Exhibit 10.2



                                 PROMISSORY NOTE

Principal            Loan             Date Maturity    Loan No   Cal/Coll
$3,000,000.00        06-05-2004       06-01-2005       9001      500/0010




Borrower:         MICROPAC INDUSTRIES, INC. (TIN: 74-1225 149)
                  905 E WALNUT ST
                  GARLAND, TX 75040

Lender:           THE FROST NATIONAL BANK
                  ADDISON FINANCIAL CENTER
                  P.O. BOX 1600
                  SAN ANTONIO, TX 78296

Principal Amount: $3,000,000.00                       Date of Note: June 5, 2004

PROMISE TO PAY. MICROPAC INDUSTRIES,  INC.  ("Borrower")  promises to pay to THE
FROST NATIONAL BANK  ("Lender"),  or order, in lawful money of the United States
of  America,   the  principal   amount  of  Three   Million  &  00/100   Dollars
($3,000,000.00) or so much as may be outstanding,  together with interest on the
unpaid  outstanding  principal  balance  of  each  advance.  Interest  shall  be
calculated  from the date of each  advance  until  repayment  of each advance or
maturity, whichever occurs first.

CHOICE OF USURY  CEILING AND INTEREST  RATE.The  interest  rate on this Note has
been  implemented  under the "Weekly Ceiling" as referred to in Sections 303.002
and 303.003 of the Texas Finance Code. The terms,  including the rate, or index,
formula,  or  provision  of law used to  compute  the rate on the Note,  will be
subject to  revision  as to current  and future  balances,  from time to time by
notice from Lender in compliance with Section 303.103 of the Texas Finance Code.

PAYMENT. Borrower will pay this loan in one payment of all outstanding principal
plus all accrued unpaid interest on June 1, 2005. In addition, Borrower will pay
regular  monthly  payments of all accrued unpaid interest due as of each payment
date, beginning July 5, 2004, with all subsequent interest payments to be due on
the same day of each month after that.  Unless  otherwise  agreed or required by
applicable law,  payments will be applied first to any unpaid  collection costs;
then to any late  charges;  then to any  accrued  unpaid  interest;  and then to
principal.  The  annual  interest  rate for this Note is  computed  on a 365/360
basis; that is, by applying the ratio of the annual interest rate over a year of
360 days,  multiplied by the outstanding  principal  balance,  multiplied by the
actual  number  of days  the  principal  balance  is  outstanding,  unless  such
calculation  would result in a usurious  rate, in which case  interest  shall be
calculated on a per diem basis of a year of 365 or 366 days, as the case may be.
Borrower will pay Lender at Lender's  address shown above or at such other place
as Lender may designate in writing.

VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time  based on  changes in an index  which is  Lender's  Prime Rate (the
"Index").  This is the rate Lender charges, or would charge, on 90-day unsecured
loans to the most creditworthy corporate customers.  This rate may or may not be
the lowest  rate  available  from  Lender at any given  time.  Lender  will tell
Borrower the current  Index rate upon  Borrower's  request.  The  interest  rate
change will not occur more often than each day. Borrower understands that Lender
may make loans based on other  rates as well.  The  interest  rate to be applied
prior to maturity to the unpaid principal balance of this Note will be at a rate
of 0.250 percentage points under the Index.  NOTICE: Under no circumstances will
the  interest  rate on this  Note be more  than  the  maximum  rate  allowed  by
applicable  law.  For  purposes  of this  Note,  the  "maximum  rate  allowed by
applicable  law" means the greater of (A)the maximum rate of interest  permitted
under  federal or other law  applicable  to the  indebtedness  evidenced by this
Note, or (B) the "Weekly Ceiling" as referred to in Sections 303.002 and 303.003
of the Texas Finance Code.


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PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed
earlier  than it is due.  Prepayment  in full  shall  consist  of payment of the
remaining unpaid principal balance together with all accrued and unpaid interest
and all other  amounts,  costs and  expenses for which  Borrower is  responsible
under this Note or any other agreement with Lender  pertaining to this loan, and
in no event will Borrower ever be required to pay any unearned  interest.  Early
payments will not,  unless agreed to by Lender in writing,  relieve  Borrower of
Borrower's  obligation to continue to make payments of accrued unpaid  interest.
Rather,  early payments will reduce the principal  balance due.  Borrower agrees
not to send  Lender  payments  marked  "paid in full",  "without  recourse",  or
similar language. If Borrower sends such a payment, Lender may accept it without
losing any of  Lender's  rights  under  this  Note,  and  Borrower  will  remain
obligated to pay any further amount owed to Lender.  All written  communications
concerning  disputed  amounts,  including any check or other payment  instrument
that indicates that the payment constitutes "payment in full" of the amount owed
or that is tendered with other conditions or limitations or as full satisfaction
of a disputed  amount must be mailed or delivered to: THE FROST  NATIONAL  BANK,
P.O. BOX 1600 SAN ANTONIO, TX 78296.

LATE  CHARGE.  If a payment  is 11 days or more late,  Borrower  will be charged
5.000% of the unpaid  portion of the  regularly  scheduled  payment or  $250.00,
whichever is less.

POST  MATURITY  RATE.  The Post  Maturity Rate on this Note is the lesser of the
maximum rate allowed by applicable  law or 18.000% per annum.  Borrower will pay
interest  on all sums due after  final  maturity,  whether  by  acceleration  or
otherwise, at that rate.

DEFAULT.  Each of the following shall  constitute an event of default ("Event of
Default") under this Note:

         Payment Default. Borrower fails to make any payment when due under this
         Note.

         Other  Defaults.  Borrower fails to comply with or to perform any other
         term,  obligation,  covenant or condition  contained in this Note or in
         any of the related  documents or to comply with or to perform any term,
         obligation,  covenant or  condition  contained  in any other  agreement
         between Lender and Borrower.

         Default in Favor of Third  Parties.  Borrower or any  Grantor  defaults
         under any loan,  extension of credit,  security agreement,  purchase or
         sales agreement, or any other agreement, in favor of any other creditor
         or person  that may  materially  affect any of  Borrower's  property or
         Borrower's ability to repay this Note or perform Borrower's obligations
         under this Note or any of the related documents.

         False  Statements.  Any warranty,  representation  or statement made or
         furnished to Lender by Borrower or on Borrower's behalf under this Note
         or the  related  documents  is  false  or  misleading  in any  material
         respect,  either now or at the time made or furnished or becomes  false
         or misleading at any time thereafter.

         Insolvency. The dissolution or termination of Borrower's existence as a
         going  business,  the  insolvency  of Borrower,  the  appointment  of a
         receiver for any part of Borrower's  property,  any  assignment for the
         benefit of creditors, any type of creditor workout, or the commencement
         of any proceeding under any bankruptcy or insolvency laws by or against
         Borrower.

         Creditor or Forfeiture  Proceedings.  Commencement  of  foreclosure  or
         forfeiture  proceedings,  whether by  judicial  proceeding,  self-help,
         repossession or any other method, by any creditor of Borrower or by any
         governmental  agency  against any  collateral  securing the loan.  This
         includes a garnishment of any of Borrower's accounts, including deposit
         accounts,  with Lender.  However, this Event of Default shall not apply
         if there is a good faith  dispute by  Borrower  as to the  validity  or
         reasonableness  of the  claim  which is the  basis of the  creditor  or
         forfeiture  proceeding  and if Borrower  gives Lender written notice of
         the creditor or forfeiture  proceeding  and deposits with Lender monies
         or a surety  bond for the  creditor  or  forfeiture  proceeding,  in an
         amount  determined  by  Lender,  in its  sole  discretion,  as being an
         adequate reserve or bond for the dispute.


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         Events  Affecting  Guarantor.  Any of the preceding  events occurs with
         respect to any guarantor,  endorser,  surety, or accommodation party of
         any  of  the  indebtedness  or  any  guarantor,  endorser,  surety,  or
         accommodation party dies or becomes incompetent, or revokes or disputes
         the validity of, or liability  under,  any guaranty of the indebtedness
         evidenced by this Note.

         Change In  Ownership.  Any change in ownership of  twenty-five  percent
         (25%) or more of the common stock of Borrower.

         Adverse  Change.   A  material  adverse  change  occurs  in  Borrower's
         financial  condition,  or Lender  believes  the  prospect of payment or
         performance of this Note is impaired.

         Insecurity. Lender in good faith believes itself insecure.

LENDER'S  RIGHTS.  Upon  default,  Lender may declare  the entire  indebtedness,
including  the  unpaid  principal  balance  on this  Note,  all  accrued  unpaid
interest,  and all other  amounts,  costs and  expenses  for which  Borrower  is
responsible  under this Note or any other  agreement  with Lender  pertaining to
this loan,  immediately  due,  without  notice,  and then Borrower will pay that
amount.

ATTORNEYS' FEES; EXPENSES. Lender may hire an attorney to help collect this Note
if Borrower does not pay, and Borrower will pay Lender's  reasonable  attorneys'
fees.  Borrower also will pay Lender all other amounts Lender actually incurs as
court costs, lawful fees for filing,  recording,  releasing to any public office
any instrument  securing this Note; the  reasonable  cost actually  expended for
repossessing,  storing,  preparing for sale, and selling any security;  and fees
for noting a lien on or transferring a certificate of title to any motor vehicle
offered as security for this Note, or premiums or identifiable  charges received
in connection with the sale of authorized insurance.

GOVERNING  LAW.  This  Note will be  governed  by,  construed  and  enforced  in
accordance  with  federal law and the laws of the State of Texas.  This Note has
been accepted by Lender in the State of Texas.

CHOICE OF VENUE. If there is a lawsuit, and if the transaction evidenced by this
Note occurred in BEXAR County,  Borrower agrees upon Lender's  request to submit
to the jurisdiction of the courts of BEXAR County, State of Texas.

RIGHT OF SETOFF.  To the extent  permitted by applicable  law, Lender reserves a
right of  setoff in all  Borrower's  accounts  with  Lender  (whether  checking,
savings,  or some other  account).  This  includes all accounts  Borrower  holds
jointly  with  someone  else and all  accounts  Borrower may open in the future.
However,  this does not include any IRA or Keogh accounts, or any trust accounts
for which setoff would be prohibited by law. Borrower  authorizes Lender, to the
extent  permitted by  applicable  law, to charge or setoff all sums owing on the
debt against any and all such accounts.

LINE OF CREDIT.  This Note evidences a revolving line of credit.  Advances under
this Note, as well as directions for payment from  Borrower's  accounts,  may be
requested  orally or in writing by Borrower or by an authorized  person.  Lender
may,  but need not,  require  that all oral  requests be  confirmed  in writing.
Borrower  agrees to be liable for all sums either:  (A)  advanced in  accordance
with  the  instructions  of an  authorized  person  or  (B)  credited  to any of
Borrower's accounts with Lender. The unpaid principal balance owing on this Note
at any  time  may be  evidenced  by  endorsements  on this  Note or by  Lender's
internal  records,  including  daily  computer  print-outs.  Lender will have no
obligation to advance funds under this Note if: (A) Borrower or any guarantor is
in default  under the terms of this Note or any  agreement  that Borrower or any
guarantor has with Lender,  including any agreement made in connection  with the
signing of this Note; (B) Borrower or any guarantor  ceases doing business or is
insolvent;  (C) any  guarantor  seeks,  claims or  otherwise  attempts to limit,
modify or revoke such guarantor's  guarantee of this Note or any other loan with
Lender;  (D)  Borrower  has  applied  funds  provided  pursuant to this Note for
purposes  other than  those  authorized  by Lender;  or (E) Lender in good faith
believes itself insecure.  This revolving line of credit shall not be subject to
Ch. 346 of the Texas Finance Code.

OTHER  CREDITS  AFFECTING  AVAILABILITY.  Any other  credits  made  available to
Borrower by Lender, such as other loans or letters of credit, may be advanced to
Borrower  and/or  issued  under  this  line of credit  commitment,  and any such
advances or issuances  shall,  in addition to the  outstanding  advances on this
Note, reduce the outstanding availability on the Line of Credit.


<PAGE>

DISHONORED CHECK CHARGE. In the event a check offered in full or partial payment
on this loan is  returned  unpaid,  Lender may  charge a fee for the  purpose of
defraying the expense  incident to handling such  returned  check,  and Borrower
agrees to pay such fee.  The fee shall not exceed the maximum  amount  permitted
under applicable law.

FINANCIAL  INFORMATION.  Borrower agrees to promptly furnish and cause any other
person  who  signs,  guarantees  or  endorses  this Note or any  other  document
executed in connection with this Note, to furnish such financial information and
statements,  including  financial  statements in a format  acceptable to Lender,
lists of assets and liabilities,  agings of receivables and payables,  inventory
schedules,  budgets,  forecasts,  tax returns, and other reports with respect to
Borrower's  or such  person's  financial  condition  and business  operations as
Lender  may  request  from  time to time.  This  provision  shall  not alter the
obligation  to  deliver  to Lender  any other  financial  statements  or reports
pursuant to the terms of any other loan  documents  executed in connection  with
this Note.

INSURANCE. Borrower agrees to maintain insurance of such types, including public
liability  insurance,  and in such amounts as are  satisfactory to Lender and to
furnish  Lender  upon  request  with a  detailed  list,  in form  and  substance
satisfactory to Lender, of all insurance then in effect.

FACSIMILE  DOCUMENTS AND SIGNATURES.  For purposes of negotiating and finalizing
this document,  if this document is transmitted by facsimile machine ("fax"), it
shall be treated for all  purposes as an original  document.  Additionally,  the
signature  of any party on this  document  transmitted  by way of a fax  machine
shall be considered  for all purposes as an original  signature.  Any such faxed
document  shall be  considered  to have  the same  binding  legal  effect  as an
original  document.  Upon  request  of  Lender,  any  faxed  document  shall  be
re-executed by each signatory party in an original form.

WAIVER OF RIGHT TO TRIAL BY JURY. THE UNDERSIGNED HEREBY WAIVES TRIAL BY JURY IN
ANY ACTION,  PROCEEDING OR COUNTERCLAIM  BROUGHT TO ENFORCE THIS  AGREEMENT,  TO
COLLECT  DAMAGES  FOR THE  BREACH OF THIS  AGREEMENT,  OR WHICH IN ANY OTHER WAY
ARISE OUT OF, ARE  CONNECTED TO OR ARE RELATED TO THIS  AGREEMENT OR THE SUBJECT
MATTER OF THIS AGREEMENT.  ANY SUCH ACTION SHALL BE TRIED BY THE JUDGE WITHOUT A
JURY.


RENEWAL AND  EXTENSION.  This Note is given in renewal and  extension and not in
novation of the  following  described  indebtedness:  The  promissory  note from
Borrower  to Lender  dated  June 6,  2003 in the  original  principal  amount of
$3,000,000.00.

SUCCESSOR INTERESTS.  The terms of this Note shall be binding upon Borrower, and
upon Borrower's heirs,  personal  representatives,  successors and assigns,  and
shall inure to the benefit of Lender and its successors and assigns.

GENERAL PROVISIONS.  If any part of this Note cannot be enforced, this fact will
not affect the rest of the Note.  Borrower  does not agree or intend to pay, and
Lender does not agree or intend to contract for, charge,  collect, take, reserve
or receive (collectively referred to herein as "charge or collect"),  any amount
in the nature of interest  or in the nature of a fee for this loan,  which would
in any way or event (including demand, prepayment, or acceleration) cause Lender
to  charge  or  collect  more for this loan  than the  maximum  lender  would be
permitted  to charge or collect by federal  law or the law of the State of Texas
(as applicable).  Any such excess interest or unauthorized fee shall, instead of
anything  stated to the  contrary,  be  applied  first to reduce  the  principal
balance of this loan,  and when the principal has been paid in full, be refunded
to Borrower.  The right to accelerate  maturity of sums due under this Note does
not include the right to accelerate any interest which has not otherwise accrued
on the date of such  acceleration,  and  Lender  does not  intend  to  charge or
collect any  unearned  interest in the event of  acceleration.  All sums paid or
agreed to be paid to Lender for the use,  forbearance  or  detention of sums due
hereunder  shall,  to the extent  permitted  by  applicable  law, be  amortized,
prorated, allocated and spread throughout the full term of the loan evidenced by
this  Note  until  payment  in full so that the rate or amount  of  interest  on
account  of the loan  evidenced  hereby  does not exceed  the  applicable  usury
ceiling. Lender may delay or forgo enforcing any of its rights or remedies under
this Note  without  losing  them.  Borrower  and any  other  person  who  signs,
guarantees  or  endorses  this  Note,  to  the  extent  allowed  by  law,  waive
presentment,  demand  for  payment,  notice  of  dishonor,  notice  of intent to
accelerate the maturity of this Note, and notice of acceleration of the maturity
of this Note.  Upon any change in the terms of this Note,  and unless  otherwise
expressly  stated in  writing,  no party who signs this Note,  whether as maker,
guarantor,  accommodation  maker or endorser,  shall be released from liability.
All such parties agree that Lender may renew or extend  (repeatedly  and for any


<PAGE>

length of time) this loan or release any party or  guarantor or  collateral;  or
impair,  fail to  realize  upon or perfect  Lender's  security  interest  in the
collateral  without the consent of or notice to anyone.  All such  parties  also
agree that  Lender  may modify  this loan  without  the  consent of or notice to
anyone other than the party with whom the  modification is made. The obligations
under this Note are joint and several.

PRIOR TO SIGNING THIS NOTE,  BORROWER READ AND  UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE,  INCLUDING THE VARIABLE INTEREST RATE PROVISIONS.  BORROWER AGREES TO
THE TERMS OF THE NOTE.

BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.

BORROWER:



MICROPAC INDUSTRIES, INC.


By:      ________________________________________________________
         CONNIE J. WOOD, President/CEO of Micropac Industries,Inc.


                             BUSINESS LOAN AGREEMENT



Principal          Loan          Date Maturity    Loan No     Cal/Coll

$3,000,000.00      06-06-2003    06-04-2004       9001        500/0010



Borrower:         MICROPAC INDUSTRIES, INC. (TIN: 74-1225 149)
                  905 E WALNUT ST
                  GARLAND, TX 75040



Lender:           THE FROST NATIONAL BANK
                  ADDISON FINANCIAL CENTER
                  P.O. BOX 1600
                  SAN ANTONIO, TX 78296



THIS BUSINESS LOAN  AGREEMENT  dated June 6, 2003, is made and executed  between
MICROPAC INDUSTRIES, INC. ("Borrower") and THE FROST NATIONAL BANK ("Lender") on
the following terms and conditions. Borrower has received prior commercial loans
from  Lender or has  applied to Lender for a  commercial  loan or loans or other
financial accommodations,  including those which may be described on any exhibit
or schedule attached to this Agreement ("Loan"). Borrower understands and agrees
that: (A) in granting,  renewing,  or extending any Loan, Lender is relying upon
Borrower's  representations.  warranties,  and  agreements  as set forth in this
Agreement; (B) the granting, renewing, or extending of any Loan by Lender at all
times shall be subject to Lender's  sole  judgment and  discretion;  and (C) all
such Loans  shall be and  remain  subject  to the terms and  conditions  of this
Agreement.

TERM.  This Agreement  shall be effective as of June 6, 2003, and shall continue
in full force and effect until such time as all of Borrower's  Loans in favor of


<PAGE>

Lender have been paid in full, including principal,  interest,  costs, expenses,
attorneys'  fees, and other fees and charges,  or until such time as the parties
may agree in writing to terminate this Agreement.

CONDITIONS  PRECEDENT TO EACH ADVANCE.  Lender's  obligation to make the initial
Advance and each subsequent Advance under this Agreement shall be subject to the
fulfillment to Lender's  satisfaction of all of the conditions set forth in this
Agreement and in the Related Documents.

         Loan  Documents.   Borrower  shall  provide  to  Lender  the  following
         documents  for the  Loan:  (1) the  Note;  (2)  together  with all such
         Related  Documents as Lender may require for the Loan;  all in form and
         substance satisfactory to Lender and Lender's counsel.

         Borrower's  Authorization.  Borrower  shall have  provided  in form and
         substance satisfactory to Lender properly certified  resolutions,  duly
         authorizing the execution and delivery of this Agreement,  the Note and
         the Related Documents.  In addition,  Borrower shall have provided such
         other resolutions,  authorizations, documents and instruments as Lender
         or its counsel, may require.

         Payment of Fees and  Expenses.  Borrower  shall have paid to Lender all
         fees,  charges,  and other  expenses  which are then due and payable as
         specified in this Agreement or any Related Document.

         Representations and Warranties.  The representations and warranties set
         forth in this Agreement, in the Related Documents,  and in any document
         or  certificate  delivered to Lender under this  Agreement are true and
         correct.

         No Event of Default. There shall not exist at the time of any Advance a
         condition  which  would  constitute  an Event  of  Default  under  this
         Agreement or under any Related Document.

REPRESENTATIONS  AND WARRANTIES.  Borrower represents and warrants to Lender, as
of the  date of this  Agreement,  as of the  date of each  disbursement  of loan
proceeds, as of the date of any renewal,  extension or modification of any Loan,
and at all times any Indebtedness exists:

         Organization. Borrower is a corporation for profit which is, and at all
         times shall be, duly organized,  validly existing, and in good standing
         under and by virtue of the laws of the State of  Delaware.  Borrower is
         duly  authorized  to  transact  business  in the State of Texas and all
         other states in which Borrower is doing  business,  having obtained all
         necessary filings,  governmental  licenses and approvals for each state
         in which Borrower is doing business. Specifically,  Borrower is, and at
         all times  shall be, duly  qualified  as a foreign  corporation  in all
         states in which the failure to so qualify would have a material adverse
         effect on its  business or financial  condition.  Borrower has the full
         power and authority to own its  properties and to transact the business
         in which it is  presently  engaged  or  presently  proposes  to engage.
         Borrower  maintains an office at 905 EAST WALNUT  STREET,  GARLAND,  TX
         75040.  Unless  Borrower  has  designated  otherwise  in  writing,  the
         principal  office is the office at which  Borrower  keeps its books and
         records including its records concerning the Collateral.  Borrower will
         notify Lender prior to any change in the location of  Borrower's  state
         of organization or any change in Borrower's name. Borrower shall do all
         things  necessary  to preserve and to keep in full force and effect its
         existence, rights and privileges, and shall comply with all regulations
         rules, ordinances,  statutes, orders and decrees of any governmental or
         quasi-governmental  authority  or  court  applicable  to  Borrower  and
         Borrower's business activities.

         Assumed Business Names. Borrower has filed or recorded all documents or
         filings  required by law relating to all assumed business names used by
         Borrower.  Excluding the name of Borrower,  the following is a complete
         list of all assumed  business names under which Borrower does business:
         None.

         Authorization.  Borrower's execution, delivery, and performance of this
         Agreement and all the Related  Documents  have been duly  authorized by
         all necessary action by Borrower and do not conflict with,  result in a
         violation  of, or  constitute  a default  under  (1) any  provision  of
         Borrower's articles of incorporation or organization, or bylaws, or any
         agreement or other  instrument  binding  upon  Borrower or (2) any law,
         governmental regulation,  court decree, or order applicable to Borrower
         or to Borrower's properties.

         Financial Information. Each of Borrower's financial statements supplied
         to Lender truly and completely disclosed Borrower's financial condition
         as of the date of the statement, and there has been no material adverse
         change in Borrower's  financial condition subsequent to the date of the
         most recent  financial  statement  supplied to Lender.  Borrower has no
         material  contingent  obligations except as disclosed in such financial
         statements.


<PAGE>

         Legal  Effect.  This  Agreement  constitutes,  and  any  instrument  or
         agreement  Borrower  is  required  to give  under this  Agreement  when
         delivered will  constitute  legal,  valid,  and binding  obligations of
         Borrower   enforceable   against  Borrower  in  accordance  with  their
         respective terms.

         Properties.  Except as  contemplated by this Agreement or as previously
         disclosed in  Borrower's  financial  statements or in writing to Lender
         and as accepted by Lender,  and except for property tax liens for taxes
         not presently due and payable,  Borrower owns and has good title to all
         of Borrower's properties free and clear of all Security Interests,  and
         has  not  executed  any  security  documents  or  financing  statements
         relating to such properties. All of Borrower's properties are titled in
         Borrower's  legal name,  and Borrower has not used or filed a financing
         statement under any other name for at least the last five (5) years.

         Hazardous Substances. Except as disclosed to and acknowledged by Lender
         in writing,  Borrower  represents  and  warrants  that:  (1) During the
         period of Borrower's ownership of Borrower's Collateral, there has been
         no use, generation,  manufacture, storage, treatment, disposal, release
         or  threatened  release of any  Hazardous  Substance  by any person on,
         under,  about  or  from  any of the  Collateral.  (2)  Borrower  has no
         knowledge  of, or reason to believe  that there has been (a) any breach
         or  violation  of any  Environmental  Laws;  (b) any  use,  generation,
         manufacture,   storage,  treatment,  disposal.  release  or  threatened
         release  of any  Hazardous  Substance  on,  under,  about  or from  the
         Collateral  by any prior owners or occupants of any of the  Collateral;
         or (c) any actual or threatened litigation or claims of any kind by any
         person relating to such matters.  (3) Neither  Borrower nor any tenant,
         contractor,  agent or other  authorized  user of any of the  Collateral
         shall use, generate,  manufacture,  store, treat, dispose of or release
         any Hazardous Substance on, under, about or from any of the Collateral;
         and any  such  activity  shall  be  conducted  in  compliance  with all
         applicable federal, state, and local laws, regulations, and ordinances,
         including   without   limitation  all  Environmental   Laws,   Borrower
         authorizes  Lender and its agents to enter upon the  Collateral to make
         such  inspections and tests as Lender may deem appropriate to determine
         compliance of the Collateral  with this section of the  Agreement.  Any
         inspections or tests made by Lender shall be at Borrower's  expense and
         for  Lender's  purposes  only and shall not be  construed to create any
         responsibility or liability on the part of Lender to Borrower or to any
         other person. The representations  and warranties  contained herein are
         based on Borrower's due diligence in  investigating  the Collateral for
         hazardous waste and Hazardous Substances.  Borrower hereby (1) releases
         and  waives  any  future  claims   against   Lender  for  indemnity  or
         contribution in the event Borrower  becomes liable for cleanup or other
         costs  under  any such  laws,  and (2)  agrees  to  indemnify  and hold
         harmless  Lender  against  any and  all  claims,  losses,  liabilities,
         damages,   penalties,   and  expenses  which  Lender  may  directly  or
         indirectly sustain or suffer resulting from a breach of this section of
         the Agreement or as a consequence of any use, generation,  manufacture,
         storage,  disposal,  release or threatened release of a hazardous waste
         or substance on the  Collateral.  The provisions of this section of the
         Agreement,  including the  obligation  to indemnify,  shall survive the
         payment  of  the  Indebtedness  and  the  termination,   expiration  or
         satisfaction  of this  Agreement  and shall not be affected by Lender's
         acquisition  of any  interest  in any of  the  Collateral,  whether  by
         foreclosure or otherwise.

         Litigation   and   Claims.   No   litigation,   claim,   investigation,
         administrative proceeding or similar action (including those for unpaid
         taxes) against  Borrower is pending or  threatened,  and no other event
         has occurred which may materially adversely affect Borrower's financial
         condition  or  properties,  other  than  litigation,  claims,  or other
         events,  if any, that have been disclosed to and acknowledged by Lender
         in writing.

         Taxes.  To the best of  Borrower's  knowledge,  all of  Borrower's  tax
         returns and reports  that are or were  required to be filed,  have been
         filed, and all taxes,  assessments and other governmental  charges have
         been paid in full,  except those  presently being or to be contested by
         Borrower in good faith in the ordinary course of business and for which
         adequate reserves have been provided.

         Lien  Priority.  Unless  otherwise  previously  disclosed  to Lender in
         writing,  Borrower  has  not  entered  into  or  granted  any  Security
         Agreements,  or  permitted  the filing or  attachment  of any  Security
         Interests on or affecting any of the Collateral  directly or indirectly
         securing  repayment of Borrower's Loan and Note, that would be prior or
         that may in any way be  superior  to Lender's  Security  Interests  and
         rights in and to such Collateral.

         Binding Effect.  This Agreement.  the Note, all Security Agreements (if
         any), and all Related  Documents are binding upon the signers  thereof,
         as well as upon their successors,  representatives and assigns, and are
         legally enforceable in accordance with their respective terms.

<PAGE>

AFFIRMATIVE  COVENANTS.  Borrower covenants and agrees with Lender that, so long
as this Agreement remains in effect, Borrower will:

         Notices of Claims and Litigation.  Promptly inform Lender in writing of
         (1) all material adverse changes in Borrower's financial condition, and
         (2) all existing and all threatened litigation, claims, investigations,
         administrative proceedings or similar actions affecting Borrower or any
         Guarantor  which could  materially  affect the  financial  condition of
         Borrower or the financial condition of any Guarantor.

         Financial  Records.  Maintain its books and records in accordance  with
         GAAP,  applied on a consistent  basis, and permit Lender to examine and
         audit Borrower's books and records at all reasonable times.

         Financial Statements. Furnish Lender with the following:

                  Annual Statements. As soon as available, but in no event later
                  than  one-hundred-twenty  (120)  days  after  the  end of each
                  fiscal year, Borrower's balance sheet and income statement for
                  the year  ended,  audited  by a  certified  public  accountant
                  satisfactory to Lender.

                  Interim  Statements.  As soon as  available,  but in no  event
                  later  than 45 days  after  the  end of each  fiscal  quarter,
                  Borrower's balance sheet and profit and loss statement for the
                  period  ended,  reviewed  by  a  certified  public  accountant
                  satisfactory to Lender.

         All  financial  reports  required to be provided  under this  Agreement
         shall be  prepared in  accordance  with GAAP,  applied on a  consistent
         basis, and certified by Borrower as being true and correct.

         Additional   Information.   Furnish  such  additional  information  and
         statements, as Lender may request from time to time.

         Financial Covenants and Ratios. Comply with the following covenants and
         ratios:

                  Working Capital  Requirements.  Borrower shall comply with the
                  following working capital ratio requirements:

                           Quick  Ratio.  Maintain  a Quick  Ratio in  excess of
                           1.000  to  1.000.   The  term  "Quick   Ratio"  means
                           Borrower's  Cash &  Equivalent  plus  Borrower's  net
                           Trade Receivables divided by Borrower's total Current
                           Liabilities.

                  Tangible Net Worth  Requirements.  Borrower  shall comply with
                  the following net worth ratio requirements:

                           Debt / Worth Ratio.  Maintain a ratio of Debt / Worth
                           not in excess of 1.250 to  1.000.  The ratio  "Debt /
                           Worth" means Borrower's Total Liabilities  divided by
                           Borrower's Tangible Net Worth,

                  Except as provided above, all  computations  made to determine
                  compliance with the  requirements  contained in this paragraph
                  shall be made in accordance with generally accepted accounting
                  principles,  applied on a consistent  basis,  and certified by
                  Borrower as being true and correct.

         Insurance.  Maintain fire and other risk  insurance,  public  liability
         insurance,  and such other insurance as Lender may require with respect
         to  Borrower's  properties  and  operations,   in  form,  amounts,  and
         coverages  reasonably  acceptable to Lender and by insurance  companies
         authorized  to  transact  business in Texas.  BORROWER  MAY FURNISH THE
         INSURANCE  REQUIRED BY THIS AGREEMENT WHETHER THROUGH EXISTING POLICIES
         OWNED OR CONTROLLED BY BORROWER OR THROUGH EQUIVALENT COVERAGE FROM ANY
         INSURANCE COMPANY  AUTHORIZED TO TRANSACT BUSINESS IN TEXAS.  Borrower,
         upon  request of Lender,  will  deliver to Lender from time to time the
         policies or certificates  of insurance in form  satisfactory to Lender,
         including   stipulations  that  coverages  will  not  be  cancelled  or
         diminished  without  at least ten (10)  days  prior  written  notice to
         Lender.  Each  insurance  policy  also  shall  include  an  endorsement
         providing  that coverage in favor of Lender will not be impaired in any
         way by any act, omission or default of Borrower or any other person. In
         connection  with all policies  covering assets in which Lender holds or
         is offered a security  interest  for the Loans,  Borrower  will provide
         Lender with such lender's loss payable or other  endorsements as Lender
         may require.


<PAGE>

         Insurance Reports.  Furnish to Lender, upon request of Lender,  reports
         on each existing  insurance  policy showing such  information as Lender
         may reasonably request, including without limitation the following: (1)
         the name of the insurer;  (2) the risks insured;  (3) the amount of the
         policy;  (4) the  properties  insured;  (5) the then  current  property
         values  on the  basis of which  insurance  has been  obtained,  and the
         manner of determining those values;  and (6) the expiration date of the
         policy.  In addition,  upon  request of Lender  (however not more often
         than   annually),   Borrower   will  have  an   independent   appraiser
         satisfactory to Lender determine, as applicable,  the actual cash value
         or replacement cost of any Collateral. The cost of such appraisal shall
         be paid by Borrower.

         Other  Agreements.  Comply with all terms and  conditions  of all other
         agreements, whether now or hereafter existing, between Borrower and any
         other party and notify Lender  immediately in writing of any default in
         connection with any other such agreements.

         Loan Proceeds.  Use all Loan proceeds solely for the following specific
         purposes:  REVOLVING LINE OF CREDIT TO PROVIDE FINANCING FOR OPERATIONS
         AND ACQUISITIONS OF ASSETS FOR CORPORATE GROWTH.

         Taxes,  Charges  and  Liens.  Pay  and  discharge  when  due all of its
         indebtedness  and  obligations,   including   without   limitation  all
         assessments,  taxes,  governmental charges,  levies and liens, of every
         kind and nature,  imposed upon Borrower or its properties,  income,  or
         profits,  prior to the date on which  penalties  would attach,  and all
         lawful claims that,  if unpaid,  might become a lien or charge upon any
         of Borrower's properties, income, or profits.

         Performance.  Perform and comply,  in a timely manner,  with all terms,
         conditions,  and provisions set forth in this Agreement, in the Related
         Documents, and in all other instruments and agreements between Borrower
         and Lender.  Borrower shall notify Lender immediately in writing of any
         default in connection with any agreement.

         Operations.   Maintain   executive  and   management   personnel   with
         substantially  the same  qualifications  and  experience as the present
         executive and management personnel; provide written notice to Lender of
         any change in executive and management personnel;  conduct its business
         affairs in a reasonable and prudent manner.

         Environmental  Studies.  Promptly  conduct and complete,  at Borrower's
         expense,  all such investigations,  studies,  samplings and testings as
         may be requested by Lender or any  governmental  authority  relative to
         any substance,  or any waste or by-product of any substance  defined as
         toxic or a hazardous  substance  under  applicable  federal,  state, or
         local law, rule,  regulation,  order or directive,  at or affecting any
         property or any facility owned, leased or used by Borrower.

         Compliance  with  Governmental  Requirements.  Comply  with  all  laws,
         ordinances,  and  regulations,  now  or  hereafter  in  effect,  of all
         governmental  authorities  applicable  to  the  conduct  of  Borrower's
         properties,  businesses and operations.  and to the use or occupancy of
         the  Collateral,  including  without  limitation,  the  Americans  With
         Disabilities  Act.  Borrower  may  contest  in good faith any such law,
         ordinance, or regulation and withhold compliance during any proceeding,
         including  appropriate appeals, so long as Borrower has notified Lender
         in writing  prior to doing so and so long as, in Lender's sole opinion,
         Lender's  interests in the Collateral are not  jeopardized.  Lender may
         require Borrower to post adequate security or a surety bond, reasonably
         satisfactory to Lender, to protect Lender's interest.

         Inspection. Permit employees or agents of Lender at any reasonable time
         to inspect any and all  Collateral for the Loan or Loans and Borrower's
         other  properties and to examine or audit Borrower's  books,  accounts,
         and records  and to make  copies and  memoranda  of  Borrower's  books,
         accounts,  and  records.  If  Borrower  now  or at any  time  hereafter
         maintains any records (including without limitation  computer generated
         records and  computer  software  programs  for the  generation  of such
         records) in the possession of a third party, Borrower,  upon request of
         Lender,  shall  notify such party to permit  Lender free access to such
         records at all  reasonable  times and to provide  Lender with copies of
         any records it may request, all at Borrower's expense.

         Compliance  Certificates.  Unless waived In writing by Lender,  provide
         Lender  within  forty-five  (45)  days  after  the end of  each  fiscal
         quarter,  with a  certificate  executed by Borrower's  chief  financial
         officer,  or other officer or person  acceptable to Lender,  certifying
         that the representations and warranties set forth in this Agreement are
         true  and  correct  as of the  date  of  the  certificate  and  further
         certifying that, as of the date of the certificate, no Event of Default
         exists under this Agreement.


<PAGE>

         Environmental  Compliance  and  Reports.  Borrower  shall comply in all
         respects with any and all  Environmental  Laws;  not cause or permit to
         exist,  as a  result  of an  intentional  or  unintentional  action  or
         omission  on  Borrower's  part or on the part of any  third  party,  on
         property owned and/or occupied by Borrower,  any environmental activity
         where damage may result to the environment,  unless such  environmental
         activity is  pursuant to and in  compliance  with the  conditions  of a
         permit issued by the appropriate  federal,  state or local governmental
         authorities;  shall furnish to Lender  promptly and in any event within
         thirty (30) days after receipt  thereof a copy of any notice,  summons,
         lien,  citation,  directive,  letter  or other  communication  from any
         governmental  agency or  instrumentality  concerning any intentional or
         unintentional  action or omission on Borrower's part in connection with
         any  environmental  activity  whether  or not  there is  damage  to the
         environment and/or other natural resources.

         Additional  Assurances.  Make,  execute  and  deliver  to  Lender  such
         promissory  notes,  mortgages,  deeds of  trust,  security  agreements.
         assignments,  financing  statements,  instruments,  documents and other
         agreements  as  Lender  or its  attorneys  may  reasonably  request  to
         evidence and secure the Loans and to perfect all Security Interests.

LENDER'S  EXPENDITURES.  If any action or  proceeding  is  commenced  that would
materially  affect  Lender's  interest in the Collateral or if Borrower fails to
comply with any provision of this Agreement or any Related Documents,  including
but not limited to Borrower s failure to  discharge  or pay when due any amounts
Borrower is required to  discharge  or pay under this  Agreement  or any Related
Documents,  Lender on Borrower's behalf may (but shall not be obligated to) take
any  action  that  Lender  deems  appropriate,  including  but  not  limited  to
discharging or paying all taxes.  liens,  security  interests,  encumbrances and
other  claims,  at any time  levied or placed on any  Collateral  and paying all
costs  for  insuring,  maintaining  and  preserving  any  Collateral.  All  such
expenditures  paid by Lender for such  purposes  will then beer  interest at the
Note rate from the date paid by Lender to the date of repayment by Borrower.  To
the extent  permitted by applicable law, all such expenses will become a part of
the Indebtedness and, at Lender's option, will (A) be payable on demand; o(B) be
added to the balance of the Note and be  apportioned  among and be payable  with
any  installment  payments  to  become  due  during  either  (1) the term of any
applicable  insurance  policy;  or (2) the remaining term of the Note; or (C) be
treated  as a  balloon  payment  which  will be due and  payable  at the  Note's
maturity.

NEGATIVE  COVENANTS.  Borrower  covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:

         Indebtedness  and Liens.  (1) Except  for trade  debt  incurred  in the
         normal course of business and  indebtedness  to Lender  contemplated by
         this  Agreement,  create,  incur or assume  indebtedness  for  borrowed
         money, including capital leases, (2) sell, transfer,  mortgage, assign,
         pledge,  lease,  grant a  security  interest  in,  or  encumber  any of
         Borrower's  assets (except as allowed as Permitted  Liens), or (3) sell
         with recourse any of Borrower's accounts, except to Lender.

         Continuity  of  Operations.  (1)  Engage  in  any  business  activities
         substantially  different  than  those in which  Borrower  is  presently
         engaged, (2) cease operations,  liquidate,  merge, transfer. acquire or
         consolidate  with any  other  entity,  change  its  name.  dissolve  or
         transfer or sell Collateral out of the ordinary course of business,  or
         (3) pay any dividends on Borrower's stock (other than dividends payable
         in its stock),  provided,  however that  notwithstanding the foregoing,
         but only so long as no Event of Default has occurred and is  continuing
         or would  result  from the  payment  of  dividends,  if  Borrower  is a
         "Subchapter S Corporation"  (as defined in the Internal Revenue Code of
         1986, as amended),  Borrower may pay cash dividends on its stock to its
         shareholders  from time to time in  amounts  necessary  to  enable  the
         shareholders to pay income taxes and make estimated income tax payments
         to satisfy  their  liabilities  under federal and state law which arise
         solely from their status as  Shareholders of a Subchapter S Corporation
         because of their  ownership of shares of Borrower's  stock, or purchase
         or  retire  any of  Borrower's  outstanding  shares  or  alter or amend
         Borrower's capital structure.

         Loans.  Acquisitions  and  Guaranties.  (1) Loan,  invest in or advance
         money or assets,  (2)  purchase,  create or acquire any interest in any
         other  enterprise or entity,  or (3) incur any  obligation as surety or
         guarantor other than in the ordinary course of business.



CESSATION OF  ADVANCES.  If Lender has made any  commitment  to make any Loan to
Borrower,  whether  under this  Agreement or under any other  agreement,  Lender
shall have no  obligation to make Loan Advances or to disburse Loan proceeds if:


<PAGE>

(A) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the  Related  Documents  or any  other  agreement  that  Borrower  or any
Guarantor  has  with  Lender;  (B)  Borrower  or  any  Guarantor  dies,  becomes
incompetent  or becomes  insolvent,  files a petition in  bankruptcy  or similar
proceedings,  or is adjudged a  bankrupt;  (C) there  occurs a material  adverse
change in Borrower's  financial  condition,  in the  financial  condition of any
Guarantor,  or in the value of any  Collateral  securing  any  Loan;  or (D) any
Guarantor seeks,  claims or otherwise  attempts to limit,  modify or revoke such
Guarantor's guaranty of the Loan or any other loan with Lender; or (E) Lender in
good faith deems  itself  insecure,  even though no Event of Default  shall have
occurred.

RIGHT OF SETOFF.  To the extent  permitted by applicable  law, Lender reserves a
right of  setoff in all  Borrower's  accounts  with  Lender  (whether  checking,
savings,  or some other  account).  This  includes all accounts  Borrower  holds
jointly  with  someone  else and all  accounts  Borrower may open in the future.
However,  this does not include any IRA or Keogh accounts, or any trust accounts
for which setoff would be prohibited by law. Borrower  authorizes Lender, to the
extent  permitted by  applicable  law, to charge or setoff all sums owing on the
debt against any and all such accounts.

DEFAULT.  Each of the following shall  constitute an Event of Default under this
Agreement:

         Payment Default.  Borrower fails to make any payment when due under the
         Loan.

         Other  Defaults.  Borrower fails to comply with or to perform any other
         term, obligation,  covenant or condition contained in this Agreement or
         in any of the  Related  Documents  or to comply  with or to perform any
         term,  obligation.   covenant  or  condition  contained  in  any  other
         agreement between Lender and Borrower.

         Default in Favor of Third  Parties.  Borrower or any  Grantor  defaults
         under any loan,  extension of credit,  security agreement,  purchase or
         sales agreement, or any other agreement, in favor of any other creditor
         or person that may materially affect any of Borrower's or any Grantor's
         property or Borrower's  or any Grantor's  ability to repay the Loans or
         perform their respective obligations under this Agreement or any of the
         Related Documents.

         False  Statements.  Any warranty,  representation  or statement made or
         furnished  to Lender by Borrower  or on  Borrower's  behalf  under this
         Agreement  or the  Related  Documents  is  false or  misleading  in any
         material  respect,  either  now or at the  time  made or  furnished  or
         becomes false or misleading at any time thereafter.

         Insolvency. The dissolution or termination of Borrower's existence as a
         going  business,  the  insolvency  of Borrower,  the  appointment  of a
         receiver for any part of Borrower's  property,  any  assignment for the
         benefit of creditors, any type of creditor workout, or the Commencement
         of any proceeding under any bankruptcy or insolvency laws by or against
         Borrower.

         Defective  Collateralization.  This  Agreement  or any  of the  Related
         Documents ceases to be in full force and effect  (including  failure of
         any  collateral  document  to  create a valid  and  perfected  security
         interest or lien) at any time and for any reason.

         Creditor or Forfeiture  Proceedings.  Commencement  of  foreclosure  or
         forfeiture  proceedings,  whether by  judicial  proceeding,  self-help,
         repossession or any other method, by any creditor of Borrower or by any
         governmental  agency  against any  collateral  securing the Loan.  This
         includes a garnishment of any of Borrower's accounts, including deposit
         accounts,  with Lender.  However, this Event of Default shall not apply
         if there is a good faith  dispute by  Borrower  as to the  validity  or
         reasonableness  of the  claim  which is the  basis of the  creditor  or
         forfeiture  proceeding  and if Borrower  gives Lender written notice of
         the creditor or forfeiture  proceeding  and deposits with Lender monies
         or a surety  bond for the  creditor  or  forfeiture  proceeding,  in an
         amount  determined  by  Lender,  in its  sole  discretion,  as being an
         adequate reserve or bond for the dispute.

         Events  Affecting  Guarantor.  Any of the preceding  events occurs with
         respect to any  Guarantor of any of the  Indebtedness  or any Guarantor
         dies or becomes incompetent, or revokes or disputes the validity of, or
         liability under, any Guaranty of the Indebtedness.

         Change in  Ownership.  Any change in ownership of  twenty-five  percent
         (25%) or more of the common stock of Borrower.

         Adverse  Change.   A  material  adverse  change  occurs  in  Borrower's
         financial  condition,  or Lender  believes  the  prospect of payment or
         performance of the Loan is impaired.

         Insecurity. Lender in good faith believes itself insecure.

<PAGE>

EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related  Documents,  all commitments
and  obligations of Lender under this Agreement or the Related  Documents or any
other  agreement  immediately  will terminate  (including any obligation to make
further  Loan  Advances  or   disbursements),   and,  at  Lender's  option,  all
Indebtedness  immediately will become due and payable, all without notice of any
kind to  Borrower,  except  that in the case of an Event of  Default of the type
described in the  "Insolvency"  subsection  above,  such  acceleration  shall be
automatic  and not optional.  In addition,  Lender shall have all the rights and
remedies  provided in the Related  Documents or available at law, in equity,  or
otherwise. Except as may be prohibited by applicable law, all of Lender's rights
and  remedies   shall  be  cumulative   and  may  be  exercised   singularly  or
concurrently.  Election by Lender to pursue any remedy shall not exclude pursuit
of any other remedy,  and an election to make  expenditures or to take action to
perform an obligation  of Borrower or of any Grantor  shall not affect  Lender's
right to declare a default and to exercise its rights and remedies.

TANGIBLE  NET  WORTH.  Borrower  shall  maintain  throughout  the  term  of this
Agreement a minimum Tangible Net Worth of not less than $6,250,000.00,  plus 75%
of future net income.  "Tangible Net Worth" is defined as Net Worth  (defined in
accordance with generally accepted  accounting  principles) less all intangibles
and inter-company receivables.

ADDITIONAL  INDEBTEDNESS.  Notwithstanding anything to the contrary contained in
paragraph  entitled  "Indebtedness  and Liens" under Section entitled  "Negative
Covenants"  Borrower shall be permitted to incur additonal  indebtedness for the
purpose of purchase  money  security  interests and capital  leases  without the
consent of Lender.

MISCELLANEOUS  PROVISIONS.  The following miscellaneous provisions are a part of
this Agreement:

         Amendments.  This  Agreement.  together  with  any  Related  Documents,
         constitutes the entire understanding and agreement of the parties as to
         the matters set forth in this Agreement.  No alteration of or amendment
         to this Agreement shall be effective unless given in writing and signed
         by the party or parties sought to be charged or bound by the alteration
         or amendment.

         Attorneys'  Fees;  Expenses.  Borrower agrees to pay upon demand all of
         Lender's costs and expenses,  including Lender's reasonable  attorneys'
         fees and  Lender's  legal  expenses,  incurred in  connection  with the
         enforcement of this  Agreement.  Lender may hire or pay someone else to
         help  enforce  this  Agreement,  and  Borrower  shall pay the costs and
         expenses  of such  enforcement.  Costs and  expenses  include  Lender's
         reasonable attorneys' fees and legal expenses whether or not there is a
         lawsuit,   including  Lender's  reasonable  attorneys  fees  and  legal
         expenses for  bankruptcy  proceedings  (including  efforts to modify or
         vacate any automatic stay or injunction),  appeals, and any anticipated
         post-judgment  collection  services.  Borrower also shall pay all court
         costs and such additional fees as may be directed by the court.

         Caption   Headings.   Caption   headings  in  this  Agreement  are  for
         convenience purposes only and are not to be used to interpret or define
         the provisions of this Agreement.

         Consent to Loan Participation. Borrower agrees and consents to Lender's
         sale or transfer,  whether now or later,  of one or more  participation
         interests  in the Loan to one or more  purchasers,  whether  related or
         unrelated  to  Lender.  Lender  may  provide,  without  any  limitation
         whatsoever, to any one or more purchasers, or potential purchasers, any
         information  or knowledge  Lender may have about  Borrower or about any
         other  matter  relating to the Loan,  and  Borrower  hereby  waives any
         rights to  privacy  Borrower  may have with  respect  to such  matters.
         Borrower   additionally   waives  any  and  all   notices  of  sale  of
         participation  interests,  as well as all notices of any  repurchase of
         such participation interests.  Borrower also agrees that the purchasers
         of any such participation  interests will be considered as the absolute
         owners  of such  interests  in the Loan and  will  have all the  rights
         granted under the participation  agreement or agreements  governing the
         sale of such  participation  interests.  Borrower  further  waives  all
         rights of offset or counterclaim  that it may have now or later against
         Lender or against any  purchaser of such a  participation  interest and
         unconditionally agrees that either Lender or such purchaser may enforce
         Borrower's  obligation  under the Loan  irrespective  of the failure or
         insolvency of any holder of any interest in the Loan.  Borrower further
         agrees  that the  purchaser  of any such  participation  interests  may
         enforce its interests  irrespective  of any personal claims or defenses
         that Borrower may have against Lender.

         Governing  Law.  This  Agreement  will be governed  by,  construed  and
         enforced in  accordance  with  federal law and the laws of the State of
         Texas.  This  Agreement  has been  accepted  by  Lender in the State of
         Texas.


<PAGE>

         Choice  of  Venue.  If  there  is a  lawsuit,  and if  the  transaction
         evidenced by this Agreement  occurred in BEXAR County,  Borrower agrees
         upon Lender's  request to submit to the  jurisdiction  of the Courts of
         BEXAR County, State of Texas.

         No Waiver by  Lender.  Lender  shall not be deemed to have  waived  any
         rights under this Agreement  unless such waiver is given in writing and
         signed  by  Lender.  No delay or  omission  on the  part of  Lender  in
         exercising  any right  shall  operate  as a waiver of such right or any
         other right. A waiver by Lender of a provision of this Agreement  shall
         not  prejudice or  constitute a waiver of Lender's  right  otherwise to
         demand strict  compliance with that provision or any other provision of
         this  Agreement.  No prior waiver by Lender,  nor any course of dealing
         between Lender and Borrower,  or between Lender and any Grantor,  shall
         constitute a waiver of any of Lender's  rights or of any of  Borrower's
         or any Grantor's  obligations as to any future  transactions.  Whenever
         the consent of Lender is required under this Agreement, the granting of
         such consent by Lender in any instance shall not constitute  continuing
         consent to subsequent  instances  where such consent is required and in
         all  cases  such  consent  may be  granted  or  withheld  in  the  sole
         discretion of Lender.

         Notices.  Any notice required to be given under this Agreement shall be
         given in writing, and shall be effective when actually delivered,  when
         actually received by telefacsimile  (unless otherwise required by law),
         when deposited with a nationally  recognized  overnight courier, or, if
         mailed,  when  deposited  in the United  States  mail,  as first class,
         certified or registered mail postage prepaid, directed to the addresses
         shown near the  beginning of this  Agreement.  Any party may change its
         address for  notices  under this  Agreement  by giving  formal  written
         notice to the other parties,  specifying that the purpose of the notice
         is to change the party's address. For notice purposes,  Borrower agrees
         to keep Lender  informed at all times of  Borrower's  current  address.
         Unless otherwise provided or required by law, if there is more than one
         Borrower,  any notice  given by Lender to any  Borrower is deemed to be
         notice given to all Borrowers.

         Payment of Interest and Fees.  Notwithstanding  any other  provision of
         this Agreement or any provision of any Related Document,  Borrower does
         not  agree or  intend to pay,  and  Lender  does not agree or intend to
         charge,  collect,  take, reserve or receive  (collectively  referred to
         herein as "charge or collect"), any amount in the nature of interest or
         in the  nature  of a fee for the Loan  which  would in any way or event
         (including  demand,   prepayment,  or  acceleration)  cause  Lender  to
         contract  for,  charge or  collect  more for the Loan than the  maximum
         Lender  would be  permitted  to charge  or  collect  by any  applicable
         federal or Texas state law.  Any such excess  interest or  unauthorized
         fee will, instead of anything stated to the contrary,  be applied first
         to reduce  the  unpaid  principal  balance  of the  Loan,  and when the
         principal has been paid in full, be refunded to Borrower.

         Severability.  If a Court of Competent jurisdiction finds any provision
         of this Agreement to be illegal,  invalid,  or  unenforceable as to any
         circumstance,  that  finding  shall  not make the  offending  provision
         illegal,  invalid,  or unenforceable as to any other  circumstance.  If
         feasible,  the offending provision shall be considered modified so that
         it becomes legal,  valid and  enforceable.  If the offending  provision
         cannot  be so  modified,  it  shall be  considered  deleted  from  this
         Agreement.   Unless   otherwise   required  by  law,  the   illegality,
         invalidity,  or  unenforceability  of any  provision of this  Agreement
         shall not affect the legality,  validity or enforceability of any other
         provision of this Agreement.

         Subsidiaries  and Affiliates of Borrower.  To the extent the context of
         any  provisions  of this  Agreement  makes  it  appropriate,  including
         without limitation any representation,  warranty or covenant,  the word
         "Borrower"  as used in this  Agreement  shall include all of Borrower's
         subsidiaries  and affiliates.  Notwithstanding  the foregoing  however,
         under no  circumstances  shall this  Agreement  be construed to require
         Lender  to make  any Loan or other  financial  accommodation  to any of
         Borrower's subsidiaries or affiliates.

         Successors and Assigns. All covenants and agreements contained by or on
         behalf of Borrower  shall bind  Borrower's  successors  and assigns and
         shall inure to the benefit of Lender and its  successors  and  assigns.
         Borrower shall not, however, have the right to assign Borrower's rights
         under this Agreement or any interest therein, without the prior written
         consent of Lender.

         Survival of Representations  and Warranties.  Borrower  understands and
         agrees  that in  extending  Loan  Advances,  Lender is  relying  on all
         representations,  warranties,  and  covenants  made by Borrower in this
         Agreement  or in any  certificate  or  other  instrument  delivered  by
         Borrower  to Lender  under this  Agreement  or the  Related  Documents.


<PAGE>

         Borrower  further agrees that regardless of any  investigation  made by
         Lender, all such representations. warranties and covenants will survive
         the  extension  of Loan  Advances and delivery to Lender of the Related
         Documents,  shall be  continuing  in nature,  shall be deemed  made and
         redated by  Borrower at the time each Loan  Advance is made,  and shall
         remain  in  full  force  and  effect  until  such  time  as  Borrower's
         Indebtedness  shall be paid in full, or until this  Agreement  shall be
         terminated  in the  manner  provided  above,  whichever  is the last to
         occur.

         Time is of the Essence.  Time is of the essence in the  performance  of
         this Agreement.


DEFINITIONS.  The following capitalized words and terms shall have the following
meanings  when  used  in  this  Agreement.  Unless  specifically  stated  to the
contrary, all references to dollar amounts shall mean amounts in lawful money of
the United States of America. Words and terms used in the singular shall include
the  plural,  and the plural  shall  include  the  singular,  as the context may
require.  Words and terms not otherwise defined in this Agreement shall have the
meanings  attributed to such terms in the Uniform  Commercial  Code.  Accounting
words and terms not otherwise  defined in this Agreement shall have the meanings
assigned to them in accordance with generally accepted accounting  principles as
in effect on the date of this Agreement:

         Advance. The word "Advance" means a disbursement of Loan funds made, or
         to be made, to Borrower or on Borrower's  behalf on a line of credit or
         multiple   advance  basis  under  the  terms  and  conditions  of  this
         Agreement.

         Agreement.  The word "Agreement" means this Business Loan Agreement, as
         this  Business  Loan  Agreement may be amended or modified from time to
         time,  together  with  all  exhibits  and  schedules  attached  to this
         Business Loan Agreement from time to time.

         Borrower. The word "Borrower" means MICROPAC INDUSTRIES,  INC., and all
         other persons and entities signing the Note in whatever capacity.

         Collateral. The word "Collateral" means all property and assets granted
         as collateral  security for a Loan,  whether real or personal property,
         whether granted  directly or indirectly,  whether granted now or in the
         future,  and  whether  granted  in the  form  of a  security  interest,
         mortgage, collateral mortgage, deed of trust, assignment,  pledge, crop
         pledge, chattel mortgage,  collateral chattel mortgage,  chattel trust,
         factor's lien, equipment trust,  conditional sale, trust receipt, lien,
         charge, lien or title retention contract, lease or consignment intended
         as  a  security  device,   or  any  other  security  or  lien  interest
         whatsoever, whether created by law, contract, or otherwise.

         Environmental  Laws.  The words  "Environmental  Laws" mean any and all
         state, federal and local statutes,  regulations and ordinances relating
         to the protection of human health or the environment, including without
         limitation the Comprehensive Environmental Response,  Compensation, and
         Liability  Act of 1980,  as amended,  42 U.S.C.  Section  9601, et seq.
         ("CERCLA"),  the Superfund  Amendments and Reauthorization Act of 1986,
         Pub. L. No. 99-499  ("SARA"),  the Hazardous  Materials  Transportation
         Act, 49 U.S.C.  Section 1801, et seq.,  the Resource  Conservation  and
         Recovery Act, 42 U.S.C.  Section  6901,  at seq.,  or other  applicable
         state or federal laws, rules, or regulations adopted pursuant thereto.

         Event of Default.  The words "Event of Default"  mean any of the events
         of default set forth in this  Agreement in the default  section of this
         Agreement.

         GAAP. The word "GAAP" means generally accepted accounting principles.

         Grantor.  The  word  "Grantor"  means  each and all of the  persons  or
         entities  granting a Security  Interest in any Collateral for the Loan,
         including  without  limitation  all Borrowers  granting such a Security
         Interest.

         Guarantor.  The  word  "Guarantor"  means  any  guarantor,  surety,  or
         accommodation party of any or all of the Loan.

         Guaranty.  The word  "Guaranty"  means the guaranty  from  Guarantor to
         Lender,  including without  limitation a guaranty of all or part of the
         Note.

         Hazardous Substances.  The words "Hazardous  Substances" mean materials
         that, because of their quantity, concentration or physical, chemical or
         infectious  characteristics,  may cause or pose a present or  potential
         hazard  to  human  health  or the  environment  when  improperly  used,
         treated, stored, disposed of, generated,  manufactured,  transported or
         otherwise handled.  The words "Hazardous  Substances" are used in their


<PAGE>

         very  broadest  sense  and  include  without  limitation  any  and  all
         hazardous  or toxic  substances,  materials  or waste as  defined by or
         listed under the  Environmental  Laws. The term "Hazardous  Substances"
         also includes, without limitation,  petroleum and petroleum by-products
         or any fraction thereof and asbestos.

         Indebtedness.  The word "Indebtedness" means the indebtedness evidenced
         by the Note or Related Documents,  including all principal and interest
         together with all other  indebtedness  and costs and expenses for which
         Borrower  is  responsible  under  this  Agreement  or under  any of the
         Related Documents.

         Lender. The word "Lender" means THE FROST NATIONAL BANK, its successors
         and assigns.

         Loan.   The  word  "Loan"  means  any  and  all  loans  and   financial
         accommodations  from  Lender  to  Borrower  whether  now  or  hereafter
         existing,  and however  evidenced,  including without  limitation those
         loans and financial accommodations described herein or described on any
         exhibit or schedule attached to this Agreement from time to time.

         Note.  The word "Note" means the Note executed by MICROPAC  INDUSTRIES,
         INC.  in the  principal  amount of  $3,000,000.00  dated  June 6, 2003,
         together  with  all  renewals  of,  extensions  of,  modifications  of,
         refinancings of,  consolidations  of, and substitutions for the note or
         credit agreement.

         Permitted  Liens.  The  words  "Permitted  Liens"  mean (1)  liens  and
         security  interests  securing  Indebtedness owed by Borrower to Lender;
         (2) liens for taxes, assessments, or similar charges either not yet due
         or being contested in good faith; (3) liens of materialmen,  mechanics,
         warehousemen,  or carriers, or other like liens arising in the ordinary
         course  of  business  and  securing   obligations  which  are  not  yet
         delinquent;  (4)  purchase  money  liens  or  purchase  money  security
         interests  upon or in any property  acquired or held by Borrower in the
         ordinary course of business to secure  indebtedness  outstanding on the
         date of this  Agreement or permitted to be incurred under the paragraph
         of this  Agreement  titled  "Indebtedness  and  Liens";  (5)  liens and
         security  interests which, as of the date of this Agreement,  have been
         disclosed to and approved by the Lender in writing; and (6) those liens
         and security interests which in the aggregate  constitute an immaterial
         and  insignificant  monetary  amount  with  respect to the net value of
         Borrower's assets.

         Related  Documents.  The words "Related  Documents" mean all promissory
         notes, credit agreements,  loan agreements,  environmental  agreements,
         guaranties,  security agreements,  mortgages,  deeds of trust, security
         deeds, collateral mortgages. and all other instruments,  agreements and
         documents,  whether now or hereafter  existing,  executed in connection
         with the Loan.

         Security  Agreement.  The words  "Security  Agreement" mean and include
         without limitation any agreements,  promises, covenants,  arrangements,
         understandings or other agreements,  whether created by law,  contract,
         or  otherwise,  evidencing,  governing,  representing,  or  creating  a
         Security Interest.

         Security  Interest.   The  words  "Security   Interest"  mean,  without
         limitation,  any and all  types of  collateral  security,  present  and
         future, whether in the form of a lien. charge,  encumbrance,  mortgage,
         deed of trust, security deed, assignment.  pledge, crop pledge, chattel
         mortgage,  collateral chattel mortgage,  chattel trust,  factor's lien,
         equipment  trust,  conditional  sale,  trust  receipt,  lien  or  title
         retention contract, lease or consignment intended as a security device,
         or any other security or lien interest  whatsoever  whether  created by
         law, contract, or otherwise.

         Tangible  Net Worth.  The words  "Tangible  Net Worth" mean  Borrower's
         total  assets   excluding  all  intangible   assets  (i.e.,   goodwill,
         trademarks,  patents, copyrights,  organizational expenses, and similar
         intangible items, but including leaseholds and leasehold  improvements)
         less total debt.

         Trade  Receivables.The words "Trade Receivables" mean all of Borrower's
         accounts from trade, net of allowance for doubtful accounts.


BORROWER  ACKNOWLEDGES  HAVING READ ALL THE  PROVISIONS  OF THIS  BUSINESS  LOAN
AGREEMENT AND BORROWER  AGREES TO ITS TERMS.  THIS  BUSINESS  LOAN  AGREEMENT IS
DATED JUNE 6, 2003.



BORROWER:

MICROPAC INDUSTRIES, INC.