business Day before the  requested  date of such  Redenomination  that such Bank
agrees to such  Redenomination.  which  confirmation  shall be  notified  to the
Borrower. If no confirmation is provided the Redenomination will not occur. Each
Advance so  requested to be  Redenominated  will be  Redenominated,  on the date
specified therefor in such Notice of  Redenomination,  into an equivalent amount
thereof  in the  currency  requested  in such  Notice  of  Redenomination,  such
equivalent amount to be determined on such date in accordance with Section 2.13,
and,  upon  being so  Redenominated,  will have an  initial  Interest  Period as
requested in such Notice of Redenomination.

         2.7  Prepayment:

                  (a) The  Borrower  may prepay any Advance in whole or in part,
at any time and  without  penalty,  provided,  however,  that:  (i) any  partial
prepayment shall first be applied,  at the Bank's option,  to accrued and unpaid
interest  and next to the  outstanding  principal  balance;  and (ii) during any
period of time in which  interest is accruing on any Advance on the basis of the
Eurocurrency  Rate or

                                      -4-
<PAGE>
the Cost of Funds Rate, no prepayment shall be made except on a day which is the
last day of the Interest Period  pertaining  thereto provided,  however,  if the
whole or any part of any Fixed Rate Advance is prepaid by reason of acceleration
or otherwise,  the Borrower shall, upon the Bank's request,  promptly pay to and
indemnify  the Bank for all costs and any loss  actually  incurred  by the Bank,
excluding  loss of profit on any margin,  but including any loss  resulting from
the  re-employment  of funds,  sustained  by the Bank as a  consequence  of such
prepayment,  and provided  further,  that any prepayment  hereunder shall not be
deemed to be an event of default.

                  (b) If, on the last day of any Interest Period, the equivalent
in Dollars of the aggregate  principal amount of all Eurocurrency  Advances then
outstanding  when combined with the aggregate  principal  amount of all Variable
Rate Advances and Cost of Funds  Advances then  outstanding  exceeds the Line of
Credit, the Borrower shall on such last day prepay an aggregate principal amount
of such  Advances to the Bank in an amount at least equal to such  excess,  with
accrued interest to the date of such prepayment on the principal amount prepaid.

         2.8 Indemnification for Eurocurrency Rate and Cost of Funds Rate Costs:
During any period of time in which  interest  on any  Advance is accruing on the
basis of the  Eurocurrency  Rate or the Cost of Funds Rate, the Borrower  shall,
upon the Bank's  written  request,  which  request  shall  explain in reasonable
detail the reason for such costs or payments,  promptly pay to and reimburse the
Bank for all  costs  incurred  and  payments  made by the Bank by  reason of any
future assessment, reserve, deposit or similar requirement or any surcharge, tax
or fee imposed  upon the Bank or as a result of the Bank's  compliance  with any
directive or requirement of any regulatory  authority  pertaining or relating to
the  Alternate  Currency or Dollars or cost of funds used by the Bank in quoting
and  determining  the  Eurocurrency  Rate or the Cost of Funds  Rate  under this
Agreement. Bank shall use its best efforts to provide Borrower, in advance, with
an estimate of any such costs which may potentially be incurred hereunder.

         2.9 Eurocurrency  Rate or Cost of Funds Rate  Infeasible:  In the event
that the Bank shall at any time  determine  that the  accrual of interest on the
basis of the  Eurocurrency  Rate or the Cost of Funds Rate (i) is  infeasible at
the time of any borrowing,  continuation or  Redenomination  because the Bank is
unable  to  determine  the  Eurocurrency  Rate or Cost of Funds  Rate due to the
unavailability  of Dollars or  Alternate  Currency  deposits,  contracts or time
deposits in an amount  approximately equal to the amount of the relevant Advance
and for a period of time approximately equal to relevant Interest Period or (ii)
is or has become unlawful or infeasible by reason of the Bank's  compliance with
any new law, rule, regulation,  guideline or order, or any new interpretation of
any present law, rule, regulation,  guideline or order, then the Bank shall give
telephonic notice thereof (confirmed in writing) to the Borrower, in which event
such Fixed Rate Advance shall be  immediately  prepaid but then may be converted
or Redenominated into a Variable Rate Advance at the election of Borrower.

         2.10  Failure to Borrow:  In the case of any Fixed  Rate  Advance,  the
Borrower shall indemnify Bank against any loss, cost or expense incurred by Bank
as a result of any failure to borrow on the date  specified  for such Fixed Rate
Advance  (other than as a result of Bank's  failure to make funds  available for
such  Advance),  including,  without  limitation,  any loss  (excluding  loss of
anticipated  profits),  cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by Bank to fund such Fixed Rate
Advance  to be made by Bank when such  Fixed  Rate  Advance  is not made on such
date.

         2.11  Computations  and  Payments:  Interest  on any  Advance  shall be
computed on the basis of 360 days per year,  but charged on the actual number of
days elapsed.  Whenever any payment hereunder shall be stated to be due on a day
other than a Business  Day,  such payment  shall be made on the next  succeeding
Business  Day, and such  extension of time shall in such case be included in the
computation of payment of interest;  provided,  however, if such extension would
cause payment of interest on or principal of Eurocurrency Advances to be made in
the next following calendar month, such payment shall be made on the immediately
preceding Business Day.


         2.12  Taxes:

                  (a)  Any  and  all  payments  by the  Borrower  shall  be made
hereunder  free and clear of and  without  deduction  for any and all present or
future taxes,  levies,  imposts,  deductions,  charges or withholdings,  and all
liabilities with respect thereto, excluding, taxes imposed on the Bank's income,
and franchise taxes imposed on it, by the  jurisdiction  under the laws of which
Bank is organized or any political  subdivision  thereof (all such  non-excluded
taxes, levies, imposts, deductions,  charges, withholdings and liabilities being
hereinafter  referred to as  "Taxes").  If Borrower  shall be required by law to
deduct any Taxes from or in respect  of any sum  payable  hereunder  (i) the sum
payable shall be increased as may be necessary so that after making all required
deductions  (including  deductions  applicable to additional  sums payable under
this  Section  2.12) the Bank  receives an amount equal to the sum it would have
received  had 

                                      -5-
<PAGE>
no such deductions been made, (ii) Borrower shall make such deductions and (iii)
Borrower shall pay the full amount deducted to the relevant  taxation  authority
or other  authority in accordance  with  applicable law. Bank shall use its best
efforts  to  advise  Borrower  of any  taxes or  levies  to the  best of  Bank's
knowledge thereof.

                  (b) In addition,  Borrower agrees to pay any present or future
stamp or  documentary  taxes or any other excise or property  taxes,  charges or
similar  levies  which arise from any payment or  registration  of, or otherwise
with respect to, this Agreement (hereinafter referred to as "Other Taxes").

                  (c) Borrower will  indemnify Bank for the full amount of Taxes
or Other Taxes (including,  without limitation, any Taxes or Other Taxes imposed
by any jurisdiction on amounts payable under this Section 2.12) paid by Bank and
any liability (including penalties,  interest and expenses) arising therefrom or
with  respect  thereto,   other  than  liabilities  arising  from  Bank's  gross
negligence or willful misconduct,  whether or not such Taxes or Other Taxes were
correctly or legally asserted. This indemnification shall be made within 30 days
from the date Bank makes written demand therefor.

                  (d) Within 30 days after the date of any payment of Taxes, the
Borrower will furnish to the Bank at its address  referred to  hereinbelow,  the
original or a certified  copy of a receipt  evidencing  payment  thereof.  If no
taxes are payable in respect of any payment hereunder,  Borrower will furnish to
the Bank at such address,  a certificate from each appropriate taxing authority,
or an opinion of counsel  acceptable  to the Bank,  in either case  stating that
such payment is exempt from or not subject to Taxes.

                  (e) To the extent  that any Taxes were not  lawfully  payable,
any recovery  ultimately received by the Bank in respect of any such Taxes shall
be refunded  to the  Borrower  to the extent of the  applicable  indemnification
payment.

                  (f) Bank  agrees  that,  upon  receiving  written  notice from
Borrower, Bank shall take all such actions as are reasonably necessary to enable
the Borrower to pay all Taxes in a timely manner and to claim such exemptions as
the Bank may be  entitled to claim in respect of all or any portion of any Taxes
which are otherwise required to be paid or deducted or withheld pursuant to this
Section 2.12 in respect of any payments under this Agreement.

                  (g) Without  prejudice to the survival of any other  agreement
of the  Borrower  hereunder,  the  agreements  and  obligations  of the Borrower
contained in this  Section  2.12 shall  survive the payment in full of principal
and interest hereunder.

         2.13  Currency  Equivalents:  For  purposes of the  provisions  of this
Section 2, (i) the  equivalent  in Dollars of any  Alternate  Currency  shall be
determined by using the quoted spot rate at which Bank's principal office in Los
Angeles offers to exchange Dollars for such Alternate Currency at 9:00 A.M. (Los
Angeles time) two Business Days prior to the date on which such equivalent is to
be  determined,  (ii) the  equivalent  in any  Alternate  Currency  of any other
Alternate  Currency  shall be  determined by using the quoted spot rate at which
Bank's  principal  office in Los  Angeles  offers  to  exchange  such  Alternate
Currency for the equivalent in Dollars of such other Alternate  Currency at 9:00
A.M.  (Los  Angeles  time) two  Business  Days  prior to the date on which  such
equivalent  is to be  determined,  and (iii)  the  equivalent  in any  Alternate
Currency of Dollars  shall be  determined by using the quoted spot rate at which
Bank's  principal  office in Los  Angeles  offers  to  exchange  such  Alternate
Currency for Dollars at 9:00 A.M.  (Los Angeles time) two Business Days prior to
the date on which such  equivalent is to be  determined.  Except as specified in
Section 1.04 , the equivalent in Dollars of each  Eurocurrency Rate Advance made
in an Alternative Currency shall be recalculated  hereunder on each date that it
shall be necessary to determine  the unused  portion of Bank's Line of Credit or
any or all Advance or Advances outstanding on such date.

         2.14 Line Account:

                  (a) The Bank shall  maintain  on its books a record of account
in which the Bank shall make  entries for each Advance and such other debits and
credits as shall be appropriate in connection with the Line of Credit (the "Line
Account").  The Bank shall provide the Borrower with a monthly  statement of the
Borrower's Line Account upon the Borrower's  request therefor from time to time,
which  statement shall be considered to be correct and  conclusively  binding on
the  Borrower  unless the Borrower  notifies the Bank to the contrary  within 30
days after the  Borrower's  receipt of any such  statement  which it deems to be
incorrect.

                  (b) The Borrower  hereby  authorizes  the Bank,  if and to the
extent  payment  owed to the Bank under the Line of Credit is not made when due,
to  charge,  from time to time,  against  any or all of the  Borrower's  deposit
accounts with the Bank any amount so due.

                  (c)  If any  payment  required  to be  made  by  the  Borrower
hereunder  becomes due and payable on a day other than a Business  Day,  the due
date thereof shall be extended to the next succeeding  Business Day and interest
thereon shall be payayble at the

                                      -6-
<PAGE>

then  applicable rate during such  extension.  All payments  required to be made
hereunder  shall be made to the office of the Bank designated for the receipt of
notices herein or such other office as Bank shall from time to time designate.

         2.15 Late  Payment:  In addition to any other  rights the Bank may have
hereunder,  if any payment of  principal  (other  than a  principal  payment due
pursuant  to Section  2.03) or  interest,  or any  portion  thereof,  under this
Agreement is not paid when due, a late payment charge equal to five percent (5%)
of such past due payment may be assessed and shall be immediately payable.

         2.16 Maximum Outstanding Advances.  Notwithstanding  anything herein to
the contrary,  outstanding  Advances under the Line of Credit when combined with
outstanding  Advances under that certain  Accounts  Receivable  Credit Agreement
dated of even date  herewith and by and between Bank and Borrower may not exceed
$13,000,000.

                                    SECTION 3
                                   COLLATERAL

         3.01 The  Collateral:  To secure  payment  and  performance  of all the
Borrower's  Obligations under this Agreement and all other  liabilities,  loans,
guarantees,  covenants  and duties owed by the Borrower to the Bank,  whether or
not evidenced by this or by any other agreement,  absolute or contingent, due or
to become due, now existing or hereafter  and  howsoever  created,  the Borrower
hereby  grants  the  Bank a  security  interest  in and to all of the  following
property:

                  (a) All goods now owned or hereafter  acquired by the Borrower
         or in which the Borrower now has or may hereafter acquire any interest,
         including,  but not limited to, all  machinery,  equipment,  furniture,
         furnishings, fixtures, tools, supplies and motor vehicles of every kind
         and   description,   and  all  additions,   accessions,   improvements,
         replacements and substitutions thereto and thereof.

                  (b) Bank  agrees  to  release  its  security  interest  in any
         equipment,  fixtures,  leasehold  improvements,  or other  property  if
         within ninety (90) days after Borrower acquires title to such property,
         Borrower  finances  such  property  pursuant  to either  (i) a sale and
         leaseback transaction or (ii) a debt financing transaction in an amount
         not to exceed the purchase price of, and secured by a security interest
         in such property.

                  (c) All  inventory  now  owned or  hereafter  acquired  by the
         Borrower,  including,  but not limited to, all raw  materials,  work in
         process, finished goods, merchandise,  parts and supplies of every kind
         and description,  including inventory temporarily out of the Borrower's
         custody or possession, together with all returns on accounts.

                  (d) All accounts,  contract rights and general intangibles now
         owned or hereafter created or acquired by the Borrower,  including, but
         not limited to, all receivables,  goodwill,  trademarks,  trade styles,
         trade names, patents, patent applications, software, customer lists and
         business records.

                  (e) All documents,  instruments and chattel paper now owned or
         hereafter acquired by the Borrower.

                  (f) All monies, deposit accounts,  certificates of deposit and
         securities  of the  Borrower  now or  hereafter  in the  Bank's  or its
         agents' possession.

         The Bank's  security  interest in the Collateral  shall be a continuing
lien and shall  include the proceeds and products of the  Collateral  including,
but not limited to, the proceeds of any insurance thereon.


                                    SECTION 4
                              CONDITIONS OF LENDING

         4.1 Conditions  Precedent to the Initial Advance: The obligation of the
Bank to make the  initial  Advance  and the first  extension  of credit to or on
account of the Borrower  hereunder is subject to the  conditions  precedent that
the Bank shall have  received  before the date of such initial  Advance and such
first  extension  of  credit  all  of  the  following,  in  form  and  substance
satisfactory to the Bank:

                                      -7-
<PAGE>

                  (a) Evidence that the execution,  delivery and  performance by
the  Borrower  of this  Agreement  and any  document,  instrument  or  agreement
required hereunder have been duly authorized.

                  (b) Such other  evidence as the Bank may request to  establish
the consummation of the transaction  contemplated  hereunder and compliance with
the conditions of this Agreement.

         4.2 Conditions Precedent to All Advances: The obligation of the Bank to
make each  Advance  and each other  extension  of credit to or on account of the
Borrower (including the initial Advance and the first extension of credit) shall
be subject to the further conditions precedent that, on the date of each Advance
or each extension of credit and after the making of such Advance or extension of
credit:

                  (a) The Bank shall have received such supplemental  approvals,
opinions or documents as the Bank may reasonably request.

                  (b) The  representations  contained  in  Section  5 and in any
other  document,  instrument or certificate  delivered to the Bank hereunder are
true, correct and complete.

                  (c) No event has occurred and is continuing which constitutes,
or with the lapse of time or giving of notice or both, would constitute an Event
of Default.

                  (d) The  security  interest  in the  Collateral  has been duly
authorized,  created and perfected with first priority, assuming Bank has timely
filed and taken all actions  necessary  or desirable to perfect and protect such
security, and is in full force and effect.

         The  Borrower's  acceptance  of  the  proceeds  of any  Advance  or the
Borrower's  execution of any document or  instrument  evidencing or creating any
Obligation hereunder shall be deemed to constitute the Borrower's representation
and warranty that all of the above statements are true and correct.

                                    SECTION 5
                         REPRESENTATIONS AND WARRANTIES

The Borrower  hereby makes the following  representations  and warranties to the
Bank, which representations and warranties are continuing:

         5.01 Status:  The Borrower is a corporation  duly organized and validly
existing under the laws of the State of Delaware and is properly licensed and is
qualified  to do business  and in good  standing  in, and,  where  necessary  to
maintain the Borrower's rights and privileges,  has complied with the fictitious
name statute of every  jurisdiction  in which the Borrower is doing business and
where failure to so qualify would have a material adverse effect.

         5.02 Authority: The execution, delivery and performance by the Borrower
of this Agreement and any instrument,  document or agreement  required hereunder
have been duly  authorized and do not and will not: (i) violate any provision of
any  law,  rule,  regulation,   order,  writ,  judgment,   injunction,   decree,
determination  or award presently in effect having  application to the Borrower;
(ii) result in a breach of or constitute a default under any material  indenture
or loan or credit agreement or other material agreement,  lease or instrument to
which the Borrower is a party or by which it or its  properties  may be bound or
affected;  (iii) require any consent or approval of its  stockholders or violate
any provision of its certificate of incorporation.

         5.03 Legal Effect:  This  Agreement  constitutes,  and any  instrument,
document  or  agreement  required   hereunder  when  delivered   hereunder  will
constitute,  legal,  valid and binding  obligations of the Borrower  enforceable
against the Borrower in accordance with their respective terms.

         5.04 Fictitious Trade Styles: There are no fictitious trade styles used
by the Borrower in connection with its business  operations.  The Borrower shall
notify the Bank within 30 days of effecting any change in the matters  described
hereinor  prior to using any other  fictitious  trade style at any future  date,
indicating the trade style and state(s) of its use.

         5.05 Financial Statements:  All financial  statements,  information and
other  data  which may have  been or which may  hereafter  be  submitted  by the
Borrower  to the Bank are true,  accurate  and  correct and have been or will be
prepared  in  accordance   with   generally   accepted   accounting   principles
consistently  applied and  accurately  represent the financial  condition or, as
applicable,  the other  information  disclosed  therein.  Since the most  recent
submission  of such  financial  information  or data to the Bank,  the  Borrower
represents  and

                                      -8-
<PAGE>

warrants that no material adverse change in the Borrower's  financial  condition
or  operations  has occurred  which has not been fully  disclosed to the Bank in
writing.

         5.06 Litigation:  Except as have been disclosed to the Bank in writing,
there are no actions,  suits or proceedings  pending or, to the knowledge of the
Borrower,  threatened  against  or  affecting  the  Borrower  or the  Borrower's
properties  in excess of  $500,000  before  any court or  administrative  agency
which, if determined  adversely to the Borrower,  would have a material  adverse
effect on the Borrower's financial condition or operations or on the Collateral.

         5.07 Title to Assets: The Borrower has good and marketable title to all
of its assets  (including,  but not limited to, the Collateral) and the same are
not subject to any security  interest,  encumbrance,  lien or claim of any third
person except for Permitted Liens.

         5.08 ERISA: If the Borrower has a pension, profit sharing or retirement
plan  subject  to ERISA,  such plan has been and will  continue  to be funded in
accordance  with its terms and  otherwise  complies with and continues to comply
with the requirements of ERISA.

         5.09 Taxes: The Borrower has filed all tax returns required to be filed
and paid all taxes shown thereon to be due,  including  interest and  penalties,
other than such taxes which are currently payable without penalty or interest or
those which are being duly contested in good faith.

         5.10  Environmental  Compliance:   The  Borrower  has  implemented  and
complied in all material respects with all applicable  federal,  state and local
laws,  ordinances,  statutes and regulations  with respect to hazardous or toxic
wastes,  substances or related  materials,  industrial  hygiene or environmental
conditions.  There are no suits, proceedings,  claims or disputes pending or, to
the knowledge of the Borrower,  threatened  against or affecting the Borrower or
its property claiming violations of any federal,  state or local law, ordinance,
statute or  regulation  relating to hazardous  or toxic  wastes,  substances  or
related materials.

                                    SECTION 6
                                    COVENANTS

The Borrower  covenants and agrees that, during the term of this Agreement,  and
so long thereafter as the Borrower is indebted to the Bank under this Agreement,
the Borrower will, unless the Bank shall otherwise consent in writing:

         6.01  Preservation  of  Existence;  Compliance  with  Applicable  Laws:
Maintain and preserve its existence and all rights and  privileges  now enjoyed;
not  liquidate or dissolve,  merge or  consolidate  with or into, or acquire any
other  business   organization;   notwithstanding  the  foregoing  Borrower  may
liquidate or dissolve,  or enter into any  consolidation,  merger,  partnership,
joint venture or other combination,  acquire any other business organization, or
acquire  all  or   substantially   all  of  the  assets  of  any  other   person
(collectively, an "Acquisition"),  so long as Borrower is in compliance with the
covenants  contained in Section 6.14  immediately  after such  Acquisition;  and
conduct its business and  operations in  accordance  with all  applicable  laws,
rules and regulations.

         6.02 Maintenance of Insurance:  Maintain  insurance in such amounts and
covering  such  risks as is  usually  carried  by  companies  engaged in similar
businesses and owning similar  properties in the same general areas in which the
Borrower  operates and maintain  such other  insurance  and  coverages as may be
required by the Bank.  All such  insurance  shall be in form and amount and with
companies   satisfactory  to  the  Bank.  With  respect  to  insurance  covering
properties  in which  the Bank  maintains  a  security  interest  or lien,  such
insurance  shall  name  the  Bank  as  loss  payee  pursuant  to a loss  payable
endorsement satisfactory to the Bank and shall not be altered or canceled except
upon 10 days' prior written  notice to the Bank.  Upon the Bank's  request,  the
Borrower  shall furnish the Bank with the original  policy or binder of all such
insurance.

         6.03  Maintenance  of  Collateral  and  Other  Properties:  Except  for
Permitted Liens,  keep and maintain the Collateral free and clear of all levies,
liens,  encumbrances and security interests (including,  but not limited to, any
lien of attachment, judgment or execution) and defend the Collateral against any
such  levy,  lien,  encumbrance  or  security  interest;  comply  with all laws,
statutes and regulations pertaining to the Collateral and its use and operation;
execute,  file and record such  statements,  notices and  agreements,  take such
actions  and obtain  such  certificates  and other  documents  as  necessary  to
perfect,  evidence and continue the Bank's  security  interest in the Collateral
and  the  priority  thereof;  maintain  accurate  and  complete  records  of the
Collateral which show all sales,  claims and allowances;  and properly care for,
house,  store and maintain the  Collateral  in good  condition,  free of misuse,
abuse and  deterioration,  other than normal wear and tear.  The Borrower  shall
also  maintain  and  preserve  all its  properties  in good  working  order  and
condition in accordance with the general practice of other businesses of similar
character and size, ordinary wear and tear excepted.

         6.04  Payment of  Obligations  and Taxes:  Make  timely  payment of all
assessments and taxes and all of its liabilities and obligations including,  but
not limited to,  trade  payables,  unless the same are being  contested  in good
faith by  appropriate  proceedings  with

                                      -9-
<PAGE>

the appropriate court or regulatory  agency. For purposes hereof, the Borrower's
issuance  of a check,  draft  or  similar  instrument  without  delivery  to the
intended payee shall not constitute payment.

         6.05 Inspection  Rights:  At any reasonable time and from time to time,
permit the Bank or any representative  thereof to examine and make copies of the
records and visit the  properties  of the  Borrower and discuss the business and
operations of the Borrower with any employee or representative  thereof.  If the
Borrower shall  maintain any records  (including,  but not limited to,  computer
generated  records or computer  programs for the  generation of such records) in
the possession of a third party, the Borrower hereby agrees to notify such third
party to permit the Bank free access to such records at all reasonable times and
to provide  the Bank with  copies of any records  which it may  request,  at the
Borrower's expense, limited to $20,000 or at Bank's expense, the amount of which
shall be payable within five (5) days of written notice.  In addition,  the Bank
may,  at any  reasonable  time and from time to time,  conduct  inspections  and
audits of the  Collateral  and the  Borrower's  accounts  payable,  the cost and
expenses of which  shall be paid by the  Borrower to the Bank upon five (5) days
prior written notice.

         6.06 Reporting and Certification  Requirements:  Deliver or cause to be
delivered to the Bank in form and detail satisfactory to the Bank:

                  (a)  Not  later  than  90  days  after  the end of each of the
         Borrower's  fiscal years,  a copy of (i) the annual  audited  financial
         report of the  Borrower  for such year  prepared by a firm of certified
         public  accountants   reasonably  acceptable  to  Bank,  and  (ii)  the
         Borrower's Form 10-K filed with the Securities  Exchange Commission and
         (iii) the Borrower's  consolidating  balance sheet and income statement
         for such year; and, not later than 60 days after the end of each of the
         Borrower's  fiscal years,  a copy of the Borrower's  projected  balance
         sheet and income statement for the fiscal year then in effect.

                  (b)  Not  later  than  45  days  after  the end of each of the
         Borrower's first three fiscal  quarters,  a copy of the Borrower's Form
         10-Q filed with the Securities  Exchange  Commission and the Borrower's
         consolidating balance sheet and income statement

                  (c)  Concurrently  with the delivery of the financial  reports
         required hereunder,  a compliance certificate in substantially the form
         attached hereto as Exhibit "A",  showing the  calculations  which would
         demonstrate  compliance with all of the financial  covenants  contained
         herein.

                  (d) Promptly upon the Bank's request,  such other  information
         pertaining to the Borrower,  the Collateral or any guarantor  hereunder
         as the Bank may reasonably request.

         6.07  Payment of  Dividends:  Not declare or pay any  dividends  on any
class of stock now or hereafter  outstanding except (i) dividends payable solely
in the Borrower's capital stock, or (ii) dividends approved by Bank.

         6.08  Redemption or  Repurchase  of Stock:  Not redeem or repurchase in
excess  of 5% per  year any  class  of the  Borrower's  stock  now or  hereafter
outstanding without prior written Bank approval.

         6.09 Additional Indebtedness: Not, after the date hereof, create, incur
or assume,  directly or indirectly,  any additional  Indebtedness other than (i)
indebtedness  owed or to be owed to the  Bank  or  (ii)  indebtedness  to  trade
creditors  incurred in the ordinary  course of the Borrower's  business or (iii)
Permitted Indebtedness.

         6.10  Loans:  Not make any loans or  advances  or extend  credit to any
third person, including, but not limited to, directors, officers,  shareholders,
partners,  employees,  affiliated  entities and  subsidiaries  of the  Borrower,
except for (i) credit extended in the ordinary course of the Borrower's business
as presently conducted and (ii) Permitted Investments.

         6.11 Liens and Encumbrances:  Not create, assume or permit to exist any
security  interest,  encumbrance,   mortgage,  deed  of  trust,  or  other  lien
(including,  but not limited to, a lien of  attachment,  judgment or  execution)
affecting any of the Borrower's properties,  or execute or allow to be filed any
financing  statement or continuation  thereof  affecting any of such properties,
except for Permitted Liens or as otherwise provided in this Agreement.

         6.12  Transfer  Assets:  Except  for an  amount  not  exceeding  in the
aggregate  $100,000  in any  fiscal  year,  not,  after the date  hereof,  sell,
contract for sale, convey, transfer,  assign, lease or sublet, any of its assets
(including, but not limited to, the Collateral) except in the ordinary course of
business as presently  conducted by the Borrower  and,  then,  only for fair and
reasonable  consideration  and (i) sales of inventory in the ordinary  course of
business,  (ii) transfer of assets in the ordinary  course of business that have
become worn out or obsolete or that are promptly being replaced, (iii) transfers
of  non-exclusive  licenses and similar  arrangements for the use of property of
Borrower  made in the ordinary  course of  business,  and (iv)  transfers  which
constitute liquidation of permitted investments.

                                      -10-
<PAGE>

         6.13 Change in Nature of Business:  Not make any material change in its
financial structure or the nature of its business as existing or conducted as of
the date hereof.

         6.14  Financial Condition:  Maintain at all times:

                  (a) A  minimum  Effective  Tangible  Net  Worth  of  at  least
         $31,000,000  plus  50% of net  profit  after  taxes  at the end of each
         fiscal quarter.

                  (b) A ratio of Debt to  Effective  Tangible  Net  Worth of not
         more than 1.5 to 1.

                  (c) A minimum working capital (defined as current assets minus
         current liabilities) of not less than $5,000,000.

                  (d) A ratio of the sum of cash, cash  equivalents and accounts
         receivable to current liabilities of not less than .65 to 1.0

                  (e) A minimum  net profit  after tax of at least  $1.00 at the
         end of each fiscal quarter for the immediately preceding two (2) fiscal
         quarters.

                  (f):   Maintain  a  ratio  of  consolidated   earnings  before
         interest,  taxes,  depreciation and amortization  expense to the sum of
         (i) interest  expense and (ii) the current portion of long term Debt of
         not less  than  2.00:1.00  at the end of each  fiscal  quarter  for the
         immediately preceding 4 fiscal quarters..

         6.15  Compensation of Employees:  Compensate its employees for services
rendered at an hourly rate at least equal to the minimum hourly rate  prescribed
by any applicable federal or state law or regulation.

         6.16  Capital  Expense:   Not  make  any  fixed  capital   expenditure,
including, but not limited to, incurring liability for leases which would be, in
accordance with generally accepted  accounting  principles,  reported as capital
leases,  or  purchase  any real or  personal  property  in an  aggregate  amount
exceeding   $15,000,000  in  any  one  fiscal  year,  exclusive  of  acquisition
financing,  provided,  however,  that Borrower may make capital  expenditures in
connection  with  acquisitions  in an amount up to  $3,000,000 in any one fiscal
year without the Bank's approval.

         6.17  Notice:  Give the Bank prompt  written  notice of any and all (i)
Events of Default; (ii) litigation, arbitration or administrative proceedings to
which  the  Borrower  is a party and in which  the  claim or  liability  exceeds
$500,000 or which  affects the  Collateral;  and (iii) other  matters which have
resulted in, or might result in a material  adverse  change in the Collateral or
the financial condition or business operations of the Borrower.


         6.18  Environmental Compliance.  The Borrower shall:

                  (a)  Implement  and comply in all material  respects  with all
         applicable  federal,  state and local laws,  ordinances,  statutes  and
         regulations  with respect to hazardous or toxic  wastes,  substances or
         related materials, industrial hygiene or to environmental conditions.

                  (b) Not own, use, generate, manufacture, store, handle, treat,
         release or dispose of any  hazardous  or toxic  wastes,  substances  or
         materials,  except in material  compliance with all applicable federal,
         state and local laws, ordinances, statutes and regulations.

                  (c) Give prompt  written  notice of any  discovery of or suit,
         proceeding,  claim,  dispute,  or filing respecting  hazardous or toxic
         wastes, substances or related materials.

                  (d) At all times  indemnify  and hold  harmless  Bank from and
         against  any  and  all  liability   arising  out  of  Borrower's   use,
         generation,  manufacture,  storage, handling, treatment, or disposal by
         Borrower of hazardous or toxic  wastes,  substances or materials at the
         site.

                                      -11-
<PAGE>

                                    SECTION 7
                                EVENTS OF DEFAULT

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

         7.01 Non-Payment: The Borrower shall fail to pay any Obligations within
10 days of when due.

         7.02 Performance  Under This and Other  Agreements:  The Borrower shall
fail in any  material  respect  to  perform or  observe  any term,  covenant  or
agreement  contained  in  this  Agreement  or in  any  document,  instrument  or
agreement  evidencing or relating to any  indebtedness of the Borrower  (whether
such  indebtedness is owed to the Bank or third  persons),  and any such failure
(exclusive of the payment of money to the Bank under this Agreement or under any
other instrument,  document or agreement,  which failure shall constitute and be
an Event of Default if not paid  within 10 days of when due or when  demanded to
be due) shall  continue for more than 30 days after written notice from the Bank
to the Borrower of the existence and character of such Event of Default.

         7.03  Representations  and  Warranties;   Financial   Statements:   Any
representation or warranty made by the Borrower under or in connection with this
Agreement or any  financial  statement  given by the  Borrower or any  guarantor
shall prove to have been incorrect in any material respect when made or given or
when deemed to have been made or given.

         7.04  Insolvency:  The  Borrower  or any  guarantor  shall:  (i) become
insolvent or be unable to pay its debts as they mature;  (ii) make an assignment
for the  benefit  of  creditors  or to an  agent  authorized  to  liquidate  any
substantial amount of its properties and assets; (iii) file a voluntary petition
in bankruptcy or seeking reorganization or to effect a plan or other arrangement
with  creditors;  (iv) file an answer  admitting the material  allegations of an
involuntary  petition  relating to bankruptcy or  reorganization  or join in any
such  petition;  (v)  become or be  adjudicated  a  bankrupt;  (vi) apply for or
consent to the appointment of, or consent that an order be made,  appointing any
receiver,  custodian or trustee, for itself or any of its properties,  assets or
businesses;  or (vii)  any  receiver,  custodian  or  trustee  shall  have  been
appointed for all or substantial  part of its  properties,  assets or businesses
and shall not be discharged within 60 days after the date of such appointment.

         7.05  Execution:  Any writ of execution or  attachment  or any judgment
lien shall be issued  against  any  property  of the  Borrower  and shall not be
discharged  or bonded  against or released  within 60 days after the issuance or
attachment of such writ or lien.

         7.06 Suspension: The Borrower shall voluntarily suspend the transaction
of business or allow to be suspended, terminated, revoked or expired any permit,
license or approval of any governmental body necessary to conduct the Borrower's
business as now conducted.

         7.07  Change  in  Ownership:   There  shall  occur  a  sale,  transfer,
disposition or encumbrance  (whether voluntary or involuntary),  or an agreement
shall be entered  into to do so, with respect to more than 25% of the issued and
outstanding  capital stock of the  Borrower,  if a  corporation,  or there shall
occur a change in any general  partner or a change  affecting the control of the
Borrower, if a partnership.


                                    SECTION 8
                               REMEDIES ON DEFAULT

Upon the  occurrence  of any Event of  Default,  the Bank  may,  at its sole and
absolute  election,  without demand and only upon such notice as may be required
by law:

         8.1  Acceleration:  Declare any or all of the  Borrower's  indebtedness
owing  to  the  Bank,  whether  under  this  Agreement  or any  other  document,
instrument or agreement,  immediately due and payable,  whether or not otherwise
due and payable.

         8.2  Cease  Extending  Credit:   Cease  making  Advances  or  otherwise
extending  credit to or for the account of the Borrower  under this Agreement or
under any other  agreement  now existing or  hereafter  entered into between the
Borrower and the Bank.

         8.3 Termination:  Terminate this Agreement as to any future  obligation
of the Bank without  affecting  the  Borrower's  obligations  to the Bank or the
Bank's  rights and remedies  under this  Agreement or under any other  document,
instrument or agreement.

         8.04  Protection of Security  Interest:  Make such payments and do such
acts as the Bank, in its sole  judgment,  considers  necessary and reasonable to
protect its security  interest or lien in the  Collateral.  The Borrower  hereby
irrevocably  authorizes  the Bank to pay,  purchase,  contest or compromise  any
encumbrance,  lien or claim which the Bank,  in its sole  judgment,  deems to be
prior or superior 

                                      -12-
<PAGE>

to its security  interest.  Further,  the Borrower  hereby  agrees to pay to the
Bank, upon demand therefor, all reasonable expenses and expenditures  (including
reasonable   attorneys'   fees)  incurred  in  connection  with  the  foregoing.
Notwithstanding  the  foregoing,  Bank  shall be  responsible  for its own gross
negligence or willful misconduct.

         8.05  Foreclosure:  Enforce  any  security  interest  or lien  given or
provided for under this  Agreement or under any  security  agreement,  mortgage,
deed of trust or other document, in such manner and such order, as to all or any
part of the properties  subject to such security  interest or lien, as the Bank,
in its sole  judgment,  deems to be  necessary or  appropriate  and the Borrower
hereby  waives any and all  rights,  obligations  or defenses  now or  hereafter
established by law relating to the foregoing. In the enforcement of its security
interest or lien,  the Bank is authorized  to enter upon the premises  where any
Collateral is located and take possession of the Collateral or any part thereof,
together with the Borrower's records pertaining thereto, or the Bank may require
the Borrower to assemble the Collateral and records  pertaining thereto and make
such Collateral and records  available to the Bank at a place  designated by the
Bank.  The Bank may sell the Collateral or any portions  thereof,  together with
all additions,  accessions and accessories thereto, giving only such notices and
following  only such  procedures  as are  required by law, at either a public or
private sale, or both, with or without having the Collateral present at the time
of the sale,  which sale shall be on such terms and  conditions and conducted in
such  manner as the Bank  determines  in its sole  judgment  to be  commercially
reasonable.  Any deficiency which exists after the disposition or liquidation of
the Collateral  shall be a continuing  liability of the Borrower to the Bank and
shall be paid by the  Borrower  to the Bank  within  five (5)  business  days of
written notice.

         8.6  Non-Exclusivity  of  Remedies:  Exercise one or more of the Bank's
rights set forth herein or seek such other rights or pursue such other  remedies
as may be provided by law, in equity or in any other  agreement  now existing or
hereafter entered into between the Borrower and the Bank, or otherwise.

         8.07  Application  of  Proceeds:  All  amounts  received by the Bank as
proceeds from the disposition or liquidation of the Collateral  shall be applied
to the Borrower's  indebtedness to the Bank as follows:  first, to the costs and
expenses of collection,  enforcement,  protection and preservation of the Bank's
lien in the Collateral,  including court costs and reasonable  attorneys'  fees,
whether or not suit is commenced by the Bank;  next, to those costs and expenses
incurred  by  the  Bank  in  protecting,   preserving,   enforcing,  collecting,
liquidating,  selling or disposing of the  Collateral;  next,  to the payment of
accrued and unpaid interest on all of the  Obligations;  next, to the payment of
the outstanding  principal balance of the Obligations;  and last, to the payment
of  any  other  indebtedness  owed  by the  Borrower  to the  Bank.  Any  excess
Collateral or excess  proceeds  existing after the disposition or liquidation of
the Collateral will be returned or paid by the Bank to the Borrower.

                                    SECTION 9
                                  MISCELLANEOUS

         9.01 Amounts  Payable on Demand:  If the Borrower  shall fail to pay on
demand any amount so payable under this  Agreement,  the Bank may, at its option
and without any obligation to do so and without  waiving any default  occasioned
by the Borrower having so failed to pay such amount, create an Advance under the
Line of Credit in an amount equal to the amount so payable,  which Advance shall
thereafter bear interest as provided under the Line of Credit.

         9.02 Default Interest Rate: The Borrower shall pay the Bank interest on
any indebtedness or amount payable under this Agreement, from the date that such
indebtedness  or amount became due or was demanded to be due until paid in full,
at a rate  which is 3% in  excess  of the rate  otherwise  provided  under  this
Agreement.

         9.03 Disposal of Invoices: All documents,  schedules, invoices or other
papers  received by the Bank from the Borrower may be destroyed or disposed of 6
months after  receipt by the Bank,  unless the Borrower  requests in writing the
return thereof, which shall be done at the Borrower's expense.

         9.04  Dispute  Resolution.  It is  understood  and agreed that upon the
request of any party to this agreement any dispute, claim, or controversy of any
kind,  whether  in  contract  or in tort,  statutory  or  common  law,  legal or
equitable  now existing or  hereinafter  arising  between the parties in any way
arising out of, pertaining to or in connection with: (1) this Agreement,  or any
related agreements,  documents, or instruments,  (2) all past and present loans,
credits,  accounts, deposit accounts (whether demand deposits or time deposits),
safe deposit boxes, safekeeping agreements, guarantees, letters of credit, goods
or services, or other transactions, contracts or agreements of any kind, (3) any
incidents,  omissions,  acts, practices, or occurrences causing injury to either
party whereby the other party or its agents, employees or representatives may be
liable,  in  whole  or in  part,  or (4)  any  aspect  of the  past  or  present
relationships  of the  parties,  shall be  resolved  through a two-step  dispute
resolution process  administered by Judicial  Arbitration & Mediation  Services,
Inc. ("J-A-M-S") as follows:

                                      -13-
<PAGE>

                  (a) Step I -  Mediation:  At the  request  of any party to the
         dispute,  claim or  controversy  of the matter shall be referred to the
         nearest  office  of  J-A-M-S  for  mediation,  that  is,  an  informal,
         non-binding  conference or  conferences  between the parties in which a
         retired  judge or justice for the J-A-M-S  panel will seek to guide the
         parties to a resolution of the case.

                  (b) Step II - Unsecured  Contracts -  Arbitration:  Should any
         dispute,  claim or controversy  remain  unresolved at the conclusion of
         the Step I Mediation  Phase then all such  remaining  matters  shall be
         resolved by final and binding  arbitration  before a different judicial
         panelist,  unless the parties shall agree to have the mediator panelist
         act as  arbitrator.  The  hearing  shall  be  conducted  at a  location
         determined  by  the   arbitrator  in  San  Jose  County  and  shall  be
         administered  by and in  accordance  with  the then  existing  Rules of
         Practice and Procedure of Judicial  Arbitration  & Mediation  Services,
         Inc.,  and judgement  upon any award  rendered by the arbitrator may be
         entered by any State or Federal Court having jurisdiction  thereof. The
         arbitrator  shall  determine  which is the  prevailing  party and shall
         include in the award that party's reasonable  attorneys fees and costs.
         This  subparagraph  (b)  shall  apply  only  if,  at  the  time  of the
         submission of the matter to J-A-M-S,  the dispute(s) or issue(s) do(es)
         not arise out of a transaction(s) which is/are secured by real property
         collateral or, if so secured, all parties consent to such submission.

                  As soon as practicable after selection of the arbitrator,  the
         arbitrator  or his/her  designated  representative  shall  determine  a
         reasonable  estimate of anticipated  fees and costs of the  Arbitrator,
         and  render a  statement  to each  party  setting  forth  that  party's
         pro-rata  share of said fees and costs.  Thereafter  each party  shall,
         within 10 days of receipt of said statement,  deposit said sum with the
         Arbitrator. Failure of any party to make such a deposit shall result in
         a forfeiture by the  non-depositing  party of the right to prosecute or
         defend the claim which is the subject of the arbitration, but shall not
         otherwise serve to abate, stay or suspend the arbitration proceedings.

                  (c)  Step II -  Contracts  Secured  By Real  Estate - Trial by
         Court Reference [ss.638 (1)] Code of Civil Procedure):  If the dispute,
         claim or  controversy  is not one required or agreed to be submitted to
         arbitration as provided by  subparagraph  (b) and has not been resolved
         by Step I mediation,  them any remaining dispute,  claim or controversy
         shall be submitted for  determination  by a trial on Order of Reference
         conducted  by a retired  judge or  justice  from the  panel of  J-A-M-S
         appointed  pursuant  to the  provisions  of  California  Code of  Civil
         Procedure  ss.638(1) or any  amendment,  addition or successor  section
         thereto to hear the case and report a statement  of  decision  thereon.
         The parties intend this general reference  agreement to be specifically
         enforceable in accordance with said section. If this parties are unable
         to agree upon a member of the J-A-M-S  panel to act as referee then one
         shall be appointed  by the  Presiding  Judge of the county  wherein the
         hearing  is to be  held.  The  parties  shall  pay in  advance,  to the
         referee, the estimated  reasonable fees and costs of the reference,  as
         may be specified in advance by the referee. The parties shall initially
         share equally,  by paying their  proportionate  amount of the estimated
         fees and costs of the  reference.  Failure  of any party to make such a
         fee deposit shall result in a forfeiture by the non-depositing party of
         the right to prosecute  or defend the cause(s) of action which  is(are)
         the subject of the reference,  but shall not otherwise  serve to abate,
         stay or suspend the reference proceeding.

                  (d)  Provisional  Remedies,  Self  Help  and  Foreclosure:  No
         provision of, or the exercise of any right(s) under  subparagraph  (b),
         nor any other  provision of this Dispute  Resolution  Provision,  shall
         limit the right of any party to exercise self help remedies such as set
         off, to foreclose against any real or personal property collateral,  or
         obtain  provisional or ancillary  remedies such as injunctive relief or
         the  appointment  of a  receiver  from any  court  having  jurisdiction
         before,  during or after the  pendency  of any  arbitration.  At Bank's
         option,   foreclosure  under  a  deed  of  trust  or  mortgage  may  be
         accomplished  either  by  exercise  of power of sale  under the deed of
         trust or mortgage,  or by judicial  foreclosure.  The  institution  and
         maintenance  of  an  action  for   provisional   remedies   pursuit  of
         provisional  or  ancillary  remedies or exercise of self help  remedies
         shall not constitute a waiver of the right of any party,  including the
         plaintiff, to submit the controversy or claim to arbitration.

         9.05 Waiver of Jury Trial.  THE  BORROWER AND THE BANK EACH WAIVE THEIR
RESPECTIVE  RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE
TRANSACTIONS  CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER
LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES  AGAINST ANY OTHER PARTY OR
PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE
BORROWER AND THE BANK EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE
TRIED BY A COURT TRIAL  WITHOUT A JURY.  WITHOUT  LIMITING  THE  FOREGOING,  THE
PARTIES FURTHER AGREE THAT THEIR  RESPECTIVE  RIGHT TO A TRIAL BY JURY IS WAIVED
BY OPERATION OF THIS SECTION AS TO ANY ACTION,  COUNTERCLAIM OR OTHER PROCEEDING
WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF
THIS AGREEMENT OR THE OTHER LOAN  DOCUMENTS OR ANY PROVISION  HEREOF OR THEREOF.
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,  RENEWALS,  SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.

                                      -14-
<PAGE>

         9.06 Reliance: Each warranty, representation,  covenant, obligation and
agreement  contained in this Agreement  shall be  conclusively  presumed to have
been relied upon by the Bank regardless of any investigation made or information
possessed  by the Bank and  shall be  cumulative  and in  addition  to any other
warranties, representations,  covenants and agreements which the Borrower now or
hereafter shall give, or cause to be given, to the Bank.

         9.07  Attorneys'  Fees:  Borrower  shall  pay to the Bank all costs and
expenses,  including but not limited to reasonable  attorneys fees,  incurred by
Bank in connection with the administration,  enforcement,  or any refinancing or
restructuring in the nature of a "work-out",  of this Agreement or any document,
instrument  or agreement  executed  with respect to,  evidencing or securing the
indebtedness hereunder.

         9.08 Notices: All notices, payments, requests,  information and demands
which either party hereto may desire,  or may be required to give or make to the
other  party  hereto,  shall be given or made to such party by hand  delivery or
through deposit in the United States mail, postage prepaid,  or by Western Union
telegram,  addressed  as set  forth  below or to such  other  address  as may be
specified from time to time in writing by either party to the other.

To the Borrower                               To the Bank:
ELEXSYS INTERNATIONAL, INC.                   SANWA BANK CALIFORNIA
4405 Fortran Court                            San Jose CBC
San Jose, CA  95134                           220 Almaden Blvd.
                                              San Jose, CA  95113

Attn:    Robert DeLaurentis                   Attn:    Jillian E. Mathur
Title:   C.F.O.                                        Vice President

with a copy to:                               With a copy to:

COOLEY GODWARD LLP                            SANWA BANK CALIFORNIA
Five Palo Alto Square                         Asset Based Financing Department
3000 El Camino Real
Palo Alto, CA  94306-2155                     444 Market Street, 22nd Floor
                                              San Francisco, CA  94111
Attn:    Bill Veatch

         9.09  Waiver:  Neither the failure nor delay by the Bank in  exercising
any right  hereunder or under any document,  instrument  or agreement  mentioned
herein  shall  operate  as a waiver  thereof,  nor shall any  single or  partial
exercise  of any right  hereunder  or under any other  document,  instrument  or
agreement  mentioned  herein preclude other or further  exercise  thereof or the
exercise  of any  other  right;  nor shall  any  waiver of any right or  default
hereunder,  or under any  other  document,  instrument  or  agreement  mentioned
herein, constitute a waiver of any other right or default or constitute a waiver
of any other default of the same or any other term or provision.

         9.10 Conflicting Provisions:  To the extent the provisions contained in
this  Agreement are  inconsistent  with those  contained in any other  document,
instrument  or agreement  executed  pursuant  hereto,  the terms and  provisions
contained herein shall control.  Otherwise,  such provisions shall be considered
cumulative.

         9.11 Binding Effect;  Assignment:  This Agreement shall be binding upon
and inure to the  benefit  of the  Borrower  and the Bank and  their  respective
successors  and assigns,  except that the  Borrower  shall not have the right to
assign its rights  hereunder or any interest  herein  without the prior  written
consent of the Bank. The Bank may sell, assign or grant  participation in all or
any portion of its rights and benefits  hereunder.  The Borrower agrees that, in
connection with any such sale, grant or assignment,  the Bank may deliver to the
prospective  buyer,  participant  or  assignee  financial  statements  and other
relevant information relating to the Borrower and any guarantor.

         9.12  Jurisdiction:  This Agreement,  any notes issued  hereunder,  the
rights of the  parties  hereunder  to and  concerning  the  Collateral,  and any
documents,  instruments  or agreements  mentioned or referred to herein shall be
governed by and construed  according to the laws of the State of California,  to
the jurisdiction of whose courts the parties hereby submit.

         9.13 Headings: The headings herein set forth are solely for the purpose
of identification and have no legal significance.

                                      -15-
<PAGE>

         9.14 Entire  Agreement:  This Agreement and all documents,  instruments
and agreements mentioned herein constitute the entire and complete understanding
of the parties  with respect to the  transactions  contemplated  hereunder.  All
previous conversations, memoranda and writings between the parties pertaining to
the transactions  contemplated  hereunder not incorporated or referenced in this
Agreement  or in such  documents,  instruments  and  agreements  are  superseded
hereby.

         9.1 Confidentiality Agreement. In handling any confidential information
Bank,  and all  employees  and  agents of Bank,  including  but not  limited  to
accountants,  shall  exercise the same degree of care that Bank  exercises  with
respect to its own  proprietary  information  of the same types to maintain  the
confidentiality  of any  non-public  information  thereby  received  or received
pursuant to this Agreement  except that  disclosure of such  information  may be
made (i) to the  subsidiaries  or affiliates  of Bank in  connection  with their
present or prospective  business  relations  with Borrower;  (ii) to prospective
transferees or purchasers of any interest in the loans,  provided that they have
entered  into a  comparable  confidentiality  agreement in favor of Borrower and
have delivered a copy to Borrower;  (iii) as required by law, regulations,  rule
or order, subpoena,  judicial order or similar order; (iv) as may be required in
connection with the examination,  audit or similar investigation of Bank and (v)
as Bank may  determine  in  connection  with  the  enforcement  of any  remedies
hereunder. Confidential information hereunder shall not include information that
either:  (a) is in the public  domain or in the  knowledge or possession of Bank
when disclosed to Bank, or becomes part of the public domain after disclosure to
Bank  through no fault of Bank;  or (b) is  disclosed  to Bank by a third party,
provided Bank does not have actual knowledge that such third party is prohibited
from disclosing such information.

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first hereinabove written.


Borrower                                  Bank:

                                          SANWA BANK CALIFORNIA
ELEXSYS INTERNATIONAL, INC.

BY:________________________________       BY:________________________________
Name:    Robert DeLaurentis               Name:    Jillian E. Mathur
Title:   C.F.O.                           Title:   Vice President


                                      -16-