EXHIBIT 10.53
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                                CREDIT AGREEMENT

                                 by and between

                       VODAVI COMMUNICATIONS SYSTEMS, INC.


                                       and


                            COMERICA BANK-CALIFORNIA,














                                   Dated as of

                                 April 10, 2003







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                                TABLE OF CONTENTS

                                                                            PAGE

RECITALS .................................................................     1

ARTICLE 1   DEFINITION OF TERMS...........................................     2

          1.1    Definitions..............................................     2

          1.2    References...............................................     9

          1.3    Accounting Terms.........................................     9

ARTICLE 2   PAYMENTS, FEES, AND PREPAYMENT PROVISIONS.....................    10

          2.1    Payments.................................................    10

          2.2    Fees.....................................................    11

          2.3    Maintenance of Accounts..................................    11

          2.4    Prepayments..............................................    11

ARTICLE 2A  THE RLC.......................................................    12

          2A.1   RLC Commitment...........................................    12

          2A.2   Revolving Line of Credit.................................    12

          2A.3   RLC Advances.............................................    12

          2A.4   RLC Payments.............................................    12

          2A.5   Excess Balance Payment; RLC Clean-Up.....................    13

          2A.6   Conditions...............................................    13

          2A.7   Other RLC Advances by Lender.............................    13

          2A.8   Assignment...............................................    14

ARTICLE 2B  THE TERM LOAN.................................................    15

          2B.1   Term Loan Commitment.....................................    15

          2B.2   Term Loan................................................    15

          2B.3   Term Loan Advance........................................    15

          2B.4   Term Loan Payments.......................................    15

          2B.5   Conditions...............................................    16

          2B.6   Assignment...............................................    16

ARTICLE 3   SECURITY; GUARANTEE...........................................    17

          3.1    Security.................................................    17

          3.2    Security Documents.......................................    17

          3.3    Guarantee................................................    17

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                                TABLE OF CONTENTS
                                   (continued)

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ARTICLE 4   CONDITIONS PRECEDENT..........................................    18

          4.1    Initial or any Subsequent Advance........................    18

          4.2    No Event of Default......................................    19

          4.3    No Material Adverse Effect...............................    19

          4.4    Representations and Warranties...........................    19

ARTICLE 5   REPRESENTATIONS AND WARRANTIES................................    20

          5.1    Recitals.................................................    20

          5.2    Organization and Good Standing...........................    20

          5.3    Authorization and Power..................................    20

          5.4    Security Documents.......................................    20

          5.5    No Conflicts or Consents.................................    20

          5.6    No Litigation............................................    20

          5.7    Financial Condition......................................    21

          5.8    Taxes....................................................    21

          5.9    No Stock Purchase........................................    21

          5.10   Advances.................................................    21

          5.11   Enforceable Obligations..................................    21

          5.12   No Default...............................................    21

          5.13   Significant Debt Agreements..............................    21

          5.14   ERISA....................................................    22

          5.15   Compliance with Law......................................    22

          5.16   Solvent..................................................    22

          5.17   Investment Company Act...................................    22

          5.18   Title....................................................    22

          5.19   Survival of Representations, Etc.........................    22

          5.20   Environmental Matters....................................    22

          5.21   Licenses, Tradenames.....................................    22

ARTICLE 6   AFFIRMATIVE COVENANTS.........................................    23

          6.1    Financial Statements, Reports and Documents..............    23

                                       ii
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                                TABLE OF CONTENTS
                                   (continued)

                                                                            PAGE

          6.2    Maintenance of Existence and Rights; Conduct of
                   Business; Management ..................................    24

          6.3    Operations and Properties................................    24

          6.4    Authorizations and Approvals.............................    24

          6.5    Compliance with Law......................................    24

          6.6    Payment of Taxes and Other Indebtedness..................    24

          6.7    Compliance with Significant Debt Agreements and
                   Other Agreements ......................................    25

          6.8    Compliance with Credit Documents.........................    25

          6.9    Notice of Default........................................    25

          6.10   Other Notices............................................    25

          6.11   Books and Records; Access; Audits........................    25

          6.12   ERISA Compliance.........................................    25

          6.13   Further Assurances.......................................    25

          6.14   Insurance................................................    26

ARTICLE 7   NEGATIVE COVENANTS ...........................................    27

          7.1    Existence................................................    27

          7.2    Amendments to Organizational Documents...................    27

          7.3    Margin Stock.............................................    27

          7.4    Stock Repurchase.........................................    27

          7.5    Liens....................................................    27

          7.6    Transfer Collateral......................................    27

          7.7    Merger; Sale of Assets...................................    27

          7.8    Loans; Investments.......................................    27

          7.9    Capital Expenditures.....................................    27

          7.10   Indebtedness.............................................    28

          7.11   Financial Covenants......................................    28

ARTICLE 8   EVENTS OF DEFAULT.............................................    29

          8.1    Events of Default........................................    29

          8.2    Remedies Upon Event of Default...........................    31

          8.3    Performance by Lender....................................    32

                                       iii
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                                TABLE OF CONTENTS
                                   (continued)

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ARTICLE 9   MISCELLANEOUS.................................................    33

          9.1    Modification.............................................    33

          9.2    Waiver...................................................    33

          9.3    Payment of Expenses......................................    33

          9.4    Notices..................................................    33

          9.5    Governing Law; Jurisdiction, Venue.......................    34

          9.6    Invalid Provisions.......................................    34

          9.7    Binding Effect...........................................    34

          9.8    Entirety.................................................    35

          9.9    Headings.................................................    35

          9.10   Survival.................................................    35

          9.11   No Third Party Beneficiary...............................    35

          9.12   Time.....................................................    35

          9.13   Schedules and Exhibits Incorporated......................    35

          9.14   Counterparts.............................................    35

          9.15   Waiver of Jury Trial.....................................    35

EXHIBIT "A"      Form of Borrowing Notice

EXHIBIT "B"      Form of Compliance Certificate

EXHIBIT "C"      Form of Borrowing Base Certificate

EXHIBIT "D"      Form of Subordination Agreement

EXHIBIT "E-1"    Form of Waiver/Release of Lien Rights (Landlord)

EXHIBIT "E-2"    Form of Waiver/Release of Lien Rights (Warehouse)

SCHEDULE 7.10    Indebtedness

                                       iv
<PAGE>
                                CREDIT AGREEMENT

     BY THIS CREDIT  AGREEMENT  (together with any amendments or  modifications,
the "Credit  Agreement"),  entered into as of the 10th day of April, 2003 by and
between  VODAVI  COMMUNICATIONS  SYSTEMS,  INC.,  an  Arizona  corporation  (the
"Borrower"), and COMERICA BANK-CALIFORNIA, a California banking corporation (the
"Lender"),  in  consideration  of the mutual promises  herein  contained and for
other valuable consideration, the parties hereto do hereby agree as follows:

                                    RECITALS

     A. Borrower has  requested  that Lender  establish the following  financial
accommodations:

          (i) A  revolving  line of  credit  facility  (the  "RLC")  in the
     principal  amount of FIVE MILLION AND NO/100  DOLLARS  ($5,000,000.00)
     (the "RLC Commitment") for the purpose of funding  Borrower's  working
     capital and stock repurchases.

          (ii) A term loan (the "Term Loan") in the principal amount of One
     Million   and   No/100   Dollars   ($1,000,000.00)   (the  "Term  Loan
     Commitment") for the purpose of funding Borrower's stock repurchases.

     B. As a condition for extending such financial  accommodations,  Lender has
required that Borrower enter into this Credit  Agreement,  which establishes the
terms and conditions thereof.
<PAGE>
                                   ARTICLE 1

                               DEFINITION OF TERMS

     1.1  DEFINITIONS.  For the  purposes of this Credit  Agreement,  unless the
context  otherwise  requires,  the  following  terms  shall have the  respective
meanings assigned to them in this Article 1 or in the Section hereof referred to
below:

          "ADVANCE"  means  an  RLC  Advance  or  the  Term  Loan  Advance,   as
applicable.

          "AFFILIATE"  of  any  Person  means  any  Person  which,  directly  or
indirectly,  controls or is controlled by such Person.  For the purposes of this
definition,   "control"  (including,   with  correlative   meanings,   the  term
"controlled by"), as used with respect to any Person, shall mean the possession,
directly or  indirectly,  of the power to direct or cause the  direction  of the
management  and policies of such Person,  whether by contract or otherwise.  The
parties  agree that LG  Electronics,  Inc.  ("LG")  shall not be deemed to be an
Affiliate of Borrower or Guarantor so long as LG does not own 40% or more of the
stock of Guarantor.

          "AUTHORIZED  OFFICER"  means one or more  officers  of  Borrower  duly
authorized  (and so certified to Lender by the  corporate  secretary of Borrower
pursuant  to a  certificate  of  authority  and  incumbency  from  time  to time
satisfactory  to Lender in the  exercise  of  Lender's  reasonable  discretion),
acting alone, to request  Advances under the provisions of this Credit Agreement
and execute and deliver documents, instruments,  agreements, reports, statements
and certificates in connection herewith.

          "BANKING  DAY" means a day of the year on which banks are not required
or authorized to close in San Jose, California and Phoenix, Arizona.

          "BORROWER": See the Preamble hereto.

          "BORROWING BASE" means the sum of (i) seventy-five  percent (75.0%) of
the Eligible Accounts (the "Accounts  Availability")  plus (ii) an amount not to
exceed the lesser of forty  percent  (40.0%) of the Eligible  Inventory or fifty
percent (50.0%) of the Accounts Availability.

          "BORROWING BASE CERTIFICATE" means a certificate  substantially in the
form attached hereto as Exhibit "C".

          "CHANGE IN CONTROL" means the acquisition by any Person or two or more
Persons acting in concert of Control of the Borrower,  without the prior written
consent  of Lender,  if  different  than the state of affairs as of the  Closing
Date.

          "CLEAN-UP NON-COMPLIANCE": See Section 2A.5(b) hereto.

          "CLOSING DATE" means the date of delivery of this Credit Agreement.

          "CODE" means the Internal Revenue Code of 1986, as amended.

                                      -2-
<PAGE>
          "COLLATERAL" means all property subject to the Security Documents.

          "CONTROL"  when used  with  respect  to any  Person  means the  power,
directly  or  indirectly,  to direct the  management  policies  of such  Person,
whether  through the ownership of voting  securities,  by contract or otherwise;
and the terms  "controlling" and "controlled"  have meanings  correlative to the
foregoing.

          "CONTROLLED GROUP" means,  severally and collectively,  the members of
the group  controlling,  controlled  by and/or in common  control  of  Borrower,
within the meaning of Section 4001(b) of ERISA.

          "CREDIT AGREEMENT": See the Preamble hereto.

          "CREDIT  DOCUMENTS" means this Credit  Agreement,  the Note (including
any renewals,  extensions and refundings thereof),  the Security Documents,  the
Guarantee  and any  written  agreements,  certificates  or  documents  (and with
respect  to  this  Credit  Agreement  and  such  other  written  agreements  and
documents,  any  amendments or  supplements  thereto or  modifications  thereof)
executed or delivered pursuant to the terms of this Credit Agreement.

          "CREDIT EXPOSURE" means the aggregate outstanding principal balance of
the RLC and the Term Loan.

          "CURRENT  RATIO"  means  current  assets of  Guarantor  divided by its
current liabilities.

          "DEFAULT  RATE" means at any time five percent (5%) per annum over the
then applicable interest rate of the RLC.

          "DOLLARS"  and the sign "$" mean lawful  currency of the United States
of America.

          "EBIT"  means the net  income of a Person  plus the  interest  and tax
expenses deducted in calculating such net income.

          "EFFECTIVE  NET  WORTH"  means the total  equity of a Person  plus the
amount of any  Subordinated  Debt,  but less any amount  owed to Borrower by any
Person  that  is an  Affiliate  of or is  related  to  Borrower,  and  less  any
intangible assets, all as determined in accordance with GAAP.

          "ELIGIBLE  ACCOUNTS"  means those  accounts  receivable of Borrower as
Lender in its reasonable  discretion  shall  determine are eligible from time to
time. Eligible Accounts shall not include any of the following:

          (a) Account  balances over ninety (90) calendar days from invoice
     date.

          (b)  Accounts  with  respect  to which the  account  debtor is an
     officer, director,  shareholder,  employee, subsidiary or affiliate of
     Borrower.

                                      -3-
<PAGE>
          (c)  Accounts  with  respect to which 25% or more of the  account
     debtor's  total  accounts or  obligations  outstanding to Borrower are
     more than 90 calendar days from invoice date.

          (d) As to accounts, including without limitation accounts owed by
     Affiliates of the account obligor, representing more than 25% (30% for
     Graybar Electric) of Borrower's total accounts receivable, the balance
     in excess of 25% (30% for Graybar Electric) is not eligible.

          (e) Accounts with respect to  international  transactions  (other
     than  Canadian  transactions  approved  by  Lender  in its  reasonable
     discretion)  unless  insured by an  insurance  company  acceptable  to
     Lender in its  reasonable  discretion  or covered by letters of credit
     issued or confirmed by a bank acceptable to Lender or unless otherwise
     acceptable to Lender, in its reasonable discretion.

          (f) Credit  balances  greater than ninety (90) calendar days from
     invoice date.

          (g)  Accounts  where the account  debtor is a seller to Borrower,
     whereby a  potential  offset  (contra)  exists,  to the  extent of the
     offset.

          (h) Consignment or guaranteed sales.

          (i) Bill and hold accounts.

          (j) Contracts receivable.

          (k) Progress billings.

          "ELIGIBLE INVENTORY" means that inventory of Borrower that consists of
finished  goods,  that is  located in the United  States  and that  consists  of
Collateral,  all of which  shall be valued at the lower of actual cost or market
value in accordance with GAAP.

          "ERISA" means the Employee  Retirement Income Security Act of 1974, as
amended,  together  with all final and  permanent  regulations  issued  pursuant
thereto.  References  herein to sections and  subsections of ERISA are deemed to
refer to any successor or substitute provisions therefor.

          "EVENT OF DEFAULT": See Section 8.1.

          "EXCHANGE ACT" means the Securities Exchange Act of 1934.

          "FEE": See Section 2.2(a).

          "FINANCIAL COVENANTS": See Section 7.11 hereof.

          "GAAP"  means  those  generally  accepted  accounting  principles  and
practices  which are  recognized as such by the American  Institute of Certified
Public  Accountants  acting  through its Accounting  Principles  Board or by the

                                      -4-
<PAGE>
Financial  Accounting  Standards  Board or through other  appropriate  boards or
committees thereof and which are consistently  applied for all periods after the
date hereof so as to properly reflect the financial  condition,  and the results
of operations  and changes in the  financial  position,  of Borrower,  including
without limitation  accounting rules promulgated  pursuant to Regulations SX and
SK, except that any accounting  principle or practice  required to be changed by
the said Accounting Principles Board or Financial Accounting Standards Board (or
other appropriate board or committee of the said Boards) in order to continue as
a generally accepted accounting principle or practice may be so changed.

          "GOVERNMENTAL  AUTHORITY"  means  any  government  (or  any  political
subdivision  or  jurisdiction   thereof),   court,   bureau,   agency  or  other
governmental authority having jurisdiction over Borrower or any of its business,
operations or properties.

          "GUARANTEE": See Section 3.3 hereof.

          "GUARANTOR" means VODAVI TECHNOLOGY, INC., a Delaware corporation.

          "INDEBTEDNESS"  of a  Person  means  each  of the  following  (without
duplication):  (a) obligations of that Person to any other Person for payment of
borrowed  money,  (b) capital lease  obligations,  (c) notes and drafts drawn or
accepted by that Person payable to any other Person, whether or not representing
obligations  for borrowed  money (but without  duplication of  indebtedness  for
borrowed  money),  (d) any  obligation  for the  purchase  price of property the
payment of which is deferred  for more than one year or  evidenced  by a note or
equivalent instrument,  (e) guarantees of Indebtedness of third parties, and (f)
a recourse or nonrecourse payment obligation of any other Person that is secured
by a Lien on any  property  of the first  Person,  whether or not assumed by the
first  Person,  up to the fair market value (from time to time) of such property
(absent  manifest  evidence  to the  contrary,  the  fair  market  value of such
property  shall be the  amount  determined  under GAAP for  financial  reporting
purposes).

          "LENDER": See the Preamble hereto.

          "LEVERAGE RATIO" means the ratio of the Indebtedness of Guarantor less
its Subordinated Debt, to its Effective Net Worth.

          "LIEN" means any lien, mortgage,  security interest, tax lien, pledge,
encumbrance,  conditional  sale or title  retention  arrangement,  or any  other
interest in property  designed to secure the repayment of  Indebtedness  whether
arising by agreement or under any statute or law, or otherwise.

          "LOAN" or "LOANS", each a Loan, means the RLC and/or the Term Loan, as
applicable.

          "MATERIAL  ADVERSE  EFFECT" means any  circumstance or event which (i)
has any  material  adverse  effect upon the  validity or  enforceability  of any
Credit Document,  (ii) materially impairs the ability of Borrower to fulfill its
obligations under the Credit  Documents,  or (iii) causes an Event of Default or
any event  which,  with  notice or lapse of time or both,  could  reasonably  be
expected to become an Event of Default.

                                      -5-
<PAGE>
          "MATURITY DATE" means the RLC Maturity Date.

          "NOTE" or  "NOTES",  each a Note,  means the RLC Note  and/or the Term
Loan Note, as applicable.

          "OBLIGATION"  means all present and future  indebtedness,  obligations
and liabilities of Borrower to Lender, and all renewals and extensions  thereof,
or any part thereof, arising pursuant to this Credit Agreement or represented by
the  Note,  including  without  limitation  the Loan and all  interest  accruing
thereon,  and attorneys' fees incurred in the enforcement or collection thereof,
regardless of whether such indebtedness, obligations and liabilities are direct,
indirect, fixed, contingent,  joint, several or joint and several; together with
all indebtedness,  obligations and liabilities of Borrower  evidenced or arising
pursuant to any of the other Credit  Documents,  and all renewals and extensions
thereof, or part thereof.

          "PAYMENT DATE" means the fifth day of each month, provided that if any
such  day is not a  Banking  Day,  then  such  Payment  Date  shall  be the next
successive Banking Day.

          "PBGC"  means  the  Pension  Benefit  Guaranty  Corporation,  and  any
successor  to  all  or  substantially   all  of  the  Pension  Benefit  Guaranty
Corporation's functions under ERISA.

          "PERMITTED CREDIT EXPOSURE" means:

                    (i)  prior  to  the  Term   Loan   Advance   Date,  the
     lesser of the RLC Commitment or the Borrowing Base;

                    (ii) for  the first  year  after the Term  Loan Advance
     Date, the lesser of (A) the aggregate amount of the RLC Commitment and
     the Term Loan  Commitment,  and (B) the sum of the Borrowing  Base and
     $500,000.00; and

                    (iii) after the first year after the  Term Loan Advance
     Date, the lesser of (A) the aggregate amount of the RLC Commitment and
     the Term Loan Commitment, and (B) the Borrowing Base.

          "PERMITTED LIENS" means:

          (a) Liens in Lender's favor.

          (b) Liens for taxes or other governmental  charges not delinquent
     or which the  nonpayment  of which is permitted  under  Section 5.8 or
     Section 6.6;

          (c)  Pledges or  deposits  securing  obligations  under  worker's
     compensation,   unemployment  insurance,  social  security  or  public
     liability laws or similar legislation;

          (d) Pledges or deposits securing bids, tenders,  contracts (other
     than contracts for the payment of money) or leases which Borrower is a
     party  as  lessee,  made in the  ordinary  course  of  business  in an
     aggregate amount at any time not to exceed $200,000.00;

                                      -6-
<PAGE>
          (e)  Deposits   securing  public  or  statutory   obligations  of
     Borrower;

          (f) Inchoate and unperfected workers', mechanics',  suppliers' or
     similar liens arising in the ordinary course of business;

          (g)  Carriers',  warehouseman's  or similar  possessory  liens or
     landlord liens arising in the ordinary course of business and securing
     indebtedness  not yet due and  payable  (or  being  contested  in good
     faith) in an aggregate amount not in excess of $50,000.00 at any time;

          (h) Deposits securing,  or in lieu of, surety,  appeal or customs
     bonds in proceedings in which Borrower is a party;

          (i) Any  attachment  or  judgment  lien,  unless the  judgment it
     secures shall not,  within 60 days after the entry thereof,  have been
     discharged or execution thereof stayed pending an appeal, or shall not
     have been  discharged  within 60 days after the expiration of any such
     stay;

          (j)   Zoning   restrictions,   easements,   licenses,   or  other
     restrictions on the use of real property or other minor irregularities
     in title (including leasehold title) thereto, so long as the same does
     not  materially  impair the use, value or  marketability  of such real
     property, leases or leasehold estates; or

          (k) Liens or security interests securing  Indebtedness  permitted
     to be incurred under Section 7.10.

          "PERSON"  includes an individual,  a corporation,  a joint venture,  a
partnership,   a  trust,  a  limited  liability   Borrower,   an  unincorporated
organization or a government or any agency or political subdivision thereof.

          "PLAN" means an employee defined benefit plan or other plan maintained
by  Borrower  for  employees  of Borrower  and covered by Title IV of ERISA,  or
subject to the minimum funding standards under Section 412 of the Code.

          "PRIME RATE" means that rate so announced by Lender as its "base rate"
from time to time and which  serves as the basis upon which  effective  rates of
interest are calculated for those loans making reference  thereto.  The Variable
Rate shall fluctuate with any change in the Prime Rate, and such  fluctuation in
the interest  rate shall be effective  on the  effective  date of each and every
change  in the Prime  Rate as,  from  time to time,  announced  by Lender at its
corporate headquarters in San Jose,  California.  Should Lender no long exist or
fail to  announce a "base  rate,"  the Prime  Rate  shall be the annual  rate of
interest publicly announced from time to time by Comerica Bank or its successors
as its "reference" rate of interest.

          "QUARTERLY  END DATE" means each March 31, June 30,  September  30 and
December 31.

                                      -7-
<PAGE>
          "REGULATION  U"  means  Regulation  U  promulgated  by  the  Board  of
Governors  of the  Federal  Reserve  System,  12 C.F.R.  Part 221,  or any other
regulation hereafter promulgated by said Board to replace the prior Regulation U
and having substantially the same function.

          "REPORTABLE  EVENT"  means  any  "reportable  event" as  described  in
Section  4043(b)  of ERISA  with  respect  to which the  thirty  (30) day notice
requirement has not been waived by the PBGC.

          "RLC" means that  revolving line of credit made available by Lender to
Borrower pursuant to Article 2A hereof.

          "RLC ADVANCE" means a disbursement of the proceeds of the RLC.

          "RLC    COMMITMENT"    means   Five   Million   And   No/100   Dollars
($5,000,000.00).

          "RLC  COMMITMENT  FEE" means Six Thousand Two Hundred Fifty and No/100
Dollars ($6,250.00).

          "RLC MATURITY DATE" means April 30, 2005.

          "RLC NOTE" means that  Promissory  Note dated of even date herewith in
the amount of the RLC, executed by Borrower and delivered  pursuant to the terms
of this Credit Agreement, together with any renewals, extensions,  modifications
or replacements thereof.

          "SEC" means the Securities and Exchange Commission.

          "SECURITY AGREEMENT": See Section 3.1 hereof.

          "SECURITY DOCUMENTS": See Section 3.2 hereof.

          "SIGNIFICANT  DEBT  AGREEMENT"  means all documents,  instruments  and
agreements  executed  by  a  Person,   evidencing,   securing  or  ensuring  any
Indebtedness  of such  Person  or any  guaranty  in  excess  of  $100,000.00  in
outstanding principal (or principal equivalent) amount.

          "SUBORDINATED DEBT" means Indebtedness of a Person subordinated to the
payment of the Obligation pursuant to written agreements acceptable to Lender.

          "SUBORDINATION    AGREEMENT"    means   a   Subordination    Agreement
substantially in form attached hereto as Exhibit "D".

          "TERM BALANCE" means the principal  balance  outstanding at the end of
the fiscal year (the "Term  Balance  Date")  during  which there has  occurred a
Clean-Up Non-Compliance.

          "TERM BALANCE DATE": See the definition of Term Balance.

          "TERM LOAN" means that term loan made  available by Lender to Borrower
pursuant to Article 2B hereof.

          "TERM LOAN ADVANCE" means a  disbursement  of the proceeds of the Term
Loan.

                                      -8-
<PAGE>
          "TERM  LOAN  ADVANCE  DATE"  means  that  date on which  the Term Loan
Advance is disbursed to Borrower.

          "TERM  LOAN   COMMITMENT"   means  One  Million  and  No/100   Dollars
($1,000,000.00).

          "TERM LOAN  COMMITMENT  FEE" means Five  Thousand  and No/100  Dollars
($5,000.00).

          "TERM LOAN DEADLINE" means September 30, 2003.

          "TERM LOAN  MATURITY  DATE" means the earlier of September 30, 2006 or
thirty-six (36) months after the Term Loan Advance Date.

          "TERM  LOAN  NOTE"  means  that  Promissory  Note  dated of even  date
herewith in the amount of the Term Loan  Commitment,  executed  by Borrower  and
delivered  pursuant to the terms of this  Credit  Agreement,  together  with any
renewals, extensions, modifications or replacements there.

          "TERM LOAN  VARIABLE  RATE" means the rate per annum equal to one-half
percent  (0.5%) in excess of the Prime Rate per annum as in effect  from time to
time.

          "VARIABLE  RATE"  means the rate per annum equal to the Prime Rate per
annum as in effect from time to time.

     1.2 REFERENCES.  Capitalized terms shall be equally  applicable to both the
singular  and the  plural  forms of the terms  therein  defined.  References  to
"Credit Agreement," "this Agreement," "herein," "hereof,"  "hereunder," or other
like words mean this  Credit  Agreement  as amended,  supplemented,  restated or
otherwise modified and in effect from time to time.

     1.3 ACCOUNTING TERMS.  Except as expressly provided to the contrary herein,
all  accounting  terms shall be interpreted  and all  accounting  determinations
shall be made in accordance with GAAP, except as otherwise specifically provided
for  herein.  To the  extent  any  change in GAAP  affects  any  computation  or
determination  required  to be made  pursuant  to this  Credit  Agreement,  such
computation  or  determination  shall be made as if such  change in GAAP had not
occurred  unless  Borrower and Lender agree in writing on an  adjustment to such
computation or determination to account for such change in GAAP.

                                      -9-
<PAGE>
                                   ARTICLE 2

                    PAYMENTS, FEES, AND PREPAYMENT PROVISIONS

     2.1 PAYMENTS.

          (a) All payments and  prepayments by the Borrower of principal of
     and  interest  on the  Note  and all  fees,  expenses  and  any  other
     Obligation  payable  to Lender in  connection  with the Loan  shall be
     nonrefundable  and made in Dollars or immediately  available  funds to
     Lender not later than 2:00 p.m. (San Jose,  California local time), on
     the dates  called for under this  Credit  Agreement,  at the office of
     Lender in San Jose,  California.  Funds received after such hour shall
     be deemed to have been received by Lender on the next Banking Day.

          (b) Unless otherwise required by applicable law, payments will be
     applied first to accrued, unpaid interest, then to principal,  and any
     remaining  amount to any unpaid  collection  costs,  late  charges and
     other charges;  provided,  however, upon delinquency or other default,
     Lender reserve the right to apply payments among principal,  interest,
     late charges, collection costs and other charges at its discretion.

          (c) Interest shall be due and payable on the Loan on each Payment
     Date and on the Maturity Date.

          (d) Whenever any payment to be made hereunder  shall be stated to
     be due on a day which is not a Banking Day, such payment shall be made
     on the next  succeeding  Banking Day, and such extension of time shall
     in such case be included in the computation of interest, commission or
     fee, as the case may be.

          (e) Borrower  authorizes  Lender to collect all  interest,  fees,
     costs,  and/or  expenses  due under this Credit  Agreement by charging
     Borrower's  demand deposit account  maintained by Borrower with Lender
     as  designated  on the  Automatic  Debit  Authorization  of even  date
     herewith  executed by Borrower,  for the full amount  thereof.  Should
     there be insufficient  funds in any such demand deposit account to pay
     all such sums when due,  the full amount of such  deficiency  shall be
     immediately due and payable by Borrower.

          (f) If any payment of interest  and/or  principal is not received
     by Lender  within ten (10) days of when such  payment is due,  then in
     addition to the  remedies  conferred  upon the Lender under the Credit
     Documents,  a late  charge of five  percent  (5%) of the amount of the
     installment  due and unpaid will be added to the delinquent  amount to
     compensate the Lender for the expense of handling the  delinquency for
     any  payment  past due in excess of ten (10) days,  regardless  of any
     notice and cure period.

          (g)  Upon  the  occurrence  of an  Event  of  Default  and  after
     maturity,  including maturity upon acceleration,  the unpaid principal
     balance, all accrued and unpaid interest and all other amounts payable
     hereunder shall bear interest at the Default Rate.

                                      -10-
<PAGE>
     2.2 FEES.

          (a)  Borrower  agrees  to pay to  Lender  on the  Closing  Date a
     non-refundable  RLC fee of $25,000.00  and a reasonable  documentation
     fee (collectively, the "Fee").

          (b)  Borrower  agrees to pay  Lender  the  Commitment  Fee on the
     Closing Date and on the first anniversary thereof.

          (c) Borrower agrees to pay a non-refundable  Term Loan Commitment
     Fee on the Closing Date.

          (d)  Borrower  agrees to pay to Lender,  upon  written  notice to
     Borrower,  Lender's  fees and  costs as  provided  herein  (including,
     without limitation,  reasonable  attorneys' fees and costs pursuant to
     Section 9.3 and the costs associated with any audit conducted pursuant
     to this Credit Agreement).

     2.3 MAINTENANCE OF ACCOUNTS.  Lender shall maintain, in accordance with its
usual  practice,  an account or  accounts  evidencing  the  indebtedness  of the
Borrower and the amounts  payable and paid from time to time  hereunder.  In any
legal action or proceeding in respect of this Credit Agreement, the entries made
in the ordinary course of business in such account or accounts shall be evidence
of the  existence  and  amounts  of the  obligations  of  the  Borrower  therein
recorded.  The failure to record any such amount  shall not,  however,  limit or
otherwise affect the obligations of the Borrower  hereunder to repay all amounts
owed  hereunder,  together with all interest  accrued thereon as provided in the
Note.

     2.4 PREPAYMENTS.  Borrower may prepay the outstanding  principal balance of
the Loan in whole or in part at any time prior to the Maturity Date, without any
penalty or premium.

                                      -11-
<PAGE>
                                   ARTICLE 2A

                                     THE RLC

     2A.1 RLC COMMITMENT.  Lender agrees to loan to, and Borrower agrees to draw
upon and borrow,  in the manner and upon the terms and  conditions  contained in
this Credit Agreement, such that the aggregate outstanding balance of the RLC at
any time,  including without  limitation the Term Balance,  shall not exceed the
RLC Commitment or that the Credit Exposure shall not exceed the Permitted Credit
Exposure.  The amount of the Term  Balance that may be  outstanding  at any time
shall be deemed to be RLC Advances outstanding at such time and shall reduce the
amount of the RLC available for further RLC Advances.

     2A.2 REVOLVING LINE OF CREDIT.

          (a) Subject to the terms and  conditions set forth in this Credit
     Agreement,  the RLC shall be a revolving line of credit, against which
     RLC Advances  may be made to Borrower,  repaid by Borrower and new RLC
     Advances made to Borrower, as Borrower may request,  provided that (i)
     no RLC  Advance  shall  be  made  if an  Event  of  Default  shall  be
     continuing,  (ii) no RLC  Advance  shall be made that would  cause the
     outstanding principal balance of the RLC, including without limitation
     the Term Balance,  to exceed the RLC Commitment,  (iii) no RLC Advance
     shall be made that  would  cause the  Credit  Exposure  to exceed  the
     Permitted Credit Exposure, and (iv) no RLC Advance shall be made on or
     after the RLC Maturity Date.

          (b) The RLC shall be evidenced by the RLC Note.

     2A.3 RLC ADVANCES.

          (a) An RLC  Advance  shall be made by  Lender  to  Borrower  upon
     written notice from Borrower in substantially the form attached hereto
     as  Exhibit  "A"  hereof  from an  Authorized  Officer  (which  notice
     Borrower  hereby  authorizes  Lender to accept by  telefacsimile)  and
     shall in addition to  complying  with the other  requirements  in this
     Credit  Agreement,  (i) specify the date and amount of the RLC Advance
     and  (ii)  specify  whether  the  purpose  of the  RLC  Advance  is to
     repurchase  stock.  Subject to  compliance  with any other  conditions
     herein, RLC Advances may be made in any amount.

          (b) In the  event  that any RLC  Advance  is for the  purpose  of
     making a purchase of  Borrower's  stock,  Borrower  shall show that it
     shall be in  compliance  with Section 7.4,  after giving effect to the
     purchase.

     2A.4 RLC  PAYMENTS.  The RLC shall bear  interest  and be payable to Lender
upon the following terms and conditions:

          (a) Interest on the RLC shall accrue at the Variable Rate.

                                      -12-
<PAGE>
          (b) All accrued and unpaid interest on the RLC through the end of
     the preceding month shall be due and payable on each Payment Date.

          (c) Except for any Term Balance,  the unpaid  principal  balance,
     all accrued and unpaid  interest  and all other  amounts  payable with
     respect  to the  RLC  shall  be due  and  payable  in  full on the RLC
     Maturity Date.

          (d) As to any Term Balance:

               (i) In addition to interest on the Term Balance, payments of
          principal  in an amount  sufficient  to fully  amortize  the Term
          Balance over thirty-six  equal monthly  payments shall be due and
          payable on each Payment  Date,  commencing  on the first  Payment
          Date after the Term Balance Date.

               (ii) The unpaid  principal  Term Balance and all accrued and
          unpaid  interest on the Term Balance  shall be due and payable in
          full on the third anniversary of the Term Balance Date.

     2A.5 EXCESS BALANCE PAYMENT; RLC CLEAN-UP.

          (a) There shall be due and payable from  Borrower to Lender,  and
     Borrower shall repay to Lender, within five (5) days of written demand
     from  Lender,  from  time to time,  any  amount  by which  the  Credit
     Exposure exceeds the Permitted Credit Exposure.

          (b)  Borrower  shall cause the unpaid  balance of the RLC,  other
     than any  outstanding  Term  Balance,  to be Zero  Dollars ($0) for at
     least thirty (30) consecutive days during each fiscal year. Failure to
     do so shall be a "Clean-Up Non-Compliance."

     2A.6  CONDITIONS.  Lender shall have no  obligation to make any RLC Advance
unless and until all of the conditions and requirements of this Credit Agreement
are fully  satisfied.  However,  Lender in its sole and absolute  discretion may
elect to make one or more RLC Advances prior to full satisfaction of one or more
such conditions and/or requirements. Notwithstanding that such an RLC Advance or
RLC Advances are made, such unsatisfied conditions and/or requirements shall not
be waived or released thereby. Borrower shall be and continue to be obligated to
fully satisfy such  conditions  and  requirements,  and Lender,  at any time, in
Lender's sole and absolute  discretion,  may stop making RLC Advances  until all
conditions and requirements are fully satisfied.

     2A.7 OTHER RLC ADVANCES BY LENDER.  Lender,  after giving fifteen (15) days
prior written  notice to Borrower to allow for corrective  action,  from time to
time, may make RLC Advances in any amount in payment of (i) insurance  premiums,
taxes,  assessments,  liens or encumbrances existing against property encumbered
by the Security Documents, (ii) interest accrued and payable upon the RLC, (iii)
any charges and expenses that are the  obligation of Borrower  under this Credit
Agreement or any Security Document, and (iv) any charges or matters necessary to
preserve the property  encumbered by the Security Documents or to cure any still
existing Event of Default.

                                      -13-
<PAGE>
     2A.8 ASSIGNMENT. Borrower shall have no right to any RLC Advance other than
to have the  same  disbursed  by  Lender  in  accordance  with the  disbursement
provisions  contained  in this Credit  Agreement.  Any  assignment  or transfer,
voluntary or involuntary,  of this Credit Agreement or any right hereunder shall
not be binding  upon or in any way affect  Lender  without its written  consent;
Lender  may  make  RLC  Advances  under  the  disbursement   provisions  herein,
notwithstanding any such assignment or transfer.

                                      -14-
<PAGE>
                                   ARTICLE 2B

                                  THE TERM LOAN

     2B.1 TERM LOAN COMMITMENT. Lender agrees to loan to, and Borrower agrees to
draw upon and borrow in a single Term Loan  Advance,  in the manner and upon the
terms and conditions  contained in this Credit  Agreement,  the Term Loan, which
Term Loan Advance shall not exceed the Term Loan Commitment.

     2B.2 TERM LOAN.

          (a) Subject to the terms and  conditions set forth in this Credit
     Agreement,  the Term Loan  shall be a single  advance  line of credit,
     provided  that (i) the Term Loan Advance shall not be made if an Event
     of Default shall be  continuing,  and (ii) the Term Loan Advance shall
     not be made after the Term Loan Deadline.

          (b) The Term Loan shall be evidenced by the Term Loan Note.

     2B.3 TERM LOAN ADVANCE.

          (a) The Term Loan  Advance  shall be made by  Lender to  Borrower
     upon written  notice from Borrower from an Authorized  Officer  (which
     notice Borrower hereby  authorizes  Lender to accept by telefacsimile)
     and shall,  in addition to complying  with the other  requirements  in
     this  Credit  Agreement,  specify the date and amount of the Term Loan
     Advance.  Subject to compliance with any other conditions  herein, the
     Term Loan Advance may be made in any amount.

          (b) The Term Loan Advance shall be made solely for the purpose of
     making a purchase of Borrower's stock.

     2B.4 TERM LOAN  PAYMENTS.  The Term Loan shall bear interest and be payable
to Lender upon the following terms and conditions:

          (a)  Interest  on the Term  Loan  shall  accrue  at the Term Loan
     Variable Rate.

          (b) All accrued and unpaid  interest on the Term Loan through the
     end of the  preceding  month shall be due and payable on each  Payment
     Date.

          (c) In addition to interest on the principal  balance of the Term
     Loan,  payments of principal in an amount sufficient to fully amortize
     the principal  balance over sixty (60) equal monthly payments shall be
     due and payable on each Payment Date,  commencing on the first Payment
     Date after the Term Loan Advance Date.

                                      -15-
<PAGE>
          (d) The unpaid principal balance, all accrued and unpaid interest
     and all other  amounts  payable with respect to the Term Loan shall be
     due and payable in full on the Term Loan Maturity Date.

     2B.5  CONDITIONS.  Lender  shall have no  obligation  to make the Term Loan
Advance unless and until all of the conditions and  requirements  of this Credit
Agreement  are  fully  satisfied.  However,  Lender  in its  sole  and  absolute
discretion may elect to make the Term Loan Advance prior to full satisfaction of
one or more such conditions and/or requirements.  Notwithstanding that such Term
Loan Advance is made, such unsatisfied  conditions and/or requirements shall not
be waived or released thereby. Borrower shall be and continue to be obligated to
fully satisfy such conditions and requirements.

     2B.6  ASSIGNMENT.  Borrower  shall  have no right to the Term Loan  Advance
other  than to have  the  same  disbursed  by  Lender  in  accordance  with  the
disbursement  provisions  contained in this Credit Agreement.  Any assignment or
transfer,  voluntary  or  involuntary,  of this  Credit  Agreement  or any right
hereunder  shall not be binding  upon or in any way affect  Lender  without  its
written  consent;  Lender may make the Term Loan Advance under the  disbursement
provisions herein, notwithstanding any such assignment or transfer.

                                      -16-
<PAGE>
                                   ARTICLE 3

                               SECURITY; GUARANTEE

     3.1 SECURITY. So long as any Loan is outstanding, Borrower shall cause such
Loan and Borrower's obligations under this Credit Agreement to be secured at all
times by a valid and effective  security  agreement (the "Security  Agreement"),
duly executed and delivered by or on behalf of Borrower, granting Lender a valid
and enforceable  security  interest in all of its personal property as described
therein, subject to no prior Liens except for Permitted Liens. Personal property
leased  by  Borrower  from a third  party  pursuant  to an  operating  lease  as
determined  under GAAP shall not be subject to said security  interest on behalf
of Lender and any lease  agreement  related  to such  leased  personal  property
shall, for purposes of this Credit Agreement, not be deemed a Lien.

     3.2 SECURITY  DOCUMENTS.  All of the  documents  required by this Article 3
shall be in form satisfactory to Lender and Lender's counsel, and, together with
any  financing  statements  for filing  and/or  recording,  and any other  items
required  by Lender  to fully  perfect  and  effectuate  the liens and  security
interests  of Lender  contemplated  by the Security  Agreement,  and this Credit
Agreement,  may  heretofore  or  hereinafter  be  referred  to as the  "Security
Documents."

     3.3 GUARANTEE. So long as the Loan is outstanding, Borrower shall cause the
Loan and  Borrower's  obligations  under this Credit  Agreement to be guaranteed
under a Continuing Guarantee (the "Guarantee") from the Guarantor.

                                      -17-
<PAGE>
                                   ARTICLE 4

                              CONDITIONS PRECEDENT

     The  obligation of Lender to make the Loan and to make each and any Advance
hereunder is subject to the full prior satisfaction at each such time of each of
the following conditions precedent:

     4.1  INITIAL OR ANY  SUBSEQUENT  ADVANCE.  Prior to its making the  initial
Advance or any subsequent Advance, Lender shall have received the following each
in form and substance satisfactory to Lender:

          (a) THIS CREDIT AGREEMENT.  This Credit Agreement,  duly executed
     and delivered to Lender by Borrower.

          (b) THE RLC  NOTE AND THE TERM  LOAN  NOTE.  The RLC Note and the
     Term Loan Note, each duly executed by Borrower,  drawn to the order of
     Lender and otherwise as provided in Articles 2A and 2B hereof.

          (c)   ORGANIZATIONAL   DOCUMENTS.   A   copy   of   the   current
     organizational  documents of Borrower and  Guarantor,  including as to
     each all amendments thereto,  certified as current and complete by the
     appropriate  authority of the state of its  formation,  together  with
     evidence of its good standing in its state of formation.

          (d)  RESOLUTION.  A certified copy of the resolutions of Borrower
     and Guarantor,  each authorizing to the extent applicable the RLC, the
     execution, delivery, and performance of this Credit Agreement, the RLC
     Note, the Credit  Documents,  all advances of credit hereunder and the
     Guarantee.

          (e) SECURITY AGREEMENT. The Security Agreement, duly executed and
     delivered to Lender by Borrower.

          (f)  GUARANTEE.  The  Guarantee,  duly  executed and delivered to
     Lender by Guarantor.

          (g) SUBORDINATION AGREEMENTS. Subordination Agreements acceptable
     to Lender  executed  by each  Affiliate  of  Borrower  to which it has
     Indebtedness  outstanding,  substantially  in the  form of  Exhibit  D
     hereto.

          (h) LENDER'S FEES AND COSTS.  Payment of the Fee, the  Commitment
     Fee due on the Closing Date,  and the Term Loan  Commitment  Fee, plus
     Lender's other fees and costs.

          (i)   COMPLIANCE    CERTIFICATE.    A   Compliance    Certificate
     substantially in the form of Exhibit "B" attached  hereto,  indicating
     that  Borrower is in  compliance  with the  Financial  Covenants as of
     March 31, 2003.

                                      -18-
<PAGE>
          (j) FINANCING  STATEMENTS.  A Financing Statement naming Borrower
     as debtor  and Lender as  secured  party to be filed with the  Arizona
     Secretary of State.

          (k)  ACCOUNTS  RECEIVABLE.  A listing  and aging of the  accounts
     receivable of Borrower as of March 31, 2003.

          (l) INVENTORY.  A listing of Borrower's inventory as of March 31,
     2003.

          (m) FINANCIAL STATEMENTS. Financial Statements of Guarantor as of
     December 31, 2002.

          (n) LANDLORD WAIVERS.  To the extent reasonably  available on the
     Closing  Date,  lien  waivers  executed by the landlord of each leased
     premises  where  Collateral is located,  substantially  in the form of
     Exhibit E hereto;  provided that Lender in its  reasonable  discretion
     may accept  other  forms of lien  waivers or  subordinations  and that
     Borrower shall provide to Lender within sixty (60) days of the Closing
     Date any landlord lien waivers not reasonably available on the Closing
     Date.

          (o) ADDITIONAL INFORMATION.  Such other information and documents
     as may reasonably be required by Lender or Lender's counsel.

     4.2 NO EVENT OF DEFAULT.  No Event of Default known to Borrower  shall have
occurred and be continuing, or result from Lender's making of any Loan.

     4.3 NO MATERIAL ADVERSE EFFECT. Since the date of the most recent financial
statements provided to Lender by Borrower,  no change shall have occurred in the
business or financial  condition of Borrower that could have a Material  Adverse
Effect.

     4.4  REPRESENTATIONS  AND WARRANTIES.  The  representations  and warranties
contained  in  Article  5  hereof  shall  be true and  correct  in all  material
respects, with the same force and effect as though made on and as of the Closing
Date  (other than those of such  representations  which by their  express  terms
speak to a date prior to that date, which representations shall, in all material
respects, be true and correct as of such respective date).

                                      -19-
<PAGE>
                                   ARTICLE 5

                         REPRESENTATIONS AND WARRANTIES

     To induce  Lender to make the Loans,  Borrower  represents  and warrants to
Lender that:

     5.1  RECITALS.  The recitals  and  statements  of intent  appearing in this
Credit Agreement are true and correct.

     5.2 ORGANIZATION AND GOOD STANDING. It is duly organized,  validly existing
and in good  standing  in all  states in which the  nature of its  business  and
property makes such  qualifications  necessary or appropriate,  except where the
failure to so qualify would not have a Material Adverse Effect. It has the legal
power and  authority  to own its  properties  and  assets  and to  transact  the
business  in which it is engaged  and is or will be  qualified  in those  states
wherein  the  nature  of its  proposed  business  and  property  will  make such
qualifications  necessary or appropriate in the future, except where the failure
to have such  legal  right or to so qualify  would not have a  Material  Adverse
Effect.

     5.3  AUTHORIZATION  AND POWER. It has the power and requisite  authority to
execute,  deliver and  perform  this  Credit  Agreement,  the Note and the other
Credit  Documents to be executed by it; it is duly  authorized to, and has taken
all action,  corporate or  otherwise,  necessary  to  authorize it to,  execute,
deliver  and  perform  this  Credit  Agreement,  the Note and such other  Credit
Documents and is and will continue to be duly  authorized to perform this Credit
Agreement, the Note and such other Credit Documents.

     5.4 SECURITY  DOCUMENTS.  The liens,  security  interests  and  assignments
created by the Security  Documents will, when granted,  be valid,  effective and
enforceable liens, security interests and assignments,  except to the extent (if
any) otherwise agreed in writing by Lender.

     5.5 NO CONFLICTS OR CONSENTS.  Neither the  execution  and delivery of this
Credit  Agreement,  the Notes or the  other  Credit  Documents  to which it is a
party,  nor  the  consummation  of any of the  transactions  herein  or  therein
contemplated,  nor compliance  with the terms and provisions  hereof or with the
terms and provisions thereof,  (a) will materially  contravene or conflict with:
(i) any provision of law, statute or regulation to which it is subject, (ii) any
judgment,  license,  order or permit  applicable to it, or (iii) any Significant
Debt  Agreement,  or (b)  will  violate  any  provision  of  its  organizational
documents.  No  consent,  approval,  authorization  or  order  of any  court  or
Governmental  Authority  or other  Person is  required  in  connection  with the
execution  and  delivery  by it of the Credit  Documents  or to  consummate  the
transactions  contemplated  hereby or thereby,  or if  required,  such  consent,
approval,  authorization  or order shall have been  obtained,  except  where the
failure to obtain such consent, approval,  authorization or order would not have
a Material Adverse Effect.

     5.6 NO  LITIGATION.  Except  for those  matters  that have been  previously
disclosed to Lender in writing, there are no actions, suits or legal, equitable,
arbitration or administrative  proceedings  pending,  or to its actual knowledge
overtly threatened, against Borrower that would, if adversely determined, have a
Material Adverse Effect.

                                      -20-
<PAGE>
     5.7  FINANCIAL  CONDITION.  It  has  delivered  to  Lender  copies  of  the
Borrower's most recent financial statements.  Such financial statements,  in all
material  respects,  fairly and  accurately  present the  financial  position of
Borrower as of such date, have been prepared in accordance with GAAP and neither
contain  any untrue  statement  of a material  fact nor fail to state a material
fact required in order to make such  financial  statement not  misleading (as to
the  unaudited  interim  financial  statements,  subject to the normal  year-end
adjustments and the absence of footnotes).  Since the date thereof, Borrower has
not  discovered  any   obligations,   liabilities  or  indebtedness   (including
contingent  and  indirect  liabilities  and  obligations  or unusual  forward or
long-term  commitments)  which in the  aggregate are material and adverse to the
financial  position or  business of Borrower  that should have been but were not
reflected in such financial  statements.  No changes  having a Material  Adverse
Effect have  occurred in the financial  condition or business of Borrower  since
the date of such financial statements.

     5.8 TAXES. It has filed or caused to be filed all returns and reports which
are required to be filed by any jurisdiction, and has paid or made provision for
the  payment  of all  taxes,  assessments,  fees or other  governmental  charges
imposed upon its  properties,  income or franchises,  as to which the failure to
file or pay would have a Material  Adverse  Effect,  except such  assessments or
taxes,  if  any,  which  are  being  contested  in  good  faith  by  appropriate
proceedings.

     5.9  NO  STOCK  PURCHASE.   No  part  of  the  proceeds  of  any  financial
accommodation  made by Lender in connection  with this Credit  Agreement will be
used to purchase or carry "margin  stock," as that term is defined in Regulation
U, or to extend  credit to others for the purpose of purchasing or carrying such
margin stock.

     5.10  ADVANCES.  Each  request for an Advance or for the  extension  of any
financial  accommodation  by Lender  whatsoever  shall constitute an affirmation
that the representations  and warranties  contained herein are, true and correct
as of the time of such request.  All  representations and warranties made herein
shall survive the execution of this Credit  Agreement,  all advances of proceeds
of the  Loan  and  the  execution  and  delivery  of  all  other  documents  and
instruments in connection with the Loan and/or this Credit Agreement, so long as
Lender has any  commitment to lend hereunder and until the Loan has been paid in
full and all of Borrower's obligations under this Credit Agreement, the Note and
all Security Documents have been fully discharged.

     5.11 ENFORCEABLE OBLIGATIONS. This Credit Agreement, the Note and the other
Credit  Documents  are the legal,  valid and binding  obligations  of  Borrower,
enforceable  against Borrower in accordance with their respective terms,  except
as limited by  bankruptcy,  insolvency or other laws or equitable  principles of
general application relating to the enforcement of creditors' rights.

     5.12 NO DEFAULT.  No event or condition has occurred and is continuing that
constitutes an Event of Default.

     5.13  SIGNIFICANT  DEBT  AGREEMENTS.  It is not in default in any  material
respect under any Significant Debt Agreement.

                                      -21-
<PAGE>
     5.14 ERISA.  (a) No Reportable  Event has occurred and is  continuing  with
respect to any Plan;  (b) PBGC has not  instituted  proceedings to terminate any
Plan;  (c) neither the Borrower,  any member of the  Controlled  Group,  nor any
duly-appointed  administrator  of a Plan (i) has incurred any  liability to PBGC
with  respect to any Plan other than for premiums not yet due or payable or (ii)
has  instituted or intends to institute  proceedings to terminate any Plan under
Section  4041 or  4041A  of  ERISA;  and (d)  each  Plan of  Borrower  has  been
maintained and funded in all material  respects in accordance with its terms and
in all material  respects in accordance with all provisions of ERISA  applicable
thereto. Neither the Borrower nor any of its Subsidiaries participates in, or is
required  to make  contributions  to, any  Multi-employer  Plan (as that term is
defined in Section 3(37) of ERISA).

     5.15  COMPLIANCE  WITH LAW. It is in substantial  compliance with all laws,
rules,  regulations,  orders, writs, injunctions and decrees that are applicable
to it, or its properties, noncompliance with which would have a Material Adverse
Effect.

     5.16  SOLVENT.  It (both  before  and  after  giving  effect  to the  Loans
contemplated hereby) is solvent, has assets having a fair value in excess of the
amount  required to pay its probable  liabilities  on its existing debts as they
become absolute and matured,  and has, and will have, access to adequate capital
for the  conduct of its  business  and the ability to pay its debts from time to
time incurred in connection therewith as such debts mature.

     5.17  INVESTMENT  COMPANY ACT. It is not, and is not directly or indirectly
controlled  by, or acting on behalf  of,  any  person  which is, an  "Investment
Borrower" within the meaning of the Investment Borrower Act of 1940, as amended.

     5.18 TITLE. It has good and marketable title to the Collateral,  subject to
the Permitted Lien.

     5.19 SURVIVAL OF  REPRESENTATIONS,  ETC. All representations and warranties
by Borrower  herein shall  survive the making of any Loan and the  execution and
delivery  of any  Note;  any  investigation  at any time made by or on behalf of
Lender  shall not diminish  Lender's  right to rely on the  representations  and
warranties herein.

     5.20  ENVIRONMENTAL  MATTERS.  Except as previously  disclosed to Lender in
writing,  it,  to the  best of its  knowledge  after  due  investigation,  is in
compliance in all material  respects with all applicable  environmental,  health
and safety  statutes and  regulations  and  Borrower  does not have any material
contingent  liability in  connection  with any improper  treatment,  disposal or
release into the environment of any hazardous or toxic waste or substance.

     5.21  LICENSES,  TRADENAMES.  It,  as of the  date  hereof,  possesses  all
necessary  trademarks,  tradenames,  copyrights,  patents,  patent  rights,  and
licenses to conduct its  business as now  operated,  without any known  conflict
with valid  trademarks,  tradenames,  copyright  patents and  license  rights of
others,  except for  matters  which could not  reasonably  be expected to have a
Material Adverse Effect.

                                      -22-
<PAGE>
                                    ARTICLE 6

                              AFFIRMATIVE COVENANTS

     Until  payment  in full of the Loan  and the  complete  performance  of the
Obligation, Borrower agrees that:

     6.1 FINANCIAL STATEMENTS, REPORTS AND DOCUMENTS. It shall deliver, or cause
to be delivered, to Lender each of the following:

          (a) ANNUAL  STATEMENTS OF GUARANTOR.  As soon as available and in
     any event within one hundred twenty (120) days after the close of each
     fiscal year of  Guarantor,  audited,  consolidated  and  consolidating
     financial  statements of Guarantor,  including its balance sheet as of
     the close of such fiscal year and  statements  of income of  Guarantor
     for such fiscal year, in each case setting forth in  comparative  form
     the figures for the preceding  fiscal year,  all in reasonable  detail
     and  accompanied  by an  unqualified  opinion  thereon of  independent
     public accountants of recognized national standing, to the effect that
     such financial statements have been prepared in accordance with GAAP.

          (b) QUARTERLY STATEMENTS OF GUARANTOR. As soon as available,  and
     in any event within forty-five (45) days after each Quarterly End Date
     (except  for that at the  close of the  fiscal  year),  copies  of the
     balance  sheet  of  Guarantor  as of  such  Quarterly  End  Date,  and
     statement of income of Guarantor  for that quarter and for the portion
     of the fiscal  year  ending with such  quarter,  in each case  setting
     forth in comparative form the figures for the corresponding  period of
     the preceding fiscal year, all in reasonable detail and fairly stated,
     certified by Guarantor  and prepared by Guarantor in  accordance  with
     GAAP (as to the unaudited interim financial statements, subject to the
     normal year-end adjustments and the absence of footnotes).

          (c) COMPLIANCE  CERTIFICATE.  Within  forty-five  (45) days after
     each  Quarterly End Date  hereafter and one hundred  twenty (120) days
     after the year end of each fiscal  year of  Guarantor,  a  certificate
     signed  by the  chief  financial  officer  of the  Guarantor  and  the
     Borrower,  substantially  in the form of Exhibit "B"  attached  hereto
     certifying  that after a review of the  activities of Borrower  during
     such period,  Borrower has observed,  performed and fulfilled each and
     every obligation and covenant contained herein and no Event of Default
     exists  under any of the same or, if any Event of  Default  shall have
     occurred,  specifying the nature and status thereof,  and stating that
     all financial  statements of Guarantor  delivered to Lender during the
     respective  period pursuant to Sections  6.1(a) and 6.1(b) hereof,  to
     his or her  knowledge,  fairly  present in all  material  respect  the
     financial  position of the Guarantor and the results of its operations
     at the dates and for the periods indicated,  and have been prepared in
     accordance  with GAAP,  together with a  calculation  of the Financial
     Covenants (as to the unaudited interim financial  statements,  subject
     to the normal year-end adjustments and the absence of footnotes).

                                      -23-
<PAGE>
          (d) BORROWING BASE CERTIFICATE. Within twenty (20) days after the
     end of each month, a Borrowing Base  Certificate  substantially in the
     form attached hereto as Exhibit "C".

          (e) OTHER MONTHLY REPORTS.  Within twenty (20) days after the end
     of each  month,  aging  reports  as to  Borrower's  accounts  payable,
     accounts receivable and inventory.

          (f) SEC.  Within  twenty  (20) days of filing,  a complete  copy,
     including all schedules, of any SEC filings made by Guarantor.

          (g) OTHER  INFORMATION.  Such other  information  concerning  the
     business,  properties or financial condition of Borrower and Guarantor
     as Lender shall reasonably request in writing.

     6.2 MAINTENANCE OF EXISTENCE AND RIGHTS;  CONDUCT OF BUSINESS;  MANAGEMENT.
It will preserve and maintain its  existence and all of its rights,  privileges,
licenses,  permits,  franchises and other rights necessary in the normal conduct
of its  business,  conduct  its  business  in an orderly  and  efficient  manner
consistent with good business practices and maintain professional  management of
its business.

     6.3  OPERATIONS  AND  PROPERTIES.  It will keep in good  working  order and
condition,  ordinary wear and tear  excepted,  all of its assets and  properties
which are necessary to the conduct of its business.

     6.4 AUTHORIZATIONS AND APPROVALS. It will maintain, at its own expense, all
such governmental licenses,  authorizations,  consents, permits and approvals as
may be required to enable it to comply with its obligations  hereunder and under
the other  Credit  Documents  and to operate  its  businesses  as  presently  or
hereafter duly conducted.

     6.5 COMPLIANCE  WITH LAW. It will comply with all applicable  laws,  rules,
regulations,  and all final,  nonappealable orders of any Governmental Authority
applicable to it or any of its property,  business  operations or  transactions,
including without limitation,  any environmental laws applicable to it, a breach
of which could result in a Material Adverse Effect.

     6.6 PAYMENT OF TAXES AND OTHER INDEBTEDNESS.  It will pay and discharge (i)
all  income  taxes  and  payroll  taxes  before  delinquency,  (ii)  all  taxes,
assessments,  fees and other  governmental  charges  imposed upon it or upon its
income or profits,  or upon any  property  belonging to it,  before  delinquent,
which  become due and payable,  (iii) all lawful  claims  (including  claims for
labor,  materials and supplies),  which, if unpaid, might become a Lien upon any
of its property and (iv) all of its  Indebtedness  arising under any Significant
Debt  Agreement as it becomes due and payable,  except as prohibited  hereunder;
provided,  however,  that  it  shall  not be  required  to  pay  any  such  tax,
assessment,  charge,  levy, claims or Indebtedness if and so long as the amount,
applicability  or validity thereof shall currently be contested in good faith by
appropriate  actions and  appropriate  accruals and reserves  therefor have been
established in accordance with GAAP.

                                      -24-
<PAGE>
     6.7 COMPLIANCE WITH  SIGNIFICANT DEBT AGREEMENTS AND OTHER  AGREEMENTS.  It
will comply in all material  respects with (i) all Significant  Debt Agreements,
and (ii) all  agreements and contracts to which it is a party, a breach of which
could result in a Material Adverse Effect.

     6.8  COMPLIANCE  WITH  CREDIT  DOCUMENTS.  It will  comply with any and all
covenants  and  provisions  of this  Credit  Agreement,  the Notes and all other
Credit Documents.

     6.9 NOTICE OF DEFAULT.  It will furnish to Lender  promptly  upon  becoming
actually  aware of the existence of any event or condition  that  constitutes an
Event of Default, a written notice specifying the nature and period of existence
thereof  and the  action  which it is taking or  proposes  to take with  respect
thereto.

     6.10 OTHER NOTICES.  It will promptly notify Lender upon becoming  actually
aware of (a) any Material  Adverse  Effect,  (b) any waiver,  release or default
under any  Significant  Debt  Agreement,  (c) any material  claim not covered by
insurance  against  Borrower  or any  of  Borrower's  properties,  and  (d)  the
commencement  of, and any material  determination  in, any  litigation  with any
third party or any proceeding  before any Governmental  Authority  affecting it,
except litigation or proceedings which, if adversely determined,  would not have
a Material Adverse Effect.

     6.11 BOOKS AND RECORDS; ACCESS; AUDITS. After and during the continuance of
an Event of Default,  upon three (3) Banking  Days notice from  Lender,  it will
give any authorized representative of Lender access during normal business hours
to, and permit such  representative to examine,  copy or make excerpts from, any
and all books,  records and  documents in its  possession of and relating to the
Loan,  and to inspect  any of its  properties.  It will  maintain  complete  and
accurate  books  and  records  of  its  transactions  in  accordance  with  good
accounting practices. In addition, it will give any authorized representative of
Lender access during normal business hours to conduct a minimum of one (1) audit
per year. The costs of such audit,  which shall not exceed  $3,000.00,  shall be
for the account of the Borrower.

     6.12 ERISA COMPLIANCE. With respect to its Plans, it shall (a) at all times
comply with the minimum funding  standards set forth in Section 302 of ERISA and
Section  412 of the Code or shall  have duly  obtained  a formal  waiver of such
compliance from the proper  authority;  (b) at Lender's written request,  within
thirty  (30) days after the  filing  thereof,  furnish to Lender  copies of each
annual   report/return  (Form  5500  Series),  as  well  as  all  schedules  and
attachments  required  to be filed  with the  Department  of  Labor  and/or  the
Internal Revenue Service pursuant to ERISA, in connection with each of its Plans
for each year of the plan;  (c) notify  Lender  within a  reasonable  time after
becoming  actually  aware  of any  fact,  including,  but not  limited  to,  any
Reportable Event arising in connection with any of its Plans,  which constitutes
grounds  for  termination  thereof  by the  PBGC or for the  appointment  by the
appropriate  United States  District Court of a trustee to administer such Plan,
together with a statement,  if requested in writing by Lender,  as to the reason
therefor and the action, if any, proposed to be taken with respect thereto;  and
(d) furnish to Lender within a reasonable  time, upon Lender's  written request,
such  additional  information  concerning  any of its Plans as may be reasonably
requested.

     6.13 FURTHER ASSURANCES.  It will make, execute or endorse, and acknowledge
and  deliver  or  file  or  cause  the  same  to  be  done,  all  such  notices,
certifications and additional agreements,  undertakings or other assurances, and

                                      -25-
<PAGE>
take any and all such  other  action,  as Lender  may,  from time to time,  deem
reasonably necessary or proper to fully evidence the Loan.

     6.14 INSURANCE. It shall maintain in full force and effect at all times all
insurance coverages required under the terms of this Credit Agreement and/or the
Security  Documents to which it is a party.  In addition,  it shall  maintain in
full force and effect at all times:

          (a) Policies of all risk coverage insurance covering all tangible
     personality  in which  Lender has been  granted or obtained a security
     interest to secure the Obligation,  in coverage amounts not less than,
     from time to time, the fair market value thereof.

          (b) Policies of insurance evidencing personal liability, property
     damage  liability  and  malpractice  liability  coverages  in  amounts
     sufficient  to  protect  its assets and  reasonable  for its  business
     operations,  both as reasonably  acceptable to Lender, and an umbrella
     excess  liability  coverage in an amount  reasonable  for its business
     operations and reasonably acceptable to Lender shall be in effect with
     respect to Borrower.

          (c)  Policies of workers'  compensation  insurance in amounts and
     with coverages as legally required.

          (d) Such  other  insurance  as  Lender  may  require,  which  may
     include,  without  limitation,  earthquake  insurance,  rent abatement
     and/or business loss.

Without  limitation of the foregoing,  it shall at all times maintain  insurance
coverages in scope and amount not less than,  and not less  extensive  than, the
scope and amount of insurance coverages customary in the trades or businesses in
which it is from time to time engaged.  All of the aforesaid insurance coverages
shall be issued by insurers reasonably acceptable to Lender.

     Copies of all policies of  insurance  evidencing  such  coverages in effect
from time to time and  showing  Lender as an  additional  insured and loss payee
shall be  delivered to Lender  within  fifteen (15) days of the Closing Date and
upon  issuance of new  policies  thereafter.  From time to time,  promptly  upon
Lender's written request, it shall provide evidence  reasonably  satisfactory to
Lender (i) that  required  coverage in required  amounts is in effect,  and (ii)
that Lender is shown as an additional insured and loss payee with respect to all
such coverages,  as Lender's interest may appear, by standard  (non-attribution)
loss payable endorsement,  additional insured endorsement, insurer's certificate
or other means  acceptable to Lender in its reasonable  discretion.  At Lender's
option,  it shall  deliver to Lender  certified  copies of all such  policies of
insurance  in effect  from  time to time,  to be  retained  by Lender so long as
Lender shall have any  commitment  to lend  hereunder  and/or any portion of the
Obligation  shall be outstanding  or  unsatisfied.  All such insurance  policies
shall  provide  for at least  thirty  (30)  days  prior  written  notice  of the
cancellation or modification thereof to Lender.

                                      -26-
<PAGE>
                                    ARTICLE 7

                               NEGATIVE COVENANTS

     Until payment in full of the Loan and the  performance  of the  Obligation,
Borrower  shall not,  without  receiving  the prior express  written  consent of
Lender:

     7.1 EXISTENCE.  Dissolve or liquidate, or merge or consolidate with or into
any other  entity,  or turn over the  management  or operation of its  property,
assets or business  to any other  Person or make any  substantial  change in the
character of its business.

     7.2  AMENDMENTS  TO  ORGANIZATIONAL  DOCUMENTS.  Amend  its  organizational
documents  if the result  thereof  could  result in the  occurrence  directly or
indirectly of a Material Adverse Effect.

     7.3 MARGIN  STOCK.  Use any  proceeds of the Loan,  or any  proceeds of any
other or future  financial  accommodation  from Lender for the purpose,  whether
immediate,  incidental or ultimate, of purchasing or carrying any "margin stock"
as that term is defined in Regulation U or to reduce or retire any  indebtedness
undertaken for such purposes  within the meaning of said  Regulation U, and will
not use such proceeds in a manner that would involve  Borrower in a violation of
Regulation U or of any other Regulation of the Board of Governors of the Federal
Reserve System, nor use such proceeds for any purpose not permitted by Section 7
of the  Exchange  Act,  or  any  of the  rules  or  regulations  respecting  the
extensions of credit promulgated thereunder.

     7.4 STOCK REPURCHASE.  Purchase its stock in excess of $3,500,000.00 in the
aggregate during any fiscal year.

     7.5 LIENS. On and after the date hereof, create, issue, assume or suffer to
exist Liens upon the Collateral, except Permitted Liens.

     7.6 TRANSFER COLLATERAL. Assign, transfer or convey any of its right, title
and  interest  in the  Collateral,  other  than (i)  sales of  inventory  in the
ordinary course of business or (ii)  expenditures of cash or other Collateral to
pay ordinary  operating  expenses as and when incurred or (iii)  dispositions of
obsolete items of de minimis value in the ordinary course of business.

     7.7  MERGER;  SALE OF  ASSETS.  (i) Sell,  lease,  transfer  or  dispose of
substantially  all of the Collateral to another entity; or (ii) consolidate with
or merge into  another  entity,  or permit any other  entity to merge into it or
consolidate  with it,  or  permit  any  transfer  of the  ownership  or power to
control, Borrower.

     7.8 LOANS;  INVESTMENTS.  Make any loans,  investments or advances to or in
any Person,  including  without  limitation any Affiliates,  other than loans or
advances made in the ordinary and normal course of business as now conducted.

     7.9  CAPITAL   EXPENDITURES.   Make  capital   expenditures  in  excess  of
$600,000.00 in the aggregate during any fiscal year.

                                      -27-
<PAGE>
     7.10  INDEBTEDNESS.  Except for existing  Indebtedness as shown on Schedule
7.10  hereto,  permit to exist any  Indebtedness  from any Person  other than an
Affiliate whose indebtedness is subject to a Subordination  Agreement or Lender,
other  than  additional  Indebtedness  in  the  aggregate  principal  amount  of
$500,000.00 at any time outstanding.

     7.11 FINANCIAL COVENANTS. Permit:

          (a) Current Ratio: The Current Ratio of Guarantor to be less than
     1.50 to 1.00 at each Quarterly End Date.

          (b) The  Leverage  Ratio of  Guarantor to be greater than 1.25 to
     1.00 at each Quarterly End Date.

          (c) Interest Coverage Ratio: The ratio of Guarantor's EBIT to its
     interest  expense  to be less  than  1.50 to  1.00,  measured  at each
     Quarterly  End  Date on an  annualized  basis  on a  rolling  four (4)
     quarter basis.

          (d) Its net  income  after  taxes to be less  than  $1.00 for two
     consecutive fiscal quarters during any fiscal year.

                                      -28-
<PAGE>
                                    ARTICLE 8

                                EVENTS OF DEFAULT

     8.1 EVENTS OF DEFAULT. An "Event of Default" shall exist if any one or more
of the following events (herein  collectively  called "Events of Default") shall
occur and be continuing:

          (a) Borrower  shall fail to pay any principal of, or interest on,
     any Note when the same shall  become due or payable  and such  failure
     continues for five (5) Banking Days after such date.

          (b) Any  failure or  neglect  to  perform  or observe  any of the
     covenants, conditions,  provisions or agreements of Borrower contained
     herein,  or in any of the other Credit Documents (other than a failure
     or neglect  described in one or more of the other  provisions  of this
     Section 8.1) and such failure or neglect either cannot be remedied or,
     if it can be remedied,  it continues unremedied for a period of thirty
     (30) days after written notice thereof to Borrower.

          (c) Any warranty,  representation or statement  contained in this
     Credit  Agreement  or any of the other Credit  Documents,  or which is
     contained in any certificate or statement  furnished or made to Lender
     pursuant hereto or in connection  herewith or with the Loan,  shall be
     or shall prove to have been false in any material respect when made or
     furnished.

          (d)  The  occurrence  of  any  material  "event  of  default"  or
     "default"  by Borrower  beyond any  applicable  notice,  grace or cure
     period under any Credit Document.

          (e) Borrower or Guarantor shall (i) fail to pay any  Indebtedness
     (other than the Note) due under any Significant Debt Agreement, or any
     interest or premium thereon,  when due (whether by scheduled maturity,
     required prepayment, acceleration, demand, or otherwise) or within any
     applicable  grace  period,  (ii) fail to perform or observe  any term,
     covenant,  or condition on its part to be performed or observed  under
     any  agreement or  instrument  relating to such  Indebtedness  arising
     under such  Significant  Debt Agreement,  within any applicable  grace
     period when  required to be performed  or  observed,  if the effect of
     such  failure to perform or observe is to  accelerate  the maturity of
     such  Indebtedness,  or any such Indebtedness  shall be declared to be
     due and payable in full, or required to be prepaid in full (other than
     by a regularly  scheduled  prepayment),  prior to the stated  maturity
     thereof,  or (iii)  allow  the  occurrence  of any  material  event of
     default  with  respect  to such  Indebtedness  arising  under any such
     Significant Debt Agreement, which material event of default results in
     such Indebtedness being declared due and payable in full.

          (f) Any  one or more of the  Credit  Documents  shall  have  been
     determined  to  be  invalid  or  unenforceable   against  Borrower  or
     Guarantor the same in accordance with the respective terms thereof, or
     shall in any way be terminated or become or be declared ineffective or

                                      -29-
<PAGE>
     inoperative,   so  as  to  deny   Lender  the   substantial   benefits
     contemplated by such Credit Document or Credit Documents.

          (g) Borrower or  Guarantor  shall (i) apply for or consent to the
     appointment  of  a  receiver,   trustee,   custodian,   intervenor  or
     liquidator  of itself or of all or a  substantial  part of its assets,
     (ii) file a voluntary  petition in bankruptcy or admit in writing that
     it is unable to pay its debts as they become due, (iii) make a general
     assignment  for the  benefit of  creditors,  (iv) file a  petition  or
     answer seeking  reorganization  of an arrangement with creditors or to
     take  advantage of any  bankruptcy  or  insolvency  laws,  (v) file an
     answer  admitting  the  material  allegations  of, or  consent  to, or
     default in answering,  a petition filed against it in any  bankruptcy,
     reorganization or insolvency proceeding, or (vi) take corporate action
     for the purpose of effecting any of the foregoing

          (h) An involuntary  petition or complaint  shall be filed against
     Borrower  or  Guarantor,   seeking  bankruptcy  or  reorganization  of
     Borrower or Guarantor,  or the  appointment of a receiver,  custodian,
     trustee,  intervenor or liquidator of Borrower or Guarantor, or all or
     substantially all of its assets,  and such petition or complaint shall
     not have been dismissed within ninety (90) days of the filing thereof;
     or an order, order for relief,  judgment or decree shall be entered by
     any  court of  competent  jurisdiction  or other  competent  authority
     approving a petition or complaint  seeking  reorganization of Borrower
     or Guarantor, appointing a receiver, custodian, trustee, intervenor or
     liquidator of Borrower or Guarantor,  or all or  substantially  all of
     its assets, and such order, judgment or decree shall continue unstayed
     and in effect for a period of ninety (90) days.

          (i) Any final  judgment(s)  (excluding  those the  enforcement of
     which is suspended  pending appeal) for the payment of money in excess
     of the sum of  $100,000  in the  aggregate  (other  than any  judgment
     covered by  insurance  where  coverage  has been  acknowledged  by the
     insurer)  shall be rendered  against  Borrower,  and such  judgment or
     judgments  shall not be  satisfied,  settled,  bonded or discharged at
     least ten (10) days prior to the date on which any of its assets could
     be lawfully sold to satisfy such judgment.

          (j)  Either  (i)  proceedings   shall  have  been  instituted  to
     terminate,  or a notice of  termination  shall  have been  filed  with
     respect to, any Plans  (other than a  Multi-Employer  Pension  Plan as
     that term is defined in Section 4001(a)(3) of ERISA) by Borrower,  any
     member of the  Controlled  Group,  PBGC or any  representative  of any
     thereof,  or any such Plan  shall be  terminated,  in each case  under
     Section 4041 or 4042 of ERISA, and such termination shall give rise to
     a liability of the Borrower or the Controlled Group to the PBGC or the
     Plan  under  ERISA  having an effect in excess of  $100,000  or (ii) a
     Reportable  Event,  the occurrence of which would cause the imposition
     of a lien in excess of $100,000  under  Section  4062 of ERISA,  shall
     have  occurred  with respect to any Plan (other than a  Multi-Employer

                                      -30-
<PAGE>
     Pension Plan as that term is defined in Section  4001(a)(3)  of ERISA)
     and be continuing for a period of ninety (90) days.

          (k) Any of the  following  events shall occur with respect to any
     Multi-Employer  Pension  Plan  (as that  term is  defined  in  Section
     4001(a)(3) of ERISA) to which  Borrower  contributes or contributed on
     behalf of its employees  and Lender  determines in good faith that the
     aggregate liability likely to be incurred by Borrower,  as a result of
     any of the events  specified in Subsections (i), (ii) and (iii) below,
     will  have an effect in excess  of  $100,000;  (i)  Borrower  incurs a
     withdrawal  liability under Section 4201 of ERISA;  (ii) any such plan
     is "in  reorganization"  as that term is defined  in  Section  4241 of
     ERISA;  or (iii) any such Plan is  terminated  under  Section 4041A of
     ERISA.

          (l) The  occurrence  of a change in the  ownership  structure  of
     Borrower  without  the  written  consent of Lender,  which will not be
     unreasonably withheld.

          (m) The dissolution,  liquidation, sale, transfer, lease or other
     disposal  of all or  substantially  all of the assets or  business  of
     Borrower.

          (n) Any failure to observe any of the Financial Covenants.

          (o) A Change in Control.

          (p) The occurrence of any Material Adverse Event.

          (q) Any levy or  execution  upon,  or  judicial  seizure  of, any
     material portion of the Collateral.

          (r) The institution of any legal action or proceedings to enforce
     any lien or encumbrance  upon any material  portion of the Collateral,
     that is not dismissed within thirty (30) days after its institution.

          (s) The  abandonment by Borrower of all or a material part of the
     Collateral.

          (t) The loss, theft or destruction of, or any substantial  damage
     to, a material portion of the Collateral.

     8.2  REMEDIES  UPON EVENT OF  DEFAULT.  If an Event of  Default  shall have
occurred and be  continuing,  then Lender may, at its sole option,  exercise any
one or more of the  following  rights  and  remedies,  and  any  other  remedies
provided in any of the Credit  Documents,  as Lender in its sole  discretion may
deem necessary or appropriate, all of which remedies shall be deemed cumulative,
and not alternative:

          (a)  Cease   making   Advances   or   extensions   of   financial
     accommodations in any form to or for the benefit of Borrower,

                                      -31-
<PAGE>
          (b) Declare the  principal  of, and all interest then accrued on,
     the Notes and any other liabilities  hereunder to be forthwith due and
     payable,  whereupon the same shall become  immediately due and payable
     without presentment,  demand,  protest,  notice of default,  notice of
     acceleration or of intention to accelerate or other notice of any kind
     all of which Borrower  hereby  expressly  waives,  anything  contained
     herein or in the Note to the contrary notwithstanding,

          (c) Reduce any claim to judgment, and/or

          (d) Without  notice of default or demand,  pursue and enforce any
     of  Lender'  rights  and  remedies  under  the  Credit  Documents,  or
     otherwise  provided  under  or  pursuant  to  any  applicable  law  or
     agreement;  provided,  however, that if any Event of Default specified
     in Sections  8.1(g) and 8.1(h) shall occur,  the principal of, and all
     interest on, the Note and other liabilities  hereunder shall thereupon
     become due and  payable  concurrently  therewith,  without any further
     action by Lender and without presentment,  demand,  protest, notice of
     default, notice of acceleration or of intention to accelerate or other
     notice of any kind, all of which Borrower hereby expressly waives.

     Upon the  occurrence  and during the  continuance  of any Event of Default,
Lender is  hereby  authorized  at any time and from time to time,  with five (5)
days prior written notice to Borrower,  to set off and apply any and all moneys,
securities  or other  property of Borrower  and the proceeds  therefrom,  now or
hereafter held or received by or in transit to Lender or its agents, from or for
the  account  of  Borrower,   whether  for  safe   keeping,   custody,   pledge,
transmission,  collection  or  otherwise,  and also  upon  any and all  deposits
(general or special) and credits of Borrower, and any and all claims of Borrower
against Lender at any time existing. The rights of Lender under this Section 8.2
are in addition to other rights and  remedies  (including,  without  limitation,
other rights of setoff) which Lender may have.

     8.3  PERFORMANCE BY LENDER.  Should  Borrower fail to perform any covenant,
duty or agreement  with respect to the payment of taxes,  obtaining  licenses or
permits,  or any other  requirement  contained  herein  or in any of the  Credit
Documents  within the period  provided  herein,  if any, for  correction of such
failure,  Lender may,  with five (5) days prior written  notice,  at its option,
perform or attempt to perform  such  covenant,  duty or  agreement  on behalf of
Borrower.  In such event,  Borrower  shall,  at the  written  request of Lender,
promptly  pay any amount  expended by Lender in such  performance  or  attempted
performance  to Lender at its  office in San  Jose,  California,  together  with
interest  thereon at the Default Rate, from the date of such  expenditure  until
paid. Notwithstanding the foregoing, it is expressly understood that Lender does
not assume any liability or responsibility  for the performance of any duties of
Borrower  hereunder or under any of the Credit  Documents or other  control over
the management and affairs of Borrower.

                                      -32-
<PAGE>
                                    ARTICLE 9

                                  MISCELLANEOUS

     9.1 MODIFICATION. All modifications, consents, amendments or waivers of any
provision  of any  Credit  Document,  or consent to any  departure  by  Borrower
therefrom,  shall be effective only if the same shall be in writing and accepted
by Lender.

     9.2 WAIVER. No failure to exercise, and no delay in exercising, on the part
of Lender, any right hereunder shall operate as a waiver thereof,  nor shall any
single or partial  exercise  thereof preclude any other further exercise thereof
or the exercise of any other right. The rights of Lender hereunder and under the
Credit  Documents  shall be in addition to all other rights  provided by law. No
modification or waiver of any provision of this Credit  Agreement,  the Notes or
any Credit  Documents,  nor consent to departure  therefrom,  shall be effective
unless  in  writing  and no such  consent  or waiver  shall  extend  beyond  the
particular  case and  purpose  involved.  No notice or demand  given in any case
shall constitute a waiver of the right to take other action in the same, similar
or other instances without such notice or demand.

     9.3  PAYMENT  OF  EXPENSES.  Borrower  shall pay all  reasonable  costs and
expenses of Lender (including,  without  limitation,  the reasonable  attorneys'
fees of  Lender's  legal  counsel)  incurred  by Lender in  connection  with the
documentation  of the Loans,  and the  preservation  and enforcement of Lender's
rights  under  this  Credit  Agreement,  the  Notes,  and/or  the  other  Credit
Documents;  provided,  however, that notwithstanding the aforesaid, with respect
to any legal action  between the parties  hereto that is pursued to judgment the
prevailing  party only shall be reimbursed by the other party for all reasonable
costs and expenses (including,  without limitation,  reasonable  attorneys' fees
and costs) incurred in connection with the  preservation  and enforcement of its
rights under this Credit Agreement,  the Notes and/or other Credit Documents. In
addition,  Borrower  shall pay all  reasonable  costs and  expenses of Lender in
connection with the negotiation,  preparation, execution and delivery of any and
all amendments,  modifications  and supplements of or to this Credit  Agreement,
the  Notes or any  other  Credit  Document.  Borrower  shall  receive  a written
estimate of all legal fees and related legal costs and will have an  opportunity
to  review  all  such  estimates  prior  to its  approval,  which  shall  not be
unreasonably withheld.

     9.4 NOTICES. Except for telephonic notices permitted herein, any notices or
other communications  required or permitted to be given by this Credit Agreement
or any other documents and  instruments  referred to herein must be (i) given in
writing and  personally  delivered or mailed by prepaid  certified or registered
mail  or sent by  overnight  delivery  service,  or (ii)  made by  telefacsimile
delivered or transmitted,  to the party to whom such notice or  communication is
directed, to the address of such party as follows:

         Borrower:         Vodavi Communications Systems, Inc.
                           4717 East Hilton Avenue
                           Phoenix, Arizona 85034
                           Attention:  David Husband, CFO
                           Telecopier:  480-483-0144

                                      -33-
<PAGE>
         Lender:           Comerica Bank - California
                           75 East Trimble Road
                           San Jose, California 95131
                           Attention:  Lending Services
                           Telecopier:  408-556-5091

         With a copy to:   Comerica Bank - California
                           400 East Van Buren
                           Suite 900
                           Phoenix, Arizona  85004
                           Attention:  Gary Miller
                           Telecopier:  (602) 417-1190

Any notice to be personally  delivered may be delivered to the principal offices
(determined as of the date of such delivery) of the party to whom such notice is
directed.  Any such notice or other  communication  shall be deemed to have been
given (whether actually  received or not) on the day it is personally  delivered
as aforesaid;  or, if mailed,  on the third day after it is mailed as aforesaid;
or, if transmitted by telefacsimile,  on the day that such notice is transmitted
as  aforesaid.  Any party may change its  address  for  purposes  of this Credit
Agreement by giving notice of such change to the other parties  pursuant to this
Section 9.4.

     9.5 GOVERNING  LAW;  JURISDICTION,  VENUE.  The Credit  Documents  shall be
governed by and construed in accordance  with the  substantive  laws (other than
conflict laws) of the State of Arizona,  except to the extent Lender has greater
rights or remedies  under Federal law,  whether as a national bank or otherwise,
in which case such choice of Arizona  law shall not be deemed to deprive  Lender
of any such rights and remedies as may be  available  under  Federal  law.  Each
party  consents  to the  personal  jurisdiction  and venue of the  state  courts
located in Maricopa County,  State of Arizona in connection with any controversy
related to this Credit  Agreement,  waives any  argument  that venue in any such
forum is not convenient and agrees that any litigation  initiated by any of them
in connection  with this Credit  Agreement shall be venued in the Superior Court
of Maricopa County, Arizona.

     9.6 INVALID PROVISIONS.  If any provision of any Credit Document is held to
be illegal,  invalid or  unenforceable  under  present or future laws during the
term of this Credit  Agreement,  such provision shall be fully  severable;  such
Credit  Document shall be construed and enforced as if such illegal,  invalid or
unenforceable  provision had never comprised a part of such Credit Document; and
the remaining  provisions of such Credit Document shall remain in full force and
effect  and shall not be  affected  by the  illegal,  invalid  or  unenforceable
provision or by its severance from such Credit Document. Furthermore, in lieu of
each such illegal,  invalid or  unenforceable  provision there shall be added as
part of such Credit  Document a provision  mutually  agreeable  to Borrower  and
Lender as similar in terms to such illegal,  invalid or unenforceable  provision
as may be possible and be legal, valid and enforceable.

     9.7 BINDING EFFECT. The Credit Documents shall be binding upon and inure to
the benefit of Borrower and Lender and their respective successors,  assigns and
legal  representatives;  provided,  however,  that Borrower may not, without the
prior  written  consent  of  Lender,  assign  any  rights,   powers,  duties  or
obligations thereunder.

                                      -34-
<PAGE>
     9.8 ENTIRETY.  The Credit Documents embody the entire agreement between the
parties and supersede all prior agreements and understandings,  if any, relating
to the subject matter hereof and thereof.

     9.9 HEADINGS.  Section  headings are for  convenience of reference only and
shall in no way affect the interpretation of this Credit Agreement.

     9.10 SURVIVAL.  All  representations and warranties made by Borrower herein
shall survive delivery of the Notes and the making of the Loans.

     9.11 NO THIRD PARTY BENEFICIARY.  The parties do not intend the benefits of
this  Credit  Agreement  to inure to any  third  party,  nor shall  this  Credit
Agreement  be  construed  to make or render  Lender  liable to any  materialman,
supplier, contractor,  subcontractor,  purchaser or lessee of any property owned
by  Borrower,  or for  debts or  claims  accruing  to any such  persons  against
Borrower.  Notwithstanding  anything contained herein or in the Notes, or in any
other Credit Document,  or any conduct or course of conduct by any or all of the
parties  hereto,  before or after  signing  this Credit  Agreement or any of the
other  Credit  Documents,  neither  this Credit  Agreement  nor any other Credit
Document  shall be  construed  as creating  any right,  claim or cause of action
against Lender, or any of its officers, directors, agents or employees, in favor
of any materialman, supplier, contractor, subcontractor,  purchaser or lessee of
any  property  owned by  Borrower,  nor to any other person or entity other than
Borrower.

     9.12 TIME. Time is of the essence hereof.

     9.13  SCHEDULES  AND  EXHIBITS  INCORPORATED.  All  schedules  and exhibits
attached hereto,  if any, are hereby  incorporated into this Credit Agreement by
each reference thereto as if fully set forth at each such reference.

     9.14  COUNTERPARTS.  This  Credit  Agreement  may be  executed  in multiple
counterparts,  each of which, when so executed,  shall be deemed an original but
all such counterparts shall constitute but one and the same agreement.

     9.15 WAIVER OF JURY TRIAL.  LENDER AND BORROWER EACH  ACKNOWLEDGE AND AGREE
THAT ANY CONTROVERSY  WHICH MAY ARISE UNDER THIS CREDIT AGREEMENT OR THE LENDING
RELATIONSHIP  ESTABLISHED  HEREBY  WOULD BE BASED  UPON  DIFFICULT  AND  COMPLEX
ISSUES,  AND  THEREFORE,  BORROWER  AND LENDER EACH HEREBY  WAIVE ANY RIGHT TO A
TRIAL BY JURY IN ANY ACTION OR PROCEEDING  (INCLUDING  ACTIONS SOUNDING IN TORT)
TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS CREDIT  AGREEMENT OR ANY OTHER CREDIT
DOCUMENT RELATING HERETO OR ARISING FROM THE TRANSACTION  CONTEMPLATED HEREUNDER
OR THE LENDING RELATIONSHIP ESTABLISHED HEREBY AND AGREE THAT ANY SUCH ACTION OR
PROCEEDING  SHALL BE TRIED IN A COURT OF COMPETENT  JURISDICTION  BY A JUDGE AND
NOT BY A JURY.

                                      -35-
<PAGE>
     IN WITNESS WHEREOF,  the undersigned have executed this Credit Agreement as
of the day and year first above written.

                                       VODAVI COMMUNICATIONS SYSTEMS, INC.,
                                       an Arizona corporation


                                       By: /s/ Gregory K. Roeper
                                           -------------------------------------
                                       Name: Gregory K. Roeper
                                             -----------------------------------
                                       Title: CEO and President
                                              ----------------------------------


                                       COMERICA BANK-CALIFORNIA, a California
                                       banking corporation


                                       By: /s/ Gary Miller
                                           -------------------------------------
                                       Name: Gary Miller
                                             -----------------------------------
                                       Title: Vice President
                                              ----------------------------------

                                      -36-