EXECUTION COPY
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                                U.S. $12,000,000

                              AMENDED AND RESTATED
                                CREDIT AGREEMENT

                           Dated as of April 11, 1994

                                     between

                       VODAVI COMMUNICATIONS SYSTEMS, INC.

                                   as Borrower

                                       and

                      GENERAL ELECTRIC CAPITAL CORPORATION

                                    as Lender


                   As Amended and Restated as of June 11, 1997
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                                TABLE OF CONTENTS
                                -----------------

1. DEFINITIONS; INTERPRETATIONS................................................1
         1.1  Definitions......................................................1
         1.2  Other Definitional Provisions...................................21
         1.3  Accounting Matters..............................................22

2. AMOUNT AND TERMS OF CREDIT.................................................22
         2.1  Revolving Credit Facility.......................................22
         2.2  Interest on Revolving Credit Loan...............................24
         2.3  Fees............................................................25
         2.4  Calculation of Interest and Fees................................25
         2.5  Early Termination...............................................25
         2.6  Manner of Payment; Time.........................................26
         2.7  Application and Allocation of Payments..........................26
         2.8  Accounting......................................................26
         2.9  Taxes...........................................................27
         2.10 Increased Commitment or Funding Costs...........................27
         2.11 Failure to Charge Not Subsequent Waiver.........................28
         2.12 Survivability...................................................28

3. CONDITIONS PRECEDENT.......................................................28
         3.1  Conditions to Each Extension of Credit..........................28

4. REPRESENTATIONS AND WARRANTIES.............................................29
         4.1  Corporate Existence; Compliance with Law........................29
         4.2  Executive Offices; Corporate or Other Names.....................29
         4.3  Corporate Power; Authorization; Enforceable Obligations.........30
         4.4  Financial Statements and Projections............................30
         4.5  Material Adverse Chang..........................................31
         4.6  Ownership of Property; Liens....................................31
         4.7  Restrictions; No Default........................................32
         4.8  Labor Matters...................................................32
         4.9  Ventures, Subsidiaries and Affiliates, and Indebtedness.........32
         4.10 Government Regulation...........................................32
         4.11 Margin Regulations..............................................33
         4.12 Taxes...........................................................33
         4.13 ERISA...........................................................34
         4.14 No Litigation...................................................35
         4.15 Brokers.........................................................35
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         4.16 Employment Matters..............................................35
         4.17 Patents, Trademarks, Copyrights,  Licenses and Accreditation....35
         4.18 Full Disclosure.................................................36
         4.19 Hazardous Materials.............................................36
         4.20 Insurance Policies..............................................36
         4.21 Deposit Accounts................................................36
         4.22 Solvent Financial Condition.....................................37
         4.23 Credit Party Questionnaires.....................................37

5. FINANCIAL STATEMENTS AND INFORMATION.......................................37
         5.1  Reports and Notices.............................................37
         5.2  Communication with Accountants..................................39

6. AFFIRMATIVE COVENANTS......................................................39
         6.1  Maintenance of Existence and Conduct of Business................39
         6.2  Payment of Obligations..........................................40
         6.3  Books and Records...............................................40
         6.4  Litigation......................................................40
         6.5  Insurance.......................................................41
         6.6  Compliance with Laws............................................41
         6.7  Agreement.......................................................41
         6.8  Employee Plans..................................................42
         6.9  Environmental Matters...........................................42
         6.10 Access..........................................................42
         6.11 Cash Management.................................................43
         6.12 Goldstar Agreements.............................................43

7. NEGATIVE COVENANTS.........................................................43
         7.1  Mergers, Etc....................................................43
         7.2  Investments.....................................................43
         7.3  Indebtedness....................................................44
         7.4  Affiliate and Employee Loans; 
               Transactions and Employment Agreements.........................44
         7.5  Capital Structure and Business..................................44
         7.6  Liens...........................................................44
         7.7  Sale of Assets..................................................45
         7.8  Events of Default...............................................45
         7.9  ERISA...........................................................45
         7.10 Financial Covenants.............................................45
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         7.11 Hazardous Materials.............................................46
         7.12 Restricted Payments.............................................46
         7.13 Change in Control...............................................46

8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES.....................................46
         8.1  Events of Default...............................................46
         8.2  Remedies........................................................48
         8.3  Cumulative Remedies.............................................48
         8.4  Waivers by Borrower.............................................48

9. MISCELLANEOUS..............................................................49
         9.1  Complete Agreement; Modification of Agreement...................49
         9.2  Fees and Expenses...............................................49
         9.3  Indemnity.......................................................50
         9.4  No Waiver.......................................................51
         9.5  Successors and Assigns..........................................52
         9.6  Severability....................................................52
         9.7  Conflict of Terms...............................................52
         9.8  Authorized Signature; Oral Instructions.........................52
         9.9  Governing Law...................................................52
         9.10 Notices.........................................................53
         9.11 Subordination...................................................55
         9.12 Survival of Obligations Upon Termination of 
               Financing Arrangement..........................................55
         9.13 Section Titles..................................................56
         9.14 Counterparts....................................................56
         9.15 Time of Essence.................................................56
         9.16 Waiver of Jury Trial............................................56
         9.17 Syndication.....................................................56
         9.18 Special Provision Relating to this Amendment and Restatement....57
 ................................................................................
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                              AMENDED AND RESTATED
                                CREDIT AGREEMENT
                                ----------------

             VODAVI   COMMUNICATIONS   SYSTEMS,   INC.,  formerly  known  as  V.
Technology  Acquisition  Corp.   ("Borrower"),   and  GENERAL  ELECTRIC  CAPITAL
CORPORATION,  a New York  corporation  ("Lender"),  are parties to that  certain
Credit Agreement, dated as of April 11, 1994, as amended to the date hereof (the
"Original  Agreement"),  and hereby amend and restate the Original  Agreement as
follows:

                                    RECITALS
                                    --------

             Borrower  desires  to  make  certain  amendments  to  the  Original
Agreement  which relates to a loan facility (the  "Revolving  Credit  Facility")
under which the Lender has made  available to the Borrower up to Twelve  Million
Dollars ($12,000,000) in revolving loans outstanding at any time, and the Lender
has  agreed  to such  amendments  to such  facility,  all  upon  the  terms  and
conditions set forth herein.

             NOW,  THEREFORE,  in  consideration  of the premises and the mutual
covenants hereinafter contained, the parties hereto agree as follows:

                                   ARTICLE 1.

                          DEFINITIONS; INTERPRETATIONS

             1.1  Definitions.  Any and all capitalized  terms used herein shall
have the  following  respective  meanings  when  used in this  Agreement  unless
otherwise specified where used:

                  "Account   Debtor"  shall  mean  any  Person  who  may  become
obligated  to any Credit  Party  under,  with  respect  to, or on account of, an
Account.

                  "Account   Agreement"  shall  mean  any  agreement  among  the
Borrower,  the  Lender  and the bank in which  such  account  or lockbox is held
pledging any Collection  Account to the Lender as security for the  Obligations,
in the form  attached  hereto as  Exhibit E or in such  other form as the Lender
shall approve.

                  "Accounts"  shall mean, with respect to any Credit Party,  all
"accounts," as such term is defined in the Code, now owned or hereafter acquired
by such Credit Party and, in any event, including,  without limitation,  (a) all
accounts  receivable,   other  receivables,   book  debts  and  other  forms  of
obligations  (other  than  forms of  obligations  evidenced  by  Chattel  Paper,
Documents  or  Instruments)  now owned or  hereafter  received or acquired by or
belonging or owing to such Credit  Party,  whether  arising out of goods sold or
leased or for services rendered by it or from any other transaction  (including,
without  limitation,  any such  obligations  which  may be  characterized  as an
account or contract right under the Code), (b) all of such Credit Party's rights
in, to and under all purchase orders or receipts now owned or hereafter acquired
by it for goods or services, (c) all of such Credit Party's rights to
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any goods represented by any of the foregoing  (including,  without  limitation,
unpaid  sellers'  rights of rescission,  replevin,  reclamation  and stoppage in
transit and rights to returned,  reclaimed or repossessed goods), (d) all monies
due or to  become  due to such  Credit  Party  under  all  purchase  orders  and
contracts for the sale of goods or the  performance  of services or both by such
Credit Party or in  connection  with any other  transaction  (whether or not yet
earned by  performance  on the part of such Credit  Party) now or  hereafter  in
existence,  including,  without limitation, the right to receive the proceeds of
said purchase orders and contracts, and (e) all collateral security, instruments
and guarantees of any kind,  now or hereafter in existence,  given by any Person
with respect by any of the foregoing.

                  "Affiliate"  shall mean, with respect to any Person,  (i) each
Person that, directly or indirectly, owns or controls, whether beneficially,  or
as a trustee,  guardian or other  fiduciary,  five  percent  (5%) or more of the
Stock having  ordinary voting power in the election of directors of such Person,
(ii) each Person that controls, is controlled by or is under common control with
such  Person or any  Affiliate  of such  Person or (iii)  each of such  Person's
officers,  directors,  joint  venturers  and  partners.  For the purpose of this
definition,  "control"  of a Person  shall  mean  the  possession,  directly  or
indirectly,  of the power to direct or cause the direction of its  management or
policies,  whether  through the ownership of voting  securities,  by contract or
otherwise.

                  "Agreement"  shall  mean  this  Amended  and  Restated  Credit
Agreement, including any appendices, exhibits or schedules hereto.

                  "Applicable  Law" shall  mean,  anything in Section 9.9 to the
contrary notwithstanding, (i) all applicable common law and principles of equity
and (ii) all applicable  provisions of all (A) constitutions,  statutes,  rules,
regulations and orders of governmental  bodies,  (B) Governmental  Approvals and
(C) orders, decisions, judgments and decrees of all courts and arbitrators.

                  "ARS" shall mean Arizona  Repair  Services,  Inc.,  an Arizona
corporation which is an Affiliate of the Borrower.

                  "Authorized  Borrower  Representative"  shall have the meaning
assigned to it in Section 9.8.

                  "Base  Rate"  shall  mean for each  month,  the per annum rate
equal to the GE Capital Index Rate,  plus 2.5%.  Changes in the GE Capital Index
Rate shall take effect as of the beginning of the first day of each month.

                  "Borrower" shall mean Vodavi Communications  Systems, Inc., an
Arizona corporation formerly known as V Technology Acquisition Corp.

                  "Borrowing  Base"  shall  mean at any  time an  amount  not to
exceed the sum of: (i) 85% of Eligible  Accounts,  and (ii) up to the lesser of:
(A)  $6,000,000  and (B) not more than 60% of  Eligible  Inventory  in each case
(Eligible Accounts and Eligible Inventory) as 
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shown on the most recently delivered Borrowing Base Certificate delivered by the
Borrower,  less  such  additional  reserves  as  Lender  shall  deem  reasonably
necessary.

                  "Borrowing Base  Certificate"  shall mean a certificate in the
form attached hereto as Exhibit B.

                  "Business  Day" shall mean any day that is not a  Saturday,  a
Sunday or a day on which  banks are  required or  permitted  to be closed in the
State of New York.

                  "Capital  Expenditures"  shall mean all payments for any fixed
assets or improvements or for replacements,  substitutions or additions thereto,
that  have a useful  life of more  than one  year  and that are  required  to be
capitalized under GAAP.

                  "Capital  Lease" shall mean,  with respect to any Person,  any
lease of any property (whether real, personal or mixed) by such Person as lessee
that, in  accordance  with GAAP,  either would be required to be classified  and
accounted  for as a capital lease on a balance sheet of such Person or otherwise
be disclosed as such in a note to such balance sheet.

                  "Capital  Lease  Obligation"  shall mean,  with respect to any
Capital Lease,  the amount of the obligation of the lessee  thereunder  that, in
accordance with GAAP,  would appear on a balance sheet of such lessee in respect
of such Capital Lease or otherwise be disclosed in a note to such balance sheet.

                  "Charges"  shall mean,  with respect to any Credit Party,  all
federal,  state, county, city,  municipal,  local, foreign or other governmental
taxes  (including,  without  limitation,  taxes owed to PBGC at the time due and
payable),  levies,  assessments,  charges, liens, claims or encumbrances upon or
relating  to (i) the  Collateral,  (ii) the  Obligations,  (iii) the  employees,
payroll, income or gross receipts of such Credit Party, (iv) such Credit Party's
ownership  or use of any of its assets,  or (v) any other  aspect of such Credit
Party's business.

                  "Chattel  Paper" shall mean, with respect to any Credit Party,
any "chattel paper," as such term is defined in the Code, now owned or hereafter
acquired by such Credit Party, wherever located, including,  without limitation,
any writing or writings which evidence both a monetary obligation and a security
interest in or a lease of specified goods.

                  "Closing Date" shall mean April 11, 1994.

                  "Closing Fee" shall have the meaning assigned to it in Section
2.3(a).

                  "Code" shall mean the Uniform Commercial Code as the same may,
from time to time, be in effect in the State of New York; provided,  however, in
the event that,  by reason of  mandatory  provisions  of law,  any or all of the
attachment,  perfection  or  priority  of  Lender's  security  interest  in  any
Collateral is governed by the Uniform Commercial Code as
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<PAGE>
in effect in a  jurisdiction  other than the State of New York,  the term "Code"
shall mean the Uniform  Commercial Code as in effect in such other  jurisdiction
for purposes of the provisions hereof relating to such attachment, perfection or
priority and for purposes of definitions related to such provisions.

                  "Collateral" shall mean the property covered by the Collateral
Documents and any other property, real or personal,  tangible or intangible, now
existing or hereafter  acquired,  that may at any time be or become subject to a
Lien in favor of Lender to secure the Obligations.

                  "Collateral Documents" shall mean the Security Agreements, the
Account Agreements, the Pledge Agreement, the Trademark Security Agreement(s) in
substantially the form of Exhibit N hereto and the Patent Collateral  Assignment
Agreement(s) in substantially the form of Exhibit M hereto.

                  "Collection Account" shall mean any account, lock box or other
depository  into  which  Borrower  deposits  or  receives  the  proceeds  of its
Accounts.

                  "Commitment"  shall have the meaning assigned to it in Section
2.1(a).

                  "Commitment  Fee"  shall mean the fee in the amount of $50,000
paid to Lender by  Borrower on or before the Closing  Date as  compensation  for
Lender committing to make funds available to Borrower.

                  "Commitment  Termination  Date" shall mean the earliest of (i)
the Maturity Date,  (ii) the date of  termination of the Commitment  pursuant to
Section  8.2,  and  (iii)  the date of  prepayment  in full by  Borrower  of the
Revolving  Credit Loan and  termination of the Commitment in accordance with the
provisions of Section 2.5.

                  "Consolidated  Subsidiary"  of any Person  shall mean,  at any
time, any Subsidiary or other entity the accounts of which would be consolidated
with those of such Person in its  consolidated  financial  statements as of such
time in accordance with GAAP.

                  "Contracts"  shall mean, with respect to any Credit Party, all
the  contracts,  undertakings,  or  agreements  (other than rights  evidenced by
Chattel  Paper,  Documents  or  Instruments  but  including,  in the case of the
Borrower,  rights under the Goldstar  Agreements)  in or under which such Credit
Party may now or hereafter  have any right,  title or interest,  including,  any
agreement  relating to the terms of payment or the terms of  performance  of any
Account.

                  "Credit  Parties"  shall mean the  Borrower,  ARS and ESI, and
"Credit Party" shall mean any of the foregoing.

                  "Credit  Party  Questionnaire"  shall  mean any  questionnaire
delivered by a Credit Party in substantially the form of Exhibit J.
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                  "Default" shall mean any Event of Default, and any event that,
with the passage of time or the giving of notice or both, would, unless cured or
waived, become an Event of Default.

                  "Default Rate" shall mean the Base Rate plus 2%.

                  "Disbursement   Account"   shall   mean   the   zero   balance
disbursement  account from which the Borrower makes all payments in the ordinary
course of its business.

                  "DOL" shall mean the United States  Department of Labor or any
successor thereto.

                  "Documents"  shall mean, with respect to any Credit Party, any
"documents,"  as such  term is  defined  in the  Code,  now  owned or  hereafter
acquired by such Credit  Party,  wherever  located,  and in any event  including
bills of lading,  dock  warrants,  dock  receipts,  warehouse  receipts or other
documents of title.

                  "EBITDA" shall mean, for any period of twelve months ending on
the last day of any Fiscal  Period,  (i) net income  before  interest  and taxes
plus,  (ii) to the extent  deducted in  determining  such income,  depreciation,
amortization  and other  similar  non-cash  charges,  minus  (iii) to the extent
recognized in determining  such income,  extraordinary  gains,  plus (iv) to the
extent   recognized  in   determining   such  income,   the  absolute  value  of
extraordinary losses, of Borrower for such period.

                  "Eligible   Accounts"  shall  mean  the  aggregate  amount  of
Accounts of Borrower from goods sold or services rendered in the ordinary course
of Borrower's business and that Lender, in its reasonable  discretion,  deems to
be Eligible Accounts. In determining what constitutes Eligible Accounts,  Lender
may exclude, without duplication or limitation, any of the following:

                  (a) that  portion of any  Account  upon  which (i)  Borrower's
             right to receive  payment is not absolute or is contingent upon the
             fulfillment of any condition  whatever or (ii) Borrower is not able
             to bring suit or otherwise enforce its remedies against the Account
             Debtor through judicial process;

                  (b) that portion of any Account  against  which is asserted or
             available any defense, counterclaim or setoff, whether well-founded
             or otherwise;

                  (c) that portion of any Account that is not a true and correct
             statement of a bona fide indebtedness incurred in the amount of the
             Account for goods or services  provided  to, and  accepted  by, the
             Account Debtor obligated upon such Account;

                  (d) any Account with  respect to which an invoice,  acceptable
             to Lender in form and substance, has not been sent;
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                  (e) any Account that is not owned by Borrower  that is subject
             to any right,  claim, or interest of another other than the Lien in
             favor of Lender;

                  (f)  any  Account  that  arises  from a sale  of  goods  to an
             employee or Affiliate;

                  (g) any Account that is the  obligation  of an Account  Debtor
             that is the federal government or a political  subdivision  thereof
             unless  Lender has agreed to the  contrary in writing and  Borrower
             has complied with the Federal Assignment of Claims Act of 1940, and
             any amendments thereto, with respect to such obligation;

                  (h) any Account that is the  obligation  of an Account  Debtor
             domiciled in a foreign country; provided, however, that accounts of
             Canadian  Account  Debtors  shall not be excluded  pursuant to this
             clause  (h) so  long  as the  Lien of the  Lender  thereon,  in the
             reasonable  judgment of the Lender,  constitutes a  first-priority,
             perfected Lien that is  enforceable  against the Account Debtor and
             all third parties, and Borrower shall have provided the Lender with
             all such  documents,  opinions  and  evidences  as the Lender shall
             reasonably request to establish the same;

                  (i) any Account that is the obligation of an Account Debtor to
             whom  Borrower  is or may become  liable for goods sold or services
             rendered or money loaned by the Account Debtor to Borrower;

                  (j) any Account  that  arises  with  respect to goods that are
             delivered on a cash-  on-delivery  basis or placed on  consignment,
             guaranteed sale, sale-or-return,  sale-on- approval, or other terms
             by  reason  of which  the  payment  by the  Account  Debtor  may be
             conditional;

                  (k) any Account that is in default; provided, however, that an
             Account  shall be deemed in default upon the  occurrence  of any of
             the following:

                       (i) the Account  remaining  unpaid beyond sixty (60) days
                  from its due date;

                       (ii) if any Account  Debtor  obligated  upon such Account
                  suspends business,  makes a general assignment for the benefit
                  of creditors, or fails to pay its debts generally as they come
                  due; or

                       (iii) if any  petition is filed by or against any Account
                  Debtor obligated upon such Account under any bankruptcy law or
                  any  other   national,   state  or  provincial   receivership,
                  insolvency  relief  or  other  law or laws for the  relief  of
                  debtors;

                  (l) any Account that is the  obligation  of an Account  Debtor
             that is in default (as defined in subparagraph (k)(i) above) on 50%
             or more of the Accounts
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             upon which such Account Debtor is obligated to Borrower;

                  (m) any Account that remains  unpaid  beyond  ninety (90) days
             from its date of invoice;

                  (n) any Account  that arises from any  bill-and-hold  or other
             sale of  goods  that  remain  in  Borrower's  possession  or  under
             Borrower's control;

                  (o) any Account in which Lender does not have a first-priority
             perfected security interest;

                  (p) any  portion  of an  Account  that  exceeds  any credit or
             concentration  limit  established by Lender in its sole  discretion
             for the Account Debtor thereon;

                  (q) any Account as to which any of Borrower's  representations
             or  warranties  pertaining to such Account in any Loan Document are
             untrue;

                  (r) any Account that is the  obligation  of an Account  Debtor
             that is located in the State of New  Jersey,  Minnesota  or Indiana
             unless the  Borrower  has filed any  requisite  notice of  business
             activity  (or similar  report) for the  then-current  year with the
             appropriate public office of such state; and

                  (s) any Account that is not otherwise  acceptable to Lender in
             its reasonable discretion.

Up to 60% (or such lesser  percentage as Lender may determine  from time to time
in its reasonable  discretion) of Eligible Accounts  outstanding at any one time
may be accounts on which Graybar is directly or indirectly an Account Debtor and
up to 15% of Eligible  Accounts  outstanding  at any one time may be accounts on
which any single Person (other than Graybar) is directly or indirectly obligated
as an Account Debtor.

             "Eligible  Inventory"  shall  mean the  aggregate  amount  of Gross
Inventory of Borrower that Lender,  in its  reasonable  discretion,  deems to be
Eligible  Inventory.  In determining what constitutes  Eligible  Inventory,  the
Lender may exclude, without duplication or limitation, any of the following:

                  (a) Inventory that the Borrower does not own free and clear of
             all Liens and rights of others,  except the first-priority  Lien in
             favor of Lender;

                  (b)  Inventory  that is not  located  on  premises  owned  and
             operated by Borrower;  provided,  however, that if the Inventory is
             located on premises  leased by Borrower,  the lessor  thereof shall
             have executed a Waiver and Consent in favor of Lender substantially
             in the form of Exhibit I to the Credit  Agreement (or in such other
             form as is acceptable to Lender);
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                  (c)  Inventory   that  is  in  transit  unless  covered  by  a
             negotiable  document of title and unless such document and evidence
             of acceptable insurance covering such Inventory have been delivered
             to Lender or its agent, and the seller of such Inventory has waived
             any right to  reclaim  such goods or to stop the  delivery  of such
             goods in  possession  of a carrier or other  bailee and any similar
             right to interfere with the Lender's prior rights to the Inventory,
             whether  arising  pursuant to Section 2-702 or Section 2-705 of the
             Code, or otherwise;

                  (d)  Inventory  that,  in  Lender's   opinion,   is  obsolete,
             unsalable, shopworn, damaged, or unfit for further processing;

                  (e) Inventory that does not constitute finished goods, such as
             supplies, repair parts, work-in-process,  sales literature, display
             items,  packing  and  shipping  materials  or goods  that have been
             returned by a buyer;

                  (f) Inventory  that consists of  discontinued  or  slow-moving
             items or substandard quality goods;

                  (g) Inventory that is placed by Borrower on consignment;

                  (h)  Inventory  as to which  Lender's  Lien  thereon  is not a
             first-priority and perfected security interest;

                  (i)  Inventory  that  is not of a type  held  for  sale in the
             ordinary course of Borrower's business;

                  (j) Any reserves  that Borrower has  established  on its books
             against Inventory,  including but not limited to those reserves for
             loss of Inventory due to shrinkage; and

                  (k) Inventory  that is not  otherwise  acceptable to Lender in
             its reasonable discretion.

                  "Environmental  Laws" shall mean all federal,  state and local
laws, statutes,  ordinances and regulations,  now or hereafter in effect, and in
each case as  amended  or  supplemented  from time to time,  and any  applicable
judicial  or   administrative   interpretation   thereof,   including,   without
limitation,  any applicable judicial or administrative  order, consent decree or
judgment relating to the regulation and protection of human health,  safety, the
environment and natural resources (including,  without limitation,  ambient air,
surface  water,  groundwater,  wetlands,  land  surface  or  subsurface  strata,
wildlife,  aquatic species and vegetation).  Environmental Laws include, but are
not limited to, the  Comprehensive  Environmental  Response,  Compensation,  and
Liability Act of 1980, as amended (42 U.S.C.  ss.ss.  9601 et seq.)  ("CERCLA"),
the Hazardous Material  Transportation Act, as amended (49 U.S.C. ss.ss. 1801 et
seq.), the Federal  Insecticide,  Fungicide,  and Rodenticide Act, as amended (7
U.S.C.  ss.ss.  136 et seq.),  the Resource  Conservation  and Recovery  Act, as
amended (42
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U.S.C.  ss.ss.  6901 et seq.)  ("RCRA"),  the Toxic  Substance  Control  Act, as
amended  (15 U.S.C.  ss.ss.  2601 et seq.),  the Clean Air Act,  as amended  (42
U.S.C.  ss.ss. 740 et seq.), the Federal Water Pollution Control Act, as amended
(33 U.S.C.  ss.ss.  1251 et seq.),  the  Occupational  Safety and Health Act, as
amended (29 U.S.C.  ss.ss.  651 et seq.)  ("OSHA"),  and the Safe Drinking Water
Act, as amended (42 U.S.C.  ss.ss.  300(f) et seq.), and any and all regulations
promulgated  thereunder,  and all  analogous  state  and local  counterparts  or
equivalents and any transfer of ownership notification or approval statutes.

                  "Environmental   Liabilities   and   Costs"   shall  mean  all
liabilities, obligations,  responsibilities,  remedial actions, losses, damages,
punitive  damages,  consequential  damages,  treble damages,  costs and expenses
(including,  without limitation, all reasonable fees, disbursements and expenses
of counsel,  experts and consultants and costs of investigation  and feasibility
studies),  fines, penalties,  sanctions and interest incurred as a result of any
claim,  suit, action or demand by any Person,  whether based in contract,  tort,
implied or express  warranty,  strict  liability,  criminal or civil  statute or
common  law  (including,  without  limitation,  any  thereof  arising  under any
Environmental Law, permit,  order or agreement with any Governmental  Authority)
and  that  relate  to  any  health  or  safety  condition  regulated  under  any
Environmental  Law or in  connection  with any  other  environmental  matter  or
Release or the  presence of a  Hazardous  Material  or  threatened  Release of a
Hazardous Material.

                  "Equipment"  shall mean, with respect to any Credit Party, all
equipment,  as such term is defined in the Code, now owned or hereafter acquired
by such Credit Party, wherever located.

                  "ERISA" shall mean the Employee Retirement Income Security Act
of 1974 (or any successor  legislation  thereto),  as amended from time to time,
and any regulations promulgated thereunder.

                  "ERISA  Affiliate"  shall  mean,  with  respect  to any Credit
Party, any trade or business (whether or not incorporated)  under common control
with such Credit Party and that, together with such Credit Party, are treated as
a single employer within the meaning of Sections 414(b),  (c), (m) or (o) of the
IRC.

                  "ERISA Event" shall mean,  with respect to any Credit Party or
any other ERISA  Affiliate,  (i) a  Reportable  Event with respect to a Title IV
Plan or a  Multiemployer  Plan,  (ii) the  withdrawal of any Credit Party or any
ERISA  Affiliate  from a Title IV Plan subject to Section 4063 of ERISA during a
plan year in which it was a substantial  employer, as defined in Section 4001(a)
(2) of ERISA,  (iii) the complete or partial  withdrawal of any Credit Party, or
any ERISA Affiliate from any Multiemployer  Plan, (iv) the filing of a notice of
intent to terminate a Title IV Plan or the  treatment  of a plan  amendment as a
termination  under Section 4041 of ERISA,  (v) the  institution of proceeding to
terminate a Title IV Plan or Multiemployer Plan by the PBGC, (vi) the failure to
make  required  contributions  to a Qualified  Plan, or (vii) any other event or
condition that might reasonably be expected to constitute  grounds under Section
4042 of ERISA  for the  termination  of,  or the  appointment  of a  trustee  to
administer, any Title IV Plan or Multiemployer Plan or the imposition of any
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<PAGE>
liability  under  Title  IV of  ERISA  other  than  PBGC  premiums  due  but not
delinquent under Section 4007 of ERISA.

                  "ESI"  shall  mean   Enhanced   Systems,   Inc.,   an  Arizona
corporation which is an Affiliate of the Borrower.

                  "Event of Default"  shall have the  meaning  assigned to it in
Section 8.1.

                  "Extension  of Credit"  shall  mean the making of a  Revolving
Credit Advance or the incurrence of a Letter of Credit Obligation.

                  "Federal  Reserve Board" shall have the meaning assigned to it
in Section 4.11.

                  "Fees"  shall mean the  Closing  Fee,  the  Non-use  Fee,  the
Commitment Fee, the Prepayment Fee, the Letter of Credit Fees and any other fees
due to Lender pursuant to the Loan Documents.

                  "FIFO Cost" shall mean the cost of Inventory of the  Borrower,
determined on a First In - First Out basis in accordance with GAAP.

                  "Financials" shall mean the financial  statements  referred to
in paragraphs I(i) and I(ii) of Schedule 4.4.

                  "Fiscal  Month"  shall  mean  any  of the  monthly  accounting
periods of Borrower.

                  "Fiscal  Quarter"  shall mean any of the quarterly  accounting
periods of Borrower.

                  "Fiscal  Year"  shall  mean the  12-month  period of  Borrower
ending  December  31 of each year.  Subsequent  changes  of the  fiscal  year of
Borrower shall not change the term "Fiscal Year," unless Lender shall consent in
writing to such change.

                  "Fixed Charge Coverage Ratio" shall have the meaning  assigned
to it in Section 7.10(b).

                  "Fixed  Charges"  shall mean  (without  duplication),  for any
fiscal  period  of  Borrower,  the sum of (i)  Interest  Expense  (ii)  required
payments of principal on Funded Debt, and (iii) income taxes paid in cash.

                  "Funded Debt" shall mean, without duplication, with respect to
Borrower,  all of  Borrower's  Indebtedness  that, by the terms of the agreement
governing or instrument evidencing such Indebtedness, matures more than one year
from, or is directly or indirectly  renewable or extendible at the option of the
debtor under a revolving credit or similar
-10-
<PAGE>
agreement  obligating  the lender or lenders to extend  credit  over a period of
more  than one  year  from,  the date of  creation  thereof,  including  current
maturities of long-term debt,  revolving credit,  and short-term debt extendible
beyond one year at the option of the  debtor,  and shall also  include,  without
limitation, the Obligations.

                  "GAAP" shall mean generally accepted accounting  principles in
the  United  States  of  America  as in effect  from time to time,  consistently
applied.

                  "GE Capital" shall mean General Electric Capital  Corporation,
a New York corporation  having an office at 350 South Beverly Drive,  Suite 200,
Beverly Hills, California 90212.

                  "GE  Capital  Index  Rate"  shall  mean  for each  month,  the
annualized yield on 30- day commercial paper, as quoted for high grade unsecured
notes sold through  dealers by major  corporations in multiples of $1,000 in the
"Money  Rates"  section  of The  Wall  Street  Journal  for the  last day of the
preceding  month on which The Wall Street Journal is published  containing  such
rates or, in the event that The Wall Street Journal  ceases  publication of such
rate, in such other publication of general  circulation as Lender may, from time
to time, designate in writing.

                  "General  Intangibles"  shall mean, with respect to any Credit
Party, any "general intangibles," as such term is defined in the Code, now owned
or hereafter acquired by such Credit Party and, in any event, including, without
limitation,  all right,  title and  interest  that such Credit  Party may now or
hereafter  have in or  under  any  Contract,  all  customer  lists,  Trademarks,
Patents,  services marks,  trade names,  business names,  corporate names, trade
styles,  logos and other source or business  identifiers,  and all  applications
therefor and reissues,  extensions or renewals  thereof,  rights in intellectual
property,   interests  in  partnerships,   joint  ventures  and  other  business
associations,  licenses,  permits,  copyrights,  trade  secrets,  proprietary or
confidential  information,  inventions  (whether or not patented or patentable),
technical information,  procedures, designs, knowledge, know-how, software, data
bases,  data,  skill,  expertise,   experience,   processes,  models,  drawings,
materials and records,  goodwill  (including,  without limitation,  the goodwill
associated  with any Trademark,  Trademark  registration  or Trademark  licensed
under any  Trademark  license),  all  rights  and  claims in or under  insurance
policies, (including, without limitation,  insurance for fire, damage, loss, and
casualty, whether covering personal property, real property,  tangible rights or
intangible  rights,  all  liability,  life,  key man, and business  interruption
insurance,  and all unearned  premiums),  uncertificated  securities,  choses in
action, deposit and other bank accounts, rights to receive tax refunds and other
payments and rights of indemnification.

                  "Goldstar"  shall  mean LG  Electronics,  Inc.,  successor  by
merger to Goldstar Telecommunications Co., Ltd. (Korea).

                  "Goldstar  Agreements"  shall  mean  all of the  existing  and
hereafter  acquired  supplier,  license and distribution  agreements between the
Borrower and Goldstar, all of which are described on Schedule 1.1 hereto.
-11-
<PAGE>
                  "Goods"  shall mean,  with  respect to any Credit  Party,  all
"goods" as such term is defined in the Code, now owned or hereafter  acquired by
such Credit Party,  wherever located, and in any event including all things that
are movable or that are  fixtures,  including  further  without  limitation  any
equipment, inventory or other tangible personal property or fixtures.

                  "Governmental Approval" shall mean an authorization,  consent,
approval,  license or exemption  of,  registration  or filing with, or report or
notice  to, any  governmental  body,  including,  without  limitation,  any such
approval required under ERISA or by the PBGC.

                  "Governmental  Authority" shall mean any nation or government,
any state or other political subdivision thereof, and any agency,  department or
other  entity  exercising  executive   legislative,   judicial,   regulatory  or
administrative functions of or pertaining to government.

                  "Gross  Inventory"  shall mean  Borrower's  Inventory  per the
perpetual  ledger,  valued at the lower of FIFO Cost or  market,  plus  deferred
freight, import duties (net of dumping duties) and in-transit Inventory.

                  "Graybar"  shall mean Graybar  Electric  Company,  Inc., a New
York corporation.

                  "Guaranteed Indebtedness" shall mean, as to any Person without
duplication, any obligation of such Person guaranteeing any Indebtedness, lease,
dividend,  or other obligation ("primary  obligations") of any other Person (the
"primary obligor") in any manner including,  without limitation,  any obligation
or  arrangement  of such Person (i) to purchase or  repurchase  any such primary
obligation,  (ii) to advance or supply  funds (a) for the purchase or payment of
any such primary obligation or (b) to maintain working capital or equity capital
of the primary obligor or otherwise to maintain the net worth or solvency or any
balance  sheet  condition of the primary  obligor,  (iii) to purchase  property,
securities  or services  primarily  for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such  primary  obligation,  or (iv)  to  indemnify  the  owner  of such  primary
obligation against loss in respect thereof.

                  "Guaranty  Agreement"  shall mean the Guaranty  Agreement from
ARS and ESI to Lender in substantially the form of Exhibit O hereto, pursuant to
which ARS and ESI shall jointly and severally  guarantee payment and performance
of the Obligations.

                  "Hazardous  Material"  shall mean any  substance,  material or
waste,  the  generation,  handling,  storage,  treatment or disposal of which is
regulated  by,  or form the  basis of  liability  now or  hereafter  under,  any
government authority,  including,  without limitation, any material or substance
that is (i) defined as a "solid waste," "hazardous waste," "hazardous material,"
"hazardous  substance,"  "extremely  hazardous  waste" or "restricted  hazardous
waste" or other  similar  term or  phrase  under any  Environmental  Laws,  (ii)
petroleum  or any  fraction
-12-
<PAGE>
or  by-product  thereof,  asbestos,  polychlorinated  biphenyls,  a  radioactive
substance,  methane,  volatile  hydrocarbons  or an  industrial  solvent,  (iii)
designated as a "hazardous substance" pursuant to Section 311 of the Clean Water
Act, 33 U.S.C. ss.ss. 1251 et seq. (33 U.S.C. ss.ss. 1321) or listed pursuant to
Section  307 of the Clean  Water Act (33 U.S.C.  ss.  1317),  (iv)  defined as a
"hazardous  waste"  pursuant to Section  1004 of the Resource  Conservation  and
Recovery Act, 42 U.S.C.  ss. 6901, et seq. (42 U.S.C.  ss. 6903), or (v) defined
as a  "hazardous  substance"  pursuant  to  Section  1012  of the  Comprehensive
Environmental Response,  Compensation,  and Liability Act, 42 U.S.C. ss. 9601 et
seq. (42 U.S.C. ss. 9601).

                  "Indebtedness" of any Person shall mean, without  duplication,
(i) all  indebtedness  of such  Person for  borrowed  money or for the  deferred
purchase  price  of  property  or  services   (including,   without  limitation,
reimbursement and all other obligations with respect to surety bonds, letters of
credit and  bankers'  acceptances,  whether or not  matured,  but not  including
obligations to trade  creditors  incurred  (either for goods or services) in the
ordinary  course of business  that have a term of less than one year),  (ii) all
obligations evidenced by notes, bonds, debentures or similar instruments,  (iii)
all  indebtedness  created or arising under any conditional  sale or other title
retention  agreements  with  respect to property  acquired by such Person  (even
though the rights and remedies of the seller or lender  under such  agreement in
the event of a default are limited to  repossession  or sale of such  property),
(iv) all Capital Lease Obligations,  (v) all Guaranteed  Indebtedness,  (vi) all
obligations  arising with respect to  Mandatorily  Redeemable  Stock,  (vii) all
Indebtedness  referred to in clause (i), (ii),  (iii), (iv) or (v) above secured
by (or  for  which  the  holder  of such  Indebtedness  has an  existing  right,
contingent  or  otherwise,  to be  secured  by) any  Lien  upon  or in  property
(including,  without  limitation,  accounts and contract  rights)  owned by such
Person, even though such Person has not assumed or become liable for the payment
of such  Indebtedness,  (viii) the Obligations,  and (ix) all liabilities  under
Title IV or ERISA with respect to unfunded plans.

                  "Instruments"  shall mean,  with respect to any Credit  Party,
any  "instrument,"  as such term is defined in the Code,  now owned or hereafter
acquired by such Credit Party, wherever located, including,  without limitation,
all  certificated  securities and all notes and other evidences of indebtedness,
other than  instruments  that  constitute,  or are a part of a group of writings
that constitute, Chattel Paper.

                  "Intercompany  Debt"  shall mean any and all present or future
indebtedness, obligations and other liabilities of any Credit Party to any other
Credit Party or any other member of the Parent Group.

                  "Interest  Expense"  shall  mean,  for any  fiscal  period  of
Borrower,  cash  interest  expense of Borrower for such period in respect of its
Funded Debt.

                  "Inventory"  shall mean, with respect to any Credit Party, all
inventory,  as such term is defined in the Code, now owned or hereafter acquired
by such Credit Party,  wherever located, and, in any event,  including,  without
limitation, all inventory,  merchandise, goods and other personal property which
are held by or on behalf of such Credit Party for sale or lease
-13-
<PAGE>
or are  furnished  or are to be  furnished  under a contract of service or which
constitute raw materials,  work in process,  finished goods or materials used or
consumed or to be used or consumed  in such  Credit  Party's  business or in the
processing,  production, packaging, promotion, delivery or shipping of the same,
including further any return inventory and all inventory in transit.

                  "IRC"  shall  mean  the  Internal  Revenue  Code of  1986,  as
amended, and any successor thereto.

                  "IRS" shall mean the United States Internal  Revenue  Service,
or any successor thereto.

                  "Leases" shall mean, with respect to any Credit Party,  all of
those leasehold estates in real property now owned or hereafter acquired by such
Credit Party, as lessee.

                  "Lender"  shall mean GE Capital and, if at any time GE Capital
shall decide to assign or syndicate all or any portion of the Obligations,  such
term shall include such assignee or such other members of the syndicate.

                  "Lending  Office"  shall have the  meaning  assigned  to it in
Section 2.1(b).

                  "Letter of Credit Fees" shall have the meaning  assigned to it
on Schedule 2.1(g).

                  "Letter  of Credit  Obligations"  shall  mean all  outstanding
obligations  incurred  by Lender,  whether  direct or  indirect,  contingent  or
otherwise, due or not due, in connection with the issuance or guaranty by Lender
or another  Person,  at the request of Borrower,  of any Letters of Credit.  The
amount of each Letter of Credit  Obligation  at any time shall equal the maximum
amount  which may be payable by Lender  thereupon  or  pursuant  thereto at such
time.

                  "Letters  of  Credit"  shall  mean any and all  commercial  or
standby  letters of credit  issued at the request or for the account of Borrower
for which Lender has incurred a Letter of Credit Obligation.

                  "License"  shall mean,  with respect to any Credit Party,  any
Patent  License,  Trademark  License or other license of rights or interests now
held or hereafter acquired by such Credit Party.

                  "Lien"  shall  mean any  mortgage  or deed of  trust,  pledge,
hypothecation,  assignment,  deposit arrangement,  lien, charge, claim, security
interest,  easement or  encumbrance,  or preference,  priority or other security
agreement  or  preferential   arrangement  of  any  kind  or  nature  whatsoever
(including,  without  limitation,  any lease or title retention  agreement,  any
financing  lease having  substantially  the same  economic  effect as any of the
foregoing,  and the filing of, or agreement  to give,  any  financing  statement
under the Code or
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<PAGE>
comparable law of any jurisdiction).

                  "Loan  Documents"  shall  mean the  Agreement,  the Note,  the
Guaranty  Agreement,   the  Collateral   Documents  and  all  other  agreements,
instruments,  documents and certificates identified herein or in the Schedule of
Documents  in favor of  Lender  and  including,  without  limitation,  all other
pledges,  powers of  attorney,  consents,  assignments  and  contracts,  whether
heretofore, now or hereafter executed by or on behalf of any Credit Party or any
of its Affiliates, or any employee of any Credit Party or any of its Affiliates,
and  delivered to Lender in connection  with the  Agreement or the  transactions
contemplated hereby.

                  "Mandatorily  Redeemable Stock" means, as applied to a Person,
any share of such Person's  capital  stock to the extent that it is  redeemable,
payable or required to be purchased or otherwise  retired or extinguished (i) at
a fixed  or  determinable  date,  whether  by  operation  of a  sinking  fund or
otherwise, (ii) at the option of any Person other than such Person or (iii) upon
the occurrence of a condition not solely within the control of such Person, such
as a redemption required to be made out of future earnings.

                  "Material Adverse Effect" shall mean a material adverse effect
on (i) the  business,  assets,  operations,  prospects  or  financial  or  other
condition of Borrower or the Parent Group taken as a whole,  (ii) Borrower's and
the other Credit Parties'  ability,  taken as a whole, to pay the Obligations in
accordance  with the  terms  hereof  and the  other  Loan  Documents,  (iii) the
Collateral or Lender's  Liens on the Collateral or the priority of any such Lien
or (iv)  Lender's  rights and  remedies  under the  Agreement  or the other Loan
Documents.

                  "Maturity  Date" shall mean the date that is the later of: (i)
April 11, 2000, and (ii) the date to which,  upon prior mutual written agreement
the Borrower and Lender,  the  expiration of the Revolving  Credit  Facility has
been extended.

                  "Maximum  Inventory  Turnover Days" shall mean, as of the last
day of any Fiscal Month, the number of days determined by the following formula:

                   The Borrower's Inventory on such day x 360
--------------------------------------------------------------------------------
         The Borrower's costs of goods sold for the twelve month period
                               ending on such day

                  "Maximum Letter of Credit Obligations" shall mean $1,000,000.

                  "Maximum Permissible Rate" shall mean with respect to interest
(or amounts deemed interest)  payable  hereunder,  the rate of interest that, if
exceeded, could, under Applicable Law, result in (i) civil or criminal penalties
being  imposed on the Lender or (ii) the Lender being unable to enforce  payment
of (or if  collected,  to retain) all or part of any  Obligation or the interest
payable thereon.

                  "Multiemployer  Plan"  shall  mean a  "multiemployer  plan" as
defined in 
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<PAGE>
Section 4001(a) (3) of ERISA, and to which any Credit Party or any ERISA
Affiliate is making, is obligated to make, has made or been obligated to make,
contributions on behalf of participants who are or were employed by any of them.

                  "Non-use Fee" shall have the meaning assigned to it in Section
2.3(b).

                  "Note"  shall  have  the  meaning  assigned  to it in  Section
2.1(d).

                  "Obligations"   shall   mean  all  loans,   advances,   debts,
liabilities,  and obligations for the performance of covenants,  tasks or duties
or for payment of monetary  amounts  (whether  or not such  performance  is then
required or  contingent,  or amounts are  liquidated or  determinable)  owing by
Borrower  or any other  Credit  Party to Lender,  and all  covenants  and duties
regarding such amounts, of any kind or nature, present or future, whether or not
evidenced by any note,  agreement or other instrument,  arising under any of the
Loan Documents. This term includes, without limitation, all principal, interest,
Fees,  Charges,  expenses,  attorneys'  fees and any  other  sum  chargeable  to
Borrower or any other Credit Party under any of the Loan


                  Documents,   and  also  includes,   without  limitation,   all
Obligations relating to Letter of Credit Obligations.

                  "Original  Agreement" shall have the meaning assigned to it in
the preamble hereof.

                  "Parent"  shall  mean  Vodavi  Technology,  Inc.,  a  Delaware
corporation  formerly  known as V Technology  Holdings  Corp.,  having no assets
other than the common stock of each of the Credit Parties and intercompany loans
to the Credit Parties.

                  "Parent  Group"  shall mean the  Parent  and its  Consolidated
Subsidiaries.

                  "Patent License" shall mean, with respect to any Credit Party,
any right under any written  agreement  now owned or hereafter  acquired by such
Credit Party  granting any right with respect to any invention on which a Patent
is in existence.

                  "Patents" shall mean, with respect to any Credit Party, all of
the  following in which such Credit  Party now holds or  hereafter  acquires any
interest:  (i) all letters patent of the United States or any other country, all
registrations and recordings thereof, and all applications for letters patent of
the United States or any other country, including registrations,  recordings and
applications in the United States Patent and Trademark  Office or in any similar
office or agency of the United States,  any state or territory  thereof,  or any
other country, and (ii) all reissues,  continuations,  continuations-in-part  or
extensions thereof.

                  "Payment Account" shall mean an account of the Lender,  number
50-199-839,  maintained at Bankers Trust Company,  17 Wall Street, New York, New
York 10006,  ABA  #021-001-033,  Account Title:  Vodavi,  Attention:  Collateral
Analyst, Reference: Vodavi, into which payments shall be made by or on behalf of
the Borrower.
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<PAGE>
                  "PBGC" shall mean the Pension Benefit Guaranty  Corporation or
any successor thereto.

                  "Pension Plan" shall mean an employee pension benefit plan, as
defined in Section 3 (2) of ERISA (other than a Multiemployer Plan), that is not
an individual  account plan, as defined in Section 3 (34) of ERISA, and that any
Credit Party or, if a Title IV Plan, any ERISA Affiliate maintains,  contributes
to or has an obligation to  contribute to on behalf of  participants  who are or
were employed by any of them.

                  "Permitted  Encumbrances"  shall  mean,  with  respect  to any
Credit Party, the following encumbrances:  (i) Liens for taxes or assessments or
other governmental  Charges or levies,  either not yet due and payable or to the
extent that nonpayment thereof is permitted by the terms of Section 6.2(b); (ii)
pledges  or  deposits   securing   obligations   under  worker's   compensation,
unemployment  insurance,  social  security or public  liability  laws or similar
legislation;  (iii) pledges or deposits securing bids, tenders, contracts (other
than contracts for the payment of money) or leases to which such Credit Party is
a party as lessee,  made in the  ordinary  course of  business  in an  aggregate
amount at any time not to exceed $200,000 in the aggregate for all of the Credit
Parties;  (iv) deposits securing public or statutory  obligations of such Credit
Party; (v) inchoate and unperfected workers', mechanics',  suppliers' or similar
liens arising in the ordinary course of business; (vi) carriers', warehousemen's
or other similar possessory liens arising in the ordinary course of business and
securing indebtedness not yet due and payable in an outstanding aggregate amount
for all of the  Credit  Parties  not in excess  of  $50,000  at any time;  (vii)
deposits securing, or in lieu of, surety, appeal or customs bonds in proceedings
to which such Credit Party is a party;  (viii) any  attachment or judgment lien,
unless  the  judgment  it  secures  shall  not,  within 30 days  after the entry
thereof,  have been discharged or execution  thereof stayed pending  appeal,  or
shall not have been  discharged  within 30 days after the expiration of any such
stay; (ix) Purchase Money Security Interests securing  Indebtedness  existing as
of the  Restatement  Date and described on Schedule 4.9 and other Purchase Money
Security Interests securing  Indebtedness incurred after the Restatement Date in
an aggregate  outstanding  principal amount for all of the Credit Parties not to
exceed $200,000 at any time; and (x) zoning restrictions,  easements,  licenses,
or other restrictions on the use of real property or other minor  irregularities
in  title  (including  leasehold  title)  thereto,  so long  as the  same do not
materially impair the use, value, or marketability of such real property, leases
or leasehold estates.

                  "Permitted  Exceptions"  shall mean Liens  described  in items
(i), (v), (vi), (viii) and (ix) of the definition of Permitted Encumbrances.

                  "Permitted Indebtedness" shall mean Indebtedness of the Credit
Parties that is permitted pursuant to Section 7.3.

                  "Permitted  Prior  Exceptions"  shall mean Liens  described in
items (i) and (ix) of the definition of Permitted Encumbrances.

                  "Person"  shall  mean  any  individual,  sole  proprietorship,
partnership, joint
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<PAGE>
venture,   trust,   unincorporated   organization,   association,   corporation,
institution,  public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise,  including, without limitation, any
instrumentality, division, agency, body or department thereof).

                  "Plan"  shall mean,  with  respect to any Credit  Party or any
other ERISA  Affiliate,  at any time,  an employee  benefit  plan, as defined in
Section  3(3) of ERISA,  that such Person  maintains,  contributes  to or has an
obligation to contribute to on behalf of  participants  who are or were employed
by any of them.

                  "Pledge   Agreement"   shall  mean  the  Pledge  and  Security
Agreement from the Parent to the Lender in  substantially  the form of Exhibit F
hereto,  as amended or restated from time to time,  pursuant to which the Parent
shall  pledge  100% of the  outstanding  stock of each of the Credit  Parties to
Lender as security for the Obligations.

                  "Prepayment  Fee" shall  have the  meaning  assigned  to it in
Section 2.5.

                  "Proceeds"  shall mean  "proceeds," as such term is defined in
the Code, whether now owned or hereafter acquired, and in whatever form, and, in
any event,  shall include (i) any and all proceeds of any insurance,  indemnity,
warranty or guaranty  payable to any Credit Party from time to time with respect
to any of the  Collateral,  (ii) any and all payments  (in any form  whatsoever)
made or due and payable to any Credit Party from time to time in connection with
any requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the Collateral by any governmental body, authority, bureau or agency (or
any person acting under color of governmental authority), (iii) any claim of any
Credit Party against third parties (A) for past, present or future  infringement
of any Patent or Patent License or (B) for past, present or future  infringement
or dilution of any Trademark or Trademark  License or for injury to the goodwill
associated  with any Trademark,  Trademark  registration  or Trademark  licensed
under any Trademark  License,  (iv) any recoveries by any Credit Parties against
third parties with respect to any  litigation or dispute  concerning  any of the
Collateral,  and (v) any and all other amounts from time to time paid or payable
under  or in  connection  with  any  of  the  Collateral,  upon  disposition  or
otherwise.

                  "Projections" shall mean at any time the latest  consolidating
operating  plan of the Parent  Group  submitted  to Lender  pursuant  to Section
5.1(e).

                  "Purchase  Money Security  Interest" shall mean a Lien granted
on an asset not more  than 10 days  after the  acquisition  thereof  by a Credit
Party that secures only the Indebtedness  incurred for the purpose of purchasing
such asset and no other, that extends only to the asset purchased and accessions
thereto, and that does not exceed in principal amount the lesser of the purchase
price paid for such asset and the fair market value thereof.

                  "Qualified  Plan" shall mean an employee pension benefit plan,
as defined in Section 3(2) of ERISA, that is intended to be tax-qualified  under
Section  401(a) of the IRC, and that any Credit  Party,  or any ERISA  Affiliate
maintains, contributes to or has an
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obligation to contribute to on behalf of  participants  who are or were employed
by any of them.

                  "Release" shall mean any release,  spill,  emission,  leaking,
pumping, injection, deposit, disposal,  discharge,  dispersal, dumping, leaching
or  migration  of  Hazardous  Materials  in the  indoor or  outdoor  environment
including  the  movement of  Hazardous  Materials  through or in the air,  soil,
surface water, ground water or property.

                  "Reportable  Event" shall mean any of the events  described in
Section 4043(b) (1), (2), (3), (5), (6), (8) or (9) of ERISA.

                  "Responsible  Lending Officer" shall have the meaning assigned
to it in Section 2.1(b).

                  "Restatement Date" means June 11, 1997.

                  "Restricted  Payment" shall mean, for any Credit Party (i) the
declaration or payment of any dividend  (other than dividends  payable solely in
shares of any class of common stock of such Credit  Party) or the  occurrence of
any  liability  to make  any  other  payment  or  distribution  of cash or other
property or assets in respect of such Credit Party's Stock,  (ii) any payment on
account of the  purchase,  redemption,  defeasance  or other  retirement of such
Credit  Party's  Stock or any other  payment  or  distribution  made in  respect
thereof,   either   directly  or  indirectly,   or  (iii)  any  payment,   loan,
contribution,  or other  transfer of funds or other property with respect to, or
on account of, such Credit Party's Stock.

                  "Retiree  Welfare  Plan"  shall  refer  to  any  Welfare  Plan
providing  for  continuing  coverage  or  benefits  for any  participant  or any
beneficiary of a participant after such participant's termination of employment,
other than  continuation  coverage provided pursuant to Section 4980B of the IRC
and  at  the  sole  expense  of  the  participant  or  the  beneficiary  of  the
participant.

                  "Revolving  Credit Advance" shall have the meaning assigned to
it in Section 2.1(a).

                  "Revolving Credit Advance Availability" shall have the meaning
assigned to it in Section 2.1(a).

                  "Revolving Credit Commitment  Availability" shall mean for any
day, the  difference  between (i) the amount of the  Commitment and (ii) the sum
of: (A) the aggregate outstanding principal amount of the Revolving Credit Loan,
and  (B)  the  aggregate  outstanding  principal  amount  of  Letter  of  Credit
Obligations.

                  "Revolving Credit Facility" shall have the meaning ascribed to
it in the recital paragraph hereof.
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                  "Revolving  Credit Loan" shall mean the loan made  pursuant to
Section 2.1.

                  "Schedule of Documents" shall mean the schedule, including all
appendices,  exhibits  or  schedules  thereto,  listing  certain  documents  and
information to be delivered in connection  with the initial  closing of the Loan
Documents and the  transactions  contemplated  thereunder,  substantially in the
form attached hereto as Schedule A.

                  "Security Agreements" shall mean,  collectively,  the Security
Agreements  entered  into  between  Lender  and each of  Borrower,  ARS and ESI,
respectively, in substantially the form of Exhibit D hereto.

                  "Security  Interest"  shall mean the rights  and  interest  of
Lender in and to the  Collateral  intended to be conveyed  under the  Collateral
Documents.

                  "Solvent" shall mean, with respect to any Person,  such Person
(i) owns property whose fair saleable value is greater than the amount  required
to pay all of such Person's  indebtedness  (including contingent debts), (ii) is
able to pay all of its indebtedness as such indebtedness  matures, and (iii) has
capital  sufficient to carry on its business and  transactions  and all business
and transactions in which it is about to engage.

                  "Stock" shall mean all shares, options,  warrants,  general or
limited partnership interests, participation or other equivalents (regardless of
how designated) of or in a corporation, partnership or equivalent entity whether
voting or nonvoting,  including,  without  limitation,  common stock,  preferred
stock, or any other "equity security" (as such term is defined in Rule 3a11-1 of
the General Rules and  Regulations  promulgated  by the  Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended).

                  "Subject Property" shall mean all real property owned,  leased
or operated by Borrower.

                  "Taxes"   shall  mean   taxes,   levies,   imposts,   charges,
deductions, or withholdings, and all liabilities with respect thereto, excluding
taxes  imposed on or measured by the net income of Lender by the  government  of
the United States of America or the jurisdiction  under the laws of which Lender
is organized or any political subdivision thereof.

                  "Termination  Date" shall mean the date on which the Revolving
Credit  Facility  and any  other  Obligations  hereunder  have  been  completely
discharged, no Letter of Credit Obligations are outstanding,  and Borrower shall
have no further right to borrow any monies or obtain other credit  extensions or
financial accommodations hereunder.

                  "Title  IV Plan"  shall  mean a  Pension  Plan,  other  than a
Multiemployer Plan, that is covered by Title IV of ERISA.

                  "Trademarks" shall mean, with respect to any Credit Party, all
of the following now owned or hereafter  acquired by such Credit Party:  (i) all
trademarks, trade
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names,  corporate names,  business names,  trade styles,  service marks,  logos,
other  source or  business  identifiers,  prints  and labels on which any of the
foregoing  have  appeared or appear,  designs and  general  intangibles  of like
nature,   now  owned  or  existing  or  hereafter   adopted  or  acquired,   all
registrations  and  recordings  thereof,  and  all  applications  in  connection
therewith,  including  registrations,  recordings and applications in the United
States  Patent and  Trademark  Office or in any similar  office or agency of the
United  States,  any state or  territory  thereof,  or any other  country or any
political  subdivision  thereof,  and (ii) all reissues,  extensions or renewals
thereof.

                  "Transaction  Expenses" shall have the meaning  assigned to it
in Section 9.2.

                  "Trademark  License"  shall mean,  with  respect to any Credit
Party,  rights under any written  agreement  now owned or hereafter  acquired by
such  Credit  Party  granting  any  right  to use  any  Trademark  or  Trademark
registration.

                  "Unfunded  Pension  Liability"  shall mean,  at any time,  the
aggregate  amount,  if any,  of the sum of (i) the  amount by which the  present
value of all accrued  benefits  under each Title IV Plan exceeds the fair market
value  of all  assets  of such  Title  IV Plan  allocable  to such  benefits  in
accordance  with  Title  IV of  ERISA,  all  determined  as of the  most  recent
valuation  date for each such Title IV Plan using the actuarial  assumptions  in
effect under such Title IV

                  Plan,  and (ii) for a period  of five (5)  years  following  a
transaction  reasonably  likely to be  covered  by  Section  4069 of ERISA,  the
liabilities  (whether or not accrued) that could be avoided by Borrower,  or any
ERISA Affiliate as a result of such transaction.

                  "Welfare  Plans"  shall mean any welfare  plan,  as defined in
Section 3(1) of ERISA,  that is maintained or  contributed to by Borrower or any
ERISA Affiliate.

                  "Withdrawal  Liability" shall mean, at any time, the aggregate
amount of the  liabilities,  if any,  pursuant to Section 4201 of ERISA, and any
increase in contributions  pursuant to Section 4243 of ERISA with respect to all
Multiemployer Plans.

                  1.2 Other Definitional Provisions.

                  (a)  Except as  otherwise  specified  herein,  all  references
herein (A) to any Person,  other than a Credit Party, shall be deemed to include
such Person's  successors,  transferees  and assignees,  (B) to any Credit Party
shall be deemed to include such Person's  successors,  (C) to any applicable law
specifically  defined or referred to herein shall be deemed  references  to such
applicable law as the same may be amended or supplemented from time to time, (D)
to any contract defined or referred to herein shall be deemed references to such
contract (and, in the case of any  instrument,  any other  instrument  issued in
substitution therefor) as the terms thereof may have been amended, supplemented,
waived or otherwise modified from time to time, (E) to any Loan Document, as the
terms thereof may have been amended, supplemented,  waived or otherwise modified
from time to time in accordance with Section 9.1 or any corresponding  provision
of such Loan  Document,  (F) the words  "consent",  "approve"  and "agree",  and
derivations  thereof or words of similar import, mean the prior 
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written consent,  approval or agreement of the Person in question; (G) the words
"include" and  "including",  and words of similar import,  shall be deemed to be
followed by the words  "without  limitation";  (H) the Exhibits and Schedules to
this Credit Agreement are incorporated  herein by reference;  (I) the titles and
headings of Articles, Sections, Exhibits, Schedules, subsections, paragraphs and
clauses  are  inserted  as a matter of  convenience  and shall  not  affect  the
construction  of this  Credit  Agreement;  and (J) no  inference  in favor of or
against  any  Person  shall be  drawn  from the fact  that  such  Person  or its
attorneys drafted any portion hereof.

                  (b) When used in this Agreement, the words "hereto", "herein",
"hereof"  and  "hereunder"  and  words of  similar  import  shall  refer to this
Agreement as a whole and not to any provision of this Agreement,  and "Section,"
"Subsection,"  "Schedule" and "Exhibit"  shall refer to Sections and Subsections
of, and Schedules and Exhibits to, this Agreement unless otherwise specified.

                  (c)  Whenever  the  context so  requires,  the  neuter  gender
includes the masculine or feminine, and the singular number includes the plural,
and vice versa.

                  (d) All terms  defined in this  Agreement  shall have the same
defined meanings when used in the Note or, except as otherwise  expressly stated
therein,  any  certificate,  opinion or other Loan  Document  or other  document
delivered pursuant hereto.

                  1.3 Accounting Matters. Unless otherwise specified herein, all
accounting  determinations hereunder and all computations utilized by the Parent
or any Credit Party in complying  with the covenants  contained  herein shall be
made, all accounting  terms used herein shall be interpreted,  and all financial
statements requested to be delivered hereunder shall be prepared,  in accordance
with GAAP, except, in the case of such financial statements, for departures from
GAAP that may from time to time be  approved  in  writing  by the Lender and the
independent certified public accountants who are at the time, in accordance with
Section 5.1,  reporting on the consolidated  financial  statements of the Parent
and the Credit Parties.  If any change in GAAP after December 31, 1996 in itself
materially  affects the calculation of any financial covenant in Section 7.10 or
other  financial test  contained  herein,  Borrower may by notice to Lender,  or
Lender may by notice to  Borrower,  require  that such  covenant  thereafter  be
calculated  in  accordance  with GAAP as in effect,  and  applied  by  Borrower,
immediately  before such  change in GAAP  occurs.  If such notice is given,  the
compliance  certificates  delivered  pursuant  to Section  5.1 after such change
occurs shall be accompanied  by  reconciliations  of the difference  between the
calculation set forth therein and a calculation  made in accordance with GAAP as
in effect from time to time after such change occurs.

                                   ARTICLE 2.

                           AMOUNT AND TERMS OF CREDIT
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                  2.1 Revolving Credit Facility.

                  (a)  Credit.  Upon and  subject  to the terms  and  conditions
hereof,  Lender  agrees  from time to time to make  available  by deposit to the
Disbursement Account on any Business Day until the Commitment  Termination Date,
upon the request of Borrower  therefor,  advances  (each,  a  "Revolving  Credit
Advance") in an aggregate amount  outstanding  that, when added to the aggregate
balance of Letter of Credit Obligations then outstanding, shall not at any given
time exceed the lesser of (the  "Revolving  Credit Advance  Availability"):  (i)
$12,000,000,  as such amount may be terminated  pursuant to the terms of Section
2.5 or 8.2 (the "Commitment"), and (ii) the Borrowing Base.

                  (b)  Method of  Borrowing.  Until the  Commitment  Termination
Date,  Borrower  may from time to time  borrow,  repay and  reborrow  under this
Section  2.1(b).  Each  Revolving  Credit  Advance  shall be made on  notice  by
Borrower  to  the  officer  of  Lender   identified  on  Schedule   2.1(b)  (the
"Responsible  Lending  Officer") given at the office of the Lender  specified on
Schedule 2.1(b) (the "Lending  Office") no later than 11:00 a.m. on the Business
Day of the proposed  Revolving  Credit  Advance.  Each such notice (a "Notice of
Borrowing/Collection  Report") shall be  substantially  in the form of Exhibit A
hereto,  and shall specify therein the requested date (which shall be a Business
Day) of the proposed  Revolving  Credit  Advance,  the amount of such  Revolving
Credit  Advance,  and such other  information  as may be  required by Lender and
shall be given in writing (by telecopy, telex or cable) or by courier, telephone
confirmed immediately in writing.

                  (c)  Mandatory  Repayment.  The entire  unpaid  balance of the
Revolving Credit Loan, together with all other Obligations, shall be immediately
due and  payable  on the  Commitment  Termination  Date.  In the event  that the
outstanding  principal  balance of the Revolving Credit Loan shall, at any time,
exceed  the  applicable  limit  set  forth in  Section  2.1(a),  Borrower  shall
immediately repay the Revolving Credit Loan in the amount of such excess. If the
unpaid principal  balance of the Revolving Credit Loan should at any time exceed
the  above-referenced  limit, the excess balance shall  nevertheless  constitute
Obligations  that are  secured  by the  Collateral  and  entitled  to all of the
benefits thereof and of the Loan Documents and shall be evidenced by the Note.

                  (d) Evidence of Obligation. The Revolving Credit Loan shall be
evidenced  by a note dated the  Closing  Date and  substantially  in the form of
Exhibit C (the "Note").  The Note shall  represent the obligation of Borrower to
pay the amount of the Revolving  Credit  Commitment  or, if less,  the aggregate
unpaid  principal  amount of all Revolving Credit Advances made by Lender to the
Borrower,  with  interest  thereon as  prescribed  in Section  2.2. The date and
amount of each  Revolving  Credit  Advance and each  payment of  principal  with
respect thereto shall be recorded on the books and records of Lender. Such books
and  records  shall  constitute  prima  facie  evidence  of the  accuracy of the
information therein recorded.

                  (e) Use of Proceeds.  Borrower  shall  utilize the proceeds of
the Revolving  Credit  Advances to provide  working capital for Borrower and the
other  Credit  Parties.  Borrower may request that Lender incur Letter of Credit
Obligations to support any
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<PAGE>
transaction for which Borrower could obtain a Revolving Credit Loan hereunder.

                  (f)  Single   Revolving  Credit  Loan.  All  Revolving  Credit
Advances  shall  constitute  a  single  Revolving  Credit  Loan  hereunder.  The
Revolving Credit Loan, any Letter of Credit Obligations,  and all Obligations of
Borrower  arising under this Agreement and under the other Loan Documents  shall
constitute  one general  obligation of Borrower to Lender  secured by all of the
Collateral.

                  (g) Letters of Credit.  Subject to the terms and conditions of
Schedule 2.1(g) which is hereby incorporated herein by reference, Borrower shall
have the  right to  request,  and  Lender  agrees  to  incur,  Letter  of Credit
Obligations for Borrower in accordance with Schedule 2.1(g).

                  2.2 Interest on Revolving Credit Loan.

                  (a) Rates.  The  Revolving  Credit Loan shall bear interest on
the  outstanding  principal  amount  thereof from and  including the date of the
making thereof until repaid in full,  whether before or after default  judgment,
or the  institution of  proceedings  under any  bankruptcy,  insolvency or other
similar law, as provided in this Section  2.2(a).  In the absence of an Event of
Default,  each  Revolving  Credit Loan shall bear  interest at the Base Rate. So
long as an Event of Default shall have occurred and be continuing, the Revolving
Credit Loan and, to the extent  permitted by Applicable  Law, all due and unpaid
Obligations  other than the  Revolving  Credit Loan,  shall bear interest at the
Default Rate.

                  (b) Payment. Interest shall be payable in arrears on the first
Business Day of each month with respect to interest accrued through the last day
of the preceding month and on the Commitment  Termination Date.  Interest at the
Default Rate shall be payable on demand.

                  (c) Maximum Permissible Rate.  Notwithstanding anything to the
contrary set forth in this Section 2.2, if, at any time until payment in full of
all of the Obligations, the amount deemed interest payable hereunder exceeds the
Maximum  Permissible  Rate,  then in  such  event  and so  long  as the  Maximum
Permissible Rate would be so exceeded,  the rate of interest  payable  hereunder
shall be equal to the Maximum Permissible Rate;  provided,  however,  that if at
any time  thereafter  the rate of interest  payable  hereunder  is less than the
Maximum  Permissible Rate,  Borrower shall continue to pay interest hereunder at
the Maximum  Permissible Rate until such time as the total interest  received by
Lender from the making of Revolving  Credit  Advances  hereunder is equal to the
total  interest  which Lender would have  received had the interest rate payable
hereunder  been (but for the  operation of this  paragraph)  the  interest  rate
payable  since  the  Closing  Date as  otherwise  provided  in  this  Agreement.
Thereafter,  the interest rate payable  hereunder  shall be the rate of interest
provided  in  Section  2.2(a) of this  Agreement,  unless  and until the rate of
interest  again  exceeds  the  Maximum  Permissible  Rate,  in which  event this
paragraph  shall again apply.  In no event shall the total interest  received by
Lender  pursuant  to the terms  hereof  exceed the  amount  which  Lender  could
lawfully have received had the interest due hereunder been
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<PAGE>
calculated  for the full term hereof at the  Maximum  Permissible  Rate.  In the
event the Maximum  Permissible  Rate is calculated  pursuant to this  paragraph,
such  interest  shall  be  calculated  at a  daily  rate  equal  to the  Maximum
Permissible  Rate  divided  by the  number  of days in the  year in  which  such
calculation  is  made.  In the  event  that a court of  competent  jurisdiction,
notwithstanding  the  provisions  of this  Section  2.2(c),  shall  make a final
determination  that Lender has received  interest  hereunder or under any of the
Revolving  Credit  Loan  Documents  in excess of the Maximum  Permissible  Rate,
Lender shall,  to the extent  permitted by Applicable  Law,  promptly apply such
excess  first  to any  interest  due  and not yet  paid  hereunder,  then to the
outstanding  principal  of the  Obligations,  then to Fees and any other  unpaid
Obligations and thereafter  shall refund any excess to Borrower or as a court of
competent jurisdiction may otherwise order.

                  2.3 Fees.

                  (a) Closing Fee. As additional compensation for Lender's costs
and risks in making this Revolving Credit Facility  available to Borrower during
its  initial  term,  Borrower  has paid to  Lender,  a  non-refundable  fee (the
"Closing  Fee") in an amount equal to $180,000,  less the Commitment Fee and any
remaining portion of the $100,000 initial underwriting deposit made to Lender by
Borrower  on  September  13,  1993 after  deducting  therefrom  (i) all cost and
expenses incurred by Lender and its Affiliates  (including,  but not limited to,
legal and professional  fees and costs of  indemnification)  and (ii) Commitment
Fee. The Closing Fee was deemed fully earned upon the  execution of the Original
Agreement.

                  (b) Non-use Fee. As additional compensation for Lender's costs
and risks in making the Commitment available to Borrower, Borrower agrees to pay
to Lender, in arrears for the preceding month, on the first Business Day of each
month prior to the Commitment Termination Date and on the Commitment Termination
Date, a fee for Borrower's  non-use of the Commitment  (the "Non-use Fee") in an
amount  equal to one  quarter of one  percent  (0.25%)  per annum on the average
daily Revolving Credit Commitment Availability.

                  (c) Letter of Credit Fees.  In  connection  with the Letter of
Credit  Obligations,  Borrower agrees to pay to Lender the Letter of Credit Fees
set forth on Schedule 2.1(g).

                  2.4  Calculation  of Interest and Fees.  All  computations  of
interest  and  periodic  fees  shall be made by Lender on the basis of a 360-day
year for the  actual  number of days  occurring  in the  period  for which  such
interest or fee is payable. If the date for any payment of principal is extended
(whether by operation of this  Agreement,  any  provision of law or  otherwise),
fees payable  pursuant to this  Agreement as well as interest,  shall be payable
for such extended time. Each  determination by Lender of an interest rate or fee
hereunder shall be presumed correct,  subject to the Borrower's ability to rebut
such presumption by a preponderance of evidence to the contrary.

                  2.5 Early  Termination.  Borrower  shall have the right at any
time, on 90
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days' prior written notice to Lender,  to voluntarily  terminate the Commitment,
prepay the entire Revolving Credit Loan and all accrued and unpaid  Obligations,
cause  all  outstanding  Letter  of  Credit  Obligations  to be  cancelled,  and
terminate this Agreement.  Upon such  prepayment,  cancellation and termination,
Borrower's  right to receive  Revolving  Credit  Advances and to cause Lender to
incur  Letter  of  Credit  Obligations  shall  simultaneously   terminate.   Any
termination of the Commitment for any reason other than (i) Lender's  assessment
of a material change  pursuant to Section 2.10 or (ii) Lender's  acceleration of
the  Obligations  due to an Event of Default  pursuant  to clause (i) of Section
8.1(K),  shall require  prepayment of the outstanding  Revolving Credit Loan and
all accrued and unpaid Obligations and cancellation of all outstanding Letter of
Credit Obligations, and shall also require payment to Lender of a prepayment fee
(the  "Prepayment  Fee") as  follows:  one  percent  (1%) of the  amount  of the
Commitment if the  Commitment is terminated  prior to April 11, 1998. No partial
termination of the Revolving  Credit Facility by the Borrower shall be permitted
without the consent of Lender.

                  2.6 Manner of Payment; Time.

                  (a) Manner of Payment.  Borrower shall make each payment under
this  Agreement not later than 11:00 a.m. on the day when due in lawful money of
the United  States of  America in  immediately  available  funds to the  Payment
Account  without any deduction  whatsoever,  including,  but not limited to, any
deduction for any set-off, recoupment,  counterclaim or Tax. Amounts received to
the Payment  Account  shall be deemed  received  (i) on the second  Business Day
following the irrevocable  deposit therein of collected  funds, for the purposes
of  calculating  accrual of  interest,  and (ii) on the date of the  irrevocable
deposit   therein  of  collected   funds,   for  the  purposes  of   calculating
availability.  Amounts  received to the Payment Account shall be applied against
the outstanding Obligations pursuant to Section 2.7.

                  (b) Time. All references to time contained in this  Agreement,
unless  otherwise  specified,  shall be to local time in effect in Los  Angeles,
California.

                  2.7   Application   and   Allocation  of  Payments.   Borrower
irrevocably  waives the right to direct the  application of any and all payments
at any time or times  hereafter  received  from or on  behalf of  Borrower,  and
Borrower  irrevocably  agrees that Lender  shall have the  continuing  exclusive
right  to apply  any and all  such  payments  against  the then due and  payable
Obligations  of  Borrower  as Lender  may deem  advisable.  In the  absence of a
specific determination by Lender with respect thereto, the same shall be applied
in the following  order:  (i) then due and payable Fees and expenses;  (ii) then
due and payable interest payments;  (iii) Obligations other than Fees,  expenses
and interest and  principal  payments;  and (iv) then due and payable  principal
payments  on the  Revolving  Credit  Loan and the Letter of Credit  Obligations.
Lender  is  authorized  to,  and at its  option  may,  make or  cause to be made
Revolving Credit Advances on behalf of Borrower under this Agreement for payment
of all Fees, expenses,  Charges, costs, interest,  reimbursement  obligations or
other  Obligations  owing by Borrower  under this  Agreement  or any of the Loan
Documents if and to the extent  Borrower  fails to promptly pay any such amounts
as and when due.
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<PAGE>
                  2.8  Accounting.  Lender will provide a monthly  accounting of
transactions  under the Revolving  Credit  Facility to Borrower.  Each and every
such accounting  shall be deemed final,  binding and conclusive upon Borrower in
all respects as to all matters  reflected  therein,  unless Borrower,  within 30
days after the date any such  accounting  is rendered,  shall  notify  Lender in
writing  of any  objection  which  Borrower  may  have to any  such  accounting,
describing the basis for such objection with  specificity.  In that event,  only
those items expressly  objected to in such notice shall be deemed to be disputed
by Borrower. Lender's determination, based upon the facts available, of any item
objected to by Borrower in such notice shall be presumed correct, subject to the
Borrower's  ability to rebut such  presumption by a preponderance of evidence to
the contrary.

                  2.9 Taxes.

                  (a) Any and all payments by or on behalf of Borrower hereunder
or under any Note or any other Loan Document  shall be made, in accordance  with
this  Section  2.9,  free and  clear of and  without  deduction  for any and all
present or future  Taxes.  If Borrower or any other  Person shall be required by
law to deduct any Taxes from or in respect of any sum payable hereunder or under
the Note or any other Loan  Document  to Lender,  (i) the sum  payable  shall be
increased  as may be  necessary  so that after  making all  required  deductions
(including  deductions  applicable to additional sums payable under this Section
2.9) Lender  receives an amount  equal to the sum it would have  received had no
such  deductions  been made by Borrower or such other  Person,  (ii) Borrower or
such other Person shall make such  deductions,  and (iii) Borrower or such other
Person  shall  pay the full  amount  deducted  to the  relevant  taxing or other
authority in accordance with Applicable Law.

                  (b) Borrower shall indemnify and pay, within 10 days of demand
therefor, Lender for the full amount of Taxes (including without limitation, any
Taxes  imposed by any  jurisdiction  on amounts  payable under this Section 2.9)
paid by Lender and any liability  (including  penalties,  interest and expenses)
arising  therefrom  or with  respect  thereto,  whether  or not such  Taxes were
correctly  or  legally  asserted;  provided,  however,  that  Borrower  shall be
entitled to a credit  against the  Obligations to the extent that any such Taxes
paid by Borrower  pursuant to this Section 2.9 are subsequently  refunded to the
Lender or to the extent  that the Lender  receives  a credit  against  the Taxes
imposed on it by its  jurisdiction of  incorporation by virtue of the Taxes paid
or  reimbursed  by Borrower  under this Section 2.9 having been paid by it or on
its behalf.

                  (c)  Within  30 days  after the date of any  payment  of Taxes
pursuant to this Section 2.9, Borrower shall furnish or cause to be furnished to
Lender,  at its address referred to in Section 9.10, the original or a certified
copy of a receipt evidencing payment thereof.

                  2.10  Increased  Commitment  or Funding  Costs.  If the Lender
reasonably  determines that either (a) the  introduction of or any change in any
Laws or in the  interpretation  or administration of any Law by any Governmental
Authority charged with the  interpretation  or administration  thereof after the
date of this Agreement relating to the regulation of banks or commercial lenders
or (b) compliance with any guideline or request
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<PAGE>
issued  or made  after  the date  hereof  from any such  Governmental  Authority
relating to the regulation of banks or commercial lenders (whether or not having
the force of law) has or would have the effect of reducing the rate of return on
the capital of Lender or any corporation  controlling Lender as a consequence of
or with reference to Lender's funding,  incurring or maintaining the Commitment,
any Revolving  Credit Advance,  any Letter of Credit  Obligation,  the Revolving
Credit Loan or any other extension of credit or transaction  hereunder below the
rate that  Lender or such other  corporation  could have  achieved  but for such
introduction,  change or compliance  (taking into account the policies of Lender
or corporation  with regard to capital),  then Borrower shall from time to time,
upon demand by Lender, pay to Lender additional amounts sufficient to compensate
Lender or other  corporation for such  reduction.  Any notice under this Section
2.10 shall be given to Borrower as promptly as practicable  after Lender obtains
knowledge of such change,  guideline  or request and shall be  accompanied  by a
certificate  from  Lender  setting  forth in  reasonable  detail  the nature and
calculation of the relevant amounts.

                  2.11 Failure to Charge Not Subsequent  Waiver.  Any failure by
Lender to require  payment of any  interest  (including  interest at the Default
Rate),  fee,  cost or  other  amount  payable  under  any Loan  Document,  or to
calculate any amount payable by a particular method, on any occasion shall in no
way limit to be deemed a waiver of Lender's right to require full payment of any
such interest, fee, cost or other amount payable by another method, on any other
or subsequent occasion.

                  2.12  Survivability.   All  of  Borrower's  obligations  under
Sections  2.9 and 2.10 shall  survive  the  payment  in full of all  obligations
hereunder.

                                   ARTICLE 3.

                              CONDITIONS PRECEDENT

                  3.1  Conditions  to Each  Extension  of Credit . It shall be a
condition  to the funding of the initial and each  subsequent  Revolving  Credit
Advance and to the  incurrence  by Lender of each  Letter of Credit  Obligation,
that each and every one of the following  statements  shall be true on and as of
the Restatement Date and as of the date of each such funding:

                  (a)  Each  of the  representations  and  warranties  contained
herein or in any of the other Loan Documents is true and correct,  except to the
extent that any such  representation or warranty expressly relates to an earlier
date  and  except  for  changes   therein   expressly   permitted  or  expressly
contemplated  by this  Agreement,  both before and after  giving  effect to such
Revolving Credit Advance or Letter of Credit Obligation;

                  (b) No Default has occurred and is continuing either before or
after  giving  effect to the  requested  Revolving  Credit  Advance or Letter of
Credit Obligation; and

                  (c) After giving effect to such Revolving Credit Advance or to
such Letter
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<PAGE>
of Credit Obligation, (i) the aggregate principal amount of the Revolving Credit
Loan plus the aggregate  principal  amount of the  outstanding  Letter of Credit
Obligations  does  not  exceed  the  lesser  of (x) the  Commitment  and (y) the
Borrowing Base, without requiring that a payment be made to Lender, and (ii) the
aggregate  outstanding  amount at such time of all Letter of Credit  Obligations
incurred by Lender does not exceed $1,000,000.

The request or acceptance  by Borrower of the proceeds of any  Revolving  Credit
Advance or the incurrence of any Letter of Credit Obligations shall be deemed to
constitute,  as of the date of such request or acceptance,  (i) a representation
and  warranty  by Borrower  that the  conditions  in this  Section 3.1 have been
satisfied and (ii) a confirmation by Borrower of the granting and continuance of
Lender's Liens pursuant to the Collateral Documents,  unless in each case (i) or
(ii), a notice to the contrary specifically  captioned "Disclosure Statement" is
received by the Lender from the Borrower  prior to 2:00 p.m. on the Business Day
preceding  the date of the  Revolving  Credit  Advance.  To the extent  that the
Lender  agrees to make any  Extension  of Credit  after  receipt of a Disclosure
Statement in accordance with the preceding  sentence,  the  representations  and
warranties and  confirmation  pursuant to the preceding  sentence will be deemed
made as modified by the contents of such  statement  and repeated at the time of
the making of such  Extension  of Credit as so modified.  Any such  modification
shall be effective only for the occasion on which the Lender elects to make such
Extension of Credit, and unless expressly agreed by the Lender in writing to the
contrary  as  provided  in  Section  9.1,  shall  not  be  deemed  a  waiver  or
modification of any condition to any future Extension of Credit.

                                   ARTICLE 4.

                         REPRESENTATIONS AND WARRANTIES

                  To induce the Lender to make this  Revolving  Credit  Facility
available to the Borrower,  and to make Extensions of Credit, as herein provided
for, Borrower,  for itself and on behalf of the other Credit Parties,  makes the
following  representations  and warranties to the Lender,  each and all of which
shall be true and  correct  as of the date of  execution  and  delivery  of this
Agreement and shall survive the execution and delivery of this Agreement:

                  4.1  Corporate  Existence;  Compliance  with Law.  Each Credit
Party (i) is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation and is duly qualified to
do  business  and is in good  standing  in each  other  jurisdiction  where  its
ownership  or lease of  property or the conduct of its  business  requires  such
qualification,  except  where the  failure to so qualify or be in good  standing
could not reasonably be expected to have a Materially  Adverse Effect;  (ii) has
the requisite  corporate power and authority and the legal right to own, pledge,
mortgage or otherwise encumber and operate its properties, to lease the property
it operates  under  lease,  and to conduct its business as now,  heretofore  and
proposed  to be  conducted,  except  where the  failure to have such legal right
could not reasonably be expected to have a Materially Adverse Effect;  (iii) has
all  licenses,  permits,  consents  or  approvals  from or by,  and has made all
filings with, and has given all notices to, all Governmental  Authorities having
jurisdiction, to
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<PAGE>
the extent required for such ownership, lease operation and conduct, except such
of the foregoing,  that the failure to have, to have made or to have given which
could not reasonably be expected to have a Materially Adverse Effect; (iv) is in
compliance with its certificate or articles of  incorporation  and by-laws;  and
(v) is in compliance  with all provisions of Applicable Law where the failure to
comply could reasonably be expected to have a Materially Adverse Effect.

                  4.2 Executive Offices; Corporate or Other Names.

                  (a) The current locations of Borrower's chief executive office
and principal place of business are as set forth in response to question 6.a. of
the Credit Party Questionnaire  completed by the Borrower.  During the preceding
five (5) years,  neither the  Borrower nor Vodavi have been known as or used any
corporate, fictitious or trade names except as disclosed in response to question
2 of the Credit Party Questionnaire  completed by the Borrower. The Borrower has
no  professional  office  locations  except as  disclosed  in the  Credit  Party
Questionnaire completed by the Borrower.

                  (b) The current  locations of the chief  executive  office and
principal  place of business of each of ARS and ESI are as set forth in response
to question  6.a. of the Credit  Party  Questionnaire  completed  by such Credit
Party. During the preceding five (5) years,  neither ARS nor ESI have been known
as or used any  corporate,  fictitious  or trade names  except as  disclosed  in
response  to  question 2 of the Credit  Party  Questionnaire  completed  by such
Credit Party.  Neither ARS nor ESI have any professional office locations except
as disclosed on the Credit Party Questionnaire completed by such Credit Party.

                  4.3 Corporate Power;  Authorization;  Enforceable Obligations.
The  execution,  delivery  and  performance  by each  Credit  Party  of the Loan
Documents  executed by such Credit Party and of all instruments and documents to
be delivered by such Credit Party  hereunder and  thereunder and the creation of
all Liens  provided for herein and therein:  (i) are within such Credit  Party's
corporate power;  (ii) have been duly authorized by all necessary  corporate and
shareholder  action;  (iii) are not in  contravention  of any  provision of such
Credit Party's certificate or articles of incorporation or by-laws;  (iv) do not
violate  any  law or  regulation,  or any  order  or  decree  of  any  court  or
governmental  instrumentality  applicable  to  such  Credit  Party;  (v)  do not
conflict with or result in the breach or  termination  of,  constitute a default
under or  accelerate  any  performance  required  by,  any  material  indenture,
mortgage,  deed of trust,  lease,  note,  loan  agreement or other  agreement or
instrument  to which such Credit  Party is a party or by which such Credit Party
or any of  its  property  is  bound;  (vi)  do not  result  in the  creation  or
imposition  of any Lien upon any of the property of such Credit Party other than
those in favor of Lender created  pursuant to the Loan  Documents;  and (vii) do
not require the consent or approval of any  Governmental  Authority or any other
Person,  except those delivered to Lender pursuant to Section 9.18(a) and except
those not yet required to have been  obtained,  all of which will have been duly
obtained,  made or  complied  with.  Each of the Loan  Documents  has been  duly
executed and  delivered  by each Credit Party which is a party  thereto and each
constitutes  the legal,  valid and  binding  obligation  of such  Credit  Party,
enforceable  against it in  accordance  with its terms except to the extent that
such
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<PAGE>
enforceability may be effected by bankruptcy,  insolvency,  reorganization,
moratorium or other similar laws  affecting the rights and remedies of creditors
generally, and general principles of equity.

                  4.4 Financial  Statements and  Projections.  Schedule 4.4 sets
forth  the  latest  financial  statements  and  Projections  that  Borrower  has
delivered to Lender prior to the Restatement Date. All of the balance sheets and
statements  of income,  retained  earnings  and cash flows of the Parent and the
Credit  Parties  listed on  Schedule  4.4 have  been,  except as noted  therein,
prepared in conformity  with GAAP and present  fairly the financial  position of
the  Parent  or such  Credit  Party,  as the case may be, in each case as of the
dates thereof, and the results of operations and cash flows for the periods then
ended (as to the  unaudited  interim  financial  statements,  subject  to normal
year-end  audit  adjustments  and the  absence of  footnotes).  The  Projections
disclose  all  material  assumptions  made with  respect  to  general  economic,
financial and market conditions in formulating such Projections.  No facts exist
as of the date of any making of this  representation  that  would  result in any
material  change in any of such  Projections.  The  Projections  are based  upon
reasonable  estimates and  assumptions,  all of which are reasonable in light of
conditions  existing at the Restatement Date, have been prepared on the basis of
the assumptions stated therein,  and reflect the reasonable estimate of Borrower
of the results of operations and other information projected therein.

                  4.5 Material  Adverse  Change.  Except as disclosed in audited
consolidated  financial statements of the Parent Group for the fiscal year ended
December 31,  1996,  that were  delivered to the Lender,  Borrower and the other
Credit Parties have no obligations,  contingent liabilities,  or liabilities for
Charges,  long-term  leases or unusual  forward or  long-term  commitments  that
could,  alone or in the aggregate,  have or result in a Material Adverse Effect.
Since  December 31, 1996,  (i) there has been no material  adverse change in the
business,  assets,  operations,  prospects or  financial  or other  condition of
Borrower or the Parent  Group,  taken as a whole,  and (ii) no Credit  Party has
paid,  made or  declared  any  dividend,  advance or other  distribution  to any
stockholder  of  such  Credit  Party,  except  as  permitted  pursuant  to  this
Agreement. No shares of stock of any Credit Party have been, or are now required
to be, redeemed,  retired, purchased or otherwise acquired for value by Borrower
and there exists no present agreement, understanding or requirements (contingent
or otherwise)  to redeem,  retire,  purchase or otherwise  acquire for value any
such shares in the future except as disclosed on Schedule 4.5.

                  4.6      Ownership of Property; Liens.
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<PAGE>
                  (a) The real estate listed on Schedule 4.6  constitutes all of
the real  property  owned,  leased,  or used in its  business by Borrower or any
other Credit Party. Except as disclosed on Schedule 4.6, each Credit Party owns:
(i) good and marketable fee simple title to all of the real estate owned or used
by it other  than such as its holds as  lessee,  and (ii)  valid and  marketable
leasehold  interests in all of its Leases (both as lessor and lessee,  sublessee
or assignee). Except as disclosed on Schedule 4.6, each Credit Party holds title
to, or valid  leasehold  interests in, all of its other  properties  and assets.
None of the  properties  or assets of any Credit  Party is subject to any Liens,
except (x) Permitted  Encumbrances and (y) the Liens in favor of Lender pursuant
to  the  Collateral  Documents.  Each  Credit  Party  has  received  all  deeds,
assignments,  waivers,  consents,  non-disturbance  and  recognition  or similar
agreements, bills of sale and other documents, and duly effected all recordings,
filings and other actions necessary to establish, protect and perfect its right,
title and  interest in and to all such real estate and other assets or property.
Except as  described  on Schedule  4.6,  (i) none of the Credit  Parties nor any
other party to any such Lease  described  on  Schedule  4.6 is in default of its
obligations  thereunder or has delivered or received any notice of default under
any such Lease, and no event has occurred which, with the giving of notice,  the
passage of time or both, would  constitute a default under any such Lease,  (ii)
none of the Credit Parties owns or holds,  or is obligated  under or a party to,
any option,  right of first refusal or any other  contractual right to purchase,
acquire,  sell,  assign or dispose of any real property  owned or leased by such
Person,  and (iii) no portion of any real property owned or leased by any Credit
Party has  suffered  any  material  damage by fire or other  casualty  loss or a
Release which has not heretofore  been  completely  repaired and restored to its
original  condition  or is being  remedied.  All  permits  required to have been
issued or  appropriate to enable the real property owned or leased by any Credit
Party to be lawfully  occupied  and used for all of the  purposes for which they
are currently  occupied and used,  have been lawfully  issued and are, as of the
date hereof, in full force and effect.

                  4.7 Restrictions;  No Default. No contract,  lease, agreement,
judgment,  decree or other  instrument  or order to which any Credit  Party is a
party or by which it or any of its properties or assets is bound or affected and
no provision  of existing  Applicable  Law has or results in a Material  Adverse
Effect,  or insofar as any Credit  Party can  reasonably  foresee  could have or
result in a Material  Adverse Effect.  None of the Credit Parties is in default,
and to each Credit Party's knowledge no third party is in default, under or with
respect to any material contract,  agreement, lease or other instrument to which
any Credit Party is a party. No Default has occurred and is continuing.

                  4.8  Labor  Matters.  There  are no  strikes  or  other  labor
disputes  against any Credit  Party that are  pending or, to any Credit  Party's
knowledge, threatened which could have or result in a Material Adverse Effect or
could  cause or result  in the  incurrence  by any  Credit  Party of a  material
liability,  contingent  or  liquidated.  Hours  worked  by and  payment  made to
employees  of each  Credit  Party have not been in  violation  of the Fair Labor
Standards Act or any other  applicable law dealing with such matters which could
have or  result in a  Material  Adverse  Effect or could  cause or result in the
incurrence  by  any  Credit  Party  of  a  material  liability,   contingent  or
liquidated. All payments due from any Credit Party
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<PAGE>
on account of employee  health and welfare  insurance which could have or result
in a Material  Adverse  Effect or could cause or result in the incurrence by any
Credit Party of a material liability, contingent or liquidated, if not paid have
been paid or accrued as a liability on the books of such Credit  Party.  None of
the Credit Parties has any obligation under any collective  bargaining agreement
or any employment  agreement,  except as disclosed on Schedule 4.16 or permitted
pursuant to Section 7.4.  There is no organizing  activity  involving any Credit
Party pending or threatened by any labor union or group of employees.  Except as
set forth on Schedule 4.14, there are no  representation  proceedings  involving
employees  of any Credit Party  pending or  threatened  with the National  Labor
Relations Board,  and no labor  organization or group of employees of any Credit
Party  have  made a  pending  demand  for  recognition.  Except  as set forth on
Schedule  4.14,  there are no  complaints  or charges  against any Credit  Party
pending or  threatened  to be filed with any  federal,  state,  local or foreign
court, governmental agency or arbitrator based on, arising out of, in connection
with, or otherwise  relating to the  employment or  termination of employment by
any Credit Party of any  individual,  except such  complaints  and charges that,
singularly or in the aggregate,  would not require notice to the Lender pursuant
to Section 6.4.

                  4.9 Ventures,  Subsidiaries and Affiliates,  and Indebtedness.
Except as set forth on  Schedule  4.9,  neither the Parent nor any of the Credit
Parties has any  Subsidiaries,  is engaged in any joint  venture or  partnership
with any other Person,  or is an Affiliate of any other Person.  All outstanding
Stock and  Indebtedness  in excess of $25,000  of each of the Credit  Parties is
described on Schedule 4.9.

                  4.10 Government  Regulation.  None of the Credit Parties is an
"investment  company" or an "affiliated  person" of, or "promoter" or "principal
underwriter"  for,  an  "investment  company,"  as such terms are defined in the
Investment Company Act of 1940 as amended. None of the Credit Parties is subject
to regulation  under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the  Interstate  Commerce Act or any other  federal or state  statute
that restricts or limits its ability to incur Indebtedness, pledge its assets or
to perform its  obligations  hereunder or under any other Loan  Document and the
making of the  Revolving  Credit  Advances  by Lender,  the  application  of the
proceeds  and  repayment  thereof by Borrower or any other  Credit Party and the
consummation  of the  transactions  contemplated by this Agreement and the other
Loan  Documents  will not violate any provision of any such statute or any rule,
regulation or order issued by the  Securities  and Exchange  Commission  (except
that no representation is made concerning  whether any syndication or assignment
by Lender might or would violate any Federal  securities  laws,  regulations  or
orders).

                  4.11 Margin  Regulations.  None of the Credit Parties owns any
"margin  security",  as that term is defined in Regulations G and U of the Board
of Governors of the Federal Reserve System (the "Federal  Reserve  Board"),  and
none of the proceeds of the Revolving Credit Advances will be used,  directly or
indirectly,  for the purpose of purchasing or carrying any margin security,  for
the  purpose of  reducing  or retiring  any  indebtedness  which was  originally
incurred to purchase or carry any margin security or for any other purpose which
might cause any of the loans or other extensions of credit under this
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<PAGE>
Agreement to be considered a "purpose  credit"  within the meaning of Regulation
G, T, U or X of the Federal Reserve Board.  None of the Credit Parties will take
or permit  to be taken any  action  which  might  cause  this  Agreement  or any
document or instrument  delivered  pursuant  hereto to violate any regulation of
the Federal Reserve Board.

                  4.12 Taxes. All federal, state, local and foreign tax returns,
reports  and  statements  required to be filed by any Credit  Party  (except for
sales and use tax returns involving, in the aggregate, immaterial amounts), have
been filed with the appropriate Governmental Authority and all Charges and other
impositions  shown thereon to be due and payable that are or could reasonably be
expected to become a liability or charge  against any Credit Party or its assets
have been paid prior to the date on which any fine,  penalty,  interest  or late
charge may be added thereto for nonpayment  thereof,  or any such fine, penalty,
interest,  late charge or loss has been paid,  except for  non-compliances  that
could not  reasonably be expected to have a Material  Adverse Effect or to cause
or  result  in the  incurrence  by any  Credit  Party of a  material  liability,
contingent  or  liquidated.  Each  of the  Credit  Parties  has  paid  prior  to
delinquency  all Charges which such Credit Party  reasonably  expects it will be
required  to be  paid  by  them,  except  for  non-compliances  that  could  not
reasonably be expected to have a Material  Adverse  Effect or to cause or result
in the  incurrence  by any Credit Party of a material  liability,  contingent or
liquidated. Proper and accurate amounts have been withheld by each of the Credit
Parties  from its  respective  employees  for all  periods in full and  complete
compliance with the tax, social security and unemployment withholding provisions
of applicable  federal,  state, local and foreign law and such withholdings have
been  timely  paid  to  the  respective  Governmental  Authorities,  except  for
non-compliances that could not reasonably be expected to have a Material Adverse
Effect or to cause or result in the incurrence by any Credit Party of a material
liability,  contingent  or  liquidated.  Schedule  4.12 sets forth those taxable
years for which any Credit  Party's tax returns are  currently  being audited by
the IRS or any other  applicable  Governmental  Authority and any assessments or
threatened  assessments  in  connection  with such audit or which are  otherwise
currently outstanding.  Except as described on Schedule 4.12, none of the Credit
Parties has executed or filed with the IRS or any other  Governmental  Authority
any agreement or other  document  extending,  or having the effect of extending,
the period for  assessment  or  collection  of any  Charges.  None of the Credit
Parties has any obligation under any written tax sharing agreement except as set
forth on Schedule 4.12.
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<PAGE>
                  4.13 ERISA.

                  (a) Schedule 4.13 lists all Plans maintained or contributed to
by any Credit Party and all Qualified Plans  maintained or contributed to by any
other  ERISA   Affiliate,   and  separately   identifies  the  Title  IV  Plans,
Multiemployer  Plans,  any multiple  employer  plans  subject to Section 4064 of
ERISA,  unfunded  Pension Plans,  Welfare Plans and Retiree Welfare Plans.  Each
Qualified Plan has been  determined by the IRS to qualify under IRC Section 401,
and the trusts  created  thereunder  have been  determined to be exempt from tax
under the  provisions  of IRC Section  501,  and to the best  knowledge  of each
Credit  Party   nothing  has  occurred   that  would  cause  the  loss  of  such
qualification  or  tax-exempt  status.  Each  Plan  is in  compliance  with  the
applicable  provisions  of ERISA and the IRC,  including  the  filing of reports
required under the IRC or ERISA which are true and correct as of the date filed,
and with  respect  to each Plan,  other  than a  Qualified  Plan,  all  required
contributions  and benefits have been paid in accordance  with the provisions of
each such Plan.  None of the Credit Parties or any other ERISA  Affiliate,  with
respect to any Qualified  Plan, has failed to make any  contribution  or pay any
amount due as  required  by IRC Section 412 or Section 302 of ERISA or the terms
of any such Plan. With respect to all Retiree  Welfare Plans,  the present value
of future anticipated  expenses pursuant to the latest actuarial  projections of
liabilities does not exceed $50,000,  and copies of such latest projections have
been provided to Lender;  with respect to Pension  Plans,  other than  Qualified
Plans, the present value of the liabilities for current participants  thereunder
using PBGC  interest  assumptions  does not exceed  $50,000.  None of the Credit
Parties has engaged in a prohibited  transaction,  as defined in Section 4975 of
the IRC or  Section  406 of ERISA,  in  connection  with any Plan,  which  would
subject any Credit Party (after  giving  effect to any  exemption) to a material
tax on prohibited transactions imposed by IRC Section 4975 or any other material
liability.

                  (b) Except as set forth on Schedule 4.13: (i) no Title IV Plan
has any Unfunded  Pension  Liability;  (ii) No ERISA Event or event described in
Section  4062(e) of ERISA with  respect to any Title IV Plan has  occurred or is
reasonably expected to occur; (iii) there are no pending, or to the knowledge of
any Credit Party,  threatened claims, actions or lawsuits (other than claims for
benefits in the normal course),  asserted or instituted  against (x) any Plan or
its assets,  (y) any fiduciary  with respect to any Plan or (z) any Credit Party
or any other ERISA  Affiliate with respect to any Plan;  (iv) none of the Credit
Parties or any other ERISA Affiliate has incurred or reasonably expects to incur
any Withdrawal  Liability (and no event has occurred  which,  with the giving of
notice  under  Section  4219 of ERISA,  would  result in such  liability)  under
Section  4201 of ERISA as a result of a complete  or partial  withdrawal  from a
Multiemployer Plan; (v) within the last five years none of the Credit Parties or
any other ERISA Affiliate has engaged in a transaction which resulted in a Title
IV Plan with Unfunded  Liabilities being transferred  outside of the "controlled
group" (within the meaning of Section  4001(a)(14) of ERISA) of any such entity;
(vi) no plan which is a Retiree Welfare Plan provides for continuing benefits or
coverage for any  participant  or any  beneficiary  of a participant  after such
participant's  termination  of  employment  (except  as may be  required  by IRC
Section 4980B and at the sole expense of the  participant or the  beneficiary of
the participant); the Credit Parties and other ERISA Affiliates have complied
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with the notice and continuation  coverage requirements of IRC Section 4980B and
the regulations  thereunder except where the failure to comply could not have or
result in any Material Adverse Effect; and (vii) no liability under any Plan has
been funded,  nor has such  obligation  been  satisfied,  with the purchase of a
contract  from an  insurance  company  that is not rated AAA by the  Standard  &
Poor's Corporation and the equivalent by each other nationally recognized rating
agency.

                  4.14 No  Litigation.  Except as set forth on Schedule 4.14, no
action, claim or proceeding is now pending or, to the knowledge of an officer of
any Credit  Party,  threatened  against  any Credit  Party at law,  in equity or
otherwise, before any court, board, commission, agency or instrumentality of any
federal, state or local government,  or of any agency or subdivision thereof, or
before any arbitrator or panel of  arbitrators,  (i) that  challenges any Credit
Party's  right,  power  or  competence  to  enter  into  or  perform  any of its
obligations  under the Loan Documents,  or the validity or enforceability of the
Security  Interest or of any Loan Document or any action hereunder or thereunder
or (ii) that if determined adversely, could have or result in a Material Adverse
Effect or could  cause or  result in the  incurrence  by any  Credit  Party of a
material liability, contingent or liquidated, nor to the knowledge of an officer
of any Credit  Party does a state of facts  exist that is  reasonably  likely to
give rise to any such action, claim or proceeding.

                  4.15 Brokers.  Except as set forth on Schedule 4.15, no broker
or finder  acting on behalf of Borrower or any other Credit Party  brought about
the obtaining, making or closing of the loans made pursuant to this Agreement or
the transactions contemplated by the Loan Documents and neither Borrower nor any
other Credit Party has any  obligations to any Person in respect of any finder's
or brokerage fees in connection therewith.

                  4.16 Employment Matters.  Except as set forth on Schedule 4.16
or permitted  pursuant to Section 7.4,  there are no  employment,  consulting or
management  agreements  covering  management  of any  Credit  Party.  A true and
complete copy of each such agreement has been furnished to Lender by Borrower.

                  4.17   Patents,   Trademarks,    Copyrights,    Licenses   and
Accreditation. Except as otherwise set forth on Schedule 4.17, each Credit Party
owns or has undisputed possession of all licenses, patents, patent applications,
copyrights,  service marks,  trademarks,  trademark  applications,  trade names,
certificates of need and accreditation  and other rights,  the failure to own or
possess which could have a Material  Adverse  Effect or could cause or result in
the  incurrence  by any Credit  Party of a  material  liability,  contingent  or
liquidated,  each of which is listed,  together with Patent and Trademark Office
application or registration  numbers,  where applicable,  on Schedule 4.17. Each
Credit Party is in full compliance with the provisions of each of the foregoing,
except for  non-compliances  that could not  reasonably  be  expected  to have a
Material  Adverse  Effect or to cause or result in the incurrence by such Credit
Party of a material liability, contingent or liquidated. Schedule 4.17 lists all
trade  names or other  names  under  which any of the  Credit  Parties  conducts
business.  Each Credit Party conducts its business without infringement or claim
of  infringement of any license,  patent,  copyright,  service mark,  trademark,
trade name, trade secret or other intellectual
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<PAGE>
property  right  of  others,   except  where  such   infringement  or  claim  of
infringement  could not have or result in a Material Adverse Effect or could not
cause or result in the incurrence by such Credit Party of a material  liability,
contingent or liquidated.  There is no  infringement or claim of infringement by
others of any material  license,  patent,  copyright,  service mark,  trademark,
trade name,  trade  secret or other  intellectual  property  right of any Credit
Party.

                  4.18  Full  Disclosure.   No  information  contained  in  this
Agreement,  the other Loan  Documents,  the  Projections,  the Financials or any
written  statement  furnished  to the Lender by or on behalf of any Credit Party
pursuant to the terms of this Agreement or any other Loan Document, contains any
untrue  statement of a material fact or omits to state a material fact necessary
to make the  statements  contained  herein or therein not misleading in light of
the circumstances  under which they were made. The Security Interests granted to
Lender pursuant to the Collateral Documents will at all times be fully perfected
first priority Liens in and to the Collateral described therein, subject only to
such exceptions as are permitted under the applicable  Collateral  Document.  No
event has occurred  since  December 31, 1996 and is  continuing  that has had or
could have or result in a Material Adverse Effect.

                  4.19  Hazardous  Materials.  Except as set  forth on  Schedule
4.19, the Subject Property is free of contamination  from any Hazardous Material
that would  constitute  a  violation  of any  Environmental  Law.  In  addition,
Schedule 4.19  discloses  potential  material  environmental  liabilities of any
Credit Party of which an officer of such Credit Party has  knowledge (i) related
to noncompliance with the Environmental Laws or (ii) associated with the Subject
Property. None of the Credit Parties has caused or suffered to occur any Release
with respect to any Hazardous  Material that would constitute a violation of any
Environmental  Law at, under,  above or within any real property that it owns or
leases.  None of the  Credit  Parties  is  involved  in  operations  that  could
reasonably be expected to lead to the imposition of any liability or Lien on it,
its property,  or any premises that it occupies or any owner thereof,  under the
Environmental  Laws,  and none of the Credit Parties has permitted any tenant or
occupant of such premises to engage in any such activity.

                  4.20  Insurance  Policies.  Schedule  4.20  Part II lists  all
insurance of any nature  maintained by the Credit Parties,  as well as a summary
of the terms of such insurance.  Such insurance  complies with the standards set
forth on Schedule  4.20 Part I, and all policies  listed on such schedule are in
full force and effect.

                  4.21 Deposit Accounts. Schedule 4.21 lists all banks and other
financial  institutions  at which any of the Credit Parties  maintains  deposits
and/or other  accounts,  and  identifies as such each  Collection  Account,  the
Disbursement  Account,  and such Schedule correctly identifies the name, address
and telephone number of each depository,  the name in which the account is held,
a description of the purpose of the account, and the complete account number.

                  4.22 Solvent Financial Condition. Each of the Borrower and the
Parent  Group,  taken  as a  whole,  is now,  and  after  giving  effect  to the
incurrence  of the  obligations  and  the  granting  of the  Security  Interests
contemplated hereunder and under the other Loan
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<PAGE>
Documents, will be Solvent.

                  4.23   Credit   Party   Questionnaires.   The   Credit   Party
Questionnaires  completed  by each  Credit  Party are true and  accurate  in all
material respects.

                                   ARTICLE 5.

                      FINANCIAL STATEMENTS AND INFORMATION

                  5.1 Reports and Notices. Borrower, for itself and on behalf of
the Parent and the other  Credit  Parties,  covenants  and agrees  that from and
after the Restatement  Date and until the Termination  Date, it shall deliver or
cause to be  delivered to Lender each of the  following at the Lender's  address
specified pursuant to Section 9.10.

                  (a) On each  Business  Day,  a Notice of  Borrowing/Collection
Report from Borrower in the form of Exhibit A hereto;

                  (b) On the first  Business  Day of each week,  (i) an accounts
receivable summary from Borrower in the form of Exhibit K hereto with respect to
Borrower's  Accounts  for the  preceding  week  and  Lender,  at its  reasonable
discretion, may verify such Accounts owing by selected Account Debtors, and (ii)
an inventory  summary from Borrower in the form of Exhibit L hereto with respect
to Eligible Inventory for the preceding week;

                  (c) Not later  than the  tenth  Business  Day of each  month a
Borrowing  Base  Certificate  from  Borrower as of the last day of the preceding
month accompanied by such supporting detail and documentation as is satisfactory
to Lender,  including  but not  limited  to (i) a monthly  trial  balance  sheet
showing  accounts  receivable  outstanding by Account Debtor,  aged from invoice
date as follows:  1 to 30 days, 31 to 60 days, 61 to 90 days, 91 to 120 days and
121 days or more;  and (ii)  reconciliation  of the  accounts  receivable  trial
balance to Borrower's general ledger and monthly financial statements;

                  (d)  Within  30  days  after  the end of  each  Fiscal  Month,
financial and other information for such Fiscal Month for Borrower, certified by
an officer of Borrower,  including,  without limitation,  an internally-prepared
(i)  statement of income and cash flow and balance  sheet,  (ii) sales  analysis
report;  (iii)  inventory/product  mix  analysis,  as  well  as a  summary  aged
receivable trial balance (by payor category), each of which shall be in form and
in substance  reasonably  satisfactory to Lender and each of which shall provide
comparisons to the internally prepared statement for the prior year's equivalent
period and to budget, (iv) at the end of each Fiscal Quarter only, a schedule in
reasonable  detail  showing  the  calculations  used in  determining  Borrower's
compliance  with the  financial  covenants  set  forth in  Section  7.10,  (v) a
consolidating  balance  sheet and  statement  of income for the Parent Group and
(vi) the  certification of the president or chief financial  officer of Borrower
that all such  financial  statements  delivered  pursuant to clauses (i) and (v)
above present fairly in accordance  with GAAP (subject to normal  year-end audit
adjustments and the absence of footnotes) the financial position, the results of
operations and the statements of cash flow of 
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<PAGE>
Borrower as at the end of such month and for the period  then  ended,  that such
information is complete and correct in all material  respects as of its date and
that no Default exists;

                  (e) Not  more  than 30 days  prior  to the  beginning  of each
Fiscal Year, a  consolidating  operating plan for the Parent Group,  approved by
the Parent's  board of  directors,  for such Fiscal Year that includes a monthly
budget for the  following  year and  includes  for such year,  operating  profit
estimates  and  plans  for  capital  expenditures  and  facilities  and  that is
accompanied by a certificate of the chief  executive  officer or chief financial
officer  of the  Parent  that  such  operating  plan is  based  upon  reasonable
estimates and  assumptions,  all of which are  reasonable in light of conditions
then  existing,  have  been  prepared  on the  basis of the  assumptions  stated
therein,  and reflect  the  reasonable  estimate  of the Parent of the  expected
results of operations and other information projected therein;

                  (f) Within 90 days after the end of each Fiscal  Year,  annual
consolidated   financial   statements   of  the  Parent  and  its   Consolidated
Subsidiaries,  consisting  of a  consolidated  balance  sheet  and  consolidated
statements  of income,  cash flows and  stockholders'  equity,  which  financial
statements  shall be prepared in  accordance  with GAAP,  reported on (only with
respect  to  the  financial  statements)  without  qualification  by a  firm  of
independent   certified  public  accountants  of  recognized  national  standing
selected by the Parent and reasonably  acceptable to Lender,  and accompanied by
(i) a report from such  accountants to the effect that in connection  with their
audit examination,  nothing has come to their attention to cause them to believe
that a Default has  occurred,  (ii) the annual  letter from the chief  financial
officer of the Parent and each Credit Party to such  accountants  in  connection
with  their  audit   examination   detailing  such  Credit  Party's   contingent
liabilities and material  litigation  matters  involving such Credit Party,  and
(iii) a certification of the chief executive  officer or chief financial officer
of the Parent and each Credit Party that all such financial  statements  present
fairly in accordance with GAAP the financial position, the results of operations
and the cash  flows of the Parent  and each  Credit  Party as at the end of such
year and for the period then ended and that no Default exists;

                  (g) As soon as  practicable,  but in any event  within two (2)
Business  Days  after any  officer  of any  Credit  Party  becomes  aware of the
existence of any Default,  or any  development or other  information  that could
reasonably  be  expected  to  have  or  result  in a  Material  Adverse  Effect,
telephonic  or  telegraphic  notice  specifying  the  nature of such  Default or
development or  information,  including the anticipated  effect  thereof,  which
notice shall be promptly confirmed in writing within five (5) Business Days;

                  (h) Promptly  upon filing  thereof,  copies of such  financial
statements  and  reports  as the Parent or any  Credit  Party  shall send to its
stockholders  and all  registration  statements,  and all  regular  or  periodic
reports  that the Parent or any Credit  Party shall file,  or may be required to
file, with the Securities and Exchange Commission or any successor commission;

                  (i) Promptly upon receipt thereof,  copies of all reports,  if
any,  submitted  to the Parent or any Credit  Party or its board of directors by
its independent  certified public 
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<PAGE>
accountants, including without limitation any management report;

                  (j) As  often as  Lender  may  request,  such  statements  and
schedules  further  identifying  and  describing  the  Collateral and such other
reports  in  connection  therewith  as Lender  may  reasonably  request,  all in
reasonable detail;

                  (k) Promptly  upon learning  thereof,  each Credit Party shall
advise  Lender in  reasonable  detail of (i) any  material  Lien  (other than as
permitted  under  Section  7.6)  attaching  to or  asserted  against  any of the
Collateral,  (ii) any material  change in the  composition  of the Collateral or
(iii) the  occurrence  of any other event that could  reasonably  be expected to
have or result in a material adverse effect upon the Collateral  and/or Lender's
Liens thereon; and

                  (l) Such other reports and information respecting the Parent's
or any Credit Party's business,  financial condition or prospects as Lender may,
from time to time, reasonably request.

                  5.2 Communication with Accountants.  Borrower,  for itself and
on behalf of the Parent and each of the other Credit Parties,  authorizes Lender
to communicate  directly with its independent  certified public  accountants and
tax advisors and authorizes those  accountants to disclose to Lender any and all
financial  statements  and other  supporting  financial  documents and schedules
including  copies  of any  management  letter  with  respect  to  the  business,
financial condition and other affairs of the Parent and the Credit Parties.

                                   ARTICLE 6.

                              AFFIRMATIVE COVENANTS

                  Borrower, for itself and on behalf of each of the other Credit
Parties,  covenants and agrees that,  unless Lender shall  otherwise  consent in
writing, from and after the date hereof and until the Termination Date:

                  6.1  Maintenance  of Existence  and Conduct of Business.  Each
Credit Party shall:  (a) do or cause to be done all things necessary to preserve
and keep in full  force and effect its  corporate  existence  and its rights and
franchises,  (b) continue to conduct its business substantially as now conducted
or as otherwise  permitted  hereunder,  (c) at all times maintain,  preserve and
protect all of its licenses, patents, patent applications,  copyrights,  service
marks, trademarks,  trademark applications,  trade names,  certificates of need,
accreditation  and other  rights,  the  failure to  preserve  which could have a
Material Adverse Effect, and (d) preserve all the remainder of its property,  in
use or useful in the conduct of its business,  and keep the same in good repair,
working order and condition (taking into  consideration  ordinary wear and tear)
and from time to time make, or cause to be made,  all  necessary or  appropriate
repairs,   replacements  and  improvements   thereto  consistent  with  industry
practices,  and  (e)  transact  business  only  in its  corporate  name  or such
fictitious or trade names as are expressly disclosed in the Security Agreement.
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<PAGE>
                  6.2 Payment of Obligations.

                  (a) Each Credit Party shall: (i) prior to an Event of Default,
pay and discharge,  or cause to be paid and discharged,  its Indebtedness (other
than the  Obligations)  when due (giving effect to any applicable grace period),
and (ii) subject to Section 6.2(b),  pay and discharge  promptly all (A) Charges
imposed upon it, its income and profits, or any of its property (real,  personal
or mixed)  before such  charges  become  delinquent,  and (B) lawful  claims for
labor, materials,  supplies and services or otherwise,  before any thereof shall
become in default.

                  (b) Each  Credit  Party may in good faith  contest,  by proper
legal  actions or  proceedings,  the validity or amount of any Charges or claims
described in Section 6.2(a)(ii);  provided,  that at the time of commencement of
any such action or proceeding,  and during the pendency  thereof (i) no Event of
Default shall exist,  (ii) adequate reserves with respect thereto are maintained
on the books of such Credit Party in  accordance  with GAAP,  (iii) such contest
together  with any bond that is a  Permitted  Encumbrance  operates  to  suspend
collection of the contested Charges or claims and such contest is maintained and
prosecuted continuously and with diligence, (iv) none of the Collateral would be
subject to forfeiture or loss or any Lien,  except for a Permitted  Encumbrance,
by reason of the  institution or prosecution of such contest,  (v) no Lien shall
exist,  be imposed or be  attempted  to be  imposed  for such  Charges or claims
during such action or proceeding,  and (vi) such Credit Party shall promptly pay
or  discharge  such  contested  Charges and all  additional  charges,  interest,
penalties and expenses,  if any, and shall deliver to Lender evidence reasonably
acceptable to Lender of such compliance,  payment or discharge,  if such contest
is terminated or discontinued adversely to such Credit Party.

                  6.3 Books and Records.  Each Credit Party shall keep  adequate
records and books of account with respect to its business  activities,  in which
proper entries,  reflecting its financial  transactions in accordance with sound
accounting practices, are made in accordance with GAAP and on a basis consistent
with  preparation  of the  Financials  referred to in paragraph I(b) of Schedule
4.4.

                  6.4  Litigation.  Each  Credit  Party shall  notify  Lender in
writing,  promptly  upon  learning  thereof,  of  any  litigation  commenced  or
threatened against such Credit Party, and of the institution against such Credit
Party of any suit or administrative  proceeding,  that (a) may involve an amount
in excess of $100,000 or (b) could reasonably be expected to have or result in a
Material Adverse Effect if adversely determined.
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<PAGE>
                  6.5 Insurance.

                  (a) Each Credit  Party,  at its sole cost and  expense,  shall
maintain or cause to be  maintained  the  policies  of  insurance  described  on
Schedule 4.20 in form, with such  endorsements  and with insurers  recognized as
adequate by Lender.  Such  polices  shall be in such amounts as are set forth on
Schedule  4.20 or such lesser  amounts as the Lender shall  reasonably  agree in
writing.  Each  Credit  Party  shall  notify  Lender  promptly  of any  casualty
occurrence  causing a material  loss or decline in value of any real or personal
property and the  estimated  (or actual,  if  available)  amount of such loss or
decline. In the event any Credit Party at any time or times hereafter shall fail
to obtain or maintain  any of the  policies  of  insurance  required  above that
insure  the  Collateral  or to pay any  premium  in  whole  or in part  relating
thereto,  Lender,  without  waiving  or  releasing  any  Obligation  or  Default
hereunder,  may at any time or times  thereafter (but shall not be obligated to)
obtain and maintain such policies of insurance and pay such premium and take any
other action with respect  thereto  which  Lender deems  advisable.  All sums so
disbursed,  including reasonable  attorneys' fees, court costs and other charges
related thereto, shall be payable, on demand, by Borrower to Lender and shall be
additional  Obligations hereunder secured by the Collateral,  provided,  that if
and to the extent  Borrower fails to promptly pay any of such sums upon Lender's
demand  therefor,  Lender is authorized to, and at its option may, make or cause
to be made Revolving Credit Advances on behalf of Borrower for payment thereof.

                  (b) Lender  reserves the right at any time, upon review of any
Credit Party's risk profile, to require additional forms and limits of insurance
to, in Lender's reasonable opinion,  adequately protect Lender's interest.  Each
Credit Party shall,  if so requested by Lender,  deliver to Lender,  as often as
Lender may request,  a report of a reputable  insurance broker,  satisfactory to
Lender with respect to its insurance policies.

                  (c) Each Credit Party shall deliver to Lender  endorsements to
all of its general  liability  and other  liability  policies  naming  Lender an
additional insured.

                  6.6  Compliance  with Laws.  Each Credit Party shall comply in
all material respects with all Applicable Laws,  including,  without limitation,
those relating to licensing,  environmental,  consumer  credit,  ERISA and labor
matters.

                  6.7  Agreements.  Each Credit Party shall perform,  within all
required time periods (after giving effect to any applicable grace periods), all
of its  obligations  and enforce all of its rights under each agreement to which
such  Credit  Party is a party,  including,  without  limitation,  any lease and
customer  contracts  to which  such  Person is a party  where the  failure to so
perform  and enforce  could  reasonably  be expected to have a Material  Adverse
Effect  or to  cause  or  result  in the  incurrence  of a  material  liability,
contingent or liquidated.  None of the Credit Parties shall  terminate or modify
any  provision  of any  agreement  to which it is a party which  termination  or
modification  could  reasonably  be  expected  to have or result  in a  Material
Adverse Effect or to cause or result in the incurrence by such Credit Party of a
material liability, contingent or liquidated.
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<PAGE>
                  6.8 Employee  Plans.  Each Credit Party shall notify Lender of
(i) any and all claims, actions, or lawsuits asserted or instituted,  and of any
threatened  litigation  or  claims,  against  such  Credit  Party  or any  ERISA
Affiliate  in  connection  with any Plan  maintained,  at any time,  by any such
Person  or to which any such  Person  has or had at any time any  obligation  to
contribute,  or/and against any such Plan itself, or against any fiduciary of or
service  provided to any such Plan, and (ii) the  occurrence of any  "Reportable
Event"  with  respect  to any  Pension  Plan of any  Credit  Party or any  ERISA
Affiliate.

                  6.9 Environmental Matters. Each Credit Party shall, (i) comply
in all respects with the Environmental Laws applicable to such Person except for
such non-  compliances  as singly or in the  aggregate,  could not reasonably be
expected to have a Materially Adverse Effect,  (ii) notify Lender promptly after
any  Credit  Party  becomes  aware of any  Release  upon any  premises  owned or
occupied  by such  Credit  Party that could  reasonably  be  expected  to have a
Materially  Adverse Effect or result in the incurrence by such Credit Party of a
material liability, actual or contingent, and (iii) promptly forward to Lender a
copy of any order, notice, permit,  application,  or any communication or report
received  by any  Credit  Party  in  connection  with  any  such  Release  or in
connection with any other matter relating to the Environmental Laws that, singly
or in the aggregate,  may adversely  affect the use or value of such premises in
any material respect.  The provisions of this Section 6.9 shall apply whether or
not the Environmental  Protection  Agency, any other federal agency or any state
or local  environmental  agency has taken or threatened any action in connection
with any Release or the presence of any Hazardous Materials.

                  6.10  Access.  Each Credit  Party  shall:  (i) provide  access
during normal  business  hours to Lender and any of its officers,  employees and
agents,  upon reasonable  prior notice (unless a Default shall have occurred and
be continuing,  in which event no notice shall be required and Lender shall have
access at any and all times),  to the  properties  and facilities of such Credit
Party;  (ii)  permit  Lender and any of its  officers,  employees  and agents to
inspect,  audit and make  extracts  from all of its records,  files and books of
account,  and (iii) permit  Lender to inspect,  review and evaluate its accounts
and other records  (excluding  attorney-client  privileged  documents),  at each
Credit  Party's  locations and at premises not owned by or leased to such Credit
Party.  Each Credit Party shall make  available  to Lender and its  counsel,  as
quickly as practicable under the  circumstances,  copies of all books,  records,
board minutes,  contracts,  insurance policies,  environmental audits,  business
plans, files, financial statements (actual and pro forma), filings with federal,
state  and  local  regulatory  agencies,  and other  instruments  and  documents
(excluding  attorney-client  privileged documents) that Lender may request. Each
Credit Party shall deliver any document or instrument  reasonably  necessary for
Lender, as it may from time to time request,  to obtain records from any service
bureau or other Person which maintains  records for such Credit Party, and shall
maintain  duplicate  records or supporting  documentation  on media,  including,
without  limitation,  computer tapes and discs owned by such Credit Party.  Upon
the request of the Lender, each Credit Party shall instruct its certified public
accountants and its banking and other  financial  institutions to make available
to Lender such information and records as Lender may reasonably request.
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<PAGE>
                  6.11 Cash Management.

                  (a) Until the Termination  Date, the Borrower shall deposit or
cause to be deposited  directly,  in either case on the date of receipt  thereof
and in the form received, all cash, checks, notes, drafts or other similar items
of payment received only into the Collection Accounts and disburse or permit the
disbursement of amounts in the Collection Accounts only to the Payment Account.

                  (b) So long as no Default has  occurred,  Borrower  may add or
replace a  Collection  Account;  provided,  however,  that (i) Lender shall have
consented to the opening of such account with the relevant bank, and (ii) at the
time of the opening of such account, such bank shall have executed and delivered
to Lender a triparty account  agreement,  in form and substance  satisfactory to
Lender.

                  (c) The Lender shall daily sweep  amounts from the  Collection
Accounts  to the Payment  Account for  application  against the  Obligations  as
described in Section 2.6. Borrower shall take all such steps as the Lender shall
reasonably request to facilitate the arrangements described in this Section 6.11
and to preserve the Lender's  security  interest granted in the amount deposited
to the Collection Accounts pursuant to the Loan Documents.

                  6.12  Goldstar  Agreements.   Borrower  shall,  on  or  before
December 31, 1997,  enter into an extended or replacement  Key System  Agreement
with  Goldstar,  on  terms  that are at least as  favorable  to  Borrower  as if
Goldstar were not an equity holder of the Parent,  which  agreement shall have a
term of not less than 36  months,  unless  otherwise  consented  to by Lender in
writing,  and shall otherwise contain terms that are in all respects  acceptable
to Lender in its reasonable discretion.

                                   ARTICLE 7.

                               NEGATIVE COVENANTS

                  Borrower  covenants and agrees for itself and on behalf of the
other Credit  Parties that,  without  Lender's prior written  consent,  from and
after the date hereof until the Termination Date:

                  7.1 Mergers, Etc. None of the Credit Parties shall directly or
indirectly,  by operation of law or  otherwise,  merge with,  consolidate  with,
acquire all or substantially all of the assets or capital stock of, or otherwise
combine with, any Person or form any Subsidiary.

                  7.2 Investments. Except as set forth on Schedule 4.9 or in the
proviso at the end of this  sentence,  none of the Credit  Parties shall make or
maintain any  investment in, or make or accrue loans or advances of money to any
Person,  through the direct or indirect  holding of securities or otherwise (all
of the foregoing "Investments"); provided, however, 
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that Borrower may make loans to ARS and ESI in an aggregate principal amount not
to exceed $1,250,000 outstanding at any time so long as (i) such indebtedness is
evidenced  by a  promissory  note duly  executed  by such  borrower  payable  to
Borrower and pledged by Borrower to Lender as security for the Obligations,  and
(ii) Borrower has not less than  $1,250,000 of unused  Revolving  Credit Advance
Availability hereunder at all times any such loan is outstanding.

                  7.3  Indebtedness.  None of the Credit  Parties  shall create,
incur,  assume or permit to exist any  Indebtedness,  except (i) Indebtedness of
the Borrower in an aggregate principal amount not to exceed $200,000 at any time
outstanding,  (ii)  the  Obligations,  (iii)  reimbursement  obligations  of the
Borrower in respect of Letters of Credit,  (iv) unfunded  pension fund and other
employee  benefit plan obligations and liabilities not to exceed $150,000 in the
aggregate for all Credit  Parties and then only to the extent they are permitted
to remain unfunded under Applicable Law, (v) Intercompany  Debt, so long as such
Indebtedness  is  subordinated  to the  Obligations  in all  respects  on  terms
reasonably  acceptable  to  Lender,  and (vi)  other  Indebtedness  set forth on
Schedule 4.9.

                  7.4 Affiliate and Employee Loans;  Transactions and Employment
Agreements.  Except as expressly  permitted hereunder or under Section 7.2, none
of the  Credit  Parties  shall  enter  into  any  lending,  borrowing  or  other
commercial transaction with any of its employees, directors or Affiliates, under
terms that are any less favorable to any Credit Party than similar  transactions
negotiated in arms length  transactions  between such Credit Party and unrelated
third  parties,  including,  without  limitation,   payment  of  any  management
consulting,  advisory or similar  fee based on or related to any Credit  Party's
operating  revenue,  performance or income or any percentage  thereof other than
(a) pursuant to the  transactions  described  on Schedule 7.4 and (b)  full-time
employment  agreements  and incentive  compensation  programs with  employees on
commercially  reasonable terms that are substantially  similar to the agreements
and  programs  described  on  Schedule  7.4 and that have been  consented  to by
Lender. Notwithstanding the foregoing provisions of this Section 7.4, the Credit
Parties shall not make any Loans to any employee,  director or Affiliate, except
as expressly permitted under Section 7.2, without the consent of Lender.

                  7.5 Capital Structure and Business. None of the Credit Parties
shall  make  any  changes  in any  of  its  business  objectives,  purposes,  or
operations which could in any way be reasonably expected to adversely affect the
repayment  of  the  Obligations,   the  security  interests  granted  under  the
Collateral  Documents or to have or result in a Material Adverse Effect. None of
the  Credit  Parties  shall  engage  in any  business  other  than the  business
currently engaged in by it.

                  7.6 Liens.  None of the Credit  Parties shall create or permit
any  Lien on any of its  properties  or  assets  except  presently  existing  or
hereafter created Liens in favor of Lender,  Liens set forth on Schedule 7.6 and
Permitted Encumbrances. Each Credit Party also shall defend the right, title and
interest of Lender and any of such Credit  Party's  rights,  titles and interest
in, to and under the  Collateral  against  the claims and demands of all Persons
whomsoever  and shall not enter into any agreement  that  prohibits  such Credit
Party from 
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granting any additional Liens to the Lender.

                  7.7  Sale of  Assets.  The  Credit  Parties  shall  not  sell,
transfer,  convey, assign or otherwise dispose of any of their respective assets
or properties  (including,  without limitation,  sales of Accounts and Inventory
not made in the ordinary course of business) having an aggregate value, over the
term of this Agreement, of $50,000 or more.

                  7.8 Events of Default.  None of the Credit  Parties shall take
any action or omit to take any action,  which act or omission  would  constitute
(a) a Default pursuant to, or noncompliance with any of, the terms of any of the
Loan Documents or (b) a material  default or an event of default pursuant to, or
noncompliance  with,  any  other  Contract,  lease,  mortgage,  deed of trust or
instrument  to which it is a party  or by  which  it or any of its  property  is
bound, or any document  creating a Lien,  except,  in the case of the clause (b)
only,  for such actions or omissions  that,  in the  reasonable  judgment of the
Lender, could not be expected to have a Materially Adverse Effect.

                  7.9 ERISA.  None of the Credit Parties nor any ERISA Affiliate
thereof  shall without  Lender's  prior  written  consent  acquire any new ERISA
Affiliate  that  maintains or has an  obligation to contribute to a Pension Plan
that has either an "accumulated  funding  deficiency," as defined in Section 302
of  ERISA,   or  any   "unfunded   vested   benefits,"  as  defined  in  Section
4006(a)(3)(e)(iii)  of ERISA, in the case of any plan other than a Multiemployer
Plan,  and in  Section  4211  of  ERISA  in the  case of a  Multiemployer  Plan.
Additionally,  none of the Credit Parties nor any ERISA Affiliate thereof shall,
without Lender's prior written consent, permit or suffer any condition set forth
on Schedule  4.13 to cease to be met and  satisfied at any time;  terminate  any
Pension Plan that is subject to Title IV of ERISA where such  termination  could
reasonably be anticipated to result in liability to any such Person;  permit any
accumulated funding deficiency,  as defined in Section 302(a)(2) of ERISA, to be
incurred with respect to any Pension  Plan;  fail to make any  contributions  or
fail to pay any  amounts  due and  owing as  required  by the  terms of any Plan
before  such  contributions  or amounts  become  delinquent;  make a complete or
partial  withdrawal  (within  the  meaning  of Section  4201 of ERISA)  from any
Multiemployer  Plan;  or at any time fail to provide  Lender  with copies of any
Plan documents or governmental  reports or filings,  if reasonably  requested by
Lender.

                  7.10 Financial Covenants.  Borrower shall not at any time fail
to be in compliance with any of the following financial covenants:

                  (a)  Maximum  Capital  Expenditures.  Borrower  shall not make
Capital  Expenditures  that  exceed in the  aggregate  during any  Fiscal  Year,
$1,000,000.

                  (b) Minimum Fixed Charge Coverage Ratio. Borrower shall have a
ratio of (i) EBITDA minus Capital  Expenditures (other than Capital Expenditures
financed with Capital Leases) to (ii) Fixed Charges, in each case measured as at
the end of each Fiscal  Quarter for the twelve month period  ending on such date
(the "Fixed Charge Coverage Ratio"), of not less than 1.25:1.
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<PAGE>
                  (c)  Maximum  Inventory  Turnover  Days.  Borrower  shall have
Maximum Inventory Turnover Days of not more than 105 days as measured at the end
of each Fiscal Quarter for the twelve month period ending on such date.

                  7.11  Hazardous  Materials.  Except as set  forth on  Schedule
4.19,  the Credit Parties shall not and shall not permit any other Person within
the  control of any Credit  Party to cause or permit a Release or the  presence,
use,  generation,  manufacture,  installation,  Release,  discharge,  storage or
disposal of any Hazardous  Materials on, under,  in, above,  or about any of its
real estate or the transportation of any Hazardous Materials to or from any real
estate   where  such  Release  or  presence,   use,   generation,   manufacture,
installation,   Release,  discharge,  storage  or  disposal  would  violate  any
Environmental Laws.

                  7.12  Restricted  Payments.  The Credit Parties shall not make
any Restricted Payment.

                  7.13 Change in Control. Parent shall not cease to own, free of
any Lien, the legal and beneficial  interest in 100% of the outstanding stock of
each of the Credit Parties (on a fully diluted basis).

                                   ARTICLE 8.

                     EVENTS OF DEFAULT; RIGHTS AND REMEDIES

                  8.1 Events of Default.  The  occurrence  of any one or more of
the following  events  (regardless of the reason  therefor) shall  constitute an
"Event of Default" hereunder:

                  (a)  Borrower or any other Credit Party shall fail to make any
payment in respect of any  Obligation  hereunder  or under any of the other Loan
Documents  when and as due and payable or  declared  due and  payable;  provided
that, so long as no Event of Default shall have occurred and be continuing,  any
amount payable on demand of the Lender shall be payable upon the earlier of: (i)
the fifteenth day following such demand,  and (ii) the occurrence of an Event of
Default.

                  (b)  Borrower or any other  Credit Party shall fail or neglect
to perform, keep or observe any of the provisions of Section 6.11 or Section 7.

                  (c)  Borrower or any other  Credit Party shall fail or neglect
to perform,  keep or observe any term or provision of this Agreement (other than
any such term or provision referred to in paragraphs (a) or (b) above) or of any
of the other Loan Documents,  and the same shall remain  unremedied for a period
ending on the first to occur of 30 days  after  Borrower  or such  other  Credit
Party shall  receive  written  notice of any such failure from Lender or 60 days
after Borrower or such other Credit Party shall become aware thereof.

                  (d) A default shall occur under any other agreement,  document
or
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<PAGE>
instrument  to which any Credit Party is a party or by which any Credit Party or
its  property  is bound and such  default (i)  involves  the failure to make any
payment  (whether of  principal,  interest or  otherwise)  when due  (whether by
scheduled maturity, required prepayment,  acceleration, demand or otherwise, and
after  giving  effect  to  any  applicable  grace  period)  in  respect  of  any
Indebtedness of such Credit Party in an aggregate amount  exceeding  $200,000 or
(ii)  causes or permits  any holder of such  Indebtedness  or a trustee to cause
such  Indebtedness,  or a  portion  thereof  in an  aggregate  amount  exceeding
$200,000 to become due prior to its stated  maturity  or prior to its  regularly
scheduled dates of payment.

                  (e) Any  representation  or  warranty  herein  or in any  Loan
Document or in any written  statement  pursuant  thereto or hereto,  any report,
financial  statement  or  certificate  made or delivered to Lender by any Credit
Party shall be untrue or incorrect in any material respect,  as of the date when
made or deemed made  (including  those made or deemed  made  pursuant to Section
3.2).

                  (f) Any of the assets  having a book or market value in excess
of  $50,000  of any Credit  Party  shall be  attached,  seized,  levied  upon or
subjected to a writ or distress  warrant,  or come within the  possession of any
receiver,  trustee,  custodian  or assignee for the benefit of creditors of such
Person and such matter  shall  remain  unstayed or  undismissed  for thirty (30)
consecutive days; or any Person other than such Credit Party shall apply for the
appointment  of a receiver,  trustee or custodian for any of its assets and such
matter shall remain unstayed or undismissed for thirty (30) consecutive days; or
any Credit Party shall have  concealed,  removed or permitted to be concealed or
removed,  any part of such  Person's  property,  with intent to hinder  delay or
defraud  its  creditors  or any of them or made or suffered a transfer of any of
its property or the incurring of an obligation which may be fraudulent under any
bankruptcy, fraudulent conveyance or other similar law.

                  (g) A case or proceeding shall have been commenced against any
Credit Party in a court having competent  jurisdiction seeking a decree or order
(i) under Title 11 of the United  States Code, as now  constituted  or hereafter
amended,  or  any  other  applicable  federal,   state  or  foreign  bankruptcy,
insolvency,  moratorium  or other  similar  law,  (ii)  appointing  a custodian,
receiver, liquidator, assignee, trustee or sequestrator (or similar official) of
such  Credit  Party  or of any  substantial  part of its  properties,  or  (iii)
ordering the winding up or  liquidation  of the affairs of such Credit Party and
such case or  proceeding  shall  remain  undismissed  or unstayed for sixty (60)
consecutive days or such court shall enter a decree or order granting the relief
sought in such case or proceeding.

                  (h) Any Credit Party shall (i) file a petition  seeking relief
under  Title 11 of the United  States  Code,  as now  constituted  or  hereafter
amended,  or  any  other  applicable  federal,   state  or  foreign  bankruptcy,
insolvency,  moratorium or other similar law, (ii) consent to the institution of
proceedings  thereunder  or to  the  filing  of  any  such  petition  or to  the
appointment  of or  taking  possession  by a  custodian,  receiver,  liquidator,
assignee,  trustee or sequestrator (or similar official) of such Credit Party or
of any substantial part of its properties, (iii) fail generally pay its debts as
such debts become due, or (iv) take any corporate  action in  furtherance of any
such action.
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<PAGE>
                  (i) Final  judgment or judgments  (after the expiration of all
times to appeal therefrom) for the payment or money in excess of $100,000 in the
aggregate  shall be rendered  against any Credit  Party unless the same shall be
(i) fully covered by insurance in  accordance  with Section 6.5 or (ii) vacated,
stayed,  bonded, paid or discharged within a period or thirty (30) days from the
date of such final judgment.

                  (j) Any other event shall have  occurred  or  condition  shall
exist which could reasonably be expected to have or result in a material adverse
change in the  business,  assets,  operations,  prospects  or financial or other
condition of Borrower or the Parent Group,  taken as a whole,  and such event or
condition  shall  continue  after the Lender shall have given  Borrower at least
twenty (20) days notice thereof.

                  (k) (i) Any provision that is deemed material by the Lender of
any  Loan  Document  shall  for  any  reason  cease  to be  valid,  binding  and
enforceable in accordance with its terms, or (ii) any security  interest created
under any Collateral  Document shall cease to be a valid and perfected  security
interest  or Lien  having  the  first  priority  (or other  priority,  if and as
provided for by the Collateral  Document  establishing  such Lien) in any of the
Collateral  purported to be covered  thereby and that is deemed  material by the
Lender;  provided,  however,  that no  event  described  in  clause  (i) of this
paragraph (k) shall  constitute  an Event of Default,  if, within 30 days of the
Lender's notification to the Borrower of such event, the Borrower and the Lender
shall agree on an enforceable  substitute  provision or arrangement that has the
same  practical  effect as the  invalidated  provision  or interest  and that is
reasonably satisfactory to the Lender.

                  8.2 Remedies.  If any Event of Default shall have occurred and
be  continuing,  Lender  may,  by  notice to the  Borrower,  (a)  terminate  the
Commitment,  (b) declare all or any portion of the  Obligations  to be forthwith
due and payable, whereupon such Obligations shall become and be due and payable,
without presentment, demand, protest or further notice of any kind, all of which
are  expressly  waived by  Borrower,  and (c)  exercise  any rights and remedies
provided to Lender under the Loan Documents  and/or at law or equity,  including
all  remedies  provided  under  the  Code;  provided,  however,  that  upon  the
occurrence of an Event of Default specified in Sections 8.1(f),  (g) or (h), the
Obligations  shall  become  immediately  due and payable and any  obligation  on
Lender's  part to make any  further  Revolving  Credit  Advances or to incur any
further Letter of Credit  Obligations shall immediately  terminate,  all without
declaration, notice or demand by Lender.

                  8.3 Cumulative  Remedies.  Lender's  rights and remedies under
this  Agreement  shall be cumulative  and  nonexclusive  of any other rights and
remedies  which  Lender may have under any other  agreement,  including  without
limitation,  the Loan Documents,  by operation of law or otherwise.  Recourse to
the Collateral shall not be required.

                  8.4 Waivers by Borrower.  Except as otherwise  provided for in
this Agreement and to the fullest extent permitted by Applicable Law,  Borrower,
for itself and on behalf of each other  Credit  Party,  waives (i)  presentment,
demand and protest and notice of
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presentment,  dishonor, notice of intent to accelerate,  notice of acceleration,
protest,  default,  nonpayment,   maturity,  release,  compromise,   settlement,
extension or renewal of any or all commercial paper, accounts,  contract rights,
documents,  instruments, chattel paper and guaranties at any time held by Lender
on which  Borrower or any other Credit Party may in any way be liable,  (ii) all
rights to notice and a hearing  prior to Lender's  taking  possession or control
of, or to Lender's replevy,  attachment or levy upon, the Collateral or any bond
or security  which  might be  required by any court prior to allowing  Lender to
exercise any of its remedies, and (iii) the benefit of all valuation,  appraisal
and exemption laws. Borrower acknowledges that it has been advised by counsel of
its choice with  respect to this  Agreement,  the other Loan  Documents  and the
transactions evidenced by this Agreement and the other Loan Documents.

                                   ARTICLE 9.

                                 MISCELLANEOUS

                  9.1 Complete  Agreement;  Modification of Agreement.  The Loan
Documents  constitute the complete agreement between the parties with respect to
the subject matter thereof,  supersede all prior  agreements,  understandings or
inducements  (whether  express or implied,  or oral or written),  and may not be
modified,  altered  or  amended  except by an  agreement  in  writing  signed by
Borrower  and  Lender.  Without  limiting  the  generality  of  the  immediately
preceding sentence, any letter of interest or commitment letter between Borrower
and Lender or any of its affiliates,  predating this Agreement and relating to a
financing of substantially  similar form, purpose or effect shall be merged with
and into and superseded by this Agreement.

                  9.2 Fees and Expenses. Borrower shall reimburse Lender for all
reasonable   out-of-pocket   expenses   incurred  in  connection  with  (i)  the
preparation,  negotiation or consummation  of the Loan Documents  (including the
reasonable  fees and expenses of all of its counsel,  advisors,  consultants and
auditors  retained in connection  with the Loan  Documents and the  transactions
contemplated thereby and advice in connection therewith) and (ii) wire transfers
to the account of Borrower.  Borrower shall reimburse  Lender for all reasonable
fees, costs and expenses,  including,  without limitation,  the reasonable fees,
costs and expenses of counsel or other  advisors  (including  environmental  and
management  consultants)  for advice,  assistance,  or other  representation  in
connection with:

                  (i) the  forwarding  to Borrower or any other Person on behalf
             of  Borrower  by Lender of the  proceeds  of the  Revolving  Credit
             Advances;

                  (ii) any amendment, modification or waiver of, or consent with
             respect to, any of the Loan Documents or advice in connection  with
             the  administration of the loans made pursuant hereto or its rights
             hereunder or thereunder;

                  (iii) any litigation,  contest,  dispute,  suit, proceeding or
             action 
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             (whether instituted by Lender, Borrower or any other Person) in any
             way relating to the Collateral,  any of the Loan Documents,  any of
             the Letters of Credit or Letter of Credit Obligations, or any other
             agreement to be executed or delivered  in  connection  therewith or
             herewith,  whether as party,  witness, or otherwise,  including any
             litigation, contest, dispute, suit, case, proceeding or action, and
             any appeal or review  thereof,  in connection with a case commenced
             by or against Borrower or any other Person that may be obligated to
             Lender by virtue of the Loan Documents;

                  (iv) any  attempt  to  enforce  any  rights of Lender  against
             Borrower,  any other  Credit  Party or any other Person that may be
             obligated to Lender by virtue of any of the Loan Documents;

                  (v) any attempt to (A) monitor the Obligations,  (B) evaluate,
             observe,  assess Borrower or its affairs, and (C) verify,  protect,
             evaluate,  assess, appraise,  collect, sell, liquidate or otherwise
             dispose of the Collateral;

including,  without limitation, the reasonable attorneys' and other professional
and service  providers'  fees arising  from such  services,  including  those in
connection with any appellate proceedings;  and all expenses, costs, charges and
other fees incurred by such counsel and others in any way or respect  arising in
connection  with or relating to any of the events or actions  described  in this
Section 9.2 shall be payable,  on demand, by Borrower to Lender;  provided that,
so long as no Event of  Default  shall  have  occurred  and be  continuing,  the
Borrower's  obligation  to  reimburse  Lender  for  fees and  expenses  incurred
pursuant to clause (v) above shall not exceed $15,000 per year. Without limiting
the generality of the  foregoing,  such  expenses,  costs,  charges and fees may
include:  reasonable  fees,  costs and  expenses of  accountants,  environmental
advisors,  appraisers,  investment bankers, management and other consultants and
paralegals;  court costs and expenses;  photocopying  and duplication  expenses;
court report fees,  costs and expenses;  long distance  telephone  charges;  air
express charges;  telegram charges,  secretarial  overtime charges; and expenses
for travel, lodging and food paid or incurred in connection with the performance
of such  legal  or  other  advisory  services  (collectively,  the  "Transaction
Expenses").

                  9.3 Indemnity.

                  (a) Borrower shall indemnify and hold Lender and each of their
respective  Affiliates,  officers,  directors,  employees,  attorneys and agents
(each,  an "Indemnified  Person"),  harmless from and against any and all suits,
actions,   proceedings,   claims,  damages,  losses,  liabilities  and  expenses
(including  reasonable  attorneys' fees and  disbursements  and other reasonable
costs of  investigation  or defense,  including  those incurred upon any appeal)
that may be  instituted  or asserted  against or  incurred  by such  Indemnified
Person as the result of credit having been extended under this Agreement and the
other Loan  Documents or in connection  with or arising out of the  transactions
contemplated  hereunder  and  thereunder,  including  any claim,  action,  suit,
proceeding, loss, cost, damage, liability,  deficiency, fine, penalty, punitive,
exemplary or consequential damage or expense (including reasonable
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attorneys' and consultants' fees, investigation and laboratory fees, court costs
and litigation expenses), directly or indirectly resulting from, arising out of,
or  based  upon  (i) the  presence,  Release,  use,  manufacture,  installation,
generation,  discharge,  storage  or  disposal,  at any time,  of any  Hazardous
Materials on, under, in or about, or the transportation of any such materials to
or from, any of the Subject Property, or (ii) the violation or alleged violation
by any Credit Party of any law, statute,  ordinance,  order,  rule,  regulation,
permit,  judgment  or  license  relating  to the use,  generation,  manufacture,
installation,  Release, discharge, storage or disposal of Hazardous Materials to
or from any of the Subject  Property;  which  indemnity  shall include,  without
limitation,  (A) any damage, liability,  fine, penalty,  punitive,  exemplary or
consequential  damage, cost or expense arising from or out of any claim, action,
suit or proceeding for personal injury (including sickness, disease, death, pain
or suffering),  tangible or intangible  property  damage,  compensation for lost
wages,  business income,  profits or other economic loss,  damage to the natural
resources or the environment, nuisance, pollution,  contamination, leak, Release
or other adverse effect on the environment,  and (B) the cost of any required or
necessary repair,  cleanup,  treatment,  remediation or detoxification of any of
the Subject  Property and the  preparation  and  implementation  of any closure,
disposal,  remedial  or other  required  actions in  connection  with any of the
Subject  Property;   provided,  that  Borrower  shall  not  be  liable  for  any
indemnification  to such  Indemnified  Person to the extent  that any such suit,
action,  proceeding,  claim,  damage,  loss, liability or expense results solely
from such Indemnified  Person's gross negligence or willful misconduct.  NEITHER
LENDER NOR ANY OTHER  INDEMNIFIED  PERSON SHALL BE  RESPONSIBLE OR LIABLE TO ANY
OTHER PARTY HERETO,  ANY SUCCESSOR,  ASSIGNEE OR THIRD PARTY BENEFICIARY OF SUCH
PERSON OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR
INDIRECT,  PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES THAT MAY BE ALLEGED AS A
RESULT OF CREDIT HAVING BEEN EXTENDED UNDER THE LOAN DOCUMENTS.

                  (b) Borrower hereby acknowledges and agrees that Lender (i) is
not now, and has not ever been, in control of any of the Subject Property or the
affairs of Borrower,  and (ii) does not have the capacity through the provisions
of the Loan  Documents  to  influence  Borrower's  conduct  with  respect to the
ownership, operation or management of any of the Subject Property.

                  9.4 No  Waiver.  Lender's  failure,  at any time or times,  to
require  strict  performance  by  Borrower  or any  other  Credit  Party  of any
provision of this Agreement or any of the other Loan Documents  shall not waive,
affect or diminish any right of Lender  thereafter to demand  strict  compliance
and  performance  therewith.  Any  suspension or waiver of any Default under the
Loan Documents  shall not suspend,  waive or affect any other Default under this
Agreement  or any of the  other  Loan  Documents  whether  the  same is prior or
subsequent  thereto and whether of the same or of a different  type. None of the
undertakings,  agreements,  warranties,  covenants  and  representations  of any
Credit Party  contained in this Agreement or any of the other Loan Documents and
no Default by Borrower  under this Agreement and no defaults by any Credit Party
under any of the other Loan Documents  shall be deemed to have been suspended or
waived by Lender,  unless  such  waiver or  suspension  is by an  instrument  in
writing signed by an officer of or other authorized
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<PAGE>
employee of Lender and  directed  to  Borrower  specifying  such  suspension  or
waiver.

                  9.5 Successors and Assigns.  This Agreement and the other Loan
Documents  shall be  binding  on and shall  inure to the  benefit  of  Borrower,
Lender,  and their  respective  successors  and  assigns,  except  as  otherwise
provided herein or therein.  Borrower may not assign,  transfer,  hypothecate or
otherwise convey its rights, benefits,  obligations or duties hereunder or under
any of the other Loan  Documents  without the prior express  written  consent of
Lender.  Any  such  purported  assignment,   transfer,  hypothecation  or  other
conveyance by Borrower without the prior express written consent of Lender shall
be void.  The Lender may assign its rights and  obligations  hereunder to one or
more financial  institutions with the consent of the Borrower,  such consent not
to be  unreasonably  withheld  or  delayed.  The  terms and  provisions  of this
Agreement  and the other Loan  Documents  are for the  purpose of  defining  the
relative  rights and  obligations  of Borrower  and Lender  with  respect to the
transactions contemplated hereby and there shall be no third party beneficiaries
of any of the terms and  provisions  of this  Agreement or any of the other Loan
Documents.

                  9.6 Severability.  Wherever  possible,  each provision of this
Agreement  shall be  interpreted  in such a manner as to be effective  and valid
under applicable law, but if any provision of this Agreement shall be prohibited
by or invalid under  applicable  law, such provision shall be ineffective to the
extent of such prohibition or invalidity,  without invalidating the remainder of
such provision or the remaining provisions of this Agreement.

                  9.7 Conflict of Terms.  Except as  otherwise  provided in this
Agreement  or any of the other  Loan  Documents  by  specific  reference  to the
applicable  provisions of this  Agreement,  if any  provision  contained in this
Agreement is in conflict with, or inconsistent with, any provision in any of the
other Loan Documents, the provision contained in this Agreement shall govern and
control.

                  9.8  Authorized  Signature;  Oral  Instructions.  Until Lender
shall be notified by Borrower  to the  contrary,  each of the Persons  listed on
Schedule 9.8 (an "Authorized  Borrower  Representative") is authorized to act on
behalf  of the  Borrower  in all  respects  hereunder  and the  Lender  shall be
protected in all respect when acting in accordance  with  instructions  given by
such Person.  The signature upon any document or instrument  delivered  pursuant
hereto of any such  Person  shall bind  Borrower  and be deemed to be the act of
Borrower  affixed pursuant to and in accordance with resolutions duly adopted by
Borrower's Board of Directors.  The Lender has permitted telephonic instructions
hereunder  as  an   accommodation   to  the  Borrower.   In  exchange  for  such
accommodation,  the Borrower agrees that the Lender's  understanding of any oral
instruction  shall be binding and conclusive upon the Borrower,  notwithstanding
any divergence  between such  understanding  and any later written  confirmation
thereof,  and the Lender shall in all respects be  protected  and held  harmless
when acting in accordance with such understanding, it being the intention of the
parties that the Borrower assume all risks of the use of oral communication.

                  9.9 Governing Law. EXCEPT AS OTHERWISE  EXPRESSLY  PROVIDED IN
ANY  OF  THE  LOAN  DOCUMENTS,  IN  ALL  RESPECTS,   INCLUDING  
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<PAGE>
ALL MATTERS OF CONSTRUCTION,  VALIDITY AND  PERFORMANCE,  THIS AGREEMENT AND THE
OBLIGATIONS  ARISING  HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED
IN ACCORDANCE  WITH,  THE LAWS OF THE STATE OF NEW YORK  APPLICABLE TO CONTRACTS
MADE AND PERFORMED IN SUCH STATE,  AND ANY APPLICABLE  LAWS OF THE UNITED STATES
OF AMERICA. BORROWER HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS
LOCATED  IN THE CITY AND STATE OF NEW YORK,  BOROUGH  OF  MANHATTAN,  SHALL HAVE
EXCLUSIVE  JURISDICTION  TO HEAR AND  DETERMINE  ANY CLAIMS OR DISPUTES  BETWEEN
BORROWER  AND  LENDER  PERTAINING  TO THIS  AGREEMENT  OR ANY OF THE OTHER  LOAN
DOCUMENTS OR TO ANY MATTER  ARISING OUT OF OR RELATING TO THIS  AGREEMENT OR ANY
OF THE OTHER LOAN DOCUMENTS, PROVIDED, THAT LENDER AND BORROWER ACKNOWLEDGE THAT
ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF
THE CITY AND STATE OF NEW YORK,  BOROUGH OF MANHATTAN  AND,  PROVIDED,  FURTHER,
THAT  NOTHING IN THIS  AGREEMENT  SHALL BE DEEMED OR OPERATE TO PRECLUDE  LENDER
FROM  BRINGING  SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER  JURISDICTION  TO
COLLECT THE OBLIGATIONS, REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE
OBLIGATIONS,  OR TO ENFORCE A JUDGMENT  OR OTHER  COURT ORDER IN FAVOR OF LENDER
AND,  PROVIDED,  FURTHER,  THAT  NOTHING  IN THIS  AGREEMENT  SHALL BE DEEMED TO
PRECLUDE  THE  BORROWER  FROM  PURSUING  ANY  COMPULSORY   COUNTERCLAIM  IN  ANY
PROCEEDING  BROUGHT  BY THE  LENDER  IN ANY SUCH  OTHER  JURISDICTION.  BORROWER
EXPRESSLY  SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR
SUIT COMMENCED IN ANY SUCH COURT,  AND BORROWER HEREBY WAIVES ANY OBJECTION THAT
BORROWER MAY HAVE BASED UPON LACK OF PERSONAL  JURISDICTION,  IMPROPER  VENUE OR
FORUM NON  CONVENIENS  AND  HEREBY  CONSENTS  TO THE  GRANTING  OF SUCH LEGAL OR
EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT.  BORROWER HEREBY WAIVES
PERSONAL SERVICE OF THE SUMMONS,  COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH
ACTION OR SUIT AND AGREES THAT  SERVICE OF SUCH  SUMMONS,  COMPLAINTS  AND OTHER
PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE
ADDRESS SET FORTH ON IN SECTION 9.10 OF THIS  AGREEMENT AND THAT SERVICE SO MADE
SHALL BE DEEMED COMPLETED UPON THE EARLIER OF BORROWER'S  ACTUAL RECEIPT THEREOF
OR FIVE (5) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.

                  9.10 Notices. Except as otherwise provided herein, whenever it
is  provided  herein  that  any  notice,  demand,  request,  consent,  approval,
declaration  or other  communication  shall or may be  given to or  served  upon
either of the  parties by the other  party,  or  whenever  either of the parties
desires to give or serve upon the other party any communication  with respect to
this  Agreement,   each  such  notice,  demand,  request,   consent,   approval,
declaration  or other  communication  shall be in writing and shall be deemed to
have
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<PAGE>
been validly  served,  given or delivered (i) upon the earlier of actual receipt
and three days after deposit in the United States Mail,  registered or certified
mail,  return  receipt  requested,   with  proper  postage  prepaid,  (ii)  upon
transmission,  when sent by telecopy  or other  similar  facsimile  transmission
(with such  telecopy or  facsimile  promptly  confirmed by delivery of a copy by
personal  delivery or United  States Mail as otherwise  provided in this Section
9.10,  (iii) one Business Day after deposit with a reputable  overnight  courier
with all charges prepaid or (iv) when delivered, if hand-delivered by messenger,
all of which  shall be  addressed  to the party to be  notified  and sent to the
address or facsimile number indicated below:

          (a)  If to Lender:

                                   General Electric  Capital  Corporation 
                                   350 South Beverly Drive 
                                   Suite 200 
                                   Beverly Hills,  California  90212  
                                   Attention:  Timothy J. Rafanello  
                                   Telecopy No.: (310) 785-0644

               With copies to:

                                   General Electric Capital Corporation
                                   201 High Ridge Road
                                   Stamford, Connecticut  06927-5100
                                   Attention:  Legal Counsel
                                   Telecopy No.:  (203) 316-7822

          (b)  If to Borrower, at:

                                   Vodavi Communications Systems, Inc.
                                   8300 East Raintree Drive
                                   Scottsdale, Arizona  85260
                                   Attention: Greg Roeper
                                   Telecopy No.:  (602) 483-0144

               With copies to:

                                   O'Connor, Cavanagh, Anderson, Killingsworth
                                        & Beshears
                                   One East Camelback Road
                                   Suite 1100
                                   Phoenix, AZ  85012-1656
                                   Attention:  Jeffrey H. Verbin, Esq.
                                   Telecopy No.:  (602) 263-2900

or to such other address (or facsimile  number) as may be  substituted by notice
given as herein 
-55-
<PAGE>
provided.  The giving of any notice required  hereunder may be waived in writing
by the party  entitled to receive  such notice.  Failure or delay in  delivering
copies of any notice, demand, request, consent,  approval,  declaration or other
communication to any Person (other than Borrower or Lender)  designated above to
receive  copies  shall in no way  adversely  affect  the  effectiveness  of such
notice, demand, request, consent, approval, declaration or other communication.

                  9.11  Subordination.  As  an  independent  covenant,  Borrower
hereby expressly covenants and agrees for the benefit of Lender that all present
or future indebtedness, obligations and liabilities of any other Credit Party to
Borrower of whatsoever description (collectively,  the "Junior Claims") shall be
subordinate  and junior in right of payment to all  Obligations,  effective upon
the occurrence and during the continuance of an Event of Default. If an Event of
Default  shall occur,  then,  unless and until such Event of Default  shall have
been cured or shall have  ceased to exist,  no direct or  indirect  payment  (in
cash, property,  securities, by set-off or otherwise) shall be made by any other
Credit Party to Borrower on account of or in any manner in respect of any Junior
Claim  except such  payments  and  distributions  the proceeds of which shall be
applied  to the  Obligations.  In the  event  of a  Proceeding  (as  hereinafter
defined),  all  Obligations  shall  first be paid in full  before  any direct or
indirect payment or distribution (in cash, property,  securities,  by set-off or
otherwise)  shall be made to  Borrower on account of or in any manner in respect
of any Junior Claim except such payments and distributions the proceeds of which
shall be applied to the Obligations.  For the purposes of the previous sentence,
a "Proceeding"  shall occur if any Credit Party shall make an assignment for the
benefit of creditors, file a petition in bankruptcy,  have entered against or in
favor of it an order for relief under the Bankruptcy  Code or similar law of any
other jurisdiction,  generally fail to pay its debts as they come due (either as
to number or amount),  admit in writing its inability to pay its debts generally
as they  mature,  make a  voluntary  assignment  for the  benefit of  creditors,
commence any proceeding  relating to it under any  reorganization,  arrangement,
readjustment  of  debt,  dissolution  or  liquidation  law  or  statute  of  any
jurisdiction,  whether now or hereafter in effect,  or by any act,  indicate its
consent  to,  approval  of or  acquiescence  in any  such  proceeding  or in the
appointment  of any  receiver  of, or trustee or  custodian  (as  defined in the
Bankruptcy  Code) for itself,  or any  substantial  part of its  property,  or a
trustee  or a  receiver  shall  be  appointed  for  any  Credit  Party  or for a
substantial  part of the property of any Credit Party,  or a petition  under any
bankruptcy,  reorganization,  arrangement,  readjustment of debt, dissolution or
liquidation  law or statute or any  jurisdiction  (whether  now or  hereafter in
effect)  shall be filed  against  any Credit  Party.  In the event any direct or
indirect  payment or distribution is made to Borrower in  contravention  of this
Section,  such payment or distribution shall be deemed received in trust for the
benefit of Lender and shall be immediately  paid over to Lender for  application
against the Obligations. Borrower agrees to execute such additional documents as
Lender may reasonably request to evidence the subordination provided for in this
Section.

                  9.12 Survival of  Obligations  Upon  Termination  of Financing
Arrangement.  Except as otherwise  expressly provided for in the Loan Documents,
no  termination  or  cancellation  (regardless  or  cause or  procedure)  of any
financing arrangement under this Agreement shall in any way affect or impair the
obligations, duties and liabilities of
-56-
<PAGE>
Borrower or the rights of Lender relating to any unpaid  Obligation,  due or not
due,  liquidated,  contingent  or  unliquidated  or  any  transaction  or  event
occurring  prior  to  such  termination,   or  any  transaction  or  event,  the
performance of which is not required until after the Termination Date. Except as
otherwise  expressly  provided  herein  or  in  any  other  Loan  Document,  all
undertakings,  agreements,  covenants,  warranties  and  representations  of  or
binding upon  Borrower,  and all rights of Lender,  all as contained in the Loan
Documents  shall  not  terminate  or  expire,  but  rather  shall  survive  such
termination  or  cancellation  and shall continue in full force and effect until
such  time as all of the  Obligations  have  been  indefeasibly  paid in full in
accordance with the terms of the agreements creating such Obligations, provided,
however,  that the  Lender  agrees to take such  action  as the  Borrower  shall
reasonably request, at the Borrower's cost and expense, to file such instruments
as shall be  necessary  to  release  its  Liens  under the Loan  Documents  upon
termination of the  Commitment  and receipt by the Lender of collected  funds in
the amount of the outstanding Obligations.

                  9.13 Section Titles.  The Section titles and Table of Contents
contained  in this  Agreement  are and shall be without  substantive  meaning or
content of any kind  whatsoever and are not a part of the agreement  between the
parties hereto.

                  9.14  Counterparts.  This  Agreement  may be  executed  in any
number of separate counterparts, each of which shall collectively and separately
constitute one agreement.

                  9.15 Time of Essence. Time is of the essence of this Agreement
and each of the other Loan Documents.

                  9.16  Waiver  of  Jury  Trial.  BECAUSE  DISPUTES  ARISING  IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY
RESOLVED BY AN  EXPERIENCED  AND EXPERT  PERSON AND THE PARTIES WISH  APPLICABLE
STATE AND FEDERAL LAWS TO APPLY  (RATHER THAN  ARBITRATION  RULES),  THE PARTIES
DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS.
THEREFORE,  TO ACHIEVE THE BEST  COMBINATION  OF THE  BENEFITS  OF THE  JUDICIAL
SYSTEM AND OF  ARBITRATION,  THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY
IN ANY ACTION,  SUIT,  OR  PROCEEDING  BROUGHT TO RESOLVE ANY  DISPUTE,  WHETHER
SOUNDING IN CONTRACT,  TORT, OR OTHERWISE,  BETWEEN LENDER AND BORROWER  ARISING
OUT  OF,  CONNECTED  WITH,   RELATED  TO,  OR  INCIDENTAL  TO  THE  RELATIONSHIP
ESTABLISHED  BETWEEN THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO.

                  9.17  Syndication.  The Borrower  agrees to take such steps as
the  Lender  shall  reasonably  request  to  assist  Lender  in the sale  and/or
syndication  of the  credit  provided  herein  to one or  more  other  financial
institutions.  Such steps may include,  at the  discretion,  
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<PAGE>
of the  Lender,  the  preparation  and  dissemination  of  financial  and  other
disclosure documents to prospective  purchasers,  discussions by management with
such Persons and such  amendments to the Loan  Documents as shall be required to
cause them to conform with customary syndicated bank documents.

                  9.18  Special   Provision   Relating  to  this  Amendment  and
Restatement.

                  (a)  This  Amended  and  Restated  Credit  Agreement  shall be
effective  upon receipt by the Lender of the  following  items which shall be in
form and substance satisfactory to the Lender in all respects:

                  (i)  counterparts  of  this  Agreement  duly  executed  by the
             Borrower and consented to by the Parent;

                  (ii)  counterparts of the Guaranty  Agreement duly executed by
             each of ARS and ESI;

                  (iii) counterparts of the Security  Agreements,  duly executed
             by each of ARS and ESI;

                  (iv)  counterparts  of an amendment  to the Pledge  Agreement,
             duly  executed by the Parent and  pledging  all of the  outstanding
             capital  stock  of ARS and ESI,  together  with  irrevocable  stock
             powers executed in blank;

                  (v) an opinion of counsel to the Borrower,  the Parent and the
             other Credit Parties as to the due execution and  enforceability of
             this Agreement, the Guaranty Agreement, the Security Agreement, and
             the Pledge Agreement, and covering such other matters as the Lender
             may request;

                  (vi) a  certificate  of  Borrower,  the  Parent and each other
             Credit Party, as to the due  authorization,  execution and delivery
             of this Agreement,  the Guaranty Agreement, the Security Agreements
             and the Pledge Agreement and the truth of the  representations  and
             warranties hereunder and thereunder;

                  (vii)  evidence  that no  Indebtedness  (other than  Permitted
             Indebtedness)  is outstanding,  and that no Liens exist upon any of
             the property of any Credit Party other than Permitted Encumbrances;

                  (viii)  evidence that each Credit Party has obtained  consents
             and   acknowledgments   of   all   Persons   whose   consents   and
             acknowledgments may be required, including, but not limited to, all
             requisite  Governmental  Authorities,  to  the  terms,  and  to the
             execution  and  delivery,  of this  Agreement  and the  other  Loan
             Documents and the  consummation  of the  transactions  contemplated
             hereby and thereby;
-58-
<PAGE>
                  (ix) evidence that such action (including, without limitation,
             the filing of  appropriately  completed and duly  executed  Uniform
             Commercial  Code  financing  statements)  as  may be  necessary  or
             desirable, in the opinion of the Lender and its counsel, to perfect
             the Security Interest shall have been taken;

                  (x)  UCC,  Lien,  judgment  and tax  search  reports  for each
             jurisdiction   in  which  each  Credit  Party  is  located  or  has
             Collateral,  showing  no Liens or  financing  statements  of record
             against any Credit Party,  except  Permitted  Encumbrances,  all in
             form and substance satisfactory to the Lender;

                  (xi)  evidence  that the  insurance  policies  provided for in
             Section  6.5 and  Schedule  4.20  are in  full  force  and  effect,
             together  with  appropriate  evidence  showing loss payable  and/or
             additional  insured clauses or  endorsements,  as  appropriate,  in
             favor of the Lender and in form and substance  satisfactory  to the
             Lender;

                  (xii)  evidence  that, as of the  Restatement  Date, and after
             giving  effect to the  transactions  contemplated  hereby,  each of
             Borrower and the Parent Group, taken as a whole, is Solvent;

                  (xiii) evidence that, as of the Restatement  Date, each Credit
             Party is in compliance in all material respects with all Applicable
             Law,  including  those relating to labor,  environmental  and ERISA
             matters,  which  evidence  may  include  environmental  studies and
             compliance  audits of the  Credit  Parties,  and  their  respective
             assets;

                  (xiv)  payment of all fees,  expenses  and amounts  (including
             Lender's  attorney's  fees) due to the Lender pursuant to the terms
             hereof;

                  (xv) such other agreements,  certificates, opinions of counsel
             and other documents as the Lender shall request.

                  (b) This Amended and Restated Credit Agreement may be executed
in any number of  counterparts,  all of which shall be deemed to constitute  but
one  original  and shall be  binding  upon all  parties,  their  successors  and
permitted assigns.

                  (c) References to the Original Agreement contained in any Loan
Document  shall be deemed to be a  reference  to such  agreement  as amended and
restated hereby.

                  (d)  Borrower  hereby  acknowledges  that  the  Note  and  the
Collateral Documents previously executed and delivered by Borrower to Lender are
and shall  remain in full force and effect,  and hereby  ratifies,  confirms and
approves  the  Note and  such  Collateral  Documents  and all of the  terms  and
provisions  thereof,  and  agrees  that the  Note  and  each of such  Collateral
Documents constitutes the valid and binding obligation of Borrower,  enforceable
by the Lender in accordance with its terms.
-59-
<PAGE>
                  IN WITNESS  WHEREOF,  this Agreement has been duly executed as
of the date first written above.

                                         VODAVI COMMUNICATIONS
                                         SYSTEMS, INC. (formerly V. Technology
                                         Acquisition Corp.)



                                         By: /s/ Greg Roeper
                                            ------------------------------------
                                         Title: CFO, V.P.
                                               ---------------------------------



                                         GENERAL ELECTRIC CAPITAL
                                         CORPORATION



                                         By: /s/ Timothy Morris
                                            ------------------------------------
                                         Title: Duly Authorized Signatory
                                               ---------------------------------

SECTION 9.11 OF THE FOREGOING
AGREEMENT ACKNOWLEDGED AND
AGREED TO:

ARIZONA REPAIR SERVICES, INC.



By: /s/ Greg Roeper
   ------------------------------------
Title: CFO, V.P.
      ---------------------------------

ENHANCED SYSTEMS, INC.



By: /s/ Greg Roeper
   ------------------------------------
Title: Secretary and Treasurer
      ---------------------------------
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<PAGE>
                                CONSENT OF PARENT

                  The undersigned does hereby consent to the execution, delivery
and  performance  of the  within  and  foregoing  Amended  and  Restated  Credit
Agreement  and to the  consummation  of  all  of the  transactions  contemplated
thereby  and does  hereby  ratify and  reaffirm  all of its  obligations  to and
agreements  with the Lender arising under the Pledge  Agreement  executed by the
undersigned in favor of the Lender in connection with the foregoing  Amended and
Restated  Credit  Agreement,  which Pledge  Agreement  remains in full force and
effect on and as of the date hereof.

                  IN WITNESS WHEREOF,  the undersigned has executed this Consent
as of the day and year first above set forth.

                                    VODAVI TECHNOLOGY, INC.
                                    (formerly V. Technology Holdings Corp.)



                                         By: /s/ Greg Roeper
                                            ------------------------------------
                                         Title: CFO, V.P.
                                               ---------------------------------
-61-
<PAGE>
                                 SCHEDULE 2.1(g)
                                       to
                                CREDIT AGREEMENT
                           Dated as of April 11, 1994
                   As Amended and Restated as of June 11, 1997

          (a)  Lender  agrees,  subject  to  the  terms  and  conditions  of the
Agreement,  to incur from time to time prior to the Commitment Termination Date,
upon written  request of Borrower,  Letter of Credit  Obligations  in respect of
Letters of Credit;  provided,  however, that (i) Lender shall have no obligation
to incur any further  Letter of Credit  Obligations  on or after the  Commitment
Termination  Date,  (ii) each  Letter of Credit  shall be in form and  substance
satisfactory  to Lender and,  without  limiting the generality of the foregoing,
unless the Lender shall otherwise consent in writing,  no Letter of Credit shall
have an expiry date which is more than one year  following  the date of issuance
thereof  and  Lender  shall be under no  obligation  to incur  Letter  of Credit
Obligations  in respect of any Letter of Credit  having an expiry  date which is
later than the Commitment  Termination  Date,  which shall be presumed to be the
Maturity  Date  unless the Lender  shall  have given or  received  notice to the
contrary  as  permitted  pursuant  to  the  Credit  Agreement,   and  (iii)  the
determination of the bank or other legally  authorized Person (including Lender)
which shall issue any Letter of Credit  contemplated by this paragraph (a) shall
be made by Lender,  in its sole discretion.  Each request by Borrower for Lender
to incur a Letter of Credit  Obligation  shall be  substantially  in the form of
Exhibit A hereto,  shall specify the amount of such Letter of Credit  Obligation
and provide such other  information  with respect  thereto as may be required by
Lender, shall be given in writing (by telecopy,  telex or cable) or by telephone
confirmed  immediately  in  writing,  and  shall be given not less than ten (10)
Business Days prior to the requested date for Lender's  incurring such Letter of
Credit Obligation.  Each Letter of Credit Obligation incurred by Lender shall be
substantially  in the form of Exhibit B attached hereto or in such other form as
may be acceptable to Lender.

          (b) Borrower hereby irrevocably, absolutely and unconditionally agrees
to  reimburse  Lender on demand  for the amount of any and all  payments  now or
hereafter  made by Lender on or  pursuant  to any  Letter of Credit  Obligations
incurred  by  Lender.  In the event the  Lender  shall  make any  payment  on or
pursuant to any Letter of Credit  Obligation  incurred by Lender,  such  payment
shall  then be deemed to  constitute  a  Revolving  Credit  Advance by Lender to
Borrower under Section 2.1(a) of the Credit Agreement.

          (c) (i) In the event that any Letter of Credit Obligation  incurred by
Lender, whether or not then due and payable, shall for any reason be outstanding
on the  Commitment  Termination  Date,  Borrower will pay to Lender cash or cash
equivalents acceptable to Lender ("Cash Equivalents") in an amount equal to 105%
of the maximum amount then available to be drawn under the applicable Letters of
Credit.  Such  funds  or Cash  Equivalents  shall  be held by  Lender  in a cash
collateral account (the "Cash Collateral  Account")  maintained in Bankers Trust
Company,  New York, New York (or at such other depository  institution as may be
selected by Lender).  The Cash Collateral Account shall be in the name of Lender
(as a cash collateral account), and shall be under the sole dominion and control
of Lender and
<PAGE>
subject to the terms of this  Schedule  2.1(g).  Borrower  hereby  pledges,  and
grants to Lender a security  interest  in,  all such funds and Cash  Equivalents
held in the Cash Collateral  Account from time to time and all proceeds thereof,
as  security  for the  payment  of all  amounts  due in respect of the Letter of
Credit  Obligations  and all other  Obligations,  whether  or not then due.  The
Agreement shall constitute a security agreement under applicable law.

          (ii)  From  time  to  time  after  funds  are  deposited  in the  Cash
Collateral Account, Lender may apply such funds or Cash Equivalents then held in
the Cash  Collateral  Account to the  payment of any  amounts,  in such order as
Lender may elect,  as shall be or shall  become due and  payable by  Borrower to
Lender  with  respect  to  such  Letter  of  Credit  Obligations  or  any  other
Obligations which may be then outstanding.

          (iii) Neither Borrower nor any Person claiming on behalf of or through
Borrower  shall have any right to withdraw any of the funds or Cash  Equivalents
held in the Cash  Collateral  Account,  except that upon the  termination of all
Letter of Credit  Obligations and the payment of all amounts payable by Borrower
to Lender in respect thereof and in respect of all other Obligations,  any funds
remaining in the Cash Collateral  Account in excess of the then remaining Letter
of Credit Obligations shall be returned to Borrower.

          (iv) Lender shall not have any  obligation  to invest the funds in the
Cash Collateral  Account or deposit such funds in any interest  bearing account,
and interest and earnings thereon, if any, shall be the property of Lender.

     (d) In the event that Lender  shall  incur any Letter of Credit  Obligation
pursuant hereto at the request or on behalf of Borrower,  Borrower agrees to pay
to Lender,  as  compensation  to Lender for such Letter of  Obligation,  (i) all
costs  and  expenses  incurred  by Lender on  account  of such  Letter of Credit
Obligation  and (ii)  commencing  with the month in which such  Letter of Credit
Obligation  is incurred by Lender and monthly  thereafter  for each month during
which such Letter of Credit  Obligation  shall remain  outstanding,  a fee in an
amount equal to two percent (2%) per annum of the maximum amount  available from
time to time to be drawn under the  applicable  Letter of Credit,  calculated on
the basis of a 360-day  year and the actual  number of days  elapsed;  provided,
however,  that so long as any  Default or Event of Default has  occurred  and is
continuing,  such letter of credit fee rate may be increased  by Lender,  in its
discretion,  by up to an additional two percentage  points (2.0%) above the rate
otherwise applicable. Fees payable by Borrower to Lender hereunder in respect of
Letter of Credit Obligations  (collectively,  the "Letter of Credit Fees") shall
be paid to  Lender  in  arrears,  on the  first  day of  each  month  and on the
Commitment  Termination  Date and  thereafter  on  demand.  The fees,  costs and
expenses  provided for in this paragraph (d) are in addition to any fees,  costs
and expenses payable to the issuers of the Letters of Credit, all of which shall
be  solely  for the  account  of  Borrower  and shall be paid or  reimbursed  by
Borrower.

     (e)  Borrower's  Obligations to Lender with respect to any Letter of Credit
or Letter of Credit  Obligation  shall be evidenced by Lender's  records and, in
the absence of manifest error, shall be absolute,  unconditional and irrevocable
and shall not be affected, modified or 
                                      -2-
<PAGE>
impaired  by: (i) any lack of validity  or  enforceability  of the  transactions
contemplated  by or  related  to such  Letter  of  Credit  or  Letter  of Credit
Obligation; (ii) any amendment or waiver of or consent to depart from all or any
of the terms of the  transactions  contemplated  by or related to such Letter of
Credit or  Letter  of Credit  Obligation;  (iii)  the  existence  of any  claim,
set-off,  defense or other right which  Borrower or any other  Credit  Party may
have against Lender,  the issuer or beneficiary of such Letter of Credit, or any
other  Person,  whether in  connection  with the  Agreement or the  transactions
contemplated  therein or such Letter of Credit or the transactions  contemplated
thereby or any  unrelated  transactions,  provided  however that this  provision
shall not be deemed to  prevent  Borrower  from  pursuing  any claim it may have
against  Lender or the  issuer of any  Letter of Credit by  separate  proceeding
following the payment of any such  Obligation  or from  pursuing any  compulsory
counterclaim in any civil action filed in respect thereof; or (iv) the fact that
any draft,  affidavit,  letter,  certificate,  invoice,  bill of lading or other
document  presented  under or delivered in connection with such Letter of Credit
or any other Letter of Credit proves to have been forged, fraudulent, invalid or
insufficient in any respect or any statement  therein proves to have been untrue
or incorrect in any respect.  Nothing in this  paragraph  (e) shall be deemed to
create any right in any Person other than the Lender.

     (f) In addition to any other indemnity  obligations which Borrower may have
to Lender under the  Agreement and without  limiting such other  indemnification
provisions,  Borrower hereby agrees to indemnify  Lender from and to hold Lender
harmless  against any and all claims,  liabilities,  losses,  costs and expenses
(including,  without limitation,  attorney's fees and expenses) which Lender may
(other than as a result of its own gross negligence or willful misconduct) incur
or be subject to as a consequence,  directly or indirectly,  of (i) the issuance
of or  payment  of or  failure  to pay under  any  Letter of Credit or Letter of
Credit  Obligation  or (ii) any suit,  investigation  or  proceeding as to which
Lender is or may become a party as a consequence, directly or indirectly, of the
issuance  of any  Letter  of  Credit,  the  incurring  of any  Letter  of Credit
Obligation  or any  payment  of or  failure to pay under any Letter of Credit or
Letter of Credit  Obligation.  The  obligations of Borrower under this paragraph
shall survive any termination of the Agreement.

     (g) Borrower  hereby assumes all risks of the acts,  omissions or misuse of
each Letter of Credit by the  beneficiary  or issuer  thereof and, in connection
therewith,  Lender shall not be responsible  (i) for the validity,  sufficiency,
genuineness  or legal effect of any document  submitted in  connection  with any
drawing  under  any  Letter of  Credit  even if it  should in fact  prove in any
respect to be invalid,  insufficient,  inaccurate, untrue, fraudulent or forged;
(ii) for the validity or sufficiency of any instrument transferring or assigning
or  purporting  to  transfer  or assign  any  Letter of Credit or any  rights or
benefits  thereunder or any proceeds  thereof,  in whole or in part,  even if it
should prove to be invalid or ineffective for any reason;  (iii) for the failure
of any issuer or  beneficiary  of any Letter of Credit to comply  fully with the
terms thereof including without  limitation the conditions  required in order to
effect  or  pay  a  drawing   thereunder;   (iv)  for  any  errors,   omissions,
interruptions  or delays in transmission  or delivery of any messages,  by mail,
telecopy,  telex or otherwise;  (v) for any loss or delay in the transmission or
otherwise of any document or draft required in order to make a drawing under any
Letter of Credit;  or (vi) for any  consequences  arising from causes beyond the
                                      -3-
<PAGE>
control of Lender.
                                      -4-
<PAGE>
                                    EXHIBIT A
                                       to
                                 SCHEDULE 2.1(g)

                            Letter of Credit Request

TO:  General Electric Capital Corporation
     Stamford, Connecticut
     Attn: Deanna Garisto
     Fax: (203) 316-7817

Gentlemen:

     The undersigned is an officer of VODAVI  COMMUNICATIONS  SYSTEMS,  INC., an
Arizona  corporation  ("Borrower"),  and is  authorized to make and deliver this
Letter of Credit Request on behalf of Borrower  pursuant to that certain Amended
and  Restated  Credit  Agreement,  dated as of April 11,  1994,  and amended and
restated as of June 11,  1997,  between  Borrower and GENERAL  ELECTRIC  CAPITAL
CORPORATION,  a New  York  corporation  ("Lender")  (as  amended,  supplemented,
extended,  renewed,  restated  or  replaced  from  time  to  time,  the  "Credit
Agreement";  all terms  defined  in the  Credit  Agreement  shall  have the same
meaning herein).

A.   LETTER OF CREDIT REQUEST
     ------------------------

     Borrower  hereby  requests that Lender incur a Letter of Credit  Obligation
(the "Requested Letter of Credit  Obligation")  pursuant to and this request has
been prepared in accordance with Schedule 2.1(g) to Credit Agreement.

                                    Stated Amount      $_____________________
                                    Request Date        _____________________
                                    Issuing Date        _____________________
                                    Expiration Date     _____________________
                                    Beneficiary         _____________________

B.   CREDIT BALANCE/COLLATERAL AVAILABILITY INFORMATION.
     ---------------------------------------------------

     Revolver and Letter of Credit Balance
         Before Requested  Letter of Credit Obligation $________
         PLUS: Requested Letter of  Credit Obligation   ________
         LESS: Today's Deposit Sweep, if any            ________
         PLUS/MINUS: Miscellaneous Adjustments          ________ (explain below)
         Outstanding Loan Balance                       ________
                                      A-1
<PAGE>
Miscellaneous Reconciling Items:
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________

     C. BORROWER CERTIFICATIONS.  
        ----------------------- 

        In  connection  with  the  foregoing  and  pursuant  to  the  terms  and
provisions of the Credit  Agreement,  the undersigned  hereby certifies that the
following statements are true and correct:

             (i) The statements contained in Section 3.1 of the Credit Agreement
        are true and  correct on and as of the date  hereof and will be true and
        correct on the date of the incurrence of the requested  Letter of Credit
        Obligation,  both  before  and after  giving  effect  to the  incurrence
        thereof  with the same  force  and  effect  as if made on and as of such
        date; and

             (ii) All information  supplied above is true, correct, and complete
        as of the date hereof.

        Borrower shall provide  Lender with such other  information or documents
regarding the above requested Letter of Credit Obligation as Lender may request.

        Date:  ________________, 19__.  

                                        VODAVI COMMUNICATIONS
                                        SYSTEMS, INC.


                                        By:____________________________________
                                        Name:__________________________________
                                        Title:_________________________________

                                       A-2
<PAGE>
                                    EXHIBIT B
                                       to
                                 SCHEDULE 2.1(g)

                  FORM OF LETTER OF CREDIT INDEMNITY AGREEMENT
                  --------------------------------------------


                             ________________, 19___

[Insert Name and Address of
Letter of Credit Issuing Bank]

             Re: Vodavi Communications Systems Inc. (the "Company")
                 --------------------------------------------------

Gentlemen:

             We understand that, pursuant to a ______________  Agreement,  dated
___________________,  19___,  between you and the Company (the "Letter of Credit
Agreement"),  you issued for the  account of the  Company and for the benefit of
______________  (the  "Beneficiary")  your  irrevocable  letter of credit number
______________,  dated  ____________,  19__,  in the original  stated  amount of
$______________ (the "Letter of Credit"). We further understand that the maximum
amount available to be drawn by the Beneficiary  under the Letter of Credit from
and after this date is  $_______________.  The  Letter of Credit,  the Letter of
Credit   Agreement  and  any  drafts   presently   thereunder  are   hereinafter
collectively referred to as the "Credit".

             The Company has entered into a Credit  Agreement with us.  Pursuant
to the Company's  request,  we hereby agree to indemnify you for any liabilities
or expenses you may incur in  connection  with the Credit and we hereby agree to
reimburse  you on demand for all amounts  paid by or charged to you with respect
to the  Credit  including  without  limitation  the amount of any and all drafts
which you may hereafter pay under the Credit.

             You are  authorized and  empowered,  and you hereby agree,  without
requirement of inquiry or investigation  and with complete release and discharge
to you, to surrender to us, at our direction, the Credit, upon payment to you of
the amount of any and all drafts  paid by or charged to you in  connection  with
the  Credit.  It is further  understood  and agreed  that you shall not  accept,
permit or effect  any  amendments,  restatements  or  extensions  of the  Credit
without our prior written consent.

             If the foregoing is  acceptable  to you and is in  accordance  with
your  understanding,  please  sign and  return to us the  enclosed  copy of this
letter to so indicate.  The Company has signed  below to indicate its  agreement
with the foregoing and its intention to be bound by the conditions  hereof.  The
Company and us further acknowledge and agree that 
                                      B-1
<PAGE>
this Letter shall constitute a Letter of Credit  Obligation for purposes of (and
as such term is defined in) the Credit Agreement between the Company and us.

                                       Very truly yours,

                                       GENERAL ELECTRIC CAPITAL
                                       CORPORATION


                                       By:_____________________________________
                                          Title:_______________________________

ACCEPTED:

[Insert name of Issuing Bank]


By:_______________________________
    Title:________________________


CONFIRMED AND AGREED TO:

VODAVI COMMUNICATIONS SYSTEMS,
INC.


By:_______________________________
    Title:________________________

                                       B-2