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                                                                   EXHIBIT 10.3


                          GENERAL SECURITY AGREEMENT


     This General Security Agreement ("Agreement") dated May 21, 1997 is by 
L.A. Gear, Inc., a Delaware corporation ("Guarantor") in favor of Congress 
Financial Corporation (Western) ("Lender").

                              W I T N E S S E T H


     WHEREAS, Lender has entered or is about to enter into certain financing 
arrangements with L.A. Gear California, Inc., a California corporation 
("Borrower") pursuant to which Lender may make loans and provide other 
financial accommodations to Borrower; and

     WHEREAS, Guarantor has executed and delivered or is about to execute and 
deliver to Lender a guarantee in favor of Lender pursuant to which Guarantor 
absolutely and unconditionally guarantees to Lender the payment and 
performance of all now existing and hereafter arising obligations, 
liabilities and indebtedness of Borrower to Lender; and

     NOW, THEREFORE, in consideration of the mutual conditions and agreements
set forth herein, and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:

SECTION 1. DEFINITIONS

     All terms used herein which are defined in Article 1 or Article 9 of the
Uniform Commercial Code shall have the meanings given therein unless otherwise
defined in this Agreement.  All references to the plural herein shall also mean
the singular and to the singular shall also mean the plural.  All references to
Guarantor, Borrower and Lender pursuant to the definitions set forth in the
recitals hereto, or to any other person herein, shall include their respective
successors and assigns.  The words "hereof", "herein", "hereunder", "this
Agreement" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not any particular provision of this Agreement
and as this Agreement now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.  An Event of Default
shall exist or continue or be continuing until such Event of Default is cured
or waived in accordance with Section 7.3.  Any accounting term used herein
unless otherwise defined in this Agreement shall have the meanings customarily
given to such term in accordance with GAAP.  For purposes of this Agreement,
the following terms shall have the respective meanings given to them below:

     1.1  "Accounts" shall mean all present and future rights of Guarantor to
payment for goods sold or leased or for services rendered, which are not
evidenced by instruments or chattel paper, and whether or not earned by
performance.

     1.2  "Equipment" shall mean all of Guarantor's now owned and hereafter
acquired equipment, machinery, computers and computer hardware and software
(whether owned or licensed), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used
in connection therewith, and substitutions and replacements thereof, wherever
located.

     1.3  "Event of Default" shall have the meaning set forth in Section 6.1
hereof.

     1.4  "Financing Agreements" shall mean, collectively, the Loan Agreement,
this Agreement and all notes, guarantees, security agreements and other
agreements, documents and 


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instruments now or at any time hereafter executed and/or delivered by 
Borrower, Guarantor or any Obligor in connection with the Loan Agreement, as 
the same now exist or may hereafter be amended, modified, supplemented, 
extended, renewed, restated or replaced.

     1.5  "GAAP" shall mean generally accepted accounting principles in the 
United States of America as in effect from time to time as set forth in the 
opinions and pronouncements of the Accounting Principles Board and the 
American Institute of Certified Public Accountants and the statements and 
pronouncements of the Financial Accounting Standards Boards which are 
applicable to the circumstances as of the date of determination consistently 
applied, except that, for purposes of Sections 5.13 and 5.14 hereof, GAAP 
shall be determined on the basis of such principles in effect on the date 
hereof and consistent with those used in the preparation of the audited 
financial statements delivered to Lender prior to the date hereof.

     1.6  "Information Certificate" shall mean the Information Certificate of 
Guarantor constituting Exhibit A hereto containing material information with 
respect to Guarantor, its business and assets provided by or on behalf of 
Guarantor to Lender in connection with the preparation of this Agreement and 
the other Financing Agreements and the financing arrangements provided for 
herein.

     1.7  "Inventory" shall mean all of Guarantor's now owned and hereafter 
existing or acquired raw materials, work in process, finished goods and all 
other inventory of whatsoever kind or nature, wherever located.

     1.8  "Loan Agreement" shall mean the Loan and Security Agreement, dated 
May 16, 1997, by and between Borrower and Lender, as the same now exists and 
may hereafter be amended, modified, supplemented, extended, renewed, restated 
or replaced.

     1.9  "Obligations" shall mean any and all obligations, liabilities and 
indebtedness of every kind, nature and description owing by Guarantor to 
Lender and/or its affiliates, including principal, interest, charges, fees, 
costs and expenses, however evidenced, whether as principal, surety, 
endorser, guarantor or otherwise, whether arising under this Agreement or 
otherwise, whether now existing or hereafter arising, whether arising before, 
during or after the initial or any renewal term of this Agreement or after 
the commencement of any case with respect to Guarantor under the United 
States Bankruptcy Code or any similar statute (including, without limitation, 
the payment of interest and other amounts which would accrue and become due 
but for the commencement of such case), whether direct or indirect, absolute 
or contingent, joint or several, due or not due, primary or secondary, 
liquidated or unliquidated, secured or unsecured, and however acquired by 
Lender.

     1.10  "Obligor" shall mean any other guarantor, endorser, acceptor, 
surety or other person liable on or with respect to the Obligations or who is 
the owner of any property which is security for the Obligations, other than 
Borrower.

     1.11  "Person" or "person" shall mean any individual, sole 
proprietorship, partnership, corporation (including, without limitation, any 
corporation which elects subchapter S status under the Internal Revenue Code 
of 1986, as amended), business trust, unincorporated association, joint stock 
corporation, trust, joint venture or other entity or any government or any 
agency or instrumentality or political subdivision thereof.

     1.12  "Records" shall mean all of Guarantor's present and future books 
of account of every kind or nature, purchase and sale agreements, invoices, 
ledger cards, bills of lading and other shipping evidence, statements, 
correspondence, memoranda, credit files and other data relating to the 
Collateral or any account debtor, together with the tapes, disks, diskettes 
and other data and software storage media and devices, file cabinets or 
containers in or on which the 

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foregoing are stored (including any rights of Guarantor with respect to the 
foregoing maintained with or by any other person).

SECTION 2. GRANT OF SECURITY INTEREST

     To secure payment and performance of all Obligations, Guarantor hereby 
grants to Lender a continuing security interest in, a lien upon, and a right 
of set off against, and hereby assigns to Lender as security, the following 
property and interests in property, whether now owned or hereafter acquired 
or existing, and wherever located (collectively, the "Collateral"):

     2.1  Accounts;

     2.2  All present and future contract rights, general intangibles 
(including, but not limited to, tax and duty refunds, registered and 
unregistered patents, trademarks, service marks, copyrights, trade names, 
applications for the foregoing, trade secrets, goodwill, processes, drawings, 
blueprints, customer lists, licenses, whether as licensor or licensee, choses 
in action and other claims and existing and future leasehold interests in 
equipment, real estate and fixtures), chattel paper, documents, instruments, 
letters of credit, bankers' acceptances and guaranties;

     2.3  All present and future monies, securities, credit balances, 
deposits, deposit accounts and other property of Guarantor now or hereafter 
held or received by or in transit to Lender or its affiliates or at any other 
depository or other institution from or for the account of Guarantor whether 
for safekeeping, pledge, custody, transmission, collection or otherwise, and 
all present and future liens, security interests, rights, remedies, title and 
interest in, to and in respect of Accounts and other Collateral, including, 
without limitation,  rights and remedies under or relating to guaranties, 
contracts of suretyship, letters of credit and credit and other insurance 
related to the Collateral,  rights of stoppage in transit, replevin, 
repossession, reclamation and other rights and remedies of an unpaid vendor, 
lienor or secured party,  goods described in invoices, documents, contracts 
or instruments with respect to, or otherwise representing or evidencing, 
Accounts or other Collateral, including, without limitation, returned, 
repossessed and reclaimed goods, and  deposits by and property of account 
debtors or other persons securing the obligations of account debtors;

     2.4  Inventory;

     2.5  Equipment;

     2.6  Records; and

     2.7  all products and proceeds of the foregoing, in any form, including, 
without limitation, insurance proceeds and any claims against third parties 
for loss or damage to or destruction of any or all of the foregoing.

SECTION 3. COLLATERAL COVENANTS

     3.1  ACCOUNTS COVENANTS.

          (a)  Lender shall have the right at any time or times, in Lender's 
name or in the name of a nominee of Lender, to verify the validity, amount or 
any other matter relating to any Account or other Collateral, by mail, 
telephone, facsimile transmission or otherwise.

          (b)  Guarantor shall deliver or cause to be delivered to Lender, 
with appropriate endorsement and assignment, with full recourse to Guarantor, 
all chattel paper and instruments 

                                      -3-

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which Guarantor now owns or may at any time acquire immediately upon 
Guarantor's receipt thereof, except as Lender may otherwise agree.

          (c)  Lender may, at any time or times that an Event of Default exists
or has occurred and is continuing,  notify any or all account debtors that the
Accounts have been assigned to Lender and that Lender has a security interest
therein and Lender may direct any or all accounts debtors to make payment of
Accounts directly to Lender,  extend the time of payment of, compromise, settle
or adjust for cash, credit, return of merchandise or otherwise, and upon any
terms or conditions, any and all Accounts or other obligations included in the
Collateral and thereby discharge or release the account debtor or any other
party or parties in any way liable for payment thereof without affecting any of
the Obligations,  demand, collect or enforce payment of any Accounts or such
other obligations, but without any duty to do so, and Lender shall not be
liable for its failure to collect or enforce the payment thereof nor for the
negligence of its agents or attorneys with respect thereto and  take whatever
other action Lender may deem necessary or desirable for the protection of its
interests.  At any time that an Event of Default exists or has occurred and is
continuing, at Lender's request, all invoices and statements sent to any
account debtor shall state that the Accounts and such other obligations have
been assigned to Lender and are payable directly and only to Lender and
Guarantor shall deliver to Lender such originals of documents evidencing the
sale and delivery of goods or the performance of services giving rise to any
Accounts as Lender may require.

     3.2  INVENTORY COVENANTS.  With respect to the Inventory:  Guarantor shall
at all times maintain inventory records reasonably satisfactory to Lender,
keeping correct and accurate records itemizing and describing the kind, type,
quality and quantity of Inventory, Guarantor's cost therefor and daily
withdrawals therefrom and additions thereto;  Guarantor shall conduct a
physical count of the Inventory at least once each year, but at any time or
times as Lender may request during the continuance of an Event of Default, and
promptly following such physical inventory shall supply Lender with a report in
the form and with such specificity as may be reasonably satisfactory to Lender
concerning such physical count;  Guarantor shall not remove any Inventory from
the locations set forth or permitted herein, without the prior written consent
of Lender, except for sales of Inventory in the ordinary course of Guarantor's
business and except to move Inventory directly from one location set forth or
permitted herein to another such location;  upon Lender's request, Guarantor
shall, at its expense, no more than twice in any twelve (12) month period, but
at any time or times as Lender may request during the continuance of an Event
of Default, deliver or cause to be delivered to Lender written reports or
appraisals as to the Inventory in form, scope and methodology acceptable to
Lender and by an appraiser acceptable to Lender, addressed to Lender or upon
which Lender is expressly permitted to rely;  Guarantor shall produce, use,
store and maintain the Inventory, with all reasonable care and caution and in
accordance with applicable standards of any insurance and in conformity with
applicable laws (including, but not limited to, the requirements of the Federal
Fair Labor Standards Act of 1938, as amended and all rules, regulations and
orders related thereto);  Guarantor assumes all responsibility and liability
arising from or relating to the production, use, sale or other disposition of
the Inventory;  Guarantor shall not sell Inventory to any customer on approval,
or any other basis which entitles the customer to return or may obligate
Guarantor to repurchase such Inventory;  Guarantor shall keep the Inventory in
good and marketable condition; and  Guarantor shall not, without prior written
notice to Lender, acquire or accept any Inventory on consignment or approval.

     3.3  EQUIPMENT COVENANTS.  With respect to the Equipment:  upon Lender's 
request, Guarantor shall, at its expense, at any time or times as Lender may 
request during the continuance of Event of Default, deliver or cause to be 
delivered to Lender written reports or appraisals as to the Equipment in 
form, scope and methodology acceptable to Lender and by appraiser acceptable 
to Lender;  Guarantor shall keep the Equipment in good order, repair, running 
and marketable condition (ordinary wear and tear excepted);  Guarantor shall 
use the Equipment with all reasonable care and caution and in accordance with 
applicable standards of 

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any insurance and in conformity with all applicable laws;  the Equipment is 
and shall be used in Guarantor's business and not for personal, family, 
household or farming use;  Guarantor shall not remove any Equipment from the 
locations set forth or permitted herein, except to the extent necessary to 
have any Equipment repaired or maintained in the ordinary course of the 
business of Guarantor or to move Equipment directly from one location set 
forth or permitted herein to another such location and except for the 
movement of motor vehicles used by or for the benefit of Borrower in the 
ordinary course of business;  the Equipment is now and shall remain personal 
property and Guarantor shall not permit any of the Equipment to be or become 
a part of or affixed to real property; and  Guarantor assumes all 
responsibility and liability arising from the use of the Equipment.

     3.4  POWER OF ATTORNEY.  Guarantor hereby irrevocably designates and 
appoints Lender (and all persons designated by Lender) as Guarantor's true 
and lawful attorney-in-fact, and authorizes Lender, in Guarantor's or 
Lender's name, to:  at any time an Event of Default exists or has occurred 
and is continuing  demand payment on Accounts or other proceeds of Inventory 
or other Collateral,  enforce payment of Accounts by legal proceedings or 
otherwise, exercise all of Guarantor's rights and remedies to collect any 
Account or other Collateral,  sell or assign any Account upon such terms, for 
such amount and at such time or times as the Lender deems advisable,  settle, 
adjust, compromise, extend or renew an Account,  discharge and release any 
Account,  prepare, file and sign Guarantor's name on any proof of claim in 
bankruptcy or other similar document against an account debtor,  notify the 
post office authorities to change the address for delivery of Guarantor's 
mail to an address designated by Lender, and open and dispose of all mail 
addressed to Guarantor, and  do all acts and things which are necessary, in 
Lender's determination, to fulfill Guarantor's obligations under this 
Agreement and the other Financing Agreements and  at any time to  take 
control in any manner of any item of payment or proceeds thereof,  have 
access to any lockbox or postal box into which Guarantor's mail is deposited, 
 endorse Guarantor's name upon any items of payment or proceeds thereof and 
deposit the same in the Lender's account for application to the Obligations,  
endorse Guarantor's name upon any chattel paper, document, instrument, 
invoice, or similar document or agreement relating to any Account or any 
goods pertaining thereto or any other Collateral, and sign Guarantor's name 
on any verification of Accounts and notices thereof to account debtors and  
execute in Guarantor's name and file any UCC financing statements or 
amendments thereto.  Guarantor hereby releases Lender and its officers, 
employees and designees from any liabilities arising from any act or acts 
under this power of attorney and in furtherance thereof, whether of omission 
or commission, except as a result of Lender's own gross negligence or willful 
misconduct as determined pursuant to a final non-appealable order of a court 
of competent jurisdiction.

     3.5  RIGHT TO CURE.  Lender may, at its option,  cure any default by 
Guarantor under any agreement with a third party or pay or bond on appeal any 
judgment entered against Guarantor,  discharge taxes, liens, security 
interests or other encumbrances at any time levied on or existing with 
respect to the Collateral and  pay any amount, incur any expense or perform 
any act which, in Lender's judgment, is necessary or appropriate to preserve, 
protect, insure or maintain the Collateral and the rights of Lender with 
respect thereto.  Lender may add any amounts so expended to the Obligations 
and charge Guarantor's account therefor, such amounts to be repayable by 
Guarantor on demand.  Lender shall be under no obligation to effect such 
cure, payment or bonding and shall not, by doing so, be deemed to have 
assumed any obligation or liability of Guarantor.  Any payment made or other 
action taken by Lender under this Section shall be without prejudice to any 
right to assert an Event of Default hereunder and to proceed accordingly.

     3.6  ACCESS TO PREMISES.  From time to time as requested by Lender, at 
the cost and expense of Guarantor,  Lender or its designee shall have 
complete access to all of Guarantor's premises during normal business hours 
and after notice to Guarantor, or at any time and without notice to Guarantor 
if an Event of Default exists or has occurred and is continuing, for the 

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purposes of inspecting, verifying and auditing the Collateral and all of 
Guarantor's books and records, including, without limitation, the Records, 
and  Guarantor shall promptly furnish to Lender such copies of such books and 
records or extracts therefrom as Lender may request, and  use during normal 
business hours such of Guarantor's personnel, equipment, supplies and 
premises as may be reasonably necessary for the foregoing and if an Event of 
Default exists or has occurred and is continuing for the collection of 
Accounts and realization of other Collateral.

SECTION 4. REPRESENTATIONS AND WARRANTIES

     Guarantor hereby represents and warrants to Lender the following (which
shall survive the execution and delivery of this Agreement):

     4.1  CORPORATE EXISTENCE, POWER AND AUTHORITY; SUBSIDIARIES.  Guarantor is
a corporation duly organized and in good standing under the laws of its state
of incorporation and is duly qualified as a foreign corporation and in good
standing in all states or other jurisdictions where the nature and extent of
the business transacted by it or the ownership of assets makes such
qualification necessary, except for those jurisdictions in which the failure to
so qualify would not have a material adverse effect on Guarantor's financial
condition, results of operation or business or the rights of Lender in or to
any of the Collateral.  The execution, delivery and performance of this
Agreement, the other Financing Agreements and the transactions contemplated
hereunder and thereunder are all within Guarantor's corporate powers, have been
duly authorized and are not in contravention of law or the terms of Guarantor's
certificate of incorporation, by-laws, or other organizational documentation,
or any indenture, agreement or undertaking to which Guarantor is a party or by
which Guarantor or its property are bound.  This Agreement and the other
Financing Agreements constitute legal, valid and binding obligations of
Guarantor enforceable in accordance with their respective terms.  Guarantor
does not have any subsidiaries except as set forth on the Information
Certificate.

     4.2  FINANCIAL STATEMENTS; NO MATERIAL ADVERSE CHANGE.  All financial
statements relating to Guarantor which have been or may hereafter be delivered
by Guarantor to Lender have been prepared in accordance with GAAP and fairly
present the financial condition and the results of operation of Guarantor as at
the dates and for the periods set forth therein.  Except as disclosed in any
interim financial statements furnished by Guarantor to Lender prior to the date
hereof, there has been no material adverse change in the assets, liabilities,
properties and condition, financial or otherwise, of Guarantor, since the date
of the most recent audited financial statements furnished by Guarantor to
Lender prior to the date hereof.

     4.3  CHIEF EXECUTIVE OFFICE; COLLATERAL LOCATIONS.  The chief executive
office of Guarantor and Guarantor's Records concerning Accounts are located
only at the address set forth below and its only other places of business and
the only other locations of Collateral, if any, are the addresses set forth in
the Information Certificate, subject to the right of Guarantor to establish new
locations in accordance with Section 5.2 below.  The Information Certificate
correctly identifies any of such locations which are not owned by Guarantor and
sets forth the owners and/or operators thereof, and to the best of Guarantor's
knowledge, the holders of any mortgages on such locations.

     4.4  PRIORITY OF LIENS; TITLE TO PROPERTIES.  The security interests and
liens granted to Lender under this Agreement and the other Financing Agreements
constitute valid and perfected first priority liens and security interests in
and upon the Collateral subject only to the liens indicated on Schedule 4.4
hereto and the other liens permitted under Section 5.8 hereof.  Guarantor has
good and marketable title to all of its properties and assets subject to no
liens, mortgages, pledges, security interests, encumbrances or charges of any
kind, except those granted to Lender and such others as are specifically listed
on Schedule 4.4 hereto or permitted under Section 5.8 hereof.

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     4.5  TAX RETURNS.  Guarantor has filed, or caused to be filed, in a 
timely manner all tax returns, reports and declarations which are required to 
be filed by it (without requests for extension except as previously disclosed 
in writing to Lender).  All information in such tax returns, reports and 
declarations is complete and accurate in all material respects.  Guarantor 
has paid or caused to be paid all taxes due and payable or claimed due and 
payable in any assessment received by it, except taxes the validity of which 
are being contested in good faith by appropriate proceedings diligently 
pursued and available to Guarantor and with respect to which adequate 
reserves have been set aside on its books.  Adequate provision has been made 
for the payment of all accrued and unpaid Federal, State, county, local, 
foreign and other taxes whether or not yet due and payable and whether or not 
disputed.

     4.6  LITIGATION.  Except as set forth on the Information Certificate, 
there is no present investigation by any governmental agency pending, or to 
the best of Guarantor's knowledge threatened, against or affecting Guarantor, 
its assets or business and there is no action, suit, proceeding or claim by 
any Person pending, or to the best of Guarantor's knowledge threatened, 
against Guarantor or its assets or goodwill, or against or affecting any 
transactions contemplated by this Agreement, which if adversely determined 
against Guarantor would result in any material adverse change in the assets, 
business or prospects of Guarantor or which would impair the ability of 
Guarantor to perform its obligations hereunder or under any of the other 
Financing Agreements to which it is a party or of Lender to enforce the 
Obligations or realize upon any Collateral.

     4.7  COMPLIANCE WITH OTHER AGREEMENTS AND APPLICABLE LAWS.  Guarantor is 
not in default in any material respect under, or in violation in any material 
respect of any of the terms of, any agreement, contract, instrument, lease or 
other commitment to which it is a party or by which it or any of its assets 
are bound and  Guarantor is in compliance in all material respects with all 
applicable provisions of laws, rules, regulations, licenses, permits, 
approvals and orders of any foreign, Federal, State or local governmental 
authority, except as follows:  Guarantor is in default under agreements 
relating to its outstanding Series B Preferred Stock in that Guarantor has 
failed to make certain quarterly dividend payments thereon, but Guarantor 
represents and warrants to Lender that the only effect of such default is to 
increase the rate at which dividends accrue thereon, and neither the holders 
of the Series B Preferred Stock nor any other person has any other right or 
remedy as a result of such default.

     4.8  ACCURACY AND COMPLETENESS OF INFORMATION.  All information 
furnished by or on behalf of Guarantor in writing to Lender in connection 
with this Agreement or any of the other Financing Agreements or any 
transaction contemplated hereby or thereby, including, without limitation, 
all information on the Information Certificate is true and correct in all 
material respects on the date as of which such information is dated or 
certified and does not omit any material fact necessary in order to make such 
information not misleading. No event or circumstance has occurred which has 
had or could reasonably be expected to have a material adverse affect on the 
business, assets or prospects of Guarantor, which has not been fully and 
accurately disclosed to Lender in writing.

     4.9  SURVIVAL OF WARRANTIES; CUMULATIVE.  All representations and 
warranties contained in this Agreement or any of the other Financing 
Agreements shall survive the execution and delivery of this Agreement and 
shall be deemed to have been made again to Lender on the date of each 
additional borrowing or other credit accommodation under the Loan Agreement 
and shall be conclusively presumed to have been relied on by Lender 
regardless of any investigation made or information possessed by Lender.  The 
representations and warranties set forth herein shall be cumulative and in 
addition to any other representations or warranties which Guarantor shall now 
or hereafter give, or cause to be given, to Lender.

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SECTION 5. AFFIRMATIVE AND NEGATIVE COVENANTS

     5.1  MAINTENANCE OF EXISTENCE.  Guarantor shall at all times preserve, 
renew and keep in full, force and effect its corporate existence and rights 
and franchises with respect thereto and maintain in full force and effect all 
permits, licenses, trademarks, tradenames, approvals, authorizations, leases 
and contracts necessary to carry on the business as presently or proposed to 
be conducted.  Guarantor shall give Lender thirty (30) days prior written 
notice of any proposed change in its corporate name, which notice shall set 
forth the new name and Guarantor shall deliver to Lender a copy of the 
amendment to the Certificate of Incorporation of Guarantor providing for the 
name change certified by the Secretary of State of the jurisdiction of 
incorporation of Guarantor as soon as it is available.

     5.2  NEW COLLATERAL LOCATIONS.  Guarantor may open any new location 
within the continental United States provided Guarantor  gives Lender thirty 
(30) days prior written notice of the intended opening of any such new 
location and executes and delivers, or causes to be executed and delivered, 
to Lender such agreements, documents, and instruments as Lender may deem 
reasonably necessary or desirable to protect its interests in the Collateral 
at such location, including, without limitation, UCC financing statements.

     5.3  COMPLIANCE WITH LAWS, REGULATIONS, ETC.  Guarantor shall, at all 
times, comply in all material respects with all laws, rules, regulations, 
licenses, permits, approvals and orders of any Federal, State or local 
governmental authority applicable to it.

     5.4  PAYMENT OF TAXES AND CLAIMS.  Guarantor shall duly pay and 
discharge all taxes, assessments, contributions and governmental charges upon 
or against it or its properties or assets, except for taxes the validity of 
which are being contested in good faith by appropriate proceedings diligently 
pursued and available to Guarantor and with respect to which adequate 
reserves have been set aside on its books.  Guarantor shall be liable for any 
tax or penalties imposed on Lender as a result of the financing arrangements 
provided for herein and Guarantor agrees to indemnify and hold Lender 
harmless with respect to the foregoing, and to repay to Lender on demand the 
amount thereof, and until paid by Guarantor such amount shall be added and 
deemed part of the Loans, provided, that, nothing contained herein shall be 
construed to require Guarantor to pay any income or franchise taxes 
attributable to the income of Lender from any amounts charged or paid 
hereunder to Lender.  The foregoing indemnity shall survive the payment of 
the Obligations, the termination of this Agreement and the termination or 
non-renewal of the Loan Agreement.

     5.5  INSURANCE.  Guarantor shall, at all times, maintain with 
financially sound and reputable insurers insurance with respect to the 
Collateral against loss or damage and all other insurance of the kinds and in 
the amounts customarily insured against or carried by corporations of 
established reputation engaged in the same or similar businesses and 
similarly situated. Said policies of insurance shall be satisfactory to 
Lender as to form, amount and insurer.  Guarantor shall furnish certificates, 
policies or endorsements to Lender as Lender shall require as proof of such 
insurance, and, if Guarantor fails to do so, Lender is authorized, but not 
required, to obtain such insurance at the expense of Guarantor.  All policies 
shall provide for at least thirty (30) days prior written notice to Lender of 
any cancellation or reduction of coverage and that Lender may act as attorney 
for Guarantor in obtaining, and at any time an Event of Default exists or has 
occurred and is continuing, adjusting, settling, amending and canceling such 
insurance. Guarantor shall cause Lender to be named as a loss payee and an 
additional insured (but without any liability for any premiums) under such 
insurance policies and Guarantor shall obtain non-contributory lender's loss 
payable endorsements to all insurance policies in form and substance 
satisfactory to Lender.  Such lender's loss payable endorsements shall 
specify that the proceeds of such insurance shall be payable to Lender as its 
interests may appear and further specify that Lender shall be paid regardless 
of any act or omission by Guarantor or any of its affiliates.  At its option, 
Lender may apply any insurance proceeds received by Lender at any time to the 
cost of 

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repairs or replacement of Collateral and/or to payment of the Obligations, 
whether or not then due, in any order and in such manner as Lender may 
determine or hold such proceeds as cash collateral for the Obligations.

     5.6  FINANCIAL STATEMENTS AND OTHER INFORMATION.

          (a)  Guarantor shall keep proper books and records in which true 
and complete entries shall be made of all dealings or transactions of or in 
relation to the Collateral and the business of Guarantor and its subsidiaries 
(if any) in accordance with GAAP and Guarantor shall furnish or cause to be 
furnished to Lender the financial statements with respect to Guarantor set 
forth in the Loan Agreement.

          (b)  Guarantor shall promptly notify Lender in writing of the 
details of  any loss, damage, investigation, action, suit, proceeding or 
claim relating to the Collateral or any other property which is security for 
the Obligations or which would result in any material adverse change in 
Guarantor's business, properties, assets, goodwill or condition, financial or 
otherwise and  the occurrence of any Event of Default or event which, with 
the passage of time or giving of notice or both, would constitute an Event of 
Default.

          (c)  Guarantor shall promptly after the sending or filing thereof 
furnish or cause to be furnished to Lender copies of all reports which 
Guarantor sends to its stockholders generally and copies of all reports and 
registration statements which Guarantor files with the Securities and 
Exchange Commission, any national securities exchange or the National 
Association of Securities Dealers, Inc.

          (d)  Guarantor shall furnish or cause to be furnished to Lender 
such budgets, forecasts, projections and other information respecting the 
Collateral and the business of Guarantor, as Lender may, from time to time, 
reasonably request.  Lender is hereby authorized to deliver a copy of any 
financial statement or any other information relating to the business of 
Guarantor to any court or other government agency or to any participant or 
assignee or prospective participant or assignee.  Guarantor hereby 
irrevocably authorizes and directs all accountants or auditors to deliver to 
Lender, at Guarantor's expense, copies of the financial statements of 
Guarantor and any reports or management letters prepared by such accountants 
or auditors on behalf of Guarantor and to disclose to Lender such information 
as they may have regarding the business of Guarantor.  Any documents, 
schedules, invoices or other papers delivered to Lender may be destroyed or 
otherwise disposed of by Lender one (1) year after the same are delivered to 
Lender, except as otherwise designated by Guarantor to Lender in writing.

     5.7  SALE OF ASSETS, CONSOLIDATION, MERGER, DISSOLUTION, ETC.  Guarantor 
shall not, directly or indirectly,  merge into or with or consolidate with 
any other Person or permit any other Person to merge into or with or 
consolidate with it, or sell, assign, lease, transfer, abandon or otherwise 
dispose of any stock or indebtedness to any other Person or any of its assets 
to any other Person (except for sales of Inventory in the ordinary course of 
business and the disposition of worn-out or obsolete Equipment or Equipment 
no longer used in the business of Guarantor so long as if an Event of Default 
exists or has occurred and is continuing, any proceeds are paid to Lender and 
 such sales do not involve Equipment having an aggregate net book value 
(together with any such Equipment so sold by the Borrower) in excess of 
$250,000 for all such Equipment disposed of in any fiscal year of Guarantor 
and Borrower), or  form or acquire any subsidiaries, or wind up, liquidate or 
dissolve or  agree to do any of the foregoing.

     5.8  ENCUMBRANCES.  Guarantor shall not create, incur, assume or suffer 
to exist any security interest, mortgage, pledge, lien, charge or other 
encumbrance of any nature whatsoever on any of its assets or properties, 
including, without limitation, the Collateral, except:   liens and security 
interests of Lender;  liens securing the payment of taxes, either not yet 
overdue or the validity of which are being contested in good faith by 
appropriate proceedings diligently pursued and available to Guarantor and 
with respect to which adequate reserves have been set aside on its books;  
non-consensual statutory liens (other than liens securing the payment of 
taxes) arising in the ordinary course of Guarantor's business to the extent:  
such liens secure indebtedness which is not overdue or  such liens secure 
indebtedness relating to claims or liabilities which are fully insured and 
being defended at the sole cost and expense and at the sole risk of the 
insurer or being contested in good faith by appropriate proceedings 
diligently pursued 

                                      -9-

<PAGE>

and available to Guarantor, in each case prior to the commencement of 
foreclosure or other similar proceedings and with respect to which adequate 
reserves have been set aside on its books;  zoning restrictions, easements, 
licenses, covenants and other restrictions affecting the use of real property 
which do not interfere in any material respect with the use of such real 
property or ordinary conduct of the business of Guarantor as presently 
conducted thereon or materially impair the value of the real property which 
may be subject thereto;  purchase money security interests in Equipment 
(including capital leases) and purchase money mortgages on real estate not to 
exceed $1,000,000 in the aggregate (combined with Borrower) at any time 
outstanding, so long as such security interests and mortgages do not apply to 
any property of Guarantor other than the Equipment or real estate so 
acquired, and the indebtedness secured thereby does not exceed the cost of 
the Equipment or real estate so acquired, as the case may be; and  the 
security interests and liens set forth on Schedule 4.4 hereto; pledges or 
deposits under workers' compensation, unemployment insurance, social security 
and other similar laws by Borrower; and deposits, bids or performance bonds 
made or issued in the ordinary course of business, in connection with 
acquisitions or sales of goods or services in the ordinary course of business.

     5.9  INDEBTEDNESS.  Guarantor shall not incur, create, assume, become or 
be liable in any manner with respect to, or permit to exist, any obligations 
or indebtedness, except  the Obligations;  trade obligations and normal 
accruals in the ordinary course of business not yet due and payable, or with 
respect to which the Guarantor is contesting in good faith the amount or 
validity thereof by appropriate proceedings diligently pursued and available 
to Guarantor, and with respect to which adequate reserves have been set aside 
on its books; purchase money indebtedness (including capital leases) to the 
extent not incurred or secured by liens (including capital leases) in 
violation of any other provision of this Agreement; and  obligations or 
indebtedness set forth on the Information Certificate; provided, that (i) 
with respect to such indebtedness other than the Debentures, Guarantor may 
only make regularly scheduled payments of principal and interest in respect 
of such indebtedness in accordance with the terms of the agreement or 
instrument evidencing or giving rise to such indebtedness as in effect on the 
date hereof, and (ii) as to the Debentures, Guarantor may only make regularly 
scheduled payments of interest (not principal) in respect of the Debentures 
in accordance with the terms of the agreement or instrument evidencing or 
giving rise to the Debentures, and Guarantor may only make such interest 
payments if no Event of Default and no event which, with notice or passage of 
time or both, would constitute an Event of Default hereunder, has occurred 
and is continuing.  Guarantor shall not, directly or indirectly,  amend, 
modify, alter or change the terms of such indebtedness or any agreement, 
document or instrument related thereto, or (except as permitted under the 
Loan Agreement), directly or indirectly, redeem, retire, defease, purchase or 
otherwise acquire the Debentures or other indebtedness, or set aside or 
otherwise deposit or invest any sums for such purpose, and Guarantor shall 
furnish to Lender all notices or demands in connection with the Debentures or 
other indebtedness either received by Guarantor or on its behalf, promptly 
after the receipt thereof, or sent by Guarantor or on its behalf, 
concurrently with the sending thereof, as the case may be.

     5.10  LOANS, INVESTMENTS, GUARANTEES, ETC.  Guarantor shall not, 
directly or indirectly, make any loans or advance money or property to any 
person, or invest in (by capital contribution, dividend or otherwise) or 
purchase or repurchase the stock or indebtedness or all or a substantial part 
of the assets or property of any person, or guarantee, assume, endorse, or 
otherwise become responsible for (directly or indirectly) the indebtedness, 
performance, obligations or dividends of any Person or agree to do any of the 
foregoing, except:  the endorsement of instruments for collection or deposit 
in the ordinary course of business;  

                                      -10-

<PAGE>

investments in:  short-term direct obligations of the United States 
Government,  negotiable certificates of deposit issued by any bank 
satisfactory to Lender, payable to the order of the Guarantor or to bearer 
and delivered to Lender, commercial paper rated A1 or P1, and investments 
permitted by Borrower's Investment Policy attached as Exhibit C to the Loan 
Agreement; provided, that, as to any of the foregoing, unless waived in 
writing by Lender, Guarantor shall take such actions as are deemed necessary 
by Lender to perfect the security interest of Lender in such investments and  
the guarantees set forth in the Information Certificate.

     5.11  DIVIDENDS AND REDEMPTIONS.  Guarantor shall not, directly or 
indirectly, declare or pay any dividends on account of any shares of class of 
capital stock of Guarantor now or hereafter outstanding, or set aside or 
otherwise deposit or invest any sums for such purpose, or redeem, retire, 
defease, purchase or otherwise acquire any shares of any class of capital 
stock (or set aside or otherwise deposit or invest any sums for such purpose) 
for any consideration other than common stock or apply or set apart any sum, 
or make any other distribution (by reduction of capital or otherwise) in 
respect of any such shares or agree to do any of the foregoing, except that 
Guarantor may pay dividends on its Series B Preferred Stock to the extent 
permitted under Section 9.11 of the Loan Agreement.

     5.12  TRANSACTIONS WITH AFFILIATES.  Guarantor shall not enter into any 
transaction for the purchase, sale or exchange of property or the rendering 
of any service to or by any affiliate.  Without limiting any of the other 
terms and provisions of this Agreement, Parent shall not make any transfers 
of money or property of any kind to any affiliate, regardless of the form of 
transaction in which such transfer is to occur, except as permitted under 
Section 9.12 of the Loan Agreement.

     5.13  COSTS AND EXPENSES.  Guarantor shall pay to Lender on demand all 
costs, expenses, filing fees and taxes paid or payable in connection with the 
preparation, negotiation, execution, delivery, recording, administration, 
collection, liquidation, enforcement and defense of the Obligations, Lender's 
rights in the Collateral, this Agreement, the other Financing Agreements and 
all other documents related hereto or thereto, including any amendments, 
supplements or consents which may hereafter be contemplated (whether or not 
executed) or entered into in respect hereof and thereof, including, but not 
limited to:  all costs and expenses of filing or recording (including Uniform 
Commercial Code financing statement filing taxes and fees, documentary taxes, 
intangibles taxes and mortgage recording taxes and fees, if applicable);  all 
title insurance and other insurance premiums, appraisal fees and search fees; 
costs and expenses of preserving and protecting the Collateral;  costs and 
expenses paid or incurred in connection with obtaining payment of the 
Obligations, enforcing the security interests and liens of Lender, selling or 
otherwise realizing upon the Collateral, and otherwise enforcing the 
provisions of this Agreement and the other Financing Agreements or defending 
any claims made or threatened against Lender arising out of the transactions 
contemplated hereby and thereby (including, without limitation, preparations 
for and consultations concerning any such matters); and  the fees and 
disbursements of counsel (including legal assistants) to Lender in connection 
with any of the foregoing.

     5.14  FURTHER ASSURANCES.  At the request of Lender at any time and from 
time to time, Guarantor shall, at its expense, at any time or times duly 
execute and deliver, or cause to be duly executed and delivered, such further 
agreements, documents and instruments, and do or cause to be done such 
further acts as may be necessary or proper to evidence, perfect, maintain and 
enforce the security interests and the priority thereof in the Collateral and 
to otherwise effectuate the provisions or purposes of this Agreement or any 
of the other Financing Agreements.  Where permitted by law, Guarantor hereby 
authorizes Lender to execute and file one or more UCC financing statements 
signed only by Lender.

                                      -11-

<PAGE>

SECTION 6. EVENTS OF DEFAULT AND REMEDIES

     6.1  EVENTS OF DEFAULT.  The occurrence or existence of any Event of 
Default under the Loan Agreement is referred to herein individually as an 
"Event of Default", and collectively as "Events of Default".

     6.2  REMEDIES.

          (a)  At any time an Event of Default exists or has occurred and is 
continuing, Lender shall have all rights and remedies provided in this 
Agreement, the other Financing Agreements, the Uniform Commercial Code and 
other applicable law, all of which rights and remedies may be exercised 
without notice to or consent by Guarantor or any Obligor, except as such 
notice or consent is expressly provided for hereunder or required by 
applicable law.  All rights, remedies and powers granted to Lender hereunder, 
under any of the other Financing Agreements, the Uniform Commercial Code or 
other applicable law, are cumulative, not exclusive and enforceable, in 
Lender's discretion, alternatively, successively, or concurrently on any one 
or more occasions, and shall include, without limitation, the right to apply 
to a court of equity for an injunction to restrain a breach or threatened 
breach by Guarantor of this Agreement or any of the other Financing 
Agreements.  Lender may, at any time or times, proceed directly against 
Guarantor or any Obligor to collect the Obligations without prior recourse to 
the Collateral.

          (b)  Without limiting the foregoing, at any time an Event of 
Default exists or has occurred and is continuing, Lender may, in its 
discretion and without limitation,  accelerate the payment of all Obligations 
and demand immediate payment thereof to Lender (provided, that, upon the 
occurrence of any Event of Default described in Sections 10.1(g) and 10.1(h) 
of the Loan Agreement, all Obligations shall automatically become immediately 
due and payable),  with or without judicial process or the aid or assistance 
of others, enter upon any premises on or in which any of the Collateral may 
be located and take possession of the Collateral or complete processing, 
manufacturing and repair of all or any portion of the Collateral,  require 
Guarantor, at Guarantor's expense, to assemble and make available to Lender 
any part or all of the Collateral at any place and time designated by Lender, 
 collect, foreclose, receive, appropriate, setoff and realize upon any and 
all Collateral,  remove any or all of the Collateral from any premises on or 
in which the same may be located for the purpose of effecting the sale, 
foreclosure or other disposition thereof or for any other purpose,  sell, 
lease, transfer, assign, deliver or otherwise dispose of any and all 
Collateral (including, without limitation, entering into contracts with 
respect thereto, public or private sales at any exchange, broker's board, at 
any office of Lender or elsewhere) at such prices or terms as Lender may deem 
reasonable, for cash, upon credit or for future delivery, with the Lender 
having the right to purchase the whole or any part of the Collateral at any 
such public sale, all of the foregoing being free from any right or equity of 
redemption of Guarantor, which right or equity of redemption is hereby 
expressly waived and released by Guarantor.  If any of the Collateral is sold 
or leased by Lender upon credit terms or for future delivery, the Obligations 
shall not be reduced as a result thereof until payment therefor is finally 
collected by Lender.  If notice of disposition of Collateral is required by 
law, five (5) days prior notice by Lender to Guarantor designating the time 
and place of any public sale or the time after which any private sale or 
other intended disposition of Collateral is to be made, shall be deemed to be 
reasonable notice thereof and Guarantor waives any other notice.  In the 
event Lender institutes an action to recover any Collateral or seeks recovery 
of any Collateral by way of prejudgment remedy, Guarantor waives the posting 
of any bond which might otherwise be required.

          (c)  Lender may apply the cash proceeds of Collateral actually 
received by Lender from any sale, lease, foreclosure or other disposition of 
the Collateral to payment of the Obligations, in whole or in part and in such 
order as Lender may elect, whether or not then due.  Guarantor shall remain 
liable to Lender for the payment of any deficiency with interest at the 

                                      -12-

<PAGE>

highest rate provided for in the Loan Agreement and all costs and expenses of 
collection or enforcement, including attorneys' fees and legal expenses.

SECTION 7. JURY TRIAL WAIVER; OTHER WAIVERS
           AND CONSENTS; GOVERNING LAW

     7.1  GOVERNING LAW; CHOICE OF FORUM; SERVICE OF PROCESS; JURY TRIAL 
WAIVER.

          (a)  The validity, interpretation and enforcement of this Agreement 
and the other Financing Agreements and any dispute arising out of the 
relationship between the parties hereto, whether in contract, tort, equity or 
otherwise, shall be governed by the internal laws of the State of California 
(without giving effect to principles of conflicts of law).

          (b)  Guarantor irrevocably consents and submits to the 
non-exclusive jurisdiction of the state courts of the County of Los Angeles, 
State of California and the United States District Court for the Central 
District of California and waives any objection based on venue or forum non 
conveniens with respect to any action instituted therein arising under this 
Agreement or any of the other Financing Agreements or in any way connected or 
related or incidental to the dealings of Guarantor and Lender in respect of 
this Agreement or the other Financing Agreements or the transactions related 
hereto or thereto, in each case whether now existing or hereafter arising, 
and whether in contract, tort, equity or otherwise, and agrees that any 
dispute with respect to any such matters shall be heard only in the courts 
described above (except that Lender shall have the right to bring any action 
or proceeding against Guarantor or its property in the courts of any other 
jurisdiction which Lender deems necessary or appropriate in order to realize 
on the Collateral or to otherwise enforce its rights against Guarantor or its 
property).

          (c)  Guarantor hereby waives personal service of any and all 
process upon it and consents that all such service of process may be made by 
certified mail (return receipt requested) directed to its address set forth 
on the signature pages hereof and service so made shall be deemed to be 
completed five (5) days after the same shall have been so deposited in the 
U.S. mails, or, at Lender's option, by service upon Guarantor in any other 
manner provided under the rules of any such courts.   Within thirty (30) days 
after such service, Guarantor shall appear in answer to such process, failing 
which Guarantor shall be deemed in default and judgment may be entered by 
Lender against Guarantor for the amount of the claim and other relief 
requested.

          (d)  GUARANTOR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY 
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION  ARISING UNDER THIS AGREEMENT OR ANY 
OF THE OTHER FINANCING AGREEMENTS OR  IN ANY WAY CONNECTED WITH OR RELATED OR 
INCIDENTAL TO THE DEALINGS OF GUARANTOR AND LENDER IN RESPECT OF THIS 
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS 
RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER 
ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE.  GUARANTOR 
HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF 
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT GUARANTOR OR 
LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY 
COURT AS WRITTEN EVIDENCE OF THE CONSENT OF GUARANTOR AND LENDER TO THE 
WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

          (e)  Lender shall not have any liability to Guarantor (whether in 
tort, contract, equity or otherwise) for losses suffered by Guarantor in 
connection with, arising out of, or in any way related to the transactions or 
relationships contemplated by this Agreement, or any act, omission or event 
occurring in connection herewith, unless it is determined by a final and 
non-appealable judgment or court order binding on Lender that the losses were 
the result of acts or 

                                      -13-

<PAGE>

omissions constituting gross negligence or willful misconduct.  In any such 
litigation, Lender shall be entitled to the benefit of the rebuttable 
presumption that it acted in good faith and with the exercise of ordinary 
care in the performance by it of the terms of this Agreement and the other 
Financing Agreements.

     7.2  WAIVER OF NOTICES.  Guarantor hereby expressly waives demand, 
presentment, protest and notice of protest and notice of dishonor with 
respect to any and all instruments and commercial paper, included in or 
evidencing any of the Obligations or the Collateral, and any and all other 
demands and notices of any kind or nature whatsoever with respect to the 
Obligations, the Collateral and this Agreement, except such as are expressly 
provided for herein.  No notice to or demand on Guarantor which Lender may 
elect to give shall entitle Guarantor to any other or further notice or 
demand in the same, similar or other circumstances.

     7.3  AMENDMENTS AND WAIVERS.  Neither this Agreement nor any provision 
hereof shall be amended, modified, waived or discharged orally or by course 
of conduct, but only by a written agreement signed by an authorized officer 
of Lender.  Lender shall not, by any act, delay, omission or otherwise be 
deemed to have expressly or impliedly waived any of its rights, powers and/or 
remedies unless such waiver shall be in writing and signed by an authorized 
officer of Lender.  Any such waiver shall be enforceable only to the extent 
specifically set forth therein.  A waiver by Lender of any right, power 
and/or remedy on any one occasion shall not be construed as a bar to or 
waiver of any such right, power and/or remedy which Lender would otherwise 
have on any future occasion, whether similar in kind or otherwise.

     7.4  WAIVER OF COUNTERCLAIMS.  Guarantor waives all rights to interpose 
any claims, deductions, setoffs or counterclaims of any nature (other then 
compulsory counterclaims) in any action or proceeding with respect to this 
Agreement, the Obligations, the Collateral or any matter arising therefrom or 
relating hereto or thereto.

     7.5  INDEMNIFICATION.  Guarantor shall indemnify and hold Lender, and 
its directors, agents, employees and counsel, harmless from and against any 
and all losses, claims, damages, liabilities, costs or expenses imposed on, 
incurred by or asserted against any of them in connection with any 
litigation, investigation, claim or proceeding commenced or threatened 
related to the negotiation, preparation, execution, delivery, enforcement, 
performance or administration of this Agreement, any other Financing 
Agreements, or any undertaking or proceeding related to any of the 
transactions contemplated hereby or any act, omission, event or transaction 
related or attendant thereto, including, without limitation, amounts paid in 
settlement, court costs, and the fees and expenses of counsel.  To the extent 
that the undertaking to indemnify, pay and hold harmless set forth in this 
Section may be unenforceable because it violates any law or public policy, 
Guarantor shall pay the maximum portion which it is permitted to pay under 
applicable law to Lender in satisfaction of indemnified matters under this 
Section.  The foregoing indemnity shall survive the payment of the 
Obligations, the termination of this Agreement and the termination or 
non-renewal of the Loan Agreement.  All of the foregoing costs and expenses 
shall be part of the Obligations and secured by the Collateral.

SECTION 8. MISCELLANEOUS

     8.1  NOTICES.  All notices, requests and demands hereunder shall be in 
writing and (a) made to Lender at 225 South Lake Avenue, Suite 1000, 
Pasadena, California  91101 and to Guarantor at its chief executive office 
set forth below, or to such other address as either party may designate by 
written notice to the other in accordance with this provision, and (b) deemed 
to have been given or made: if delivered in person, immediately upon 
delivery; if by telex, telegram or facsimile transmission, immediately upon 
sending and upon confirmation of receipt; if by nationally recognized 
overnight courier service with instructions to deliver the next business day, 
one (1) business day after sending; and if by certified mail, return receipt 
requested, five (5) days after mailing.

                                      -14-

<PAGE>

     8.2  PARTIAL INVALIDITY.  If any provision of this Agreement is held to 
be invalid or unenforceable, such invalidity or unenforceability shall not 
invalidate this Agreement as a whole, but this Agreement shall be construed 
as though it did not contain the particular provision held to be invalid or 
unenforceable and the rights and obligations of the parties shall be 
construed and enforced only to such extent as shall be permitted by 
applicable law.

     8.3  SUCCESSORS.  This Agreement, the other Financing Agreements and any 
other document referred to herein or therein shall be binding upon Guarantor 
and its successors and assigns and inure to the benefit of and be enforceable 
by Lender and its successors and assigns, except that Guarantor may not 
assign its rights under this Agreement, the other Financing Agreements and 
any other document referred to herein or therein without the prior written 
consent of Lender.

     8.4  ENTIRE AGREEMENT.  This Agreement, the other Financing Agreements, 
any supplements hereto or thereto, and any instruments or documents delivered 
or to be delivered in connection herewith or therewith represents the entire 
agreement and understanding concerning the subject matter hereof and thereof 
between the parties hereto, and supersede all other prior agreements, 
understandings, negotiations and discussions, representations, warranties, 
commitments, proposals, offers and contracts concerning the subject matter 
hereof, whether oral or written.

     IN WITNESS WHEREOF, Guarantor has caused these presents to be duly 
executed as of the day and year first above written.

                                            Guarantor:

                                            L.A. GEAR, INC.

Attest:
                                            By: /s/ [ILLEGIBLE]
 /s/ [ILLEGIBLE]                                --------------------------------
---------------------------------------     Title: [ILLEGIBLE]
               Secretary                          -----------------------------



                                            CHIEF EXECUTIVE OFFICE:

                                            2850 Ocean Park Blvd.
                                            Santa Monica, California  90405


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                                      -15-