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                                CREDIT AGREEMENT

                          Dated as of December 30, 1998

                     PERFORMANCE TECHNOLOGIES, INCORPORATED

                                       and

                            THE CHASE MANHATTAN BANK
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                                TABLE OF CONTENTS

                                      Page

ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS------------------------------------  1
         Section 1.01.  Definitions-----------------------------------------  1
         Section 1.02.  Accounting Terms------------------------------------  8
         Section 1.03.  Subsidiaries----------------------------------------  8

ARTICLE 2. THE CREDIT 11----------------------------------------------------  9
         Section 2.01.  Loans-----------------------------------------------  9
         Section 2.02.  Purpose---------------------------------------------  9
         Section 2.03.  Changes of Commitment-------------------------------  9
         Section 2.04.  Extension of Revolving Credit Termination Date------  9
         Section 2.05.  Letters of Credit-----------------------------------  10
         Section 2.06.  Facility Fee----------------------------------------  10

ARTICLE 3. REPAYMENTS; INTEREST; LATE FEES, PREPAYMENTS---------------------  10
         Section 3.01.  Repayment of Loans----------------------------------  10
         Section 3.02.  Interest--------------------------------------------  10
         Section 3.03.  Late Fees-------------------------------------------  10
         Section 3.04.  Prepayments-----------------------------------------  11

ARTICLE 4. PAYMENTS; COMPUTATIONS-------------------------------------------  11
         Section 4.01.  Payments--------------------------------------------  11
         Section 4.02.  Computations----------------------------------------  11
         Section 4.03.  Certain Notices-------------------------------------  11
         Section 4.04.  Minimum Amounts-------------------------------------  12

ARTICLE 5. YIELD PROTECTION AND ILLEGALITY----------------------------------  12
         Section 5.01.  Additional Costs------------------------------------  12
         Section 5.02.  Limitation on Types of Loans------------------------  13
         Section 5.03.  Illegality------------------------------------------  13
         Section 5.04.  Certain Conversions Pursuant to 
                          ss.ss. 5.01 and 5.03------------------------------  13
         Section 5.05.  Compensation----------------------------------------  14
         Section 5.06.  Survival--------------------------------------------  14

ARTICLE 6. CONDITIONS PRECEDENT---------------------------------------------  14
         Section 6.01.  Initial Conditions----------------------------------  14
         Section 6.02.  Additional Conditions Precedent---------------------  14

ARTICLE 7. REPRESENTATIONS AND WARRANTIES-----------------------------------  15
         Section 7.01.  Incorporation, Good Standing and Due Qualification--  15
         Section 7.02.  Corporate Power and Authority; No Conflicts---------  15
         Section 7.03.  Legally Enforceable Agreements----------------------  15
         Section 7.04.  Litigation------------------------------------------  15
         Section 7.05.  Financial Statements--------------------------------  15
         Section 7.06.  ERISA-----------------------------------------------  16
         Section 7.07.  Subsidiaries and Ownership of Stock-----------------  16
         Section 7.08.  Existing Credit Arrangements and Existing Liens-----  16
         Section 7.09.  Regulation U----------------------------------------  16
         Section 7.10.  Compliance with Laws--------------------------------  16
         Section 7.11.  Operation of Business-------------------------------  16

<PAGE>

         Section 7.12.  Hazardous Materials---------------------------------  16
         Section 7.13.  No Default on Outstanding Judgments or Orders-------  17
         Section 7.14.  No Defaults on Other Agreements---------------------  17
         Section 7.15.  Labor Disbutes and Acts of God----------------------  17
         Section 7.16.  Governmental Regulation-----------------------------  17
         Section 7.17.  Partnerships----------------------------------------  17
         Section 7.18.  No Forfeiture---------------------------------------  17
         Section 7.19.  Solvency--------------------------------------------  17
         Section 7.20   Year 2000-------------------------------------------  18

ARTICLE 8. AFFIRMATIVE COVENANTS--------------------------------------------  18
         Section 8.01.  Maintenance of Existence----------------------------  18
         Section 8.02.  Conduct of Business---------------------------------  18
         Section 8.03.  Maintenance of Insurance----------------------------  18
         Section 8.04.  Compliance with Laws--------------------------------  19
         Section 8.05.  Right of Inspection---------------------------------  19
         Section 8.06.  Reporting Requirements------------------------------  19
         Section 8.07.  Audits----------------------------------------------  21
         Section 8.08.  Lease Financings------------------------------------  22

ARTICLE 9. NEGATIVE COVENANTS-----------------------------------------------  22
         Section 9.01.  Debt------------------------------------------------  22
         Section 9.02.  Guarantees, etc.------------------------------------  22
         Section 9.03.  Liens-----------------------------------------------  22
         Section 9.04.  Investments-----------------------------------------  22
         Section 9.05.  Sale of Assets--------------------------------------  22
         Section 9.06.  Mergers, etc.---------------------------------------  23
         Section 9.07.  Acquisitions----------------------------------------  23
         Section 9.08.  No Activities Leading to Forfeiture-----------------  23
         Section 9.09.  Creation of Subsidiaries----------------------------  23
         Section 9.10.  No Material Change----------------------------------  23

ARTICLE 10. FINANCIAL COVENANTS---------------------------------------------  23
         Section 10.01.  Leverage Ratio-------------------------------------  23
         Section 10.02.  Cash Flow Coverage Ratio---------------------------  23
         Section 10.03.  Income or Loss-------------------------------------  24
         Section 10.04.  Current Ratio--------------------------------------  24

ARTICLE 11. EVENTS OF DEFAULT-----------------------------------------------  24
         Section 11.01.  Events of Default----------------------------------  24
         Section 11.02.  Remedies-------------------------------------------  26

ARTICLE 12. MISCELLANEOUS---------------------------------------------------  26
         Section 12.01.  Amendments and Waivers-----------------------------  26
         Section 12.02.  Survival-------------------------------------------  26
         Section 12.03.  Usury----------------------------------------------  26
         Section 12.04.  Expenses-------------------------------------------  26
         Section 12.05.  Assignment; Participations-------------------------  26
         Section 12.06.  Notices--------------------------------------------  27
         Section 12.07.  Set-Off--------------------------------------------  27
         Section 12.08.  Jurisdiction; Immunities---------------------------  27
         Section 12.09.  Captions-------------------------------------------  27
         Section 12.10.  Severability---------------------------------------  27
         Section 12.11.  Counterparts---------------------------------------  28
         Section 12.12.  Governing Law--------------------------------------  28

EXHIBIT A - Revolving Credit Note
EXHIBIT B - Annual Compliance Certificate
EXHIBIT C - Quarterly Compliance Certificate

SCHEDULE 1 - Schedule of Subsidiaries and Investments in Subsidiaries (ss. 7.07)
SCHEDULE 2 - Existing  Credit  Arrangements  and Liens (ss.  7.08)  
SCHEDULE 3 - Schedule of Hazardous Materials (ss. 7.12) 
SCHEDULE 4 - Schedule of Partnerships and Joint Ventures (ss. 7.17)

<PAGE>

         CREDIT  AGREEMENT  dated as of December 30, 1998,  between  PERFORMANCE
TECHNOLOGIES,  INCORPORATED,  a corporation organized under the laws of Delaware
(the "Borrower") and THE CHASE MANHATTAN BANK, a banking  corporation  organized
under the laws of the State of New York (the "Bank").

         The Borrower  desires that the Bank extend  credit as provided  herein,
and the Bank is  prepared to extend  such  credit  upon the terms  hereof.  This
Credit Agreement amends,  restates and replaces the Credit Agreement dated as of
October 31, 1996 between the Borrower  and the Bank.  Accordingly,  the Borrower
and the Bank hereby agree as follows:

                    ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS.

         Section  1.01.  Definitions.  As used in this  Agreement  the following
terms have the  following  meanings  (terms  defined in the singular to have the
same meaning when used in the plural and vice versa):

         "Acquisition"  means any transaction  pursuant to which the Borrower or
any of its Subsidiaries (a) acquires equity securities (or warrants,  options or
other rights to acquire such  securities)  of any Person other than the Borrower
or any Person  which is not then a  Subsidiary  of the  Borrower,  pursuant to a
solicitation of tenders therefor,  or in one or more negotiated block, market or
other  transactions not involving a tender offer, or a combination of any of the
foregoing,  or (b) makes any Person a Subsidiary of the Borrower,  or causes any
such Person to be merged into the  Borrower or any of its  Subsidiaries,  in any
case pursuant to a merger,  purchase of assets or any  reorganization  providing
for the delivery or issuance to the holders of such  Person's  then  outstanding
securities,  in  exchange  for such  securities,  of cash or  securities  of the
Borrower or any of its Subsidiaries,  or a combination thereof, or (c) purchases
all or substantially all of the business or assets of any Person.

         "Affiliate"  means  any  Person:   (a)  which  directly  or  indirectly
controls,  or is controlled by, or is under common control with, the Borrower or
any of its Subsidiaries;  (b) which directly or indirectly  beneficially owns or
holds 5% or more of any class of voting stock of the Borrower or any  Subsidiary
thereof;  (c) 5% or more of the voting stock of which is directly or  indirectly
beneficially owned or held by the Borrower or Subsidiary  thereof;  or (d) which
is a partnership  in which the Borrower or any  Subsidiary  thereof is a general
partner. The term "control" means the possession, directly or indirectly, of the
power to direct or cause the  direction  of the  management  and  policies  of a
Person,  whether  through the ownership of voting  securities,  by contract,  or
otherwise.

         "Agreement"  means this Credit  Agreement,  as amended or  supplemented
from time to time. References to Articles, Sections, Exhibits, Schedules and the
like refer to the Articles,  Sections,  Exhibits, Schedules and the like of this
Agreement unless otherwise indicated.

         "Annual Date" means October 31, 1999 and each October 31 thereafter.

         "Applicable  Libor Margin" means a rate of interest per year (expressed
in basis points), equal to seventy-five (75) basis points for the Initial Margin
Period;  thereafter the Applicable Libor Margin shall be the basis points number
set  forth  below  which  corresponds  to the  Funded  Debt/EBITDA  Ratio of the
Borrower at the end of the fiscal  quarter  preceding  the  commencement  of the
Margin Period:

                                                     Applicable Libor
           Funded Debt/EBITDA Ratio           Margin in Basis Points per Year

           Greater than 2.50                                    150

           Greater than 2.25
           but less than or equal to 2.50                       125

           Greater than 2.00
           but less than or equal to 2.25                       112.5

           Greater than 1.75
           but less than or equal to 2.00                       100

           Greater than 1.50
           but less than or equal to 1.75                        87.5

           Less than or equal to 1.50                            75

                                       E-1
<PAGE>

To the extent that a Margin Period  commences during the pendency of an Interest
Period for an existing Libor Loan, the Applicable  Libor Margin shall remain the
same for the remainder of the Interest Period for such existing Libor Loan.

If the Borrower at any time shall fail to deliver such financial  reports to the
Bank within the time required  pursuant to ss.8.06 of this  Agreement,  then the
Applicable  Libor Margin for the next Margin  Period shall be one hundred  fifty
(150) basis points until such  financial  reports shall have been  delivered and
the Applicable Libor Margin can be determined.

         "Applicable  Margin" means,  with respect to each Loan, (a) 0% per year
on Prime Loans, or (b) the Applicable Libor Margin per year on Libor Loans.

         "Banking  Day"  means  any  day  on  which  commercial  banks  are  not
authorized or required to close in Rochester, New York.

         "Borrowed Money  Obligation"  means and includes any obligation for the
payment of borrowed cash, including any sale and lease-back or similar financing
device or scheme by a Person in respect of assets  owned by such Person prior to
such  financing,  but  excluding  any  obligation  for payment  under any lease,
installment  purchase  or  other  title  retention  agreement  by which a Person
acquires the ownership or right to use property not previously  included in such
Person's assets in accordance with GAAP.

         "Capital  Expenditures" means for any period the Dollar amount of gross
expenditures (including obligations under Capital Leases) made for fixed assets,
real  property,  plant  and  equipment,  and  all  renewals,   improvements  and
replacements  thereto (but not repairs  thereof)  which are deemed to be capital
expenditures in accordance with GAAP and which are incurred during such period.

         "Capitalized  Lease"  means any lease the  obligation  for Rentals with
respect to which is required to be  capitalized  on a  consolidated  or combined
balance  sheet  of the  lessee  and its  subsidiaries  or  related  entities  in
accordance with GAAP.

         "Capitalized  Rentals"  of any Person  shall mean as of the date of any
determination  thereof the amount at which the aggregate present value of future
Rentals  due and to become due under all  Capitalized  Leases  under  which such
Person is a lessee  would be  reflected  as a  liability  on a  consolidated  or
combined balance sheet of such Person.

         "Closing  Date" means the date this Agreement has been executed by both
the Borrower and the Bank.

         "Code" means the Internal Revenue Code of 1986, as amended from time to
time.

         "Commitment"  means  the  obligation  of the Bank to make the Loans and
extend Letters of Credit under this Agreement in an aggregate  principal  amount
up to $5,000,000,  as such amount may be reduced or otherwise modified from time
to time.

         "Consolidated  Income"  means,  for any fiscal  period,  the income (or
loss) of the Borrower and its  Subsidiaries  on a consolidated  after-tax  basis
computed in accordance with GAAP and as reported on the Borrower's statements of
income and retained earnings (or similar statements).

         "Consolidated   Subsidiary"  means,  in  respect  of  any  Person,  any
Subsidiary the accounts of which are or are required to be consolidated with the
accounts of such Person in accordance with GAAP.

                                       E-2
<PAGE>

         "Consolidated Tangible Net Worth" means, as at any date, the sum of the
following  items in respect of the  Borrower and its  Consolidated  Subsidiaries
(determined on a consolidated basis in accordance with GAAP):

         a.       the amount of capital stock, plus

         b. the amount of surplus and  retained  earnings  (or, in the case of a
surplus or retained earnings deficit, minus the amount of such deficit), minus

         c. the sum of the following: cost of treasury shares and the book value
of all assets which should be classified as intangibles  (without duplication of
deductions  in respect of items  already  deducted  in  arriving  at surplus and
retained  earnings) but in any event  including  goodwill,  minority  interests,
research and development costs, trademarks, trade names, copyrights, patents and
franchises, unamortized debt discount and expense, all reserves and any write-up
in the book value of assets resulting from a revaluation  thereof  subsequent to
December 31, 1995, and minus

         d. the amount of all retained earnings  subsequent to December 31, 1995
derived from unusual  items,  including  without  limitation all sales of assets
other than inventory.

         "Current  Termination Date" means the Revolving Credit Termination Date
as in effect from time to time under this Agreement.

         "Debt"  means,  with respect to any Person:  (a)  indebtedness  of such
Person for borrowed money; (b)  indebtedness for the deferred  purchase price of
property or services (except trade payables in the ordinary course of business);
(c)  Unfunded  Vested  Liabilities  of such  Person  (if such  Person is not the
Borrower,  determined  in a manner  analogous  to that of  determining  Unfunded
Vested  Liabilities  of the  Borrower);  (d) the face amount of any  outstanding
letters of credit issued for the account of such Person; (e) obligations arising
under  acceptance  facilities;  (f)  guaranties,  endorsements  (other  than for
collection in the ordinary course of business) and other contingent  obligations
to  purchase,  to provide  funds for  payment,  to supply funds to invest in any
Person, or otherwise to assure a creditor against loss; (g) obligations  secured
by any Lien on property of such Person;  and (h)  obligations  of such Person as
lessee under Capital Leases.

         "Default"  means any event  which with the giving of notice or lapse of
time, or both, would become an Event of Default.

         "Default Rate" means, with respect to the principal of any Loan and, to
the extent permitted by law, any other amount payable by the Borrower under this
Agreement  or the Note,  a rate per annum equal to 4% above the Prime Rate as in
effect from time.

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

         "EBITDA"  means for any  period and in respect of any Person the sum of
(i) the net income of such Person for such period  computed in  accordance  with
GAAP, plus (ii) the interest expense of such Person for such period,  plus (iii)
the income  tax  expense of such  Person for such  period,  plus (iv) the amount
reported  as the  depreciation  of the  assets of such  Person  for such  period
computed  in  accordance  with  GAAP,  plus  (v)  the  amount  reported  as  the
amortization  of intangibles  assets of such Person for such period  computed in
accordance  with  GAAP,  and as such  item is  used in the  computation  of such
Person's net income for such period, plus (vi) any one time,  non-recurring cash
or non-cash losses minus (vii) any one-time,  non-recurring licensing or royalty
fees received by the Person or one-time, non-recurring cash or non-cash gains.

         "EBITDA/Interest  Ratio"  means,  in  respect of the  Borrower  and its
Consolidated  Subsidiaries on a consolidated  basis, the ratio of the following,
computed at each  Fiscal  Quarter  end for the four  quarter  period then ended,
taken together as one accounting period: (1) EBITDA, to (2) the interest expense
for such fiscal period.

                                       E-3
<PAGE>

         "Environmental  Laws"  means  any and all  federal,  state,  local  and
foreign  statutes,  laws,  regulations,  ordinances  and rules  relating  to the
environment  or to emissions,  discharges,  releases or  threatened  releases of
pollutants,   contaminants,   chemicals,  or  industrial,   toxic  or  hazardous
substances or wastes into the environment including, without limitation, ambient
air,  surface  water,  ground  water,  or land,  or  otherwise  relating  to the
manufacture,   processing  distribution,   use,  treatment,  storage,  disposal,
transport,  or handling of pollutants,  contaminants,  chemicals, or industrial,
toxic or hazardous substances or wastes.

         "ERISA" means the Employee  Retirement  Income Security Act of 1974, as
amended  from time to time,  including  any rules  and  regulations  promulgated
thereunder.

         "ERISA Affiliate" means any corporation or trade or business which is a
member of any group of  organizations  (i) described in Section 414(b) or (c) of
the Code of which the  Borrower  is a member,  or (ii)  solely for  purposes  of
potential  liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of
the Code and the lien created under Section  302(f) of ERISA and Section  412(n)
of the  Code,  described  in  Section  414(m)  or (o) of the Code of  which  the
Borrower is a member.

         "Event of Default" has the meaning given such term in ss. 11.01.

         "Existing  Liens" means all Liens against the property or assets of the
Borrower and all  Subsidiaries on the date of this Agreement and as set forth on
Schedule 2 hereto.

         "Facility Documents" means this Agreement, the Note, the Guaranties and
the Security Agreements.

         "Fixed Charge Coverage Ratio" means, in respect of the Borrower and its
Consolidated  Subsidiaries on a consolidated  basis, the ratio of the following,
computed at each  Fiscal  Quarter  end for the four  quarter  period then ended,
taken  together as one  accounting  period:  (1)  EBITDA,  to (2) the sum of (i)
one-fifth of the outstanding  principal balance under this Agreement on the last
day of the  Fiscal  Quarter,  plus (ii) the  interest  expense  for such  fiscal
period,  plus (iii) the income tax expense for such fiscal period plus (iv) cash
dividends paid by Borrower in the fiscal period.

         "Forfeiture  Proceeding" means any action,  proceeding or investigation
affecting  the  Borrower or any of its  Subsidiaries  or  Affiliates  before any
court,   governmental   department,   commission,   board,  bureau,   agency  or
instrumentality, domestic or foreign, or the receipt of notice by any such party
that any of them is a suspect  in or a target  of any  governmental  inquiry  or
investigation,  which could  reasonably  be expected to have a Material  Adverse
Effect.

         "Funded  Debt"  means,  in  respect  of any  Person,  (i) all Long Term
Indebtedness of such Person, (ii) all payments in respect of item (i) above that
were required to be made within one year prior to the date of any  determination
of Funded Debt,  if the  obligation  to make such  payments  shall  constitute a
current  liability of the obligor under GAAP (nothing  herein shall be construed
to include accounts payable),  (iii) all Capitalized Rentals of such Person, and
(iv)  interest  bearing  Indebtedness  for borrowed  money (other than Long Term
Indebtedness) having a maturity of less than one year.

         "Funded  Debt/EBITDA  Ratio" means,  in respect of the Borrower and its
Consolidated  Subsidiaries on a consolidated  basis,  the ratio of the following
computed at each  Fiscal  Quarter  end for the four  quarter  period then ended,
taken together as one accounting period: (i) Funded Debt, to (ii) EBITDA.

                                       E-4
<PAGE>

         "GAAP" means  generally  accepted  accounting  principles in the United
States of America as in effect from time to time,  applied on a basis consistent
with those used in the  preparation of the financial  statements  referred to in
ss. 7.05 (except for changes concurred in by the Borrower's  independent  public
accountants).

         "Guarantor"  means any  Person  who  hereafter  guaranties  payment  or
collection of the Loans or any part thereof.

         "Guaranties"  means all guaranty  agreements  hereafter  granted to the
Bank by any Person whereby such Person  guaranties  payment or collection of the
Loans or any part thereof.

         "Indebtedness" of any Person means and includes all obligations of such
Person which in accordance with GAAP shall be classified upon a balance sheet of
such Person as  liabilities  of such Person,  and in any event shall include all
(i)  obligations of such Person for borrowed money or which has been incurred in
connection with the acquisition of property or assets,  (ii) obligations secured
by any Lien upon  property  or assets  owned by such  Person,  even  though such
Person has not  assumed or become  liable for the  payment of such  obligations,
(iii)  obligations  created or arising under any conditional sale or other title
retention   agreement  with  respect  to  property   acquired  by  such  Person,
notwithstanding  the fact that the rights and remedies of the seller,  lender or
lessor under such agreement in the event of default are limited to  repossession
or sale of property,  (iv) Capitalized Rentals and (v) Guaranties of obligations
of others of the character referred to in this definition.

         "Interest Period" shall mean with respect to any Libor Loan, the period
commencing  on the  date  such  Loan  is  made  and  ending  on the  numerically
corresponding day in the first,  second or third calendar month  thereafter,  as
the Borrower  may select as provided in ss. 4.03  hereof,  except that each such
Interest  Period which commences on the last Banking Day of a calendar month (or
on  any  day  for  which  there  is no  numerically  corresponding  day  in  the
appropriate subsequent calendar month) shall end on the last Banking Day of such
first,  second or third calendar  month.  Notwithstanding  the  foregoing,  each
Interest  Period which would  otherwise  end on a day which is not a Banking Day
shall end on the next succeeding  Banking Day or if such next succeeding Banking
Day falls in the next succeeding  calendar month, on the next preceding  Banking
Day.

         "Initial  Margin  Period"  means  the  period  from  the  date  of this
Agreement  through  the  earliest  to occur of (a)  delivery  to the Bank of the
financial  statements  pursuant to ss.8.06(a)  of this  Agreement for the Fiscal
Year  ending  December  31,  1998 or (b) the last date on which  such  financial
statements  for the  Fiscal  Year  ending  December  31,  1998  could  have been
delivered in compliance with ss. 8.06.

         "Lending  Office"  means  the  office  of the Bank  designated  as such
underneath the signature of the officer of the Bank executing this Agreement.

         "Letters of Credit" means all letters of credit or banker's acceptances
now existing or hereafter  issued by Chase for the Borrower as the account party
from time to time.

         "Letter of Credit  Exposure"  means the maximum amount  available to be
drawn under all outstanding  Letters of Credit  (converted to U.S. Dollars based
on the  exchange  rate in effect at the time the  Letter of Credit  Exposure  is
determined).

                                       E-5
<PAGE>

         "Libor Base Rate"  means,  with  respect to each Libor  Loan,  the rate
appearing  on  Page  3750  of the  Telerate  Service  (or on  any  successor  or
substitute  page of such Service,  or any  successor to or  substitute  for such
Service,  providing rate quotations  comparable to those  currently  provided on
such  page of such  Service,  as  determined  by the Bank  from time to time for
purposes of providing quotations of interest rates applicable to dollar deposits
in the London interbank  market) at approximately  11:00 a.m.,  London time, two
Business Days prior to the commencement of such Interest Period, as the rate for
dollar deposits with a maturity comparable to such Interest Period. In the event
that such rate is not  available  at such time for any  reason,  then the "Libor
Base Rate" with respect to such Borrowing for such Interest  Period shall be the
rate at which dollar  deposits of  $5,000,000  and for a maturity  comparable to
such Interest Period are offered by the principal London office of the Reference
Bank  in  immediately   available  funds  in  the  London  interbank  market  at
approximately   11:00  a.m.,  London  time,  two  Business  Days  prior  to  the
commencement of such Interest Period.

         "Libor Loans" means Loans the interest rates on which are determined on
the basis of the Libor Base Rate.

         "Lien" means any lien  (statutory  or  otherwise),  security  interest,
mortgage,  deed of trust,  priority,  pledge,  charge,  conditional  sale, title
retention  agreement,  financing lease or other  encumbrance or similar right of
others, or any agreement to give any of the foregoing.

         "Loans"  means  the  revolving  credit  loans  made by the  Bank to the
Borrower  pursuant  to ss.  2.01  hereof,  and shall be deemed  to  include  any
Reimbursement Obligation, and "Loan" shall mean any of the Loans.

         "Long Term  Indebtedness"  means all  Indebtedness  of such  Person for
borrowed money or which has been incurred in connection  with the acquisition of
assets (excluding leases defined as "operating leases" under GAAP), in each case
having a final  maturity  of one or more  than one year  from the date of origin
thereof (or which is renewable or  extendible at the option of the obligor for a
period or periods more than one year from the date of origin).

         "Margin Period" means each quarterly  period  beginning on the earliest
to occur of (i) the day the  financial  statements  of Borrower are delivered to
Bank  pursuant to ss. 8.06 for the  respective  fiscal  quarter or (ii) the last
date on which such financial  statements could have been delivered in compliance
with ss.  8.06,  and ending on the earliest to occur of (a) the day on which the
financial  statements  for the next  subsequent  fiscal  quarter  are  delivered
pursuant to ss. 8.06 or (b) the last date on which such financial statements for
the next subsequent  fiscal quarter could have been delivered in compliance with
ss. 8.06.

         "Material  Adverse  Effect"  means a  material  adverse  effect  on the
financial  condition of the Borrower and its Subsidiaries  taken as a whole in a
Dollar amount which equals or exceeds 5% of the Borrower's Consolidated Tangible
Net Worth  without  regard to whether  such  Dollar  amount is  reported  on the
Borrower's  consolidated  financial  statements in accordance  with GAAP, or any
change in the nature of the business of the Borrower and Subsidiaries taken as a
whole.

         "Multiemployer  Plan" means a Plan defined as such in Section  3(37) of
ERISA to  which  contributions  have  been  made by the  Borrower  or any  ERISA
Affiliate and which is covered by Title IV of ERISA.

         "Note" means the Revolving Credit Note in the form of Exhibit A annexed
hereto.

         "Payment  Office"  means  the  office  of the Bank  designated  as such
underneath the signature of the officer of the Bank executing this Agreement.

         "PBGC" means the Pension  Benefit  Guaranty  Corporation and any entity
succeeding to any or all of its functions under ERISA.

                                       E-6
<PAGE>

         "Permitted  Encumbrances"  means  and  includes  with  respect  to  the
Borrower and its Subsidiaries:

      (i)         in the  case  of  real  properties,  easements,  restrictions,
                  exceptions,  reservations  or defects which, in the aggregate,
                  do not  interfere  materially  with the  continued use of such
                  properties for the purposes for which they are used and do not
                  affect materially the value thereof;

     (ii)         liens, if contested in good faith by appropriate proceedings;

    (iii)         pledges or  deposits  to secure  obligations  under  workmen's
                  compensation   laws  or  similar   legislation  or  to  secure
                  performance  in  connection  with bids,  tenders and contracts
                  (other than  contracts  for the payment of borrowed  money) to
                  which the  Borrower  or any  Subsidiary  of the  Borrower is a
                  party;

     (iv)         deposits  to secure  public or  statutory  obligations  of the
                  Borrower and any Subsidiary of the Borrower;

      (v)         materialmen's mechanics',  carriers',  workmen's or other like
                  liens arising in the ordinary course of business,  or deposits
                  of cash or United States  obligations to obtain the release of
                  such liens;

     (vi)         deposits to secure  surety or appeal bonds in  proceedings  to
                  which the  Borrower  or any  Subsidiary  of the  Borrower is a
                  party;

    (vii)         existing  leases by the  Borrower or the  Borrower of real and
                  personal property; and

   (viii)         purchase  money  security  interests  for Debt  not  exceeding
                  $1,000,000 in the aggregate  principal  amount incurred during
                  any fiscal year of the Borrower; and

     (ix)         Liens on inventory or equipment  securing  Subordinated  Debt,
                  provided that such Liens are  subordinated to the Bank's Liens
                  under  a   subordination   agreement  in  form  and  substance
                  reasonably  satisfactory  to the Bank  which  provides  for no
                  foreclosure on other  realization of such  subordinated  Liens
                  prior to the Bank's  foreclosure  or other  realization of its
                  Liens.

         "Person" means an individual, partnership, corporation, business trust,
joint  stock  company,  trust,   unincorporated   association,   joint  venture,
governmental authority or other entity of whatever nature.

         "Plan"  means  any  employee  benefit  or  other  plan  established  or
maintained,  or to which  contributions  have been made,  by the Borrower or any
ERISA  Affiliate  and  which  is  covered  by Title IV of  ERISA,  other  than a
Multiemployer Plan.

         "Prime Loans" means Loans the interest rates on which are determined on
the basis of the Prime Rate.

         "Prime Rate" means that rate of interest from time to time announced by
the Bank at its Principal Office as its prime commercial lending rate.

         "Principal  Office" means the principal  office of the Bank,  presently
located at 270 Park Avenue, New York, New York 10017.

         "Prohibited Transaction" means any transaction set forth in Section 406
of ERISA or Section 4975 of the Code.

         "Property"  shall mean any  interest  in any kind of property or asset,
whether  real,  personal  or mixed,  or tangible  or  intangible,  other than an
interest as lessee under a true lease.

         "Reference  Bank" shall mean the  principal  London office of The Chase
Manhattan Bank.

         "Regulation  U" means  Regulation  U of the Board of  Governors  of the
Federal Reserve System as the same may be amended or  supplemented  from time to
time.

                                       E-7
<PAGE>

         "Regulatory  Change" means any change after the date of this  Agreement
in United  States  federal,  state,  municipal  or foreign  laws or  regulations
(including without limitation Regulation D) or the adoption or making after such
date of any interpretations or directives applying to a class of banks including
the Bank of or under any United  States,  federal,  state,  municipal or foreign
laws or regulations by any court of competent  jurisdiction  or  governmental or
monetary authority charged with the interpretation or administration thereof.

         "Reportable Event" means any of the events set forth in Section 4043(b)
of  ERISA  as to  which  events  the  PBGC  by  regulation  has not  waived  the
requirement  of Section  4043(a) of ERISA that it be notified  within 30 days of
the  occurrence  of such  event,  provided  that a failure  to meet the  minimum
funding  standard  of Section 412 of the Code or Section 302 of ERISA shall be a
Reportable  Event  regardless of any waivers  given under Section  412(d) of the
Code.

         "Reimbursement  Obligation"  means any  obligation  of the  Borrower to
reimburse  the Bank as an issuer of a Letter of Credit  for any  amount  paid by
Bank from time to time pursuant to and under any Letter of Credit.

         "Revolving  Credit  Termination  Date"  means  October 31, 2000 or such
later date to which the Revolving  Credit  Termination Date then in effect shall
be extended in accordance with the provisions of ss. 2.04 hereof;  provided that
if such date is not a Banking Day, the Revolving  Credit  Termination Date shall
be the next succeeding Banking Day.

         "Security  Agreements" means and includes,  collectively,  the Security
Agreements  granted by the Borrower to the Bank dated as of April 3, 1985, April
13,  1993,  June  17,  1993  and of  even  date  herewith,  all  amendments  and
modifications  thereto,  and all further security agreements which may hereafter
be granted by any Person to the Bank as security for payment of the Loans or any
part thereof.

         "Subordinated  Debt" means Debt which is  unsecured or which is secured
only by a  Permitted  Encumbrance  and which shall be  subordinated  in right of
payment to all Debt of the Borrower and the  Guarantors to the Bank (the "Senior
Debt") under a subordination agreement in form and substance satisfactory to the
Bank  which  permits  scheduled  payments  of  principal  and  interest  on  the
Subordinated  Debt so long as any Senior Debt is  outstanding  and permits  such
scheduled payments of principal and interest only if no default under the Senior
Debt shall have occurred or shall be created by such payment.

         "Subsidiary"  means,  with respect to any Person,  any  corporation  or
other Person of which at least  one-half of the  securities  or other  ownership
interests  having ordinary  voting power  (absolutely or  contingently)  for the
election of directors or other persons  performing  similar functions are at the
time owned directly or indirectly by such Person.

         "Total  Liabilities"  means,  in  respect  of  any  Person,  the  total
liabilities of such Person  computed in accordance with GAAP and as such item is
reported from time to time on such Person's balance sheets.

         "Unfunded  Vested  Liabilities"  means,  with respect to any Plan,  the
amount (if any) by which the present  value of all benefit  liabilities  (within
the meaning of Section  4001(a)(16)  of ERISA)  under the Plan  exceeds the fair
market  value of all Plan  assets  allocable  to such  benefit  liabilities,  as
determined on the most recent  valuation date of the Plan and in accordance with
the provisions of ERISA for calculating the potential  liability of the Borrower
or any ERISA Affiliate under Title IV of ERISA.

         Section 1.02.  Accounting  Terms. All accounting terms not specifically
defined  herein shall be construed in  accordance  with GAAP,  and all financial
data required to be delivered  hereunder  shall be prepared in  accordance  with
GAAP.

         Section  1.03.   Subsidiaries.   All  references  to   Subsidiaries  or
Consolidated  Subsidiaries  shall be deemed to mean if any shall  exist.  For so
long as Borrower has no Subsidiary,  all definitions and covenants  referring to
Borrower and its  Subsidiaries  or  Consolidated  Subsidiaries on a consolidated
basis and all references to consolidated and consolidating  financial statements
shall  be  deemed  to  refer  to  Borrower  alone  and to  Borrower's  financial
statements  alone,  respectively,  but  shall  remain  applicable  in all  other
respects.

                                       E-8
<PAGE>

                             ARTICLE 2. THE CREDIT.

         Section 2.01.  Loans. The Bank agrees,  on the terms of this Agreement,
to make one or more  revolving  credit loans and issue  Letters of Credit to the
Borrower  during the period from and  including the date hereof to and including
the  Revolving  Credit  Termination  Date in  amounts  which,  when added to the
aggregate  amount of all Letter of Credit  Exposure and the principal  amount of
all Loans  outstanding  hereunder  shall not  exceed  the  amount of the  Bank's
Commitment  as then in effect.  Subject to the terms of this  Agreement,  during
such period the Borrower may borrow,  repay and reborrow up to the amount of the
Commitment. The Loans may be Prime Loans or Libor Loans (each a "type" of Loan).
The Borrower  shall give the Bank notice of each borrowing to be made under this
ss. 2.01 (other than Loans created as a Reimbursement Obligation) as provided in
ss.  4.03  hereof.  The  Loans  made by the Bank  (including  Loans  created  as
Reimbursement  Obligations)  shall be  evidenced by the  promissory  note of the
Borrower in substantially the form of Exhibit A hereto,  dated as of the Closing
Date, payable to the order of the Bank in a principal amount of $5,000,000,  and
otherwise  duly  completed.  The amount,  type and date of each Loan made by the
Bank,  and all  payments  made on account  of the  principal  thereof,  shall be
recorded  by the Bank on its  books  and,  prior to any  transfer  of the  Note,
endorsed by the Bank on the  schedule  attached to the Note or any  continuation
thereof, provided, however, that the failure of the Bank to endorse the schedule
shall not  affect or impair the  Borrower's  obligation  to repay  Loans and any
interest thereon or other amounts due hereunder. The proceeds of the Loans to be
made by the Bank (other than Loans created as Reimbursement  Obligations) shall,
subject to the terms and conditions of this Agreement,  be made available to the
Borrower by  depositing  such amount,  in  immediately  available  funds,  in an
account of the Borrower maintained with the Bank.

         Section 2.02. Purpose.  The Borrower will use the proceeds of the Loans
as working  capital for its general  corporate  purposes and the  acquisition of
assets in the ordinary course of the Borrower's business.

         Section 2.03. Changes of Commitment.  The Borrower shall have the right
to terminate or reduce the amount of the  Commitment at any time or from time to
time  upon  not  less  than 30  days'  prior  notice  to the  Bank of each  such
termination or reduction,  which notice shall specify the effective date thereof
(which shall be a Banking Day) and the amount of any such reduction and shall be
irrevocable  and effective only upon receipt by the Bank.  The  Commitment  once
terminated or reduced may not be reinstated.

         Section  2.04.  Extension of Revolving  Credit  Termination  Date.  The
Borrower may, by written  request to the Bank not less than 60 and not more than
90 days prior to the Current Termination Date, request that the Revolving Credit
Termination  Date be extended to the Annual Date next subsequent to such Current
Termination Date. Within 30 days following receipt of such request the Bank will
advise the  Borrower in writing  whether it agrees to or denies such  extension,
provided that if the Bank shall fail to so advise the Borrower it will be deemed
to have denied such request.  If the Bank shall agree  thereto,  such  extension
shall  become   effective  as  of  such  Current   Termination  Date  only  upon
satisfaction of the following conditions as of such Current Termination Date, in
form and substance  satisfactory  to the Bank,  unless  expressly  waived by the
Bank:  (a)  no  Default  shall  have  occurred  and  be   continuing;   (b)  the
representations  and  warranties  made by the  Borrower in ss. 7 hereof shall be
true on and as of such date with the same  force and effect as if made on and as
of such date;  (c) the Bank and the  Borrower  shall have  executed an extension
agreement;  and (d) the Borrower shall have furnished to the Bank such corporate
documents and/or opinions of counsel with respect to such extension, as the Bank
may reasonably  request.  Each extension  request by the Borrower under this ss.
2.04 shall constitute a certification by the Borrower to the effect set forth in
clauses  (a) and (b) of the  preceding  sentence  (both  as of the  date of such
notice and, unless the Borrower otherwise notifies the Bank prior to the Current
Termination Date, as of the Current Termination Date).

                                       E-9
<PAGE>

         Section 2.05. Letters of Credit. Subject to the terms and conditions of
this Agreement,  Bank shall, upon the request of the Borrower and payment of the
Bank's  customary  fees and expenses in connection  therewith,  issue Letters of
Credit from time to time from and including the date hereof to but excluding the
Revolving Credit  Termination Date up to but not exceeding the lesser of (i) the
aggregate  unused  amount of the  Commitment  (after  subtracting  the Letter of
Credit Exposure),  or (ii) the difference  between  $1,000,000 and the amount of
the Letter of Credit Exposure which exists  immediately prior to the issuance of
such Letter of Credit.  The Borrower agrees that each  Reimbursement  Obligation
shall, immediately upon its creation, be and become a Prime Loan hereunder.

         Section 2.06.  Facility Fee.  Borrower  shall pay to Bank in advance on
each Annual Date a yearly Facility Fee of $7,500 if the Facility is to remain in
effect, in whole,  subsequent to such Annual Date;  provided however that if the
Facility shall be modified or restructured  prior to the occurrence of a Default
or an Event of Default and if the Bank remains the lender under such modified or
restructured  credit facility,  the Bank shall refund to the Borrower a pro rata
portion of the facility  fee which the Borrower has paid in advance  pursuant to
this ss. 2.06 for the following  year based upon the  remaining  portion of such
year for which the Facility shall not remain in effect. Nothing in this ss. 2.06
shall be deemed to prevent the Bank from  charging a fee which is similar to the
Facility Fee and which is mutually  agreed to in writing by the  Borrower  under
any modified or restructured credit facility.

            ARTICLE 3. REPAYMENTS; INTEREST; LATE FEES, PREPAYMENTS.

         Section 3.01. Repayment of Loans. All Loans shall be due and payable in
full,  principal and  interest,  on the Revolving  Credit  Termination  Date. In
addition,  at the end of each Interest Period,  the Borrower will either (i) pay
to the Bank the  principal  of each Loan which is a Libor Loan,  or (ii) convert
the principal  amount of such Libor Loan to another Loan hereunder as continuing
and subsisting indebtedness.

         Section 3.02.  Interest.  The Borrower will pay to the Bank interest on
the  unpaid  principal  amount  of each  Loan  made by the Bank  for the  period
commencing on the date of such Loan to but excluding the date such Loan shall be
paid in full, at the following rates per annum:

         (a) During such periods such Loan is a Prime Loan,  the Prime Rate plus
the Applicable Margin; and

         (b) During such  periods such Loan is a Libor Loan,  for each  Interest
Period relating thereto, the Libor Rate plus the Applicable Margin.

Notwithstanding the foregoing, after an Event of Default and upon written demand
by the  Bank,  the  Borrower  will pay to the Bank  interest  at the  applicable
Default Rate on any principal of any Loan made by the Bank,  and (to the fullest
extent  permitted by law) on any other amount (other than  interest)  payable to
the Bank by the Borrower hereunder or under the Note, which shall not be paid in
full when due (whether at stated  maturity,  by acceleration or otherwise),  for
the period commencing on the date of such written demand, until the same is paid
in full. Accrued interest on each Loan shall be payable monthly on the first day
of each  month  and upon the  payment  or  prepayment  thereof  (but only on the
principal so paid or prepaid),  except that interest payable at the Default Rate
shall be  payable  from time to time  when due on  demand of the Bank.  Promptly
after the  determination  of any interest rate provided for herein or any change
therein, the Bank shall notify the Borrower thereof.

         Section 3.03. Late Fees. If any payment of principal or interest on any
Loan is not received by the Bank within five days after the due date thereof,  a
late fee shall be imposed on such  payment.  The amount of the late fee shall be
(i) in respect of payments of  interest,  1% of the amount of the payment  which
was due, and (ii) in respect of payments of  principal,  4% of the amount of the
payment which was due,  provided further that in either case such late fee shall
not be less than $25 nor more than $100.

                                      E-10
<PAGE>

         Section 3.04.  Prepayments.

         (a) The  Borrower  shall prepay upon demand by the Bank that portion of
the  outstanding  principal  balance of the Loans,  if any,  which  exceeds  the
Commitment.

         (b) The Borrower shall have the right to prepay Loans, without penalty,
at any time or from time to time, provided that: (i) the Borrower shall give the
Bank notice of each such prepayment as provided in ss. 4.03 hereof;  and (ii) no
Libor  Loan may be  prepaid  on any day other  than the last day of an  Interest
Period  for such  Libor  Loan  except  upon  payment  of a penalty  computed  in
accordance with ss. 5.05 hereof.

                       ARTICLE 4. PAYMENTS; COMPUTATIONS.

         Section 4.01. Payments. Except to the extent otherwise provided herein,
all payments of principal, interest and other amounts to be made by the Borrower
under this  Agreement  and the Note  shall be made in  Dollars,  in  immediately
available  funds,  to the Bank at the Payment  Office for account of the Lending
Office, not later than 2:30 p.m. New York time on the date on which such payment
shall  become due (each such payment made after such time on such due date to be
deemed to have been  made on the next  succeeding  Banking  Day).  The  Borrower
shall,  at the time of making each  payment  under this  Agreement  or the Note,
specify to the Bank the Loans or other amounts payable by the Borrower hereunder
to which such payment is to be applied,  and if the Borrower fails to so specify
or if an Event of Default has  occurred  and is  continuing,  the Bank may apply
such payment in such manner as it may determine to be appropriate, provided that
the Bank shall apply such  payments  first to the principal of Prime Rate loans,
then to the  principal of any other Loans and then to interest on any Loans.  If
the due date of any payment  under this  Agreement  or the Note would  otherwise
fall on a day which is not a Banking  Day,  such date shall be  extended  to the
next  succeeding  Banking Day and interest shall be payable for any principal so
extended for the period of such extension.

         Section 4.02.  Computations.  Interest on Libor Loans shall be computed
on the basis of a year of 360 days and actual days elapsed  (including the first
day but excluding the last day) occurring in the period for which  payable,  and
interest  on Prime  Loans shall be computed on the basis of a year of 365 or 366
days, as the case may be, and actual days elapsed  (including  the first day but
excluding the last day)  occurring in the period for which  payable.  Changes in
interest rate on Prime Loans  resulting  from changes in the Prime Rate shall be
effective for the full day which  constitutes the effective date for such change
in the Prime Rate.

         Section 4.03.  Certain Notices.  Notices by the Borrower to the Bank of
the  termination  or  reduction  of  the  Commitment,   and  of  borrowings  and
prepayments  of Loans  shall be  irrevocable  and  shall  be  effective  only if
received by the Bank not later than 12:00 noon New York time on the date, or the
number  of days  prior to the  date,  of the  relevant  termination,  reduction,
borrowing  or  prepayment  or the first day of such  Interest  Period  specified
below:

    -------------------------------------- -------------------------------------
               Type of Notice                    Date or Number of Days Prior
    -------------------------------------- -------------------------------------
    Termination or reduction                                30 days
    of Commitment
    -------------------------------------- -------------------------------------
    -------------------------------------- -------------------------------------
    Borrowing or prepayment of                         Same Banking Day
    Prime Loans
    -------------------------------------- -------------------------------------
    -------------------------------------- -------------------------------------
    Borrowing or prepayment of                          3 Banking Days
    Libor Loans
    -------------------------------------- -------------------------------------

Each such notice of  termination  or reduction  shall  specify the amount of the
Commitment  to be  terminated  or  reduced.  Each such  notice of  borrowing  or
prepayment  shall  specify  the Loans to be  borrowed  or prepaid and the amount
(subject  to ss.  4.04  hereof) and type of the Loans to be borrowed or prepaid,
the date of borrowing or  prepayment  (which  shall be a Banking  Day),  and the
duration of the Interest  Period.  Each notice  required  hereunder  shall be in
writing,  except that a notice of borrowing may be given orally on the telephone
provided it is confirmed in writing  within two Banking  Days. In the event that
the Borrower  fails to notify the Bank in a timely  manner as set forth above of
any Libor Loan  borrowing to replace any Libor Loan having an expiring  Interest
Period, such Libor Loan will be automatically converted into a Prime Loan on the
last day of the then current Interest Period for such Libor Loan.

                                      E-11
<PAGE>

         Section 4.04.  Minimum Amounts.  Except conversions or prepayments made
pursuant to ss. 5 hereof,  each  borrowing  of principal of Loans shall be in an
amount at least equal to $25,000,  and each  prepayment  of  principal  of Loans
shall be in an amount at least equal to $25,000  (borrowings  or  prepayments in
the case of Libor Loans having  different  Interest  Periods  outstanding at the
same time  hereunder  to be  deemed  separate  borrowings  and  prepayments  for
purposes of the foregoing,  one for each distinct Interest Period).  Anything in
this Agreement to the contrary  notwithstanding,  the aggregate principal amount
of Libor Loans of each type having the same  Interest  Period  shall be at least
equal to  $300,000  and,  if any  Libor  Loans  would  otherwise  be in a lesser
principal  amount for any period,  such Libor Loans shall be Prime Loans  during
such period.

                   ARTICLE 5. YIELD PROTECTION AND ILLEGALITY.

         Section 5.01.  Additional Costs.

         (a) The Borrower  shall pay directly to the Bank from time to time such
amounts as the Bank may  reasonably  determine to be necessary to  compensate it
for any costs  which  the Bank  determines  are  attributable  to its  making or
maintaining of any Libor Loans or its obligation to make any Libor Loans, or any
reduction in any amount receivable by the Bank hereunder in respect of any Libor
Loans or such  obligation  (such  increases in costs and  reductions  in amounts
receivable  being  herein  called  "Additional   Costs"),   resulting  from  any
Regulatory  Change  which:  (i)  changes  the basis of  taxation  of any amounts
payable  to the Bank under  this  Agreement  or the Note in respect of any Libor
Loans (other than taxes  imposed on the overall net income of the Bank or of its
Lending Office for any Libor Loans by the jurisdiction in which the Bank has its
principal  office or such  Lending  Office);  or (ii)  imposes or  modifies  any
reserve,  special deposit or similar requirements  relating to any extensions of
credit or other assets of, or any  deposits  with or other  liabilities  of, the
Bank (including any of such Loans or any deposits  referred to in the definition
of "Libor Base Rate" in ss. 1.01 hereof,  but excluding any reserve  requirement
or deposit insurance assessment already included in the calculation of the Libor
Rate); or (iii) imposes any other condition affecting this Agreement or the Note
(or any of such extensions of credit or liabilities)  other than such portion of
the Agreement and the Note which  pertains to Prime Loans.  If the Bank requests
compensation  from the Borrower  under this ss.  5.01(a),  the Borrower  may, by
notice to the Bank,  require  that the Loans of the type with  respect  to which
such  compensation is requested be converted into Prime Loans in accordance with
the provisions of ss. 5.04 hereof.

         (b)  Without  limiting  the  effect of the  provisions  of ss.  5.01(a)
hereof, in the event that, by reason of any Regulatory  Change,  the Bank either
(i) incurs Additional Costs based on or measured by the excess above a specified
level of the amount of a category of deposits or other  liabilities  of the Bank
which  includes  deposits by reference to which the interest rate on Libor Loans
is  determined  as provided in this  Agreement  or a category of  extensions  of
credit or other  assets of the Bank which  includes  Libor Loans or (ii) becomes
subject  to  restrictions  on the amount of such a category  of  liabilities  or
assets which it may hold, then, if the Bank so elects by notice to the Borrower,
the obligation of the Bank to make further Libor Loans shall be suspended  until
such Regulatory Change ceases to be in effect.

         (c) Without limiting the effect of the foregoing provisions of this ss.
5.01 (but without duplication), the Borrower shall pay directly to the Bank from
time to time on request such amounts as the Bank may reasonably  determine to be
necessary  to  compensate  the  Bank  for any  costs  which  it  determines  are
attributable to the maintenance by the Bank (or any Lending Office)  pursuant to
any law or regulation or any  interpretation,  directive or request  (whether or
not having the force of law) of any court or governmental or monetary  authority
following  any  Regulatory  Change,  of capital in respect of its  Commitment or
Loans (such compensation to include, without limitation,  an amount equal to any
reduction  of the rate of return on assets or equity of the Bank (or any Lending
Office)  which  the Bank  could  have  achieved  but for such  law,  regulation,
interpretation, directive or request).

                                      E-12
<PAGE>

         (d) The Bank will notify the Borrower of any event  occurring after the
date of this  Agreement  that  will  entitle  the  Bank  to  compensation  under
paragraph  (a) or (c) of this ss.  5.01 or to convert  Loans  under ss.  5.04 as
promptly as practicable,  but in any event within 30 days after the Bank obtains
actual knowledge thereof; provided, however, that if the Bank fails to give such
notice within 30 days after it obtains  actual  knowledge of such an event,  the
Bank shall,  with respect to compensation  payable  pursuant to this ss. 5.01 in
respect of any costs  resulting  from such  event,  only be  entitled to payment
under this ss. 5.01 or ss. 5.04 for costs  incurred from and after the date that
the Bank  does  give  such  notice;  and  provided  further,  that the Bank will
designate a different  Lending Office for the Loans of the Bank affected by such
event if such designation will avoid the need for, or reduce the amount of, such
compensation  and will not, in the sole opinion of the Bank, be  disadvantageous
to the Bank,  except  that the Bank  shall have no  obligation  to  designate  a
Lending Office located in the United States of America. The Bank will furnish to
the Borrower a certificate setting forth the basis and amount of each request by
the Bank for  compensation  under  paragraph (a) or (c) of this ss. 5.01,  which
amount  will be  determined  in good  faith on an  equitable  basis  such as, if
appropriate,  an  allocation  measured by the  principal  amount of Loans to the
Borrower,  or  commitments  to make Loans to the Borrower,  then  outstanding in
relation to the total amount of loans, or commitments to make loans, made by the
Bank of the type or  character  which has given  rise to the  Additional  Costs.
Determinations  and allocations by the Bank for purposes of this ss. 5.01 of the
effect of any Regulatory Change pursuant to ss. 5.01(a) or (b) hereof, or of the
effect of capital  maintained  pursuant to ss. 5.01(c)  hereof,  on its costs or
rate of return of  maintaining  Loans or its  obligation  to make  Loans,  or on
amounts  receivable  by it in respect of Loans,  and of the amounts  required to
compensate the Bank under this ss. 5.01, shall be conclusive, provided that such
determinations and allocations are made on a reasonable basis.

         Section  5.02.  Limitation  on Types of Loans.  Anything  herein to the
contrary notwithstanding, if the Bank reasonably determines (which determination
shall be conclusive) that interest rates for the relevant  deposits  referred to
in the definition of "Libor Base Rate" in ss. 1.01 hereof are not being provided
in  the  relevant  amounts  or for  the  relevant  maturities  for  purposes  of
determining rates of interest for Libor Loans as provided herein,  then the Bank
shall give the Borrower  prompt notice  thereof,  and so long as such  condition
remains in effect the Bank shall be under no  obligation  to make further  Libor
Loans.

         Section 5.03.  Illegality.  Notwithstanding any other provision of this
Agreement,  in the event that it becomes  unlawful  for the Bank or its  Lending
Office to honor its obligation to make or maintain Libor Loans  hereunder,  then
the Bank shall promptly notify the Borrower thereof and the Bank's obligation to
make Libor Loans shall be  suspended  until such time as the Bank may again make
and  maintain  Libor  Loans and the  Bank's  outstanding  Libor  Loans  shall be
converted into Prime Loans in accordance with ss. 5.04 hereof.

         Section 5.04. Certain Conversions  Pursuant to ss.ss. 5.01 and 5.03. If
the Loans of the Bank of a  particular  type  (Loans of such type  being  herein
called  "Affected  Loans" and such type being herein called the "Affected Type")
are to be  converted  pursuant to ss. 5.01 or 5.03 hereof,  the  Affected  Loans
shall be automatically converted into Prime Loans on the last day(s) of the then
current  Interest  Period(s)  for  the  Affected  Loans  (or,  in the  case of a
conversion  required by ss. 5.01(b) or 5.03 hereof,  on such earlier date as the
Bank may specify to the Borrower) and, unless and until the Bank gives notice as
provided below that the circumstances specified in ss. 5.01 or 5.03 hereof which
gave rise to such conversion no longer exist:  (a) to the extent that the Bank's
Affected Loans have been so converted, all payments and prepayments of principal
which would otherwise be applied to such Affected Loans shall be applied instead
to its Prime Loans;  and (b) all Loans which would otherwise be made by the Bank
as  Loans of the  Affected  Type  shall  be made  instead  as  Prime  Loans.  No
conversion  pursuant  to this ss.  5.04  shall be deemed to be a  prepayment  in
respect of which any  prepayment  premium or  penalty  shall be due,  other than
compensation   which  may  be  payable  under  ss.ss.  5.01  and  5.05  (without
duplication of compensation).

                                      E-13
<PAGE>

         Section  5.05.  Compensation.  The Borrower  shall pay to the Bank upon
request such amount or amounts as shall be sufficient (in the reasonable opinion
of the Bank) to  compensate  it for any  loss,  cost or  expense  which the Bank
determines are attributable to:

         (a) any  payment or  prepayment  of a Libor  Loan made by the Bank,  or
conversion  of a Libor Loan  pursuant to ss. 5.04, on a date other than the last
day of the Interest Period for such Loan; or

         (b) any failure by the Borrower to borrow a Libor Loan from the Bank on
the date for such borrowing  specified in the relevant notice of borrowing given
pursuant to ss. 4.03 hereof.

Without limiting the effect of the preceding  sentence,  such compensation shall
include an amount  equal to the  excess,  if any,  of (i) the amount of interest
which otherwise would have accrued on the principal  amount so paid,  prepaid or
converted  or not  borrowed  for the  period  from  the  date  of such  payment,
prepayment,  conversion  or  failure  to borrow to the last day of the  Interest
Period  for such Loan (or,  in the case of a failure  to  borrow,  the  Interest
Period for such Loan which would have  commenced on the date  specified for such
borrowing) at the applicable  rate of interest for such Loan provided for herein
over (ii) the  interest  component  of the amount the Bank would have bid in the
London  interbank  market  for  Dollar  deposits  of  leading  banks in  amounts
comparable  to such  principal  amount and with  maturities  comparable  to such
period (as reasonably determined by the Bank). A determination of the Bank as to
the  amounts  payable  pursuant  to this ss.  5.05  shall be  conclusive  absent
manifest error.

         Section 5.06.  Survival.  The  obligations  of the Borrower  under this
Article 5 shall survive the repayment of the Loans.


                        ARTICLE 6. CONDITIONS PRECEDENT.

         Section 6.01.  Initial  Conditions.  The obligation of the Bank to make
the initial Loan is subject to the condition  precedent that the Bank shall have
received on or before the date of such Loan each of the  following,  in form and
substance satisfactory to the Bank and its counsel:

         (a) Facility  Documents.  The Facility  Documents  duly executed by the
parties thereto (other than the Bank);

         (b) Corporate  Supporting  Documents.  All such secretarial and officer
certificates of the Borrower  pertaining to corporate  action,  incumbency,  and
organizational documents as the Bank may reasonably require;

         (c)  Opinion of Counsel  for  Borrower  and  Subsidiaries.  A favorable
opinion of counsel for the Borrower and its Subsidiaries, dated the Closing Date
in form and substance satisfactory to the Bank and its counsel;

         (d) Insurance.  A certificate of insurance  evidencing coverage against
loss in respect of the Borrower's  inventory in form and substance  satisfactory
to the Bank and naming the Bank as loss payee; and

         (e) Other Documents. The Borrower shall have furnished to the Bank such
other documents,  certificates,  statements, opinions of counsel and information
with respect to the  transactions  contemplated by this Agreement as the Bank or
its counsel may reasonably request.

         Section 6.02. Additional  Conditions  Precedent.  The obligation of the
Bank to make the Loans shall be subject to the further conditions precedent that
on the  date of each  Loan the  following  statements  shall  be  true:  (i) the
representations and warranties contained in Article 7 of this Agreement are true
and  correct,  in all material  respects,  on and as of the date of such Loan as
though made on and as of such date;  and (ii) no Default or Event of Default has
occurred and is continuing, or would result from such Loan.

                                      E-14
<PAGE>

                   ARTICLE 7. REPRESENTATIONS AND WARRANTIES.

The Borrower hereby represents and warrants that:

         Section 7.01. Incorporation,  Good Standing and Due Qualification.  The
Borrower  is a  corporation  duly  incorporated,  validly  existing  and in good
standing  under  the  laws of the  jurisdiction  of its  incorporation,  has the
corporate  power and authority to own its assets and to transact the business in
which it is now engaged or proposed to be engaged,  and is duly  qualified  as a
foreign  corporation  and  in  good  standing  under  the  laws  of  each  other
jurisdiction where failure to qualify could have a Material Adverse Effect.

         Section  7.02.  Corporate  Power  and  Authority;  No  Conflicts.   The
execution,  delivery and  performance by the Borrower of the Facility  Documents
have been duly authorized by all necessary  corporate action and do not and will
not: (a) require any consent or approval of its stockholders; (b) contravene its
charter or  by-laws;  (c)  violate  any  provision  of, or require  any  filing,
registration,  consent or approval under, any law, rule, regulation  (including,
without limitation,  Regulation U), order, writ, judgment,  injunction,  decree,
determination or award presently in effect having applicability to the Borrower;
(d) result in a breach of or  constitute a default or require any consent  under
any  indenture  or loan or credit  agreement  or any other  agreement,  lease or
instrument to which the Borrower is a party or by which it or its properties may
be bound or affected;  (e) result in, or require,  the creation or imposition of
any Lien upon or with  respect to any of the  properties  now owned or hereafter
acquired by the  Borrower;  or (f) cause the Borrower to be in default under any
such  law,  rule,  regulation,  order,  writ,  judgment,   injunction,   decree,
determination or award or any such indenture, agreement, lease or instrument.

         Section 7.03. Legally  Enforceable  Agreements.  Each Facility Document
is, or when delivered  under this Agreement will be, a legal,  valid and binding
obligation  of the Borrower or the  Guarantor,  as the case may be,  enforceable
against the Borrower or the  Guarantor in accordance  with its terms,  except to
the  extent  that such  enforcement  may be limited  by  applicable  bankruptcy,
insolvency and other similar laws affecting creditors' rights generally.

         Section 7.04.  Litigation.  Except as disclosed to the Bank, there are,
as of the Closing  Date,  no actions,  suits or  proceedings  pending or, to the
knowledge of any officer of the Borrower,  threatened,  against or affecting the
Borrower  directly before any court,  governmental  agency or arbitrator,  which
have a reasonable likelihood that they may, in any one case or in the aggregate,
have a Material Adverse Effect or materially  impair the ability of the Borrower
to perform its obligations under the Facility Documents.

         Section 7.05. Financial Statements.  The consolidated balance sheets of
the Borrower and its  Consolidated  Subsidiaries as at December 31, 1997 for the
fiscal year then ended and as at  September  30, 1998 for the nine month  period
then ended,  copies of which have been  furnished to the Bank,  are complete and
correct and fairly  present the  financial  condition  of the  Borrower  and its
Consolidated  Subsidiaries as at such dates and the results of the operations of
the Borrower and its  Consolidated  Subsidiaries for the periods covered by such
statements,  all in accordance with GAAP  consistently  applied (subject to year
end adjustments in the case of the interim financial  statements).  There are no
liabilities of the Borrower or any of its  Consolidated  Subsidiaries,  fixed or
contingent,  which are material as to the Borrower and its Subsidiaries taken as
a whole  but are not  reflected  in the  financial  statements  or in the  notes
thereto, other than liabilities arising in the ordinary course of business since
September  30,  1998 to the  Closing  Date.  No  information,  exhibit or report
furnished by the Borrower to the Bank in connection with the negotiation of this
Agreement  contained  any  material  misstatement  of fact or omitted to state a
material fact or any fact necessary to make the statement  contained therein not
materially  misleading.  Since September 30, 1998 to the Closing Date, there has
been no material  adverse  change in the  condition  (financial  or  otherwise),
business or operations of the Borrower and its Subsidiaries taken as a whole.

                                      E-15
<PAGE>

         Section 7.06.  ERISA. Each of the Borrower and the ERISA Affiliates has
fulfilled its obligations  under the minimum funding  standards of ERISA and the
Code with respect to each Plan and is in  compliance  in all  material  respects
with the presently applicable provisions of ERISA and the Code, has not incurred
any liability to the PBGC or any Plan aggregating in excess of $100,000 which it
has failed to pay when due, and does not have  Unfunded  Vested  Liabilities  in
excess of $100,000.

         Section 7.07.  Subsidiaries and Ownership of Stock. Schedule 1 is as of
the  Closing  Date a  complete  and  accurate  list of the  Subsidiaries  of the
Borrower,  showing the  jurisdiction  of  incorporation  of each and showing the
percentage of the  Borrower's  ownership of the  outstanding  stock of each such
Subsidiary,  together with all other investments, loans, advances, guaranties or
other liabilities undertaken by the Borrower in respect of such Subsidiary.  All
of the  outstanding  capital  stock of each  such  Subsidiary  has been  validly
issued,  is fully paid and  nonassessable  and is owned by the Borrower free and
clear of all Liens.

         Section 7.08. Existing Credit Arrangements and Existing Liens. Schedule
2 is as of  the  Closing  Date  a  complete  and  correct  list  of  all  credit
agreements,  indentures,  guaranties  and  other  investments,   agreements  and
arrangements  presently in effect  providing  for or relating to  extensions  of
credit in respect of which the Borrower or any of its  Subsidiaries is or may be
in any manner directly or contingently  obligated;  and the maximum principal or
face  amounts  of  the  credit  in  question,   outstanding  and  which  can  be
outstanding,  are correctly stated,  and all Liens of any nature given or agreed
to be given as security  therefor are  correctly  described or indicated in such
Schedule. Schedule 2 is also a complete list as of the Closing Date of all Liens
pertaining  to  any  and  all  property  or  assets  of  the  Borrower  and  its
Subsidiaries.

         Section  7.09.  Regulation  U. The Borrower  warrants as of the date of
this Agreement  that it does not own,  directly or indirectly any "margin stock"
(as defined in  Regulation U of the Board of  Governors  of the Federal  Reserve
System),  as supplemented from time to time, and the Borrower warrants as of the
date of each  Loan  that it does not own  "margin  stock" as of the date of such
Loan having an  aggregate  fair market value equal to or greater than 25% of the
fair market value of all of the  Borrower's  assets,  unless the Borrower  shall
have executed a Form FR U-1 (OMB No.  7100-1115) prior to obtaining the proceeds
of the Loan and, in such case, the Borrower  further  warrants that the proceeds
of such Loan are not used for the  purpose,  whether  immediate,  incidental  or
ultimate, of buying or carrying any "margin stock".

         Section  7.10.  Compliance  With  Laws.  Each of the  Borrower  and its
Subsidiaries  have complied in all respects  with all  applicable  laws,  rules,
regulations, and orders, including without limitation,  compliance with all laws
related to the disposal or handling of toxic waste,  and paying  before the same
became delinquent all taxes,  assessments and governmental  charges imposed upon
it or its  property,  except (a) in the case of taxes,  where  contested in good
faith and by proper  proceedings  if appropriate  reserves are  maintained  with
respect  thereto,  or (b) where the failure to comply with a law  (including the
failure to pay taxes,  assessments  and  governmental  charges) would not have a
Material Adverse Effect.

         Section  7.11.  Operation  of  Business.  Each of the  Borrower and its
Subsidiaries possesses all licenses, permits,  franchises,  patents, copyrights,
trademarks and trade names,  or rights  thereto  (collectively,  "Permits"),  to
conduct its business substantially as now conducted and as presently proposed to
be  conducted,  except where the absence of any Permit would not have a Material
Adverse  Effect and, to the best of Borrower's  knowledge,  neither the Borrower
nor any of its  Subsidiaries  is in violation of any valid rights of others with
respect to any of the foregoing.

         Section 7.12.  Hazardous  Materials.  Except as set forth on Schedule 3
hereto:

         (a) Borrower is in substantial  compliance with all Environmental  Laws
applicable  to  Borrower  and has not  received  any  written  notice  from  any
government  alleging  that  Borrower  is  not  so in  compliance,  except  where
noncompliance would not have a Material Adverse Effect;

         (b)  Borrower  possesses  all  licenses,  permits,   registrations  and
authorizations  required  by  applicable  Environmental  Laws  for  the  current
operation of Borrower's  business and is in  substantial  compliance  therewith,
except where the failure to possess same or to comply therewith would not have a
Material Adverse Effect; and

         (c) To the best of Borrower's  knowledge,  the Borrower's assets do not
contain  asbestos  containing   materials,   polychlorinated   biphenyls,   urea
formaldehyde,  underground storage tanks, or hazardous materials,  as defined by
any  Environmental  Law,  which have been  discarded  or  otherwise  released by
Borrower in a quantity  and manner  requiring  that  notice  thereof be given by
Borrower to any government, except where such notice has been given.

                                      E-16
<PAGE>

         Section 7.13. No Default on  Outstanding  Judgments or Orders.  Each of
the Borrower and its  Subsidiaries  has  satisfied all judgments and neither the
Borrower nor any of its Subsidiaries is in default with respect to any judgment,
writ, injunction,  decree, or order of any court,  arbitrator or federal, state,
municipal or other governmental authority,  commission, board, bureau, agency or
instrumentality,  domestic or foreign,  except  where such  non-satisfaction  or
default is not likely to have a Material Adverse Effect.

         Section 7.14. No Defaults on Other Agreements. Neither the Borrower nor
any  of its  Subsidiaries  is in  default  in any  respect  in the  performance,
observance or  fulfillment  of any of the  obligations,  covenants or conditions
contained in any agreement or instrument material to its business to which it is
a party,  except  where such  default  is not likely to have a Material  Adverse
Effect.

         Section 7.15.  Labor Disputes and Acts of God. Neither the business nor
the properties of the Borrower or of any of its Subsidiaries,  has been affected
during the  previous  two years by any strike,  lockout or other labor  dispute,
materially and adversely  affecting such business or properties or the operation
of the Borrower or such Subsidiary.

         Section 7.16. Governmental Regulation.  Neither the Borrower nor any of
its  Subsidiaries  is subject to  regulation  under the Public  Utility  Holding
Company Act of 1935, the Investment Company Act of 1940, the Interstate Commerce
Act,  the Federal  Power Act or any other  statute or  regulation  limiting  its
ability to incur indebtedness for money borrowed as contemplated hereby.

         Section 7.17.  Partnerships.  Except as disclosed on Schedule 4 hereto,
neither  the  Borrower  nor  any  of  its  Subsidiaries  is  a  partner  in  any
partnership.

         Section  7.18.  No  Forfeiture.  Neither  the  Borrower  nor any of its
Subsidiaries  or  Affiliates  is  engaged  in or  proposes  to be engaged in the
conduct  of  any  business  or  activity  which  could  result  in a  Forfeiture
Proceeding  and, to the best  knowledge of Borrower,  no  Forfeiture  Proceeding
against any of them is pending or threatened.

         Section 7.19.  Solvency.

         (a) The present  fair market  value of the assets of the Borrower (as a
going concern) after giving effect to all the  transactions  contemplated by the
Facility  Documents  and the funding of all  Commitments  hereunder  exceeds the
amount that will be required to be paid on or in respect of the  existing  debts
and other liabilities, as recorded on the Borrower's consolidated balance sheets
described in ss. 7.05, of the Borrower and its Subsidiaries as they mature.

         (b) To the best knowledge of the Borrower, the Property of the Borrower
does not constitute unreasonably small capital for the Borrower to carry out its
business  as now  conducted  and as proposed to be  conducted  in the  immediate
future including the capital needs of the Borrower.

         (c) The Borrower  does not intend to, nor does it believe that it will,
incur debts  beyond its ability to pay such debts as they  mature  (taking  into
account the timing and amounts of cash to be  received by the  Borrower,  and of
amounts  to be  payable  on or in  respect  of debt of the  Borrower).  The cash
available to the Borrower after taking into account all other  anticipated  uses
of the cash of the  Borrower,  is  anticipated  to be sufficient to pay all such
amounts on or in  respect  of debt of the  Borrower  presently  recorded  on the
Borrower's consolidated balance sheet when such amounts are required to be paid.

         (d) The Borrower  does not believe that final  judgments  against it in
actions  for money  damages  that are  currently  pending  could  reasonably  be
expected to be rendered at a time when, or in an amount such that,  the Borrower
will be unable to satisfy any such judgments  promptly in accordance  with their
terms (taking into account the maximum  reasonable  amount of such  judgments in
any such actions and the earliest  reasonable time at which such judgments might
be rendered).  The cash  available to the Borrower after taking into account all
other anticipated uses of the cash of the Borrower (including the payments on or
in  respect  of  debt  referred  to in  paragraph  (c) of  this  ss.  7.19),  is
anticipated  to be sufficient to pay all such  judgments  promptly in accordance
with their terms.

                                      E-17
<PAGE>

         Section  7.20.  Year  2000.  Attached  hereto  as  Schedule  5  is  the
Borrower's  statement  regarding  Borrower's  assessment  of  any  reprogramming
required to permit the proper  functioning,  in and  following the year 2000, of
(i) the Borrower's  computer  systems,  and (ii) equipment  containing  embedded
microchips  (including  systems and  equipment  supplied by others or with which
Borrower's systems interface) and the testing of all such systems and equipment.
To the extent such testing is scheduled  for  completion  after January 1, 1999,
the Borrower will use its best efforts to adhere to that  schedule.  The cost to
the Borrower of such reprogramming and testing and of the reasonably foreseeable
consequences  of  year  2000 to the  Borrower  (including,  without  limitation,
reprogramming  errors and the failure of others'  systems or equipment) will not
result  in a  Default  or a  Material  Adverse  Effect.  Except  for such of the
reprogramming  referred to in the preceding  sentence as may be  necessary,  the
computer and management information systems of the Borrower and its Subsidiaries
are and, with ordinary course upgrading and  maintenance,  will continue for the
term of this  Agreement to be,  sufficient to permit the Borrower to conduct its
business without Material Adverse Effect.


                        ARTICLE 8. AFFIRMATIVE COVENANTS.

         So long as any  portion  of the Note  shall  remain  unpaid or the Bank
shall have any Commitment under this Agreement, the Borrower shall:

         Section  8.01.  Maintenance  of  Existence.  Preserve  and maintain its
corporate  existence and good standing in the jurisdiction of its  incorporation
(which may be any state of the United  States of America and may be changed from
time to time), and qualify and remain qualified as a foreign corporation in each
jurisdiction where failure to qualify could have a Material Adverse Effect.

         Section  8.02.  Conduct of  Business.  Continue,  and cause each of its
Subsidiaries to continue,  to engage in an efficient and economical  manner in a
business  of the  same  general  type  as  conducted  by it on the  date of this
Agreement,  provided,  however,  that nothing in this ss. 8.02 shall prevent the
abandonment  or  termination  of a line of business or of any  Subsidiary if the
Borrower  or a  Subsidiary  determines  that the  preservation  of such  line of
business is no longer  desirable  in the conduct of the business of the Borrower
or such Subsidiary.

         Section 8.03.  Maintenance  of Insurance.  The Borrower  shall maintain
insurance  against risk of loss on its inventory in amounts,  under policies and
with insurers reasonably acceptable to the Bank. In addition, to the extent that
other  insurance is available to the Borrower and each of its  Subsidiaries at a
price comparable to the price paid by other Persons in the same or similar types
of business conducted by the Borrower and each Subsidiary,  maintain,  and cause
each of its  Subsidiaries  to maintain,  insurance  with  financially  sound and
reputable  insurance companies or associations in such amounts and covering such
risks as are  usually  carried  by  companies  engaged  in the same or a similar
business and similarly  situated,  which  insurance  may provide for  reasonable
deductibility  from coverage thereof.  To the extent such other insurance is not
obtained,  adopt, in lieu of or supplemental to such insurance,  such other plan
or method of protection,  whether by the  establishment  of an insurance fund or
reserve  to be held  and  applied  to  make  good  losses  from  casualties,  or
otherwise,  and conforming to the practices of similar corporations  maintaining
systems of self-insurance.

                                      E-18
<PAGE>

         Section  8.04.  Compliance  with  Laws.  Comply,  and cause each of its
Subsidiaries  to  comply,  in all  respects  with all  applicable  laws,  rules,
regulations  and  orders,   such  compliance  to  include  without   limitation,
compliance with all laws related to the disposal or handling of toxic waste, and
paying before the same become delinquent all taxes, assessments and governmental
charges  imposed upon it or upon its property,  except (a) in the case of taxes,
where contested in good faith and by proper proceedings if appropriate  reserves
are maintained with respect  thereto,  or (b) where the failure to comply with a
law would not have a Material Adverse Effect.

         Section 8.05.  Right of Inspection.  Upon reasonable  notice and during
normal business hours,  permit the Bank or any agent or representative  thereof,
to examine and make copies of and abstracts  from the financial  records of, and
visit the  properties  of,  the  Borrower  and any of its  Subsidiaries,  and to
discuss  the  affairs,  finances  and  accounts  of the  Borrower  and any  such
Subsidiary  with  any  of  their  respective  officers  and  directors  and  the
Borrower's  independent  accountants,  provided that the Borrower  shall receive
reasonable  notice  of  any  such  meetings  with  the  Borrower's   independent
accountants  and the  Borrower  shall  have  the  right  to be  present  at such
meetings.

         Section 8.06.  Reporting Requirements.  Furnish to the Bank:

         (a) Audited Annual  Financial  Statements.  As soon as available and in
any event within 90 days after the end of each fiscal year of the Borrower:

                  (i) if the Borrower shall have no  Consolidated  Subsidiaries,
the  balance  sheet  of the  Borrower  as of the end of  such  fiscal  year  and
statements  of income,  statements  of cash flows and  statements  of changes in
shareholders'  equity of the Borrower for such fiscal  year,  all in  reasonable
detail  and  stating  in  comparative  form  the  respective   figures  for  the
corresponding  date and period in the prior  fiscal  year,  and all  prepared in
accordance with GAAP, and  accompanied by an opinion  thereon  acceptable to the
Bank by  Price  Waterhouse  Coopers  LLP or  other  independent  accountants  of
national  standing  selected  by the  Borrower,  each of such  statements  to be
prepared in accordance with GAAP; or

                  (ii) if the Borrower shall have any Consolidated Subsidiaries,
the   consolidated   balance  sheets  of  the  Borrower  and  its   Consolidated
Subsidiaries  as of the end of such fiscal year and  consolidated  statements of
income,  statements  of cash flows and  statements  of changes in  shareholders'
equity of the Borrower and its  Consolidated  Subsidiaries for such fiscal year,
all in  reasonable  detail  and  stating  in  comparative  form  the  respective
consolidated  figures for the corresponding  date and period in the prior fiscal
year,  and all  prepared in  accordance  with GAAP,  and as to the  consolidated
statements  accompanied  by an opinion  thereon  acceptable to the Bank by Price
Waterhouse  Coopers LLP or other  independent  accountants of national  standing
selected by the Borrower,  together with consolidating  statements in respect of
all of the foregoing described consolidated  financial statements,  each of such
consolidating statements to be prepared in accordance with GAAP and certified by
the chief financial officer of the Borrower.

                  (iii) accompanying the financial statements delivered pursuant
to this Subsection (a), a certificate,  in  substantially  the form of Exhibit B
hereto, by an appropriate  officer of the Borrower  certifying that the Borrower
was in compliance with ss.ss. 10.01, 10.02, 10.03 and 10.04 as at the end of the
fiscal year to which such financial statements relate, or if Borrower was not in
such compliance, describing any non-compliance in detail, and that no Default or
Event of Default has occurred during the  corresponding  period, or if a Default
or Event of Default has occurred, describing the same and the steps taken by the
Borrower to cure the same, and setting forth in reasonable  detail  calculations
showing compliance with the covenants set forth under Article 10 hereof.

                                      E-19
<PAGE>

         (b)  Quarterly  Financial  Statements.  As soon as available and in any
event within 45 days after the end of each of the Borrower's  first three fiscal
quarters during each fiscal year of Borrower:

                  (i) if the Borrower shall have no  Consolidated  Subsidiaries,
the balance sheet of the Borrower as of the end of such quarter and statement of
income,  of the  Borrower  and its  Consolidated  Subsidiaries  for  the  period
commencing  at the end of the  previous  fiscal  year and ending with the end of
such fiscal quarter,  all in reasonable  detail and stating in comparative  form
the  respective  figures for the  corresponding  date and period in the previous
fiscal  year,  and all prepared in  accordance  with GAAP,  and  certified by an
appropriate officer of the Borrower (subject to year-end adjustments); or

                  (ii) if the Borrower shall have any Consolidated Subsidiaries,
the  consolidating  and  consolidated  balance  sheets of the  Borrower  and its
Consolidated  Subsidiaries as of the end of such quarter and  consolidating  and
consolidated   statement  of  income,  of  the  Borrower  and  its  Consolidated
Subsidiaries  for the period  commencing at the end of the previous  fiscal year
and ending with the end of such fiscal  quarter,  all in  reasonable  detail and
stating  in  comparative  form  the  respective  consolidated  figures  for  the
corresponding  date and period in the previous  fiscal year, and all prepared in
accordance  with GAAP, and certified by an  appropriate  officer of the Borrower
(subject to year-end adjustments); and

                  (iii) accompanying the financial statements delivered pursuant
to this Subsection (b), a certificate,  in  substantially  the form of Exhibit C
hereto, by an appropriate  officer of the Borrower  certifying that the Borrower
was in compliance with ss.ss. 10.01, 10.02, 10.03 and 10.04 as at the end of the
quarter to which such  financial  statements  relate,  or if Borrower was not in
such compliance, describing any non-compliance in detail, and that no Default or
Event of Default has occurred during the  corresponding  period, or if a Default
or Event of Default has occurred, describing the same and the steps taken by the
Borrower to cure the same, and setting forth in reasonable  detail  calculations
showing compliance with the covenants set forth under Article 10 hereof.

         (c) Notice of Litigation. Promptly after the notice of the commencement
thereof is  received  by any  officer of the  Borrower,  notice of all  actions,
suits, and proceedings before any court or governmental department,  commission,
board,  bureau,  agency  or  instrumentality,   domestic  or  foreign,  directly
affecting the Borrower or any of its Subsidiaries which either (a) relate to the
clean-up of toxic or  chemical  waste,  or (b) if  determined  adversely  to the
Borrower or such Subsidiary, could have a Material Adverse Effect;

         (d) Notice of  Defaults  and Events of Default.  As soon as  reasonably
practicable,  and in any event  within  10 days  after  the  occurrence  of each
Default or Event of Default,  a written notice setting forth the details of such
Default or Event of Default and the action  which is proposed to be taken by the
Borrower with respect thereto;

         (e)  General  Information.   Such  other  information   respecting  the
condition or operations,  financial or otherwise,  of the Borrower or any of its
Subsidiaries as the Bank may from time to time reasonably request.

         (f)  ERISA  Notices.   Promptly  after  notifying  the  government,  if
government notice is required,  and otherwise within ten days after the Borrower
knows that any of the events or conditions  specified  below with respect to any
Plan or  Multiemployer  Plan have  occurred or exist,  a  statement  signed by a
senior financial  officer of the Borrower setting forth details  respecting such
event or  condition  and the  action,  if any,  which the  Borrower or its ERISA
Affiliate  proposes to take with  respect  thereto  (and a copy of any report or
notice  required  to be filed with or given to PBGC by the  Borrower or an ERISA
Affiliate with respect to such event or condition):

                  (i) any  reportable  event,  as defined in Section  4043(b) of
ERISA, with respect to a Plan, as to which PBGC has not by regulation waived the
requirement  of Section  4043(a) of ERISA that it be notified  within 30 days of
the  occurrence  of such  event  (provided  that a failure  to meet the  minimum
funding  standard of Section 412 of the Code or Section 302 of ERISA  including,
without  limitation,  the  failure  to make on or before its due date a required
installment  under Section 412(m) of the Code or Section 302(e) of ERISA,  shall
be a reportable  event  regardless  of the issuance of any waivers in accordance
with  Section  412(d) of the Code) and any  request for a waiver  under  Section
412(d) of the Code for any Plan;

                                      E-20
<PAGE>

                  (ii) the distribution  under Section 4041 of ERISA of a notice
of intent to terminate  any Plan or any action taken by the Borrower or an ERISA
Affiliate to terminate any Plan;

                  (iii) the  institution  by PBGC of  proceedings  under Section
4042 of ERISA  for the  termination  of,  or the  appointment  of a  trustee  to
administer, any Plan, or the receipt by the Borrower or any ERISA Affiliate of a
notice  from a  Multiemployer  Plan that such action has been taken by PBGC with
respect to such Multiemployer Plan;

                  (iv) the complete or partial  withdrawal  from a Multiemployer
Plan by the Borrower or any ERISA  Affiliate  that  results in  liability  under
Section 4201 or 4204 of ERISA  (including  the  obligation to satisfy  secondary
liability as a result of a purchaser  default) or the receipt of the Borrower or
any  ERISA  Affiliate  of  notice  from  a  Multiemployer  Plan  that  it  is in
reorganization  or insolvency  pursuant to Section 4241 or 4245 of ERISA or that
it intends to terminate or has terminated under Section 4041A of ERISA;

                  (v) the  institution  of a  proceeding  by a fiduciary  or any
Multiemployer  Plan  against  the  Borrower  or any ERISA  Affiliate  to enforce
Section 515 of ERISA, which proceeding is not dismissed within 30 days;

                  (vi) the adoption of an amendment to any Plan that pursuant to
Section  401(a)(29) of the Code or Section 307 of ERISA would result in the loss
of  tax-exempt  status of the trust of which such Plan is a part if the Borrower
or an ERISA Affiliate fails to timely provide security to the Plan in accordance
with the provisions of said Sections.

         (g) ERISA Reports.  Promptly  after the request of the Bank,  copies of
each annual  report filed  pursuant to Section 104 of ERISA with respect to each
Plan  (including,  to the extent  required by Section 104 of ERISA,  the related
financial and actuarial statements and opinions and other supporting statements,
certifications,  schedules and information  referred to in Section 103) and each
annual  report  filed with  respect to each Plan  under  Section  4065 of ERISA;
provided, however, that in the case of a Multiemployer Plan, such annual reports
shall  be  furnished  only if they are  available  to the  Borrower  or an ERISA
Affiliate;

         (h) Reports to Other Lenders.  Promptly  after the furnishing  thereof,
copies of any statement or report  furnished to any other party  pursuant to the
terms of any  indenture,  loan or  credit  or  similar  agreement  to which  the
Borrower  is a party and not  otherwise  required  to be  furnished  to the Bank
pursuant to any other clause of this ss. 8.06;

         (i) Proxy Reports,  Etc.  Promptly after the sending or filing thereof,
copies of all proxy  statements,  financial  statements  and  reports  which the
Borrower or any of its Subsidiaries sends to its stockholders, and copies of all
regular, periodic and special reports, and all registration statements which the
Borrower  or  any  such  Subsidiary  files  with  the  Securities  and  Exchange
Commission or any governmental  authority which may be substituted  therefor, or
with any national securities exchange;

         (j) Notice of Forfeiture  Proceeding.  Promptly after the  commencement
thereof or  promptly  after the  Borrower  knows of the  commencement  or threat
thereof, notice of any Forfeiture Proceeding;

         Section 8.07. Audits. The Bank shall have the right to conduct an audit
from time to time of the Borrower's inventory, operations and books and records,
including but not limited to the Borrower's  accounts  receivable.  The costs of
one such audit per  calendar  year,  computed at the Bank's  standard  rates for
audit  charges,  shall be paid by the  Borrower  upon demand by the Bank and the
Bank may,  but is not  required  to,  add such  costs to the amount of the Prime
Loans outstanding under the Note as a borrowing hereunder.  If the Bank conducts
more than one audit per  calendar  year,  and  provided  the  Borrower is not in
Default,  the Borrower shall not be  responsible  for the cost of the additional
audits.

                                      E-21
<PAGE>

         Section 8.08.  Lease  Financings.  Provide Bank with an  opportunity to
furnish a quotation on any lease  financing to be  undertaken by the Borrower or
any of its Consolidated Subsidiaries.

                         ARTICLE 9. NEGATIVE COVENANTS.

         So long as any  portion  of the Note  shall  remain  unpaid or the Bank
shall have any Commitment under this Agreement, the Borrower shall not:

         Section 9.01. Debt. Create, incur, assume or suffer to exist, or permit
any of its  Subsidiaries to create,  incur,  assume or suffer to exist any Debt,
except:

         (a) Debt of the Borrower under this Agreement or the Note;

         (b) Debt  currently  outstanding  and reflected on the balance sheet of
the  Borrower  described  in  ss.  7.05  hereof,  but no  renewals,  extensions,
increases or refinancings thereof;

         (c) Purchase Money Debt not exceeding an aggregate  principal amount of
$1,500,000 incurred during any fiscal year of the Borrower;

         (d)   Subordinated   Debt   (provided   that  the  incurrence  of  such
Subordinated  Debt  does  not  cause  the  Borrower  to be in  violation  of the
Covenants set forth in Article 10); and

         Section 9.02. Guarantees, Etc. Assume, guarantee,  endorse or otherwise
be or become  directly or contingently  responsible or liable,  or permit any of
its  Subsidiaries  to  assume,  guarantee,  endorse  or  otherwise  be or become
directly or contingently  responsible or liable (including,  but not limited to,
an agreement to purchase any obligation,  stock, assets, goods or services or to
supply or advance any funds,  assets,  goods or  services,  or an  agreement  to
maintain or cause such Person to maintain a minimum working capital or net worth
or  otherwise  to assure  the  creditors  of any  Person  against  loss) for the
obligations  of any Person,  except  guarantees  by  endorsement  of  negotiable
instruments  for deposit or collection or similar  transactions  in the ordinary
course of business.

         Section 9.03. Liens. (a) Create,  incur,  assume, or suffer to exist or
permit any of its Subsidiaries to create,  incur,  assume, or suffer to exist at
any one time, any Lien,  upon or with respect to any of its Property,  including
without limitation,  inventory, accounts, accounts receivable,  contract rights,
chattel paper, instruments,  acceptances, drafts and general intangibles, all as
defined in the Uniform  Commercial Code of the State of New York, except for (i)
Existing  Liens,  (ii)  Permitted  Encumbrances,  and (iii) Liens granted to the
Bank.

         (b) Enter into any sale and lease-back or similar  financing  device or
scheme in respect of its Property owned prior to such  financing,  or permit any
Subsidiary to do so.

         Section 9.04.  Investments.  Make, or permit any of its Subsidiaries to
make,  any loan or advance to any Person or purchase or  otherwise  acquire,  or
permit any such Subsidiary to purchase or otherwise acquire,  any capital stock,
assets, obligations or other securities of, make any capital contribution to, or
otherwise  invest in, or  acquire  any  interest  in, any  Person,  except:  (a)
investment  grade  securities;  (b)  deposits  in  financial  institutions;  (c)
investments  listed on Schedule 1 hereto; and (d) loans or advances to employees
not to exceed  $50,000 in the aggregate  during any fiscal year of the Borrower;
provided  further  that each such loan  advance  shall be  required to be repaid
within  one year from the date such  advance  shall be made  (and,  if not,  the
Borrower shall take appropriate action for collection).

         Section  9.05.  Sale  of  Assets.  Sell,  lease,  assign,  transfer  or
otherwise dispose of, or permit any of its Subsidiaries to sell, lease,  assign,
transfer  or  otherwise  dispose of any of its now owned or  hereafter  acquired
assets, (including, without limitation, shares of stock and indebtedness of such
Subsidiaries, receivables and leasehold interests and including any transfers to
any  parent  corporation  of the  Borrower  or to  any  other  Affiliate  of the
Borrower),  except  for (i)  inventory  disposed  of in the  ordinary  course of
business  and (ii) not more than  twenty  percent  (20%) of each or any class of
capital stock of any  Subsidiary,  and (iii) other assets  disposed of having an
aggregate fair market value not exceeding $200,000 during any fiscal year of the
Borrower  and sold for a price  which is  within a fair  market  value  for such
assets.

                                      E-22
<PAGE>

         Section 9.06. Mergers, Etc. Sell, assign, lease or otherwise dispose of
(whether in one transaction or in a series of transactions) all or substantially
all of its assets  (whether  now owned or  hereafter  acquired),  to any Person;
Merge or consolidate with any Person, or acquire all or substantially all of the
stock or assets or the business of any Person, or permit any of its Subsidiaries
to do so,  unless (i) no Default or Event of Default  shall exist or shall occur
after giving effect to the  contemplated  transaction,  (ii) the Borrower is the
surviving  entity,  (iii) the currency for the transaction is entirely the stock
of the Borrower, or, in a cash transaction, the total cost of the transaction is
less than $7,500,000; and (iv) the Borrower provides the Bank with (a) pro-forma
financial  statements  for the twelve month period ending on the last day of the
preceding  month,  for the combined  entity,  (and  including  any  Indebtedness
incurred  by  Borrower  in  connection  with  the   transaction)   demonstrating
compliance  with all of the terms of this Agreement and (b) pro-forma  financial
statements  for the twelve  month period  commencing  on the  projected  date of
closing of the contemplated transaction, for the combined entity, (and including
any  Indebtedness  incurred  by  Borrower in  connection  with the  transaction)
demonstrating compliance with all of the terms of this Agreement.

         Section  9.07.  Acquisitions.   Make  any  Acquisition  or  permit  any
Subsidiary  to do so,  unless (i) no Default or Event of Default  shall exist or
shall  occur  after  giving  effect to the  contemplated  transaction,  (ii) the
Borrower is the  surviving  entity,  (iii) the currency for the  transaction  is
entirely the stock of the Borrower, or, in a cash transaction, the total cost of
the transaction is less than $7,500,000; and (iv) the Borrower provides the Bank
with (a) pro-forma  financial  statements  for the twelve month period ending on
the last day of the preceding  month for the combined  entity (and including any
Indebtedness   incurred  by  Borrower  in  connection   with  the   transaction)
demonstrating  compliance  with  all of the  terms  of  this  Agreement  and (b)
pro-forma  financial  statements  for the twelve month period  commencing on the
projected  date of closing of the  contemplated  transaction,  for the  combined
entity, (and including any Indebtedness  incurred by Borrower in connection with
the  transaction)  demonstrating  compliance  with  all of  the  terms  of  this
Agreement.

         Section 9.08. No Activities Leading to Forfeiture. Engage or permit any
Subsidiaries  to engage in the conduct of any  business or activity  which could
reasonably be expected to result in a Forfeiture Proceeding.

         Section 9.09.  Creation of Subsidiaries.  Create or permit to exist any
Subsidiary  with assets or operations  unless such  Subsidiary  shall have first
executed  and  delivered  a  Guaranty  to  the  Bank,  together  with  corporate
supporting  documentation  and a favorable opinion of counsel in respect of such
Guaranty, all in form and substance satisfactory to the Bank.

         Section 9.10. No Material Change. Make or permit any material change in
the management or direction of the Borrower's business or operations, including,
but  not  limited  to,  a  change  in its  executive  management,  which  is not
satisfactory to the Bank.

                        ARTICLE 10. FINANCIAL COVENANTS.

         So long as any  portion  of the Note  shall  remain  unpaid or the Bank
shall have any Commitment under this Agreement:

         Section 10.01.  Funded Debt/EBITDA Ratio. The Borrower shall not permit
the Funded  Debt/EBITDA  Ratio to exceed 3.0 to 1 measured as at the end of each
fiscal quarter of the Borrower.
 
         Section  10.02.  Fixed Charge  Coverage  Ratio.  The Borrower  will not
permit the Fixed Charge Coverage Ratio to be less than 1.5 to 1.0 measured as at
the end of each fiscal quarter of the Borrower.

                                      E-23
<PAGE>

         Section  10.03.  Income  or  Loss.   The   Borrower  shall  not  permit
Consolidated  Income to be a  negative  amount (a loss) for any  fiscal  quarter
commencing  on or after July 1, 1998 or for any  fiscal  year  commencing  on or
after January 1, 1998.

         Section  10.04.  EBITDA/Interest  Expense  Ratio. The Borrower will not
permit the EBITDA/Interest  Expense Ratio to be less than 4.0 to 1.0 measured as
at the end of each fiscal quarter of the Borrower.

                         ARTICLE 11. EVENTS OF DEFAULT.

         Section  11.01. Events of Default. Any of the following events shall be
an "Event of Default":

         (a) The Borrower  shall fail to pay the principal of or interest on the
Note within 15 Banking Days after such  principal  or interest  shall be due and
payable,  or shall fail to pay any amount of a fee or any other  amount  payable
under this  Agreement  within 30 Banking  Days after such amount or fee shall be
due and payable;

         (b) Any  representation or warranty made or deemed made by the Borrower
in this Agreement or which is contained in any certificate,  document,  opinion,
financial or other  statement  furnished at any time under or in connection with
any Facility Document shall prove to have been incorrect in any material respect
on or as of the date made;

         (c) The Borrower shall fail to perform or observe any term, covenant or
agreement  contained in ss.ss.  8.03,  8.04,  8.05 or 8.06, and, if the Borrower
provided the Bank with the notice required under ss. 8.06(d), such failure shall
remain unremedied for 15 consecutive  calendar days after written notice thereof
shall have been given to the Borrower by the Bank,  and if such notice under ss.
8.06(d) is not  provided,  then such  failure  shall  remain  unremedied  for 30
consecutive days after its occurrence;  provided,  however,  that if a breach or
failure  specified in this Subsection (c) be such that (i) it is not a breach of
ss.ss.  8.03 or 8.05 and (ii) it can be  corrected  but not  within  the  period
specified  herein,  it shall not  constitute  the  basis of an event of  default
hereunder (a) if corrective  action  capable of remedying such breach or failure
is instituted by the Borrower  within 5 days of notice of such breach or failure
and  diligently  pursued until such breach or failure is  corrected,  (b) if the
Borrower  shall  within  such 5 day  period  furnish  to the Bank a  certificate
executed by the  President of the Borrower and the Vice  President of Finance of
the Borrower  certifying  (i) that such breach or failure is such that it can be
corrected but not within the  applicable  period,  (ii) that  corrective  action
capable of  remedying  such breach or failure has been  instituted  and is being
diligently pursued and will be diligently pursued until the breach or failure is
corrected,  and (iii) that the  Borrower  shall  notify the Bank by  certificate
executed as above when such breach or failure has been  corrected,  and (c) such
breach or failure shall be fully corrected  within a reasonable  period mutually
agreed to in writing by the Bank and the Borrower not exceeding 30 days;

         (d) The Borrower or any Guarantor  shall fail to perform or observe any
term,  covenant or agreement  contained in any Facility Document (other than the
obligations  described  in (a) and (c)  above  on its  part to be  performed  or
observed) and such failure shall remain  unremedied for 30 consecutive  calendar
days after written notice thereof shall have been given by the Bank to the other
parties to such  Facility  Document  in the  manner  required  by such  Facility
Document;  provided,  however,  that if a breach or  failure  specified  in this
Subsection (d) be such that (i) it is not a breach of ss.ss.  8.02,  8.07, 9.01,
9.02, 9.03, 9.04, 9.05, 9.06, 9.07, 9.09, 10.01, 10.02, 10.03, or 10.04 and (ii)
it can be corrected  but not within the period  specified  herein,  it shall not
constitute the basis of an event of default  hereunder (a) if corrective  action
capable of remedying such breach or failure is instituted by the Borrower within
5 days of notice of such breach or failure  and  diligently  pursued  until such
breach or failure is  corrected,  (b) if the  Borrower  shall  within such 5 day
period  furnish  to the Bank a  certificate  executed  by the  President  of the
Borrower and the Vice  President of Finance of the Borrower  certifying (i) that
such  breach or  failure  is such that it can be  corrected  but not  within the
applicable period,  (ii) that corrective action capable of remedying such breach
or failure  has been  instituted  and is being  diligently  pursued  and will be
diligently pursued until the breach or failure is corrected,  and (iii) that the
Borrower shall notify the Bank by certificate executed as above when such breach
or failure has been  corrected,  and (c) such  breach or failure  shall be fully
corrected  within a reasonable  period mutually agreed to in writing by the Bank
and the Borrower not exceeding 30 days;

                                      E-24
<PAGE>

         (e) The Borrower or any of its Subsidiaries  shall: (i) fail to pay any
Borrowed  Money  Obligation  of the Borrower or any  Subsidiary  in an aggregate
principal  amount  outstanding  exceeding  Two  Hundred-Fifty  Thousand  Dollars
($250,000) (other than the payment  obligations  described in (a) above), or any
interest  or premium  thereon,  within 15 days of when due after any  applicable
grace or cure period for such payment (whether by scheduled  maturity,  required
prepayment,  acceleration,  demand or  otherwise);  or (ii) fail to  perform  or
observe any material term,  covenant or condition on its part to be performed or
observed  under any  agreement or instrument  relating to any such  indebtedness
referred to in (i) above,  when  required to be performed  or  observed,  if the
effect of such failure to perform or observe is to accelerate,  or to permit the
acceleration  of,  after the giving of notice or passage of time,  or both,  the
maturity of such indebtedness, whether or not such failure to perform or observe
shall be waived by the  holder of such  indebtedness;  or any such  indebtedness
shall be declared to be due and payable,  or required to be prepaid  (other than
by a regularly  scheduled  required  prepayment),  prior to the stated  maturity
thereof;

         (f) The Borrower or any of its  Subsidiaries  which in accordance  with
GAAP would be deemed to be a material Subsidiary: (i) shall generally not, or be
unable to, or shall  admit in writing  its  inability  to, pay its debts as such
debts become due in the ordinary  course of business,  except for failure to pay
trade creditors provided that such delay in payment is in accordance with normal
business  practices;  or (ii)  shall  make an  assignment  for  the  benefit  of
creditors, petition or apply to any tribunal for the appointment of a custodian,
receiver or trustee for it or a substantial  part of its assets;  or (iii) shall
commence  any  proceeding  under any  bankruptcy,  reorganization,  arrangement,
readjustment  of  debt,  dissolution  or  liquidation  law  or  statute  of  any
jurisdiction,  whether,  now or hereafter in effect;  or (iv) shall have had any
such  petition or  application  filed,  or any such  proceeding  shall have been
commenced,  against it, in which an adjudication or appointment is made or order
for relief is entered and which remains  undismissed or unstayed for a period of
90 days or more;  or (v) by any act or omission  shall  indicate its consent to,
approval of or acquiescence  in any such petition,  application or proceeding or
order for relief or the appointment of a custodian,  receiver or trustee for all
or any  substantial  part of its  properties;  or (vi)  shall  suffer  any  such
custodianship, receivership or trusteeship to continue undischarged for a period
of 90 days or more;

         (g) One or more  judgments,  decrees or orders for the payment of money
in excess of Two  Hundred-Fifty  Thousand  Dollars  ($250,000)  in the aggregate
shall be rendered  against the Borrower and any of its  Subsidiaries or any such
judgments,  decrees or orders  shall  continue  unsatisfied  and in effect for a
period of 30 consecutive  days without being vacated,  discharged,  satisfied or
stayed or bonded pending appeal;

         (h) Any of the  following  events  shall occur or exist with respect to
the Borrower or any ERISA Affiliate:  (i) any Prohibited  Transaction  involving
any Plan; (ii) any Reportable  Event shall occur with respect to any Plan; (iii)
the filing under  Section  4041 of ERISA of a notice of intent to terminate  any
Plan or the termination of any Plan; (iv) any event or circumstance exists which
might  constitute  grounds  entitling  the PBGC to institute  proceedings  under
Section  4042 of ERISA  for the  termination  of,  or for the  appointment  of a
trustee to  administer,  any Plan,  or the  institution  by the PBGC of any such
proceedings;  (v) complete or partial  withdrawal  under Section 4201 or 4204 of
ERISA  from  a  Multiemployer  Plan  or  the  reorganization,   insolvency,   or
termination of any  Multiemployer  Plan;  and in each case above,  such event or
condition,  together with all other events or  conditions,  if any, could in the
opinion of the Bank subject the Borrower to any tax, penalty, or other liability
to a Plan,  Multiemployer  Plan,  the PBGC,  or  otherwise  (or any  combination
thereof) which in the aggregate exceed or may exceed $250,000.

         (i) (A) any  Forfeiture  Proceeding  shall have been  commenced  or the
Borrower  shall have given the Bank written  notice of the  commencement  of any
Forfeiture  Proceeding  as  provided  in ss.  8.06(j) or (B) the Bank has a good
faith basis to believe  that a  Forfeiture  Proceeding  has been  threatened  or
commenced;

         (j) any of the  Guaranties  shall at any time after its  execution  and
delivery  and for any  reason  cease to be in full  force and effect or shall be
declared  null and void,  or the  validity or  enforceability  thereof  shall be
contested by any of the  Guarantors or any of the  Guarantors  shall deny it has
any further  liability  or  obligation  thereunder  or shall fail to perform its
obligations thereunder; provided further, however that with respect to the death
or  incompetency  of any Guarantor who is a natural  person,  the Borrower shall
have 30 days after notice from the Bank to provide the Bank with a substitute or
replacement guaranty satisfactory to the Bank in its sole discretion;

         (k) the Security Agreements shall at any time and for any reason cease:
(A) to create a valid and  perfected  priority  security  interest in and to the
property subject to such Agreements,  other than if due to the Bank's actions or
omissions;  or (B) to be in full force and effect or shall be declared  null and
void,  or the  validity or  enforceability  thereof  shall be  contested  by the
Borrower or the Borrower  shall deny it has any further  liability or obligation
under the Security  Agreements or the Borrower  shall fail to perform any of its
obligations  thereunder  after  the  expiration  of any cure,  waivers  or grace
periods; or

                                      E-25
<PAGE>

         Section 11.02.  Remedies. If any Event of Default shall occur, the Bank
may, by notice to the Borrower,  (a) declare the  Commitment  to be  terminated,
whereupon the same shall  forthwith  terminate,  and (b) declare the outstanding
principal of the Note, all interest  thereon and all other amounts payable under
this Agreement and the Note to be forthwith due and payable, whereupon the Note,
all such  interest  and all such amounts  shall become and be forthwith  due and
payable, without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by the Borrower; provided that, in the case
of an Event of Default  referred to in ss. 11.01(f) above,  the Commitment shall
be  automatically  terminated,  and the Note, all interest thereon and all other
amounts payable under this Agreement shall be automatically  immediately due and
payable without presentment,  demand,  protest or other formalities of any kind,
all of which are hereby expressly waived by the Borrower.

                            ARTICLE 12. MISCELLANEOUS

         Section 12.01.  Amendments  and Waivers.  No amendment or waiver of any
provision  of this  Agreement  nor  consent  to any  departure  by the  Borrower
therefrom,  shall in any event be effective  unless the same shall be in writing
and signed by the Bank,  and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose which given. No failure on
the  part of the  Bank to  exercise,  and no  delay  in  exercising,  any  right
hereunder  shall  operate as a waiver  thereof or preclude  any other or further
exercise  thereof  or the  exercise  of any other  right.  The  remedies  herein
provided are cumulative and not exclusive of any remedies provided by law.

         Section 12.02. Survival. All representations and warranties made herein
shall survive the borrowings hereunder.

         Section 12.03. Usury. Anything herein to the contrary  notwithstanding,
the  obligations  of the  Borrower  under this  Agreement  and the Note shall be
subject to the limitation that payments of interest shall not be required to the
extent that receipt thereof would be contrary to provisions of law applicable to
the Bank  limiting  rates of interest  which may be charged or  collected by the
Bank.

         Section 12.04.  Expenses. The Borrower shall reimburse the Bank for all
reasonable costs, expenses, and charges (including, without limitation, fees and
charges  of  external  legal  counsel  for the Bank and costs  allocated  by its
internal  legal  department)  incurred  by  the  Bank  in  connection  with  the
preparation, performance or enforcement of this Agreement.

         Section 12.05.  Assignment;  Participations.  This  Agreement  shall be
binding  upon,  and shall inure to the benefit  of, the  Borrower,  the Bank and
their respective successors and assigns (except that the Borrower may not assign
or  transfer  its rights or  obligations  hereunder),  and such  successors  and
assigns shall  thereupon  become vested with all the benefits in respect thereof
granted to the Bank herein or otherwise;  provided,  however,  that (i) the Bank
may  assign  all or any part of any Loan or Loans made by it only with the prior
consent of the Borrower (which shall not be unreasonably withheld), and (ii) the
Bank may sell participations  therein, only to a bank, insurance company,  trust
company, brokerage house, pension fund, or other financial institution, in which
event (a) in the case of an  assignment,  the assignee shall have, to the extent
of such assignment  (unless  otherwise  provided  therein),  the same rights and
benefits and obligations as it would have if it were the Bank hereunder, and (b)
in the case of a participation,  the participant shall not have any rights under
this  Agreement,  the  Note,  or any other  documents  referred  to herein  (the
participant's  rights  against the Bank in respect of such  participation  to be
those  set  forth  in  the  agreement  executed  by the  Bank  in  favor  of the
participant  relating  thereto) and all amounts  payable by the  Borrower  under
Article  5  hereof  shall  be  determined  as if the  Bank  had  not  sold  such
participation,  provided,  however,  that the  Bank may not sell  participations
under any agreement which gives the participant a right to approve or disapprove
of any consent, waiver or amendment by the Bank with respect to any provision of
this Agreement  (except for any provision  hereof relating to the payment of any
amount,  the date on  which  such  payment  is due,  the rate at which  interest
accrues on any Loan or any other amount payable hereunder, or the release of any
guarantee of, or the  substitution  or release of any  collateral  security for,
such Loans). The Bank may furnish any information concerning the Borrower in the
possession  of the  Bank  from  time  to  time  to  assignees  and  participants
(including prospective assignees and participants).

                                      E-26
<PAGE>

         Section  12.06.  Notices.  Except in  respect  of service of process in
respect of any legal  action or  proceeding  arising  out of or relating to this
Agreement, unless the party to be notified otherwise notifies the other party in
writing, notices shall be given to the Bank and to the Borrower by ordinary mail
or telex  addressed to such party at its address on the  signature  page of this
Agreement. Notices to the Bank shall be effective upon receipt.

         Section 12.07.  Set-Off.  The Borrower agrees that, in addition to (and
without  limitation of) any right of set-off,  banker's lien or counterclaim the
Bank may otherwise  have, the Bank shall be entitled,  at its option,  to offset
balances  held  by it for  the  account  of the  Borrower  at any of the  Bank's
offices,  in dollars  or in any other  currency,  against  any  principal  of or
interest on any of the Loans or any other amount  payable by the Borrower  under
this  Agreement or the Note,  which is not paid when due, in which case it shall
promptly notify the Borrower  thereof;  provided that the Bank's failure to give
such notice shall not affect the validity thereof.

         Section  12.08.  Jurisdiction;  Immunities.  (a)  The  Borrower  hereby
irrevocably  submits to the  jurisdiction of any New York State or United States
Federal court sitting in Monroe County,  New York, over any action or proceeding
arising out of or  relating  to this  Agreement  or the Note,  and the  Borrower
hereby  irrevocably  agrees  that  all  claims  in  respect  of such  action  or
proceeding  may be heard and determined in such New York State or Federal court.
The Borrower agrees that a final judgment in any such action or proceeding shall
be conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any  other  manner  provided  by law.  The  Borrower  further  waives  any
objection to venue in such State and any objection to an action or proceeding in
such State on the basis of forum non  conveniens.  The Borrower  further  agrees
that any action or proceeding  brought against the Bank shall be brought only in
New York State or United States Federal court sitting in Monroe County.

         (b)  Nothing in this ss.  12.08  shall  affect the right of the Bank to
serve legal process in any other manner  permitted by law or affect the right of
the Bank to bring any action or proceeding  against the Borrower or its property
in the courts of any other jurisdictions.

         (c) To the extent that the Borrower  has or  hereafter  may acquire any
immunity  from  jurisdiction  of any  court or from any legal  process  (whether
through service or notice,  attachment  prior to judgment,  attachment in aid of
execution,  execution or otherwise) with respect to itself or its property,  the
Borrower hereby  irrevocably  waives such immunity in respect of its obligations
under this Agreement and the Note.

         Section 12.09.  Captions.  The captions and headings  hereunder are for
convenience only and shall not affect the interpretation or construction of this
Agreement.

         Section  12.10.  Severability.  The  provisions  of this  Agreement are
intended to be  severable.  If for any reason any  provision  of this  Agreement
shall be held invalid or unenforceable in whole or in part in any  jurisdiction,
such provision shall, as to such  jurisdiction,  be ineffective to the extent of
such invalidity or unenforceability without in any manner affecting the validity
or enforceability  thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction.

                                      E-27
<PAGE>

         Section  12.11.  Counterparts.  This  Agreement  may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument,  and any party hereto may execute this Agreement by signing any
such counterpart.

         Section 12.12.  Governing Law. This Agreement shall be governed by, and
interpreted and construed in accordance with, the laws of the State of New York;
provided  that the  foregoing  is not  intended  to limit  the  maximum  rate of
interest  which may be charged or collected by the Bank  hereunder if, under the
laws  applicable to it, the Bank may charge or collect such interest at a higher
rate than is permissible under the laws of said State.

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.

                     PERFORMANCE TECHNOLOGIES, INCORPORATED

                      By:_________________________________
                      Name:_______________________________
                      Title:______________________________

                              Address for notices:
                               315 Science Parkway
                            Rochester, New York 14620
                                 ATTN: President

                            THE CHASE MANHATTAN BANK

                      By:_________________________________
                      Name:_______________________________
                      Title:______________________________

                           Lending and Payment Office:
                            The Chase Manhattan Bank
                                One Chase Square
                            Rochester, New York 14643

                              Address for notices:
                            The Chase Manhattan Bank
                                One Chase Square
                            Rochester, New York 14643
                         ATTN: Performance Technologies
                             Account Representative

                                      E-28
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