<PAGE>
                                                                    Exhibit 10.1
--------------------------------------------------------------------------------




                               CREDIT AGREEMENT


                                 by and among


                            ACT MANUFACTURING, INC.
                               (THE "BORROWER"),

                   ACT MANUFACTURING SECURITIES CORPORATION
                         (THE "SUBSIDIARY GUARANTOR"),

                     THE LENDING INSTITUTIONS PARTY HERETO
                               (THE "LENDERS"),

                                      AND

                           THE CHASE MANHATTAN BANK,
      AS ADMINISTRATIVE, DOCUMENTATION, COLLATERAL AND SYNDICATION AGENT
                                 (THE "AGENT")



                         DATED AS OF OCTOBER 14, 1998




--------------------------------------------------------------------------------
<PAGE>
 
                                TABLE OF CONTENTS

                                                                          Page 

 ARTICLE 1.     DEFINITIONS; ACCOUNTING TERMS ...........................   1
 Section 1.01.  Definitions .............................................   1
 Section 1.02.  Accounting Principles ...................................  18
 Section 1.03.  Directly or Indirectly ..................................  18
 Section 1.04.  Construction ............................................  18
 ARTICLE 2.     THE CREDIT ..............................................  18
 Section 2.01.  The Revolving Credit Loans ..............................  18
 Section 2.02.  Making the Revolving Credit Loans .......................  19
 Section 2.03.  Principal Repayment of Revolving Credit Loans ...........  19
 Section 2.04.  Permitted Acquisitions ..................................  20
 Section 2.05.  Mandatory Prepayments ...................................  20
 Section 2.06.  Interest ................................................  22
 Section 2.07.  Eurodollar Interest Periods .............................  22
 Section 2.08.  Conversions .............................................  22
 Section 2.09.  Voluntary Prepayments ...................................  23
 Section 2.10.  Uncollected Funds Compensation ..........................  23
 Section 2.11.  Termination of Revolving Credit Commitments .............  23
 Section 2.12.  Certain Notices .........................................  23
 Section 2.13.  Calculation of Borrowing Base ...........................  24
 Section 2.14.  Settlement Between Agent and Lenders ....................  24
 Section 2.15.  Fees ....................................................  24
 Section 2.16.  Payments Generally ......................................  25
 Section 2.17.  Purpose .................................................  25
 ARTICLE 3.     YIELD PROTECTION; ILLEGALITY; ETC .......................  25
 Section 3.01.  Additional Costs ........................................  25
 Section 3.02.  Limitation on Types of Loans ............................  26
 Section 3.03.  Illegality ..............................................  27
 Section 3.04.  Certain Base Rate Loans pursuant to(S)(S) 3.01 and 3.03 .  27
 Section 3.05.  Certain Compensation.....................................  27
 Section 3.06.  Mitigation Obligations ..................................  27

                                      -i-
<PAGE>
 
                              TABLE OF CONTENTS 

                                  (continued)
                                                                          Page


 ARTICLE 4.     CONDITIONS PRECEDENT ....................................  28
 Section 4.01.  Documentary Conditions Precedent ........................  28
 Section 4.02.  Additional Conditions Precedent .........................  30
 Section 4.03.  Deemed Representations ..................................  30
 ARTICLE 5.     REPRESENTATIONS AND WARRANTIES ..........................  30
 Section 5.01.  Incorporation, Good Standing and Due Qualification ......  30
 Section 5.02.  Corporate Power and Authority; No Conflicts .............  31
 Section 5.03.  Legally Enforceable Agreements ..........................  31
 Section 5.04.  Litigation ..............................................  31
 Section 5.05.  Financial Statements ....................................  31
 Section 5.06.  Ownership and Liens .....................................  31
 Section 5.07.  Existing Indebtedness ...................................  32
 Section 5.08.  Taxes ...................................................  32
 Section 5.09.  ERISA ...................................................  32
 Section 5.10.  Subsidiaries and Affiliates .............................  32
 Section 5.11.  Operation of Business ...................................  32
 Section 5.12.  No Default on Outstanding Judgments or Orders ...........  32
 Section 5.13.  No Defaults on Other Agreements .........................  32
 Section 5.14.  Labor Disputes and Acts of God ..........................  33
 Section 5.15.  Investment Company Act ..................................  33
 Section 5.16.  Environmental Matters ...................................  33
 Section 5.17.  Regulation U ............................................  33
 Section 5.18.  No Guaranties or Indemnities ............................  33
 ARTICLE 6.     AFFIRMATIVE COVENANTS ...................................  33
 Section 6.01.  Maintenance of Existence ................................  33
 Section 6.02.  Conduct of Business......................................  33
 Section 6.03.  Maintenance of Properties ...............................  33
 Section 6.04.  Maintenance of Records; Fiscal Year .....................  33
 Section 6.05.  Maintenance of Insurance ................................  34
 Section 6.06.  Compliance with Laws.....................................  34

                                     -ii-
<PAGE>
 
                               TABLE OF CONTENTS

                                  (continued)

                                                                          Page 


 Section 6.07.  Right of Inspection......................................  34
 Section 6.08.  Reporting Requirements ..................................  34
 Section 6.09.  Special Periodic Reports ................................  36
 Section 6.10.  Reports on Disputes and Federal Contracts ...............  36
 Section 6.11.  Physical Inventories; Inventory and Equipment
                   Appraisals and Field  Audits .........................  37
 Section 6.12.  Cooperation and Further Assurance .......................  37
 Section 6.13.  Deposits Into Collateral Account ........................  37
 Section 6.14.  Lock Box Operation ......................................  37
 Section 6.15.  Year 2000 Compliance.....................................  37
 ARTICLE 7.     NEGATIVE COVENANTS ......................................  38
 Section 7.01.  Sale of Assets ..........................................  38
 Section 7.02.  Stock of Subsidiaries, Etc ..............................  38
 Section 7.03.  Mergers, Etc ............................................  38
 Section 7.04.  Dividends ...............................................  38
 Section 7.05.  Liens ...................................................  38
 Section 7.06.  Transactions with Affiliates.............................  39
 Section 7.07.  Hazardous Materials; Indemnification ....................  39
 Section 7.08.  Acquisitions ............................................  40
 Section 7.09.  Subsidiaries ............................................  40
 Section 7.10.  Certain Investments......................................  40
 Section 7.11.  Indebtedness ............................................  40
 Section 7.12.  Guarantees, Etc .........................................  40
 Section 7.13.  Subordinated Indebtedness ...............................  41
 Section 7.14.  Restrictive Agreements ..................................  41
 Section 7.15.  Capital Expenditures.....................................  41
 Section 7.16.  Foreign Exchange Obligations.............................  41
 ARTICLE 8.     FINANCIAL COVENANTS .....................................  42
 Section 8.01.  Minimum Availability.....................................  42
 Section 8.02.  Fixed Charge Coverage Ratio .............................  42

                                     -iii-
<PAGE>
 
                               TABLE OF CONTENTS

                                  (continued)


                                                                          Page

 Section 8.03.  Leverage Ratio ..........................................  42
 Section 8.04.  Minimum Net Income ......................................  42
 ARTICLE 9.     EVENTS OF DEFAULT .......................................  43
 Section 9.01.  Events of Default .......................................  43
 Section 9.02.  Remedies ................................................  44
 ARTICLE 10.    GUARANTY ................................................  45
 Section 10.01. The Guarantee ...........................................  45
 Section 10.02. Obligations Unconditional ...............................  45
 Section 10.03. Reinstatement ...........................................  46
 Section 10.04. Subrogation..............................................  46
 Section 10.05. Remedies ................................................  46
 Section 10.06. Instrument for the Payment of Money .....................  46
 Section 10.07. Continuing Guarantee ....................................  46
 Section 10.08. General Limitation on Guarantee Obligations .............  46
 ARTICLE 11.    THE AGENT; RELATIONS AMONG LENDERS AND BORROWER .........  47
 Section 11.01. Appointment, Powers and Immunities of Agent .............  47
 Section 11.02. Reliance by Agent .......................................  47
 Section 11.03. Defaults ................................................  47
 Section 11.04. Rights of Agent as a Lender .............................  48
 Section 11.05. Indemnification of Agent ................................  48
 Section 11.06. Documents ...............................................  48
 Section 11.07. Non-Reliance on Agent and Other Lenders .................  48
 Section 11.08. Failure of Agent to Act .................................  49
 Section 11.09. Resignation or Removal of Agent .........................  49
 Section 11.10. Amendments Concerning Agency Function ...................  49
 Section 11.11. Liability of Agent ......................................  49
 Section 11.12. Transfer of Agency Function .............................  49
 Section 11.13. Non-Receipt of Funds by the Agent .......................  49
 Section 11.14. Withholding Taxes .......................................  50
 Section 11.15. Several Obligations and Rights of Lenders ...............  50


                                     -iv-
<PAGE>
 
                               TABLE OF CONTENTS

                                  (continued)


                                                                          Page


 Section 11.16.  Pro Rata Treatment of Loans, Etc .......................  50
 Section 11.17.  Sharing of Payments Among Lenders ......................  51
 Section 11.18.  Enforcement of Facility Documents ......................  51
 Section 11.19.  Borrowing Base Statements, Etc .........................  52
 ARTICLE 12.     MISCELLANEOUS ..........................................  52
 Section 12.01.  Amendments and Waivers .................................  52
 Section 12.02.  Usury ..................................................  52
 Section 12.03.  Expenses ...............................................  52
 Section 12.04.  Survival ...............................................  53
 Section 12.05.  Assignment; Participations .............................  53
 Section 12.06.  Notices ................................................  55
 Section 12.07.  Table of Contents; Headings ............................  55
 Section 12.08.  Severability ...........................................  55
 Section 12.09.  Counterparts ...........................................  55
 Section 12.10.  Governing Law ..........................................  56
 Section 12.11.  Incorporation By Reference; Conflicts ..................  56
 Section 12.12.  Jurisdiction, Venue and Service ........................  56
 Section 12.13.  Waiver of Jury Trial ...................................  56
 

                                      -v-
<PAGE>
 
                             EXHIBITS AND SCHEDULES



Exhibit A           Form of Revolving Credit Note
Exhibit B           Form of Authorization Letter
Exhibit C           Form of Weekly Collateral Certificate
Exhibit D           Form of Monthly Borrowing Base Certificate
Exhibit E           Form of Security Agreement
Exhibit F           Form of Pledge Agreement
Exhibit G           Form of Assignment and Acceptance
Exhibit H           Form of Opinion of Counsel
Exhibit I           Form of Compliance Certificate
Exhibit J           Form of Irish Share Pledge Agreement



Schedule I          List of Lenders and Revolving Credit Commitments
Schedule 2.17       List of Indebtedness to be Refinanced
Schedule 4.01(a)    List of Security Documents
Schedule 4.01(p)    List of Equipment Leases
Schedule 5.04       List of Pending or Threatened Litigation
Schedule 5.06       List of Outstanding Liens
Schedule 5.07       List of Outstanding Indebtedness, Guaranties and Indemnities
Schedule 5.10       List of Subsidiaries and Affiliates
<PAGE>
 
                               CREDIT AGREEMENT

                                        
     CREDIT AGREEMENT dated as of October 14, 1998 among ACT MANUFACTURING,
INC., a Massachusetts corporation (the "Borrower"), ACT MANUFACTURING SECURITIES
                                        --------                                
CORPORATION, a Massachusetts corporation (the "Subsidiary Guarantor"), the
                                               --------------------       
financial institutions identified on Schedule I hereto (the "Initial Lenders")
                                     ----------              ---------------  
and such other financial institutions as may from time to time become parties
hereto, as lenders, and THE CHASE MANHATTAN BANK, as administrative,
documentation, collateral and syndication agent for the Lenders (in such
capacities, together with its successors in such capacities, the "Agent").
                                                                  -----   


                   ARTICLE 1.  DEFINITIONS; ACCOUNTING TERMS

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

     "Account" means any account receivable or right of the Borrower or any of
      -------                                                                 
its Subsidiaries to payment for goods sold or leased or for services rendered,
regardless of how such right is evidenced and whether or not it has been earned
by performance, whether secured or unsecured, now existing or hereafter arising,
and the proceeds thereof.

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

     "Adjusted Base Rate" means, for any day, an interest rate per annum
      ------------------                                                
(rounded upwards, if necessary), to the next 1/16 of 1%) equal to the greater of
(a) the Prime Rate in effect on such day, and (b) the Federal Funds Rate in
effect on such day plus  1/2 of 1%.  Any change in the Adjusted Base Rate due to
                   ----                                                         
a change in the Prime Rate or the Federal Funds Rate shall be effective from and
including the effective date of such change in the Prime Rate or the Federal
Funds Rate, respectively.

     "Adjusted Eurodollar Rate" means, with respect to any Borrowing for any
      ------------------------                                              
Eurodollar Interest Period, an interest rate per annum (rounded upwards, if
necessary), to the next 1/16 of 1%) equal to (a) the Eurodollar Rate for such
Eurodollar Interest Period multiplied by (b) the Statutory Reserve Rate.

     "Affiliate" means any Person which directly or indirectly through one or
      ---------                                                              
more intermediaries Controls, or is Controlled by, or is under common Control
with, the Borrower.

     "Agent" has the meaning set forth in the preamble to this Agreement.
      -----                                                              
<PAGE>
 
     "Agreement" means this Credit Agreement, as amended or supplemented from
      ---------                                                              
time to time.  References to Articles, Sections, Exhibits, Schedules and the
like refer to the Articles, Sections, Exhibits, Schedules and the like of this
Agreement unless otherwise indicated.

     "Applicable Commitment Fee Rate" means a rate of interest per year
      ------------------------------                                   
(expressed in basis points), equal to:

     (a) For the period from the date hereof through December 31, 1998, thirty-
seven and one-half (37.5) basis points.

     (b) For each of the Fiscal Quarters ended March 31, 1999, June 30, 1999 and
September 30, 1999, and the two month period ended November 30, 1999, the
Applicable Commitment Fee Rate set forth below which corresponds to the Average
Availability of the Borrower for the most recently ended Fiscal Quarter:

--------------------------------------------------------------------------------
                                          Applicable Commitment Fee Rate
       Average Availability                   in Basis Points per year
--------------------------------------------------------------------------------
 Less than $7,500,000                                   50
--------------------------------------------------------------------------------
 Greater than or equal to $7,500,000                    
 but less than $17,501,000                             37.5
--------------------------------------------------------------------------------
 Greater than $17,501,000                               25
--------------------------------------------------------------------------------

     (c) For each Applicable Commitment Fee Rate Period (as defined below)
commencing with the Payment Period starting on December 1, 1999, the Applicable
Commitment Fee Rate set forth below which corresponds to the Leverage Ratio of
the Borrower as of the most recently ended Fiscal Quarter:

--------------------------------------------------------------------------------
                                          Applicable Commitment Fee Rate
          Leverage Ratio                      in Basis Points per year
--------------------------------------------------------------------------------
 Greater than 2.74:1.00                                 50
--------------------------------------------------------------------------------
 Greater than or equal to 2.50:1.00                    37.5
 but less than or equal to 2.74:1.00
--------------------------------------------------------------------------------
 Less than 2.50:1.00                                    25
--------------------------------------------------------------------------------

Anything in this Agreement to the contrary notwithstanding, after the occurrence
and during the continuance of any Default or Event of Default, then the
Applicable Commitment Fee Rate shall equal fifty (50) basis points.

     "Applicable Commitment Fee Rate Period" means each period beginning on the
      -------------------------------------                                    
first Banking Day of the month following the date on which the Agent receives
the Compliance Certificate required to be delivered by the Borrower pursuant to
(S) 6.08(d) and the corresponding financial statements required to 

                                      -2-
<PAGE>
 
be delivered by the Borrower pursuant to (S) 6.08(b) for the most recently ended
Fiscal Quarter, and ending on the day immediately preceding the commencement of
the Applicable Commitment Fee Rate Period.

     "Applicable Margin" means the Base Rate Margin in respect of each Base Rate
      -----------------                                                         
Loan and the Eurodollar Margin in respect of each Eurodollar Loan.

     "Assignment and Acceptance" means an assignment and acceptance entered into
      -------------------------                                                 
by a Lender and an Eligible Assignee and accepted by the Agent in accordance
with (S) 11.05 and in substantially the form of Exhibit G hereto.
                                                ---------        

     "Authorization Letter" means the letter agreement executed by the Borrower
      --------------------                                                     
in the form of Exhibit B hereto.
               ---------        

     "Availability" means, as of any date of determination thereof, the amount
      ------------                                                            
by which (a) the Borrowing Base exceeds (b) the sum of the outstanding amount of
all Revolving Credit Loans, the Letter of Credit Exposure, all Reimbursement
Obligations, the Foreign Exchange Exposure, the Interest Rate Protection Reserve
and accrued interest, fees, charges and expenses.

     "Available Funds" means all deposits in the Collateral Account which shall
      ---------------                                                          
have been made by 2:00 p.m. on a Banking Day, or such later time in any Banking
Day as the Agent shall have expressly consented to.

     "Average Availability" means, for any Fiscal Quarter of the Borrower, the
      --------------------                                                    
average daily Availability during such period.  In determining "Average
Availability" the Agent shall rely upon (a) the Weekly Collateral Certificates
required to be delivered to the Agent by the Borrower pursuant to Section 6.09
hereof, and (b) the actual daily outstanding amount of all Revolving Credit
Loans, the Letter of Credit Exposure, all Reimbursement Obligations, the Foreign
Exchange Exposure, the Interest Rate Protection Reserve and accrued interest,
fees, charges and expenses.

     "BancBoston Leasing LC" means that certain standby Letter of Credit issued
      ---------------------                                                    
by Chase for the account of the Borrower and for the benefit of BancBoston
Leasing, Inc. in the principal amount of $750,000.

     "Banking Day" means any day on which commercial banks are not authorized or
      -----------                                                               
are not required to be closed in New York, New York and whenever such day
relates to a Eurodollar Loan or notice with respect to any Eurodollar Loan, a
day on which dealings in Dollar deposits are also carried out in the London
interbank market.

     "Base Rate Loan" means any Loan hereunder bearing interest at a rate based
      --------------                                                           
upon the Adjusted Base Rate.

     "Base Rate Margin" means a rate of interest per year (expressed in basis
      ----------------                                                       
points) equal to:

     (a) For the period from the date hereof through December 31, 1998, twenty-
five (25) basis points.

     (b) For each of the Fiscal Quarters ended March 31, 1999, June 30, 1999 and
September 30, 1999, and the two month period ended November 30, 1999, the Base
Rate Margin set forth below which corresponds to the Average Availability of the
Borrower for the most recently ended Fiscal Quarter:

                                      -3-
<PAGE>
 
--------------------------------------------------------------------------------
                                                 Base Rate Margin
         Average Availability                in Basis Points per year
--------------------------------------------------------------------------------
 Less than $4,000,000                                   75
--------------------------------------------------------------------------------
 Greater than or equal to $4,000,000                    
 but less than $7,501,000                               50
--------------------------------------------------------------------------------
 Greater than or equal to $7,501,000                    
 but less than $20,000,000                              25
--------------------------------------------------------------------------------
 Greater than $20,000,000                                0
--------------------------------------------------------------------------------

     (c) For each Base Rate Margin Period (as defined below) commencing with the
Base Rate Margin Period starting on December 1, 1999, the Base Rate Margin set
forth below which corresponds to the Leverage Ratio of the Borrower as of the
most recently ended Fiscal Quarter:

--------------------------------------------------------------------------------
                                                  Base Rate Margin
          Leverage Ratio                      in Basis Points per year
--------------------------------------------------------------------------------
 Greater than 2.74:1.00                                 50
--------------------------------------------------------------------------------
 Greater than or equal to 2.25:1.00                     
 but less than or equal to 2.74:1.00                    25
--------------------------------------------------------------------------------
 Less than 2.25:1.00                                     0
--------------------------------------------------------------------------------

     "Base Rate Margin Period" means each period beginning on the first Banking
      -----------------------                                                  
Day of the month following the date on which the Agent receives the Compliance
Certificate required to be delivered by the Borrower pursuant to (S) 6.08(d) and
the corresponding financial statements required to be delivered by the Borrower
pursuant to (S) 6.08(b) for most recently ended Fiscal Quarter, and ending on
the day immediately preceding the commencement of the next Base Rate Margin
Period.

     "Borrower" means the entity identified as the "Borrower" in the preamble to
      --------                                                                  
this Agreement, together with any and all of its successors and assigns.

     "Borrowing Base" means the sum in United States Dollars of the following
      --------------                                                         
determined as of the latest Borrowing Base Certificate delivered to the Agent:

          (a)  up to 85% of the aggregate amount of Qualified Accounts, plus

          (b)  the lesser of (i) $15,000,000 and (ii) the sum of (A) up to 60%
               of the aggregate amount of Qualified Raw Material and Finished
               Goods Inventory and (B) the lesser of (1) up to 25% of the
               aggregate amount of Qualified Excess Inventory and (2) the
               Qualified Excess Inventory Cap Amount;

                                      -4-
<PAGE>
 
in each case as calculated by the Agent from time to time; provided, however,
that the Agent, in its sole discretion, may on notice to the Borrower
redetermine the Borrowing Base including, but not limited to, altering the
percentages of Qualified Accounts, Qualified Raw Material and Finished Goods
Inventory, and Qualified Excess Inventory Value included in the Borrowing Base.

     "Borrowing Base Certificate" means and includes the Weekly Collateral
      --------------------------                                          
Certificate delivered by the Borrower to the Agent in substantially the form of
Exhibit C and the Monthly Borrowing Base Certificate delivered by the Borrower
---------                                                                     
to the Agent in substantially the form of Exhibit D.
                                          --------- 

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

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

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

     "Cash Equivalents" means any of the following, to the extent owned by the
      ----------------                                                        
Borrower or any of its Subsidiaries free and clear of all Liens other than Liens
created under the Security Documents: (a) readily marketable direct obligations
of the Government of the United States or any agency or instrumentality thereof
or obligations unconditionally guaranteed by the full faith and credit of the
Government of the United States having a maturity of not greater than 360 days
from the date of issuance thereof: (b) insured certificates of deposit of, or
time deposits having a maturity of not greater than 360 days from the date of
issuance thereof with, any commercial bank that is a Lender or a member of the
Federal Reserve System, issues (or the parent of which issues) commercial paper
rated as described in clause (c), is organized under the laws of the United
States or any State thereof and has combined capital and surplus of at least $1
billion; or (c) commercial paper having a maturity of not greater than 180 days
from the date of issuance thereof in an aggregate amount of no more than
$2,500,000 per issuer outstanding at any time, issued by any corporation
organized under the laws of any State of the United States and rated at least
"Prime-1" (or the then equivalent grade) by Moody's Investors Service, Inc. or
"A-1" (or the then equivalent grade) by Standard & Poor's Ratings Group.

     "Casualty Event" means with respect to any property or asset of any person,
      --------------                                                            
any loss of or damage to, or any condemnation or other taking of, such property
or asset for which such person receives insurance proceeds, or proceeds of a
condemnation award or other compensation.

     "Chase" means The Chase Manhattan Bank.
      -----                                 

     "Chase Office" means the office of Chase at One Chase Square, Rochester,
      ------------                                                           
New York, 14643.

     "Closing Date" means the date this Agreement has been executed by the
      ------------                                                        
Borrower, the Subsidiary Guarantor, the Initial Lenders and the Agent.

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

                                      -5-
<PAGE>
 
     "Collateral" has the same meaning as ascribed to such term in the Security
      ----------                                                               
Documents.

     "Collateral Account" means, collectively, any account of the Borrower
      ------------------                                                  
maintained at Chase as an account into which all proceeds of Collateral shall be
deposited pursuant to and under the Security Agreements, as modified and amended
from time to time, and pursuant to any Lock Box Agreement which the Borrower or
any of its Subsidiaries may enter into with Chase.

     "Control" and "Controls" means the possession, directly or indirectly, of
      -------       --------                                                  
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of Voting Stock, by contract or holding or
owning the power to vote, or possessing the power to direct any right to vote,
or as an officer, director, employee or management consultant or other
arrangement where there is the power to direct or cause the direction of the
management and policies of a Person, and "Controlled" means to be under the
                                          ----------                       
Control of another Person.

     "Controlled Disbursements Account" means, collectively, the following
      --------------------------------                                    
accounts: ACT Manufacturing, Inc. account #6301-494-203-509 maintained at Chase
with respect to the Borrower's Massachusetts operations, ACT Manufacturing, Inc.
account #6301-494-203-509 maintained at Chase with respect to the Borrower's
Georgia operations, and any subsequent accounts of the Borrower maintained at
Chase as a zero balance, cash management account pursuant to and under
controlled disbursement service agreements between the Borrower and Chase, and
through which all disbursements by the Borrower and any designated Subsidiaries
are made and settled on a daily basis with no uninvested balance remaining
overnight.

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

     "Default Margin" means (a) 375 basis points in respect of each Base Rate
      --------------                                                         
Loan and (b) 575 basis points in respect of each Eurodollar Loan.

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

     "EBITDA" means for any period and in respect of any Person the sum of (a)
      ------                                                                  
the net income of such Person for such period computed in accordance with GAAP,
plus (b) Interest Expense of such Person for such period, plus (c) the income
tax expense, as reported, of such Person for such period, plus (d) the amount
reported as the depreciation of the assets of such Person for such period
computed in accordance with GAAP, plus (e) the amount reported as the
amortization of intangibles assets of such Person for such period computed in
accordance with GAAP, and plus (f) all cash and non-cash extraordinary expenses
and losses of such Person for such period computed in accordance with GAAP,
minus (g) all cash and non-cash extraordinary income and gains of such Person
for such period, in each case as such item is used in the computation of such
Person's net income for such period.

     "Effective Date" means the date on which all conditions under Article 4
      --------------                                                        
shall be fully satisfied.

     "Eligible Assignee" means: (a) a Lender; (b) an Affiliate of a Lender; (c)
      -----------------                                                        
a commercial bank organized under the laws of the United States, or any State
thereof, and having total assets in excess of $1,000,000,000; (d) a savings and
loan association or savings bank organized under the laws of the United States,
or any State thereof, and having total assets in excess of $1,000,000,000; (e) a
commercial bank organized under the laws of any other country that is a member
of the OECD or has concluded special lending arrangements with the International
Monetary Fund associated with its General Arrangements to Borrow or of the
Cayman Islands, or a political subdivision of any such country, and having total
assets in excess of $1,000,000,000, so long as such bank is acting through a
branch or agency 

                                      -6-
<PAGE>
 
located in the United States; (f) the central bank of any country that is a
member of the OECD; (g) a finance company, insurance company or other financial
institution or fund (whether a corporation, partnership, trust or other entity)
that is engaged in making, purchasing or otherwise investing in commercial loans
in the ordinary course of its business and having total assets in excess of
$1,000,000,000; and (h) any other Person approved by the Agent and the Borrower,
such approval not to be unreasonably withheld or delayed; provided that no such
                                                          --------
approval of the Borrower shall be required after the occurrence and during the
continuance of a Default); and provided further, that neither the Borrower nor
                               -------- ------- 
any of its Affiliates shall qualify as an Eligible Assignee under this
definition.

     "Environmental Law" shall mean the Comprehensive Environmental Response,
      -----------------                                                      
Compensation and Liability Act, 42 U.S.C. Sections 9601-9657, as amended by the
Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499, 100
Stat. 1613 (October 17, 1986), the Resource Conservation and Recovery Act, 42
U.S.C. Sections 6991-6991i, as amended by the Superfund Amendments and
Reauthorization Act of 1986, Pub. L. No. 99-499, 100 Stat. 1613 (October 17,
1986), as the same may be amended from time to time, and any other presently
existing or hereafter enacted or decided federal, state or local statutory or
common laws relating to pollution or protection of the environment, including
without limitation, any common law of nuisance or trespass, and any law or
regulation relating to emissions, discharges, releases or threatened release of
pollutants, contaminants or chemicals or industrial, toxic or hazardous
substances or wastes into the environment (including without limitation, ambient
air, surface water, groundwater, land surface or subsurface strata) or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants or chemicals, or
industrial, toxic or hazardous substances or wastes.

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

     "ERISA Affiliate" means any corporation or trade or business which is a
      ---------------                                                       
member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Borrower or is under common control (within
the meaning of Section 414(c) of the Code) with the Borrower.

     "Eurodollar Loan" means any Loan Tranche when and to the extent the
      ---------------                                                   
interest rate therefor is determined on the basis of the "Eurodollar Rate."

     "Eurodollar Interest Payment Date" means with respect to any Eurodollar
      --------------------------------                                      
Loan the last day of the Eurodollar Interest Period applicable to such
Eurodollar Loan and each day prior to the last day of such Eurodollar Interest
Period that occurs at intervals of three months' duration after the first day of
such Eurodollar Interest Period.

     "Eurodollar Interest Period" means the period of time commencing on the day
      --------------------------                                                
a Eurodollar Rate is made applicable to a Loan Tranche and ending on the
numerically corresponding day in the first, second, third or sixth calendar
month thereafter, as the Borrower may select pursuant to (S)(S)  2.07 and 2.08,
provided that each such Eurodollar Interest Period which commences on the last
Banking Day of a calendar month (or on any day for which there is no numerically
corresponding day in the appropriate subsequent calendar month) shall end on the
last Banking Day of the appropriate calendar month; and provided that until such
time as Chase completes its initial syndication of the Loans to a group of banks
acceptable to Chase, the Borrower shall not be entitled to select any Eurodollar
Interest Period having a duration longer than one month.

     "Eurodollar Margin" means a rate of interest per year (expressed in basis
      -----------------                                                       
points) equal to:

                                      -7-
<PAGE>
 
     (a)  For the period from the date hereof through December 31, 1998, two
hundred twenty-five (225) basis points.

     (b)  For each of the Fiscal Quarters ended March 31, 1999, June 30, 1999
and September 30, 1999, and the two month period ended November 30, 1999, the
Eurodollar Margin set forth below which corresponds to the Average Availability
of the Borrower for the most recently ended Fiscal Quarter:

--------------------------------------------------------------------------------
                                                 Eurodollar Margin
          Average Availability               in Basis Points per year
--------------------------------------------------------------------------------
 Less than $4,000,000                                   275
--------------------------------------------------------------------------------
 Greater than or equal to $4,000,000                     
 but less than $7,501,000                               250
--------------------------------------------------------------------------------
 Greater than or equal to $7,501,000                    
 but less than $17,501,000                              225
--------------------------------------------------------------------------------
 Greater than or equal to $17,501,000                   
 but less than $20,000,000                              200
--------------------------------------------------------------------------------
 Greater than $20,000,000                               175
--------------------------------------------------------------------------------

     (c)  For each Eurodollar Margin Period (as defined below) commencing with
the Eurodollar Margin Period starting on December 1, 1999, the Eurodollar Margin
set forth below which corresponds to the Leverage Ratio of the Borrower as of
the most recently ended Fiscal Quarter:

--------------------------------------------------------------------------------
                                                  Eurodollar Margin
           Leverage Ratio                      in Basis Points per year
--------------------------------------------------------------------------------
 Greater than 2.74:1.00                                 250
--------------------------------------------------------------------------------
 Greater than or equal to 2.50:1.00                     
 but less than or equal to 2.74:1.00                    225
--------------------------------------------------------------------------------
 Greater than or equal to 2.25:1.00                     
 but less than 2.50:1.00                                200
--------------------------------------------------------------------------------
 Greater than or equal to 2.00:1.00                     
 but less than 2.25:1.00                                175
--------------------------------------------------------------------------------
 Less than 2.00: 1.00                                   150
--------------------------------------------------------------------------------

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

                                      -8-
<PAGE>
 
     "Eurodollar Margin Period" means each period beginning on the first Banking
      ------------------------                                                  
Day of the month following the date on which the Agent receives the Compliance
Certificate required to be delivered by the Borrower pursuant to (S) 6.08(d) and
the corresponding financial statements required to be delivered by the Borrower
pursuant to (S) 6.08(b) for most recently ended Fiscal Quarter, and ending on
the day immediately preceding the commencement of the next Base Rate Margin
Period.

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

     "Event of Default" has the meaning given such term in (S) 9.01.
      ----------------                                              

     "Facility Documents" means this Credit Agreement, the Notes, the
      ------------------                                             
Authorization Letter, all Letter of Credit documents, all Interest Rate
Protection Agreements, all foreign exchange contracts and agreements between
Chase and the Borrower or any of its Subsidiaries, and all Security Documents.

     "Federal Funds Rate" means, for any day, the rate per annum (expressed on a
      ------------------                                                        
360 day basis of calculation) equal to the weighted average of the rates on
overnight federal funds transactions as published by the Federal Reserve Bank of
New York for such day (or for any day that is not a Banking Day, for the
immediately preceding Banking Day).

     "Fiscal Month" means each fiscal month of the Borrower.
      ------------                                          

     "Fiscal Quarter" means each of the fiscal three month periods commencing on
      --------------                                                            
the first day of the Fiscal Year and on the first day of each subsequent fiscal
three month period.

     "Fiscal Year" means the fiscal year period of the Borrower, each of which
      -----------                                                             
shall end on the thirty-first of December of each year.  "FY" followed by a year
                                                          --                    
means the Fiscal Year ending in that year.

     "Fixed Charge Coverage Ratio" means the ratio of the following computed for
      ---------------------------                                               
any fiscal period in respect of the Borrower and its Subsidiaries on a
consolidated basis in accordance with GAAP:  (a) the sum of:  (i) EBITDA for
such period, minus (ii) cash taxes paid during such period, minus (iii) Unfunded
Capital Expenditures made during such period, to (b) the sum of (i) scheduled
principal payments in respect of Funded Indebtedness (including, without
limitation, the Seller Obligations and all Capitalized Leases) during such
period, plus (ii) interest paid or required to be paid in cash in respect of
Funded Indebtedness (including, without limitation, the Revolving Credit Loans,
the Foreign Exchange Obligations, the Seller Obligations, and all Capitalized
Leases) during such period.

     "Foreign Exchange Exposure" means, on any date of determination thereof, an
      -------------------------                                                 
amount (in United States dollars calculated on the basis of the applicable
currency exchange rates in effect on such date) equal to the greater of (i) 15%
of the aggregate dollar amount of all Foreign Exchange Obligations of the

                                      -9-
<PAGE>
 
Borrower and its Subsidiaries as of such date, and (ii) the net exposure of the
Borrower and its Subsidiaries in respect of all Foreign Exchange Obligations as
of such date computed as if all underlying foreign exchange contracts and
agreements were terminated or declared to be in default as of such date (after
giving effect to all applicable netting provisions).

     "Foreign Exchange Obligations" means all obligations of the Borrower or its
      ----------------------------                                              
Subsidiaries pursuant to and under any and all foreign exchange contracts and
agreements to which the Borrower or any of its Subsidiaries is a party as of any
date of computation as if such foreign exchange agreement were to be terminated
or declared to be in default on such date (after giving effect to any netting
provisions).

     "Foreign Intercompany Equity" means equity contributions made by the
      ---------------------------                                        
Borrower or any Guarantor (as the case may be) to the Foreign Subsidiaries.

     "Foreign Intercompany Indebtedness" means Indebtedness of the Foreign
      ---------------------------------                                   
Subsidiaries to the Borrower or any Guarantor (as the case may be) in respect of
loans made by the Borrower or any Guarantor (as the case may be) to the Foreign
Subsidiaries.

     "Foreign Subsidiaries" means Advanced Component Technologies Limited, an
      --------------------                                                   
entity organized under the laws of Ireland, and such other corporations,
partnerships or limited liability companies organized under the laws of any
jurisdiction other than the United States, as may become Subsidiaries of the
Borrower from time to time with the approval of the Required Lenders.

     "Funded Indebtedness" means, in respect of any Person, (a) all Indebtedness
      -------------------                                                       
of such Person for borrowed money or which has been incurred in connection with
the acquisition of assets (excluding leases defined as "operating leases" under
GAAP), in each case having a final maturity of one or more than one year from
the date of origin thereof (or which is renewable or extendible at the option of
the obligor for a period or periods more than one year from the date of origin),
(b) all payments in respect of item (a) above that were required to be made
within one year prior to the date of any determination of Funded Indebtedness,
if the obligation to make such payments shall constitute a current liability of
the obligor under GAAP, (c) all Capitalized Rentals of such Person, and (d)
interest-bearing Indebtedness for borrowed money (other than Long Term
Indebtedness) having a maturity of less than one year.

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

     "Guaranties" by any Person shall mean all obligations (other than
      ----------                                                      
endorsements in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing, or in effect guaranteeing,
any Indebtedness, dividend or other obligation of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, including, without
limitation, all obligations incurred through an agreement, contingent or
otherwise, by such Person: (a) to purchase such Indebtedness or obligation or
any property or assets constituting security therefor, (b) to advance or supply
funds (i) for the purchase or payment of such Indebtedness or obligation, or
(ii) to maintain working capital or other balance sheet condition or otherwise
to advance or make available funds for the purchase or payment of such
Indebtedness or obligation, (c) to lease property or to purchase securities or
other property or services primarily for the purpose of assuring the owner of
such Indebtedness or obligation of the ability of the primary obligor to make
payment of the Indebtedness or obligation, or (d) otherwise to assure the owner
of the Indebtedness or obligation of the primary obligor against loss in respect
thereof.  For the purposes of all computations made under this Agreement, a
Guaranty in respect 

                                     -10-
<PAGE>
 
of any Indebtedness for borrowed money shall be deemed to be Indebtedness equal
to the principal amount of such Indebtedness for borrowed money which has been
guaranteed, and a Guaranty in respect of any other obligation or liability or
any dividend shall be deemed to be Indebtedness equal to the maximum aggregate
amount of such obligation, liability or dividend.

     "Guarantors" means the Subsidiary Guarantor and any other Person who from
      ----------                                                              
time to time agrees to guaranty the obligations of the Borrower hereunder by
executing and delivering to the Agent a Loan Guaranty, together with all of
their successors and assigns.

     "Hazardous Materials" means any contaminants, hazardous substances,
      -------------------                                               
regulated substances, or hazardous wastes which may be the subject of liability
pursuant to any Environmental Law.

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

     "Interest Expense" means, in respect of any Person for any period, all
      ----------------                                                     
interest paid or accrued, and all amortization of debt discount with respect to,
all Indebtedness of such Person for such period (after giving effect to the net
cost or benefit associated with all Interest Rate Protection Agreements).

     "Interest Rate Protection Agreement" means any interest rate cap, swap,
      ----------------------------------                                    
collar or other, similar protection agreement, foreign currency exchange
agreement, commodity price protection agreement or other interest or currency
exchange rate or commodity price hedging arrangement to which the Borrower or
any of its Subsidiaries is a party or for which the Borrower or any of its
Subsidiaries is liable, including, without limitation, that certain interest
rate swap agreement dated as of October 14, 1998 between the Borrower and Chase
with respect to $17,000,000 notional principal amount of Indebtedness.

     "Interest Rate Protection Reserve" means (i) $600,000 on any date that the
      --------------------------------                                         
BancBoston Leasing LC remains outstanding, and (ii) $1,350,000 (or such lesser
or greater amount as the Agent may from time to time specify to the Borrower in
writing) on any date from and after the date of expiration or termination of the
BancBoston Leasing LC.

     "Leased Premises" means all facilities and other real property leased by
      ---------------                                                        
the Borrower or any of its Subsidiaries.

     "Lenders" means the Initial Lenders and each Person, if any, that shall
      -------                                                               
become a Lender hereunder pursuant to (S) 12.05 other than any Person that
ceases to be a party hereto pursuant to an Assignment and Acceptance.

     "Lending Office" means, for each Lender and for each type of Loan, the
      --------------                                                       
lending office of such Lender (or of an Affiliate of such Lender) designated by
such Lender on the signature pages hereto, as the lending office of such Lender
for such type of Loan, or such other office of such Lender (or of an Affiliate
of such Lender) as such Lender may from time to time specify to the Agent and
the Borrower as the office by which such Lender's Loans of such type are to be
made and maintained.

                                     -11-
<PAGE>
 
     "Letters of Credit" means any standby letters of credit issued by Chase for
      -----------------                                                         
the Borrower as the account party from time to time.

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

     "Leverage Ratio" means the ratio of the following computed for any period
      --------------                                                          
of four consecutive fiscal quarters then ended in respect of the Borrower and
its Subsidiaries on a consolidated basis: (a) Funded Indebtedness as of the end
of such period to (b) the sum of (i) EBITDA for such period minus (ii) Unfunded
Capital Expenditures for such period.

     "Lien" means any interest in property securing an obligation owed to, or a
      ----                                                                     
claim by, a Person other than the owner of the property, whether such interest
is based on the common law, statute, or contract, and including but not limited
to the security interest or lien arising from a mortgage, encumbrance, pledge,
conditional sale or trust receipt or a lease, consignment or bailment for
security purposes.  The term "Lien" shall include reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances (including, with respect to
stock, stockholder agreements, voting trust agreements, buy-back agreements and
all similar arrangements) affecting property.  For the purposes of this
Agreement, the Borrower or any of its Subsidiaries shall be deemed to be the
owner of any property which it has acquired or holds subject to a conditional
sale  agreement, Capitalized Lease or other arrangement pursuant to which title
to the property has been retained by or vested in some other Person for security
purposes and such retention or vesting shall constitute a Lien.

     "Loan Guaranties" means any future Guaranties executed and delivered to the
      ---------------                                                           
Agent by any Person, pursuant to which such Person guaranties all or any part of
the debts, liabilities and obligations of the Borrower under the Facility
Documents, and all modifications and amendments thereto.

     "Loan Tranche" means any portion of the Loans outstanding under the Notes
      ------------                                                            
as Base Rate Loans or any portion of the Loans outstanding under the Notes as a
Eurodollar Loan having a particular Eurodollar Interest Period.  Each Eurodollar
Loan outstanding under the Notes having a different Eurodollar Interest Period
shall constitute a separate Loan Tranche and all Base Rate Loans shall
constitute a single Loan Tranche.  Although there will be separate Notes issued
to each Lender, all Notes taken together shall constitute a single Loan Tranche
in respect of each corresponding Loan outstanding under all Notes.  If the
entire principal balance of the Loans shall be outstanding as Base Rate Loans or
as a single Eurodollar Loan, then "Loan Tranche" means the entire amount of the
Loans outstanding.

     "Loans" means and includes the Revolving Credit Loans and the Reimbursement
      -----                                                                     
Obligations under (S)2.01(c); and "Loan" means any of the Loans.
                                   ----                         

     "Lock Box Agreement" means an agreement pursuant to which the Agent
      ------------------                                                
maintains a post office box into which customers of the Borrower remit payments
of Accounts and to which the Agent shall have sole means of access.

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

                                      -12-
<PAGE>
 
     "Material Adverse Effect" means: (a) a material adverse effect on the
      -----------------------                                             
business, operations or condition (financial or otherwise) of the Borrower and
its Subsidiaries taken as a whole; (b) a material adverse effect on the ability
of the Borrower or any Guarantor to perform or comply with any of the terms and
conditions contained herein or in any other Facility Document; or (c) a material
adverse effect on the legality, validity, binding effect, enforceability or
admissibility into evidence of any Facility Document, or the ability of the
Agent or the Lenders to enforce any rights or remedies under or in connection
with any Facility Document.

     "Minority Interests" means any shares of stock of any class of any
      ------------------                                               
Subsidiary (other than directors' qualifying shares as required by law) that are
not owned by the Borrower and/or one or more of its Wholly-Owned Subsidiaries.
Minority Interests shall be valued as follows: (a) preferred stock shall be
valued at the voluntary or involuntary liquidating value of such preferred
stock, whichever is greater; and (b) common stock shall be valued at the book
value of capital and surplus applicable thereto adjusted, if necessary, to
reflect any changes from the book value of such common stock required by the
foregoing method of valuing Minority Interests in preferred stock.

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

     "Net Cash Payments" means:
      -----------------        

          (a) with respect to any Casualty Event, the aggregate amount of
proceeds of insurance, condemnation awards and other compensation received by
the Borrower or any of its Subsidiaries in respect of such Casualty Event net of
(A) reasonable expenses incurred by the Borrower or any of its Subsidiaries in
connection therewith and (B) contractually required repayments of Indebtedness
to the extent secured by a Lien on such property and any income and transfer
taxes payable by the Borrower or any of its Subsidiaries in respect of such
Casualty Event;

          (b) with respect to any sale or other disposition of assets, the
aggregate amount of all cash payments received by the Borrower or any of its
Subsidiaries directly or indirectly in connection with such sale or other
disposition, whether at the time of such sale or disposition or thereafter under
deferred payment arrangements, including all cash payments received in respect
of investments entered into or received in connection with any such sale or
other disposition of assets; provided that

               (i) Net Cash Payments shall be net of (A) the amount of any
          legal, title, transfer and recording tax expenses, commissions and
          other fees and expenses payable by the Borrower or any of its
          Subsidiaries in connection with such sale or other disposition and (B)
          any federal, state and local income or other taxes estimated to be
          payable by the Borrower or any of its Subsidiaries as a result of such
          sale or other disposition, but only to the extent that such estimated
          taxes are in fact paid to the relevant federal, state or local
          governmental authority within twelve months of the date of such sale
          or other disposition; and


               (ii) Net Cash Payments shall be net of any repayments by the
          Borrower or any of its Subsidiaries of Indebtedness to the extent that
          (I) such Indebtedness is secured by a Lien on the property that is the
          subject of such sale or other disposition and (II) the transferee of
          (or holder of a Lien on) such property requires that such Indebtedness
          be repaid as a condition to the purchase of such property; and

          (c) with respect to any sale of debt or equity securities or any
incurrence of Indebtedness, the aggregate amount of all cash proceeds received
by the Borrower or any of its 

                                      -13-
<PAGE>
 
Subsidiaries therefrom less all legal, underwriting, and similar fees and
expenses incurred in connection therewith.

     "Notes" means the notes evidencing the Loans hereunder; and "Note" means
      -----                                                       ----       
any one of the Notes.

     "Obligations" means all obligations of the Borrower to the Lenders and the
      -----------                                                              
Agent under this Agreement or any of the other Facility Documents, including,
without limitation, all indebtedness evidenced by the Notes, all obligations
under or in respect of the Letters of Credit, all Reimbursement Obligations, all
Foreign Exchange Obligations and all obligations under or in respect of any
Interest Rate Protection Agreements, together with all accrued and unpaid
interest, fees, expenses and charges payable by Borrower hereunder or under any
of the other Facility Documents.

     "OECD" means the Organization for Economic Cooperation and Development.
      ----                                                                  

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

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

     "Plan" means any employee benefit or other plan established or maintained,
      ----                                                                     
or to which contributions have been made, by the Borrower or any ERISA Affiliate
and which is covered by Title IV of ERISA or to which Section 412 of the Code
applies.

     "Prime Rate" means that rate of interest from time to time announced by the
      ----------                                                                
Agent at its principal office as its prime commercial lending rate.  The Prime
Rate is a reference rate and does not necessarily represent the lowest or best
rate being charged to any customer of the Agent.

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

     "Qualified Accounts" means Accounts owing to the Borrower, now existing or
      ------------------                                                       
hereafter arising, each of which Accounts met the following specifications at
the time it came into existence and continues to meet the same until it is
collected in full:

          (a) The Account is due and payable in full within 90 days, is not
unbilled or subject to bill and hold, and not more than 90 days have elapsed
since the invoice date;

          (b) The Account arose from the outright sale of goods or from the
performance of services by the Borrower; such goods have been shipped to or on
behalf of the account debtor or services have been performed; the Account is
evidenced by such invoices, shipping documents or other instruments ordinarily
used in the trade as shall be reasonably satisfactory to the Agent; and no
rejection or dispute has occurred;

          (c) The Account debtor either (i) is a resident of the United States
or Canada, or (ii) is one of the following Persons: EMC Ireland; Hewlett Packard
GmbH; or Omni Plastics PTE Ltd.;

          (d) The Account is not subject to any assignment, claim, lien, or
security interest, except in favor of the Agent and the Lenders;

                                      -14-
<PAGE>
 
          (e) The Account is a valid and legally enforceable obligation of the
Account debtor and is not subject to a claim for credit, allowance, defense,
offset, chargeback, counterclaim or adjustment by the Account debtor, other than
any discount allowed for prompt payment;

          (f) The Account arose in the ordinary course of business of the
Borrower and no notice of the bankruptcy, insolvency, failure, or suspension or
termination of business of the Account debtor has been received by the Borrower;

          (g) The Account debtor is not an Affiliate of the Borrower or any of
its Subsidiaries or a supplier (or an Affiliate of a Supplier) of goods or
services to the Borrower or any of its Subsidiaries;

          (h) The Account otherwise conforms to all representations, warranties
and other provisions of this Agreement;

          (i) The Account is not due from an individual;

          (j) The Account is not due from the federal government of the United
States unless all requirements of the Federal Assignment of Claims Act shall
have been fully complied with to the satisfaction of the Agent;

          (k) The Account is subject to an enforceable, perfected, first
priority Lien in favor of the Agent; and

          (l) The Agent in its discretion, reasonably exercised, has not deemed
the credit worthiness of the Account or Account debtor unsatisfactory;

provided, however, that if 50% or more of any Account does not meet the above
specifications, the entire amount of such Account shall not be included as a
Qualified Account.

     "Qualified Excess Inventory" means "Excess Inventory" of the Borrower as
      --------------------------                                             
recorded in the Borrower's books and records, valued at the lower of cost (on
first in, first out basis) or market, excluding (i) work in process, (ii) any
goods that are the subject of any Account, (iii) any goods not in the possession
of the Borrower on premises owned or leased by the Borrower, (iv) any goods
located on premises leased by the Borrower that is not subject to a landlord's
waiver in a form reasonably acceptable to the Agent and in favor of the Lenders
and the Agent, (v) any goods subject to any lien, except a lien in favor of the
Agent, (vi) any goods located outside of the continental United States, (vii)
any goods located in a jurisdiction in which the Agent's lien has not been
perfected, (viii) any goods held by the Borrower on consignment from another
Person, or (ix) any items of inventory held by the Borrower for more than twelve
months from date such items of inventory were first recorded in the Borrower's
books and records as "Excess Inventory"; less any reserves established by the
Agent in its sole discretion.

     "Qualified Excess Inventory Cap Amount" means (i) $2,000,000 at all times
      -------------------------------------                                   
from the Effective Date through December 31, 1998, (ii) $1,500,000 at all times
from January 1, 1999 through March 31, 1999, (iii) $1,000,000 at all times from
April 1, 1999 through June 30, 1999, (iv) $500,000 at all times from July 1,
1999 through September 30, 1999, and (v) $0 at all times from and after October
1, 1999.

     "Qualified Raw Material and Finished Goods Inventory" means raw material
      ---------------------------------------------------                    
and finished goods inventory of the Borrower, valued at the lower of cost (on
first in, first out basis) or market, excluding (i)work in process, (ii) any
goods that are the subject of any Account, (iii) Excess Inventory (as identified
in the Borrower's books and records), (iv) any goods not in the possession of
the Borrower on premises owned or leased by the Borrower, (v) any goods located
on premises leased by the Borrower that is not 

                                      -15-
<PAGE>
 
subject to a landlord's waiver in a form reasonably acceptable to the Agent and
in favor of the Lenders and the Agent, (vi) any goods subject to any lien,
except a lien in favor of the Agent, (vii) any goods located outside of the
continental United States, (viii) any goods located in a jurisdiction in which
the Agent's lien has not been perfected, or (ix) any goods held by the Borrower
on consignment from another Person; less any reserves established by the Agent
in its sole discretion for matters similar (but not exclusive) to the following:
in-transit inventory, obsolete or slow moving inventory, general supplies,
seconds, and costs which are not capitalized in accordance with GAAP.

     "Register" has the meaning specified in (S)12.05.
      --------                                        

     "Regulation U" means Regulation U of the Board of Governors of the Federal
      ------------                                                             
Reserve System as in effect from time to time.

     "Regulatory Change" means, with respect to any Lender, any change after the
      -----------------                                                         
date of this Agreement in United States federal, state, municipal or foreign
laws or regulations (including Regulation D) or the adoption or making after
such date of any interpretations, directives or requests applying to a class of
banks including such Lender of or under any United States federal, state,
municipal or foreign laws or regulations (whether or not having the force of
law) by any court, or governmental, or monetary authority charged with the
interpretation or administration thereof.

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

     "Rentals" means and includes as of the date of any determination thereof
      -------                                                                
all payments (including as such all payments which the lessee is obligated to
make to the lessor on termination of the lease or surrender of the property, and
all payments, if any, required to be paid by the lessee regardless of sales
volume or gross revenues) payable by the Borrower or any of its Subsidiaries, as
lessee or sublessee under a lease of real or personal property, but shall be
exclusive of any amounts required to be paid by the Borrower or any of its
Subsidiaries (whether or not designated as rents or additional rents) on account
of maintenance, repairs, insurance, taxes and similar charges.

     "Reportable Event" has the same meaning as defined in ERISA.
      ----------------                                           

     "Required Lenders" means, at any time, Lenders having Loans and unused
      ----------------                                                     
Revolving Credit Commitments representing at least 51% of the aggregate amount
of all Loans and unused Revolving Credit Commitments Outstanding at such time;
provided that if at any time there shall exist only two Lenders, the term
"Required Lenders" shall mean both such Lenders.

     "Revolving Credit Commitments" means initially $55,000,000 in the aggregate
      ----------------------------                                              
with respect to the Initial Lenders and at any subsequent time, to the extent
that one or more Assignments and Acceptances have been entered into, the amount
set forth for each Lender in the Register maintained by the Agent pursuant to
(S) 12.05 as such Lender's "Revolving Credit Commitment Amount."
                            ----------------------------------  

     "Revolving Credit Commitment Percentage" means for each Lender the
      --------------------------------------                           
percentage determined by dividing such Lender's Revolving Credit Commitment
Amount by the aggregate amount of Revolving Credit Commitments.

     "Revolving Credit Loan" means a Base Rate Loan or a Eurodollar Loan made
      ---------------------                                                  
pursuant to (S)2.01 hereof.

                                      -16-
<PAGE>
 
     "Revolving Credit Obligations" means all Obligations of the Borrower
      ----------------------------                                       
hereunder in respect of the Revolving Credit Loans and the Revolving Credit
Commitments.

     "Revolving Credit Termination Date" means October 14, 2001; provided that
      ---------------------------------                                       
if such date is not a Banking Day, such date shall be the next succeeding
Banking Day (or, if such next succeeding Banking Day falls in the next calendar
month, the immediately preceding Banking Day).

     "Security Agreement" means the Security Agreement granted by the Borrower
      ------------------                                                      
and the Subsidiary Guarantor to the Agent, for the benefit of the Lenders, in
substantially the form of Exhibit E hereto, together with any and all future
                          ---------                                         
Security Agreements executed and delivered to the Agent by any Person which
shall secure any part of the debts, liabilities and obligations of the Borrower
under the Facility Documents, and all modifications and amendments thereto.

     "Security Documents" means the Security Agreement, the Pledge Agreement in
      ------------------                                                       
substantially the form of Exhibit F hereto, the Share Pledge Agreement with
                          ---------                                        
respect to 65% of the Borrower's equity in Advanced Component Technologies
Limited in substantially the form of Exhibit J hereto, and the mortgages and
                                     ---------                              
other agreements, instruments and documents identified on Schedule 4.01(a)
                                                          ----------------
hereto.

     "Security Document Party" means each party to a Security Document other
      -----------------------                                               
than the Borrower or the Subsidiary Guarantor.

     "Seller Obligations" means the obligations of the Borrower to make certain
      ------------------                                                       
payments through August 2003 to Re-Act Consulting, Donald G. Polich and Nelva
Polich under certain non-competition and consulting agreements dated August 4,
1993, the aggregate amount of which payments total approximately $2,100,000 as
of the date hereof.

     "Statutory Reserve Rate" means a fraction (expressed as a decimal), the
      ----------------------                                                
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board of Governors of the Federal Reserve to which the Agent
is subject with respect to the Adjusted Eurodollar Rate, for eurocurrency
funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of
the Board of Governors of the Federal Reserve).  Such reserve percentages shall
include those imposed pursuant to such Regulation D.  Loans shall be deemed to
constitute eurocurrency funding and to be subject to such reserve requirements
without benefit of or credit for proration, exemptions or offsets that may be
available from time to time to any Lender under such Regulation D or any
comparable regulation.  The Statutory Reserve Rate shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage.

     "Subsidiary" means, with respect to any Person (the "parent") at any date,
      ----------                                          ------               
any corporation, limited liability company, partnership, association or other
entity the accounts of which would be consolidated with those of the parent in
the parent's consolidated financial statements if such financial statements were
prepared in accordance with GAAP as of such date, as well as any other
corporation, limited liability company, partnership, association or other entity
(a) of which securities or other ownership interests representing more than 50%
of the equity or more than 50% of the ordinary voting power or, in the case of a
partnership, more than 50% of the general partnership interests are, as of such
date, owned, controlled or held by the parent, or (b) that is, as of such date,
otherwise Controlled by the parent or one or more subsidiaries of the parent or
by the parent and one or more subsidiaries of the parent.

     "Subordinated Indebtedness" means Indebtedness of the Borrower incurred
      -------------------------                                             
after the Effective Date with the prior written consent of the Required Lenders,
which matures in its entirety later than the 

                                      -17-
<PAGE>
 
Loans and by its terms (or by the terms of a subordination agreement) is made
subordinate and junior in right of payment to the Loans and all other
Obligations of the Borrower and its Subsidiaries under the Facility Documents.

     "Uncollected Funds" means all deposits of items which shall be on deposit
      -----------------                                                       
in the Collateral Account from time to time during the period from the date on
which such deposits became Available Funds to the beginning of the second
following Banking Day.

     "Uncollected Funds Compensation" means the compensation payable to Chase
      ------------------------------                                         
pursuant to (S)2.10 hereof.

     "Unfunded Capital Expenditures" means, in respect of the Borrower and its
      -----------------------------                                           
Subsidiaries, Consolidated Capital Expenditures which are not paid for with Long
Term Indebtedness.

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

     "Unused Commitment" means the daily average unused Revolving Credit
      -----------------                                                 
Commitment of each Lender.

     "Voting Stock" means securities of any class or classes, the holders of
      ------------                                                          
which are ordinarily, in the absence of contingencies, entitled to elect a
majority of the corporate directors (or Persons performing similar functions).

     "Wholly-Owned Subsidiary" means, with respect to any person, any
      -----------------------                                        
corporation or other entity of which all of the Voting Stock is at the time of
determination owned directly or indirectly by such Person.

Section 1.02.  Accounting Principles.  Where the character or amount of any
               ---------------------                                       
asset or liability or item of income or expense is required to be determined, or
any consolidation, combination or other accounting computation is required to be
made, for the purposes of this Agreement, the same shall be done in accordance
with GAAP, to the extent applicable, except where such principles are
inconsistent with the requirements of this Agreement.

Section 1.03.  Directly or Indirectly.  Where any provision in this Agreement
               ----------------------                                        
refers to action to be taken or not to be taken by any Person, such provision
shall be applicable whether the action in question is taken directly or
indirectly by such Person.

Section 1.04.  Construction.  In the event of any inconsistency between the
               ------------                                                
covenants contained in the Security Documents and the covenants contained in
this Agreement, the provisions of this Agreement shall govern and be
controlling.

                            ARTICLE 2.  THE CREDIT

Section 2.01.  The Revolving Credit Loans.
               -------------------------- 

          (a)  Subject to the terms and conditions of this Agreement, each of
the Lenders severally agrees to make Revolving Credit Loans to the Borrower from
time to time from and including the date hereof to but excluding the Revolving
Credit Termination Date in an aggregate principal amount 

                                      -18-
<PAGE>
 
at any one time outstanding up to but not exceeding its Revolving Credit
Commitment Amount; provided that the Revolving Credit Commitment of each Lender
to make Revolving Credit Loans hereunder is subject to the condition that (i)
the aggregate amount of all Revolving Credit Obligations (including accrued
interest and charges), all Letter of Credit Exposure, all Reimbursement
Obligations, all Foreign Exchange Exposure and the Interest Rate Protection
Reserve shall not exceed (ii) the Borrowing Base.

          (b)  The Revolving Credit Loans shall be evidenced by Notes of the
Borrower issued to the Initial Lenders in the form of Exhibit A, dated as of the
                                                      --------- 
Effective Date, payable to the order of the Initial Lenders in the aggregate
principal amount of $55,000,000 as of the Effective Date. The Revolving Credit
Loans may be assigned to, and the corresponding Revolving Credit Commitments may
be assumed by, one or more Eligible Assignees pursuant to (S)12.05, whereupon
the amounts payable to each such Lender in respect of Revolving Credit Loans
shall be evidenced by a Note in the form of Exhibit A issued to each such Lender
                                            ---------
in accordance with (S)12.05 dated as of the date of the corresponding Assignment
and Acceptance and duly completed and executed by the Borrower.

          (c)  Subject to the terms and conditions of this Agreement, the Agent
may issue Letters of Credit from time to time from and including the date hereof
to but excluding the Revolving Credit Termination Date up to but not exceeding
the lesser of (i) the difference between (A) the aggregate amount of all
Revolving Credit Commitments and (B) the aggregate amount of all Revolving
Credit Obligations (including accrued interest and charges), all Letter of
Credit Exposure (after giving effect to the proposed issuance of such Letters of
Credit), all Reimbursement Obligations, all Foreign Exchange Exposure and the
Interest Rate Protection Reserve, and (ii) the difference between (A) $2,000,000
and the (B) aggregate amount of the Letter of Credit Exposure which exists
immediately prior to the issuance of such Letter of Credit. No Letter of Credit
shall have an expiration date which is more than 360 days from its date of
issuance in the case of standby Letters of Credit or more than 180 days from its
date of issuance in the case of commercial Letters of Credit, and in each case,
not later than five (5) days prior to the Revolving Credit Termination Date.
Each Reimbursement Obligation shall be deemed to be a Revolving Credit Loan from
each of the Lenders in accordance with each Lender's Revolving Credit Commitment
percentage. The Agent shall notify the Lenders of the creation of any
Reimbursement Obligation within two Banking Days of any payment made by the
Agent pursuant to and under any Letter of Credit.

     Section 2.02.  Making the Revolving Credit Loans. Not later than 2:00 p.m.,
                    ---------------------------------
New York, New York time, on each Banking Day, the Agent shall, subject to the
conditions of this Agreement (but without any further written notice required),
make available to the Borrower by a credit to an account of the Borrower
maintained at Chase the proceeds of Revolving Credit Loans to the extent
necessary to pay items to be drawn on the Controlled Disbursements Account that
day after giving effect to all Available Funds to be deposited to the Controlled
Disbursements Account on that day. All other Revolving Credit Loans shall be
made upon notice given in accordance with . The Revolving Credit Loans shall be
deemed to be made by each Lender and to be outstanding to each Lender under the
Note issued to such Lender as of the date that such credit is made available to
the Borrower without regard to the settlement procedures between the Agent and
the Lenders pursuant to Section 2.14.

     Section 2.03.  Principal Repayment of Revolving Credit Loans.
                    --------------------------------------------- 

          (a)  Each Revolving Credit Loan shall mature and be payable in full on
the Revolving Credit Termination Date.

          (b)  Except to the extent otherwise expressly provided in the Security
Agreement, the Agent shall, not later than as of 1:00 p.m. on each Banking Day,
transfer out of the Collateral Account all moneys remitted to the Agent by
account debtors of the Borrower pursuant to the Lock Box Agreement, 

                                      -19-
<PAGE>
 
first making payments of the outstanding principal amount of the Revolving
Credit Loans (including all Revolving Credit Loans made or to be made that day)
by a debit to the Collateral Account in an amount equal to the balance of the
Collateral Account after giving effect to all Available Funds deposited to the
Collateral Account on that day and prior to any other transfers from the
Collateral Account. All such payments shall be applied first to the outstanding
principal amount of all Base Rate Loans. Except upon the occurrence and during
the continuance of an Event of Default, no payment of a Eurodollar Loan shall be
made under this section on a date other than the last day of an Interest Period
or the Revolving Credit Termination Date. To the extent that a payment hereunder
creates a credit balance under the Revolving Credit Obligations, such credit
balance shall bear interest and Agent shall credit the Revolving Credit
Obligations at a rate per annum equal to the Prime Rate minus three percent
(3%).

          (c) Immediately upon a demand by the Agent, the Borrower shall either:
(i) pay the amount by which all Revolving Credit Obligations exceed the
Borrowing Base, or (ii) provide the Agent and the Lenders with Cash Equivalents
as security for the payment of such excess amount.

     Section 2.04.  Permitted Acquisitions.  The Borrower may utilize up to an
                    ----------------------                                    
aggregate of $10,000,000 of the proceeds of the Revolving Credit Loans to fund
the acquisition of domestic businesses which are substantially similar to that
of the Borrower and which meet the following criteria (collectively, "Permitted
                                                                      ---------
Acquisitions"): (i) the total purchase price of any single acquisition shall not
------------                                                                    
exceed $5,000,000; (ii) in the event the Borrower expends more than $10,000,000
in cash in the aggregate for acquisitions consummated after the Effective Date,
the portion in excess of $10,000,000 shall be funded with equity on terms
satisfactory to the Agent, (iii) in connection with any stock acquisition the
Borrower shall be the surviving corporation; (iv) each business or entity which
the Borrower acquires shall have had positive EBITDA over each of its previous
two most recently completed fiscal years; (v) no acquisition shall be hostile;
(vi) after giving effect to each acquisition, the Borrower shall have pro forma
Availability of not less than $4,000,000; (vii) no Default or Event of Default
shall have occurred and be continuing under the Facility Documents immediately
prior to and after giving effect to the proposed acquisition; (viii) all
businesses being acquired shall be domestic businesses; (ix) the Agent shall
have approved the assumption by the Borrower of any indebtedness for borrowed
money arising from any such acquisition, and any seller debt incurred in
connection with such acquisition shall be in form and substance satisfactory to
the Agent and subordinated to the Obligations on terms satisfactory to the
Agent, and (x) at least eighty percent (80%) of the accounts receivable and
inventory of the business or entity acquired shall meet all eligibility
requirements for inclusion in the Borrowing Base as set forth in the Facility
Documents.

     Section 2.05.  Mandatory Prepayments. In addition to the payments required
                    ---------------------
under (S)2.03(c), the Borrower shall make the following mandatory prepayments
of the Revolving Credit Loans:


          (a)  Casualty Events. Within 90 days following the receipt by the
               ---------------
Borrower or any of its Subsidiaries of the proceeds of insurance, condemnation
award or other compensation in respect of any Casualty Event affecting any
property of the Borrower or any of its Subsidiaries (or upon such earlier date
as the Borrower or any of its Subsidiaries, as the case may be, shall have
determined not to repair or replace the property affected by such Casualty
Event), the Borrower shall prepay the Revolving Credit Loans in an aggregate
amount, if any, equal to 100% of the Net Cash Payments from such Casualty Event
not theretofore applied or committed to be applied to the repair or replacement
of such property (it being understood that if Net Cash Payments committed to be
applied are not in fact applied within 90 days of the respective Casualty Event,
then such Proceeds shall be applied to the prepayment of the Revolving Credit
Loans as provided in this clause (a) at the expiration of such 90 day period)
but only if and to the extent that the aggregate amount of such proceeds
received after the Effective Date on account of all Casualty Events is greater
than $500,000 in excess of the aggregate amount applied or committed to be

                                      -20-
<PAGE>
 
applied during any Fiscal Year to the repair or replacement of such property,
such prepayment to be effected in each case in the manner and to the extent
specified in paragraph (d) of this (S)2.05.

          (b)  Incurrence of Indebtedness for Borrowed Money or Sale of
               --------------------------------------------------------
Securities. Without limiting the obligation of the Borrower to obtain the
----------
consent of the Required Lenders to any incurrence of Indebtedness or sale of
securities not otherwise permitted hereunder, the Borrower agrees, on or prior
to the closing of any incurrence of Indebtedness for borrowed money or sale of
equity by the Borrower or any of its Subsidiaries, to deliver to the Agent a
statement certified by the Chief Financial Officer of the Borrower, in form and
detail reasonably satisfactory to the Agent, of the estimated amount of the Net
Cash Payments of such incurrence of Indebtedness for borrowed money or sale of
securities that will (on the date of such incurrence or sale) be received by the
Borrower or its Subsidiaries in cash, and the Borrower shall prepay the
Revolving Credit Loans (and the Revolving Credit Commitments shall be
irrevocably reduced), within ten (10) days of the date of such incurrence or
sale, in an aggregate amount equal to 100% of the Net Cash Payments of such
incurrence of Indebtedness or sale of securities received by the Borrower or
such Subsidiary, such prepayment to be effected in each case in the manner and
to the extent specified in paragraph (d) of this (S)2.05.

          (c)  Sale of Assets. Without limiting the obligation of the Borrower
               --------------
to obtain the consent of the Required Lenders to any sale or other disposition
of assets not otherwise permitted hereunder, the Borrower agrees, on or prior to
the occurrence of any sale or other disposition of assets by the Borrower or any
of its Subsidiaries, to deliver to the Agent a statement certified by the Chief
Financial Officer of the Borrower, in form and detail reasonably satisfactory to
the Agent, of the estimated amount of the Net Cash Payments of such sale or
other disposition that will (on the date of such sale or other disposition) be
received by the Borrower or its Subsidiaries in cash and the Borrower shall
prepay the Revolving Credit Loans (and the Revolving Credit Commitments shall be
irrevocably reduced), as follows:

               (i) within ten (10) days of the date of such sale or other
     disposition, in an aggregate amount equal to 100% of such estimated amount
     of the Net Cash Payments of such sale or other disposition received by the
     Borrower or its Subsidiaries in cash on the date of such sale or other
     disposition; and

               (ii) thereafter, quarterly, on the date of the delivery of the
     financial statements for any Fiscal Quarter or Fiscal Year, by the Borrower
     to the Agent pursuant to Section 6.08(a) and 6.08(b) to the extent the
     Borrower or any of its Subsidiaries shall receive Net Cash Payments during
     the fiscal period ending on the date of such financial statements in cash
     under deferred payment arrangements or in respect of investments entered
     into or received in connection with any such sale or disposition, an amount
     equal to (A) 100% of the aggregate amount of such Net Cash Payments minus
                                                                         -----
     (B) any transaction expenses associated with such sale or dispositions and
     not previously deducted in the determination of Net Cash Payments plus (or
                                                                       ----
     minus, as the case may be) (C) any other adjustment received or paid by the
     -----
     Borrower or any of its Subsidiaries pursuant to the respective agreements
     giving rise to such sale or dispositions and not previously taken into
     account in the determination of the Net Cash Payments.


Prepayments of the Revolving Credit Loans (and the corresponding reduction in
the Revolving Credit Commitments), resulting from any sale or other disposition
of assets shall be effected in each case in the manner and to the extent
specified in paragraph (d) of this (S)2.05.  Notwithstanding anything to the
contrary, the Borrower shall not be required to deliver any statement or make
any prepayment under this (S)2.05 with respect to the first $500,000 of the
aggregate amount of Net Cash Payments from sales or other dispositions of assets
received by the Borrower or any of its Subsidiaries during any Fiscal Year and

                                      -21-
<PAGE>
 
not utilized by the Borrower or it Subsidiaries to replace the property disposed
of within 90 days of such sale or other disposition of assets.

           (d)  Application. In the event of any mandatory prepayment pursuant
                -----------
to this (S)2.05, such prepayment shall be applied, first, to the payment of
accrued interest in respect of outstanding Base Rate Loans, second, to the
principal amount of outstanding Base Rate Loans, third, to interest in respect
of outstanding Eurodollar Loans, and fourth, to the principal amount of
outstanding Eurodollar Loans.

     Section 2.06.  Interest.
                    -------- 

          (a)  Interest shall accrue on the outstanding and unpaid principal
amount of each Loan for the period from and including the date of such Loan to
but excluding the date such Loan is due, at the following rates per year: (i)
for a Loan Tranche which is outstanding as a Base Rate Loan, at a variable rate
per annum equal to the Adjusted Base Rate plus the Applicable Margin, (ii) for a
Loan Tranche which is outstanding as a Eurodollar Loan, at a fixed rate during
the applicable Eurodollar Interest Period equal to the corresponding Eurodollar
Rate plus the Applicable Margin; provided however that after the occurrence and
during the continuance of any Event of Default and a written demand of the Agent
to the Borrower at the request of the Required Lenders, interest shall accrue at
rates computed as provided in this (S)2.06 plus the Default Margin.

          (b)  Interest on each Eurodollar Loan shall be calculated on the basis
of a year of 360 days for the actual number of days elapsed. Interest on each
Base Rate Loan shall be calculated on the basis of a year of 360 days for the
actual number of days elapsed. Promptly after the determination of any interest
rate provided for herein or any change therein, the Agent shall notify the
Borrower and the Lenders thereof.

          (c)  Accrued interest on each Base Rate Loan shall be due and payable
to the Agent for account of each Lender in arrears on the first Banking Day of
each calendar month, regardless of any payment of the principal thereof.

          (d)  Accrued interest on each Eurodollar Loan shall be due and payable
to the Agent for account of each Lender in arrears upon any payment of principal
and on each corresponding Eurodollar Interest Payment Date.

     Section 2.07.  Eurodollar Interest Periods. In the case of each Loan other
                    ---------------------------
than a Base Rate Loan, the Borrower shall select a Eurodollar Interest Period of
any duration in accordance with the definition of Eurodollar Interest Period in
(S) 1.01, subject to the following limitations: (a) no Eurodollar Interest
Period shall have a duration of less than one month, and if any such proposed
Eurodollar Interest Period would otherwise be for a shorter period (as a result
of the Revolving Credit Termination Date or otherwise), such Eurodollar Interest
Period shall not be available; and (b) if a Eurodollar Interest Period would end
on a day which is not a Banking Day, such Eurodollar Interest Period shall be
extended to the next Banking Day, unless such next Banking Day would fall in the
next calendar month in which event such Eurodollar Interest Period shall end on
the immediately preceding Banking Day. All elections of a Eurodollar Interest
Period shall be made by the Borrower upon three Banking Days' notice to the
Agent, and the Agent shall quote to the Borrower the actual Eurodollar Rate to
take effect for such Eurodollar Interest Period (based upon the rate quotation
described in the definition of Eurodollar Rate) on the next Banking Day.

     Section 2.08.  Conversions.  Except to the extent specified to the Initial
                    -----------
Lenders prior to the Effective Date, each Revolving Credit Loan shall be deemed
to be a Base Rate Loan unless and until converted to a Eurodollar Loan in
accordance with terms of this (S)2.08.  The Borrower shall have the 

                                      -22-
<PAGE>
 
right to make payments of principal, or to convert a Loan Tranche from a Base
Rate Loan to a Eurodollar Loan or from a Eurodollar Loan to a Base Rate Loan at
any time or from time to time, provided that: (a) if the Loan Tranche is
outstanding as a Eurodollar Loan, it may be converted only on the last day of
the applicable Eurodollar Interest Period; (b) if the Loan Tranche is
outstanding as a Eurodollar Loan, it shall automatically convert to a Base Rate
Loan on the last day of the applicable Eurodollar Interest Period, unless the
Borrower gives notice to the Agent three (3) Banking Days prior to the last day
of the corresponding Eurodollar Interest Period specifying a new Eurodollar
Interest Period to apply to such Loan Tranche; (c) no Loan Tranche comprising a
Eurodollar Loan may be in a principal amount less than $500,000; (d) there may
be no more than four (4) Loan Tranches comprising Eurodollar Loans outstanding
at any one time; and (e) no Loan Tranche comprising a Eurodollar Loan may be
created (or continued after the last day of the applicable Eurodollar Interest
Period) while any Default or Event of Default exists and continues.

     Section 2.09.   Voluntary Prepayments. In addition to repayments made
                     ---------------------
pursuant to (S) 2.03(b), the Borrower shall have the right to prepay Revolving
Credit Loans at any time or from time to time; provided that: (i) the Borrower
shall give the Agent notice of each such prepayment as provided in (S) 2.12; and
(ii) the Borrower shall be responsible for the payment of such amounts as
provided in (S) 3.05 with respect to the prepayment of any Eurodollar Loans
prepaid on any date other than the last day of the corresponding Eurodollar
Interest Period. In addition, but subject to the foregoing, as a condition to
giving effect to any termination of the Revolving Credit Commitments pursuant to
(S) 2.11, the aggregate principal of all Revolving Credit Loans shall be fully
prepaid, together with interest thereon accrued to the date of such payment and
all amounts payable pursuant to (S) 2.15(c) and/or (S) 3.05 in connection
therewith.

     Section 2.10.   Uncollected Funds Compensation. The credit extended by
                     ------------------------------
Chase to the Borrower by allowing the Uncollected Funds to be immediately
available funds to the Borrower shall not be deemed to be Loans hereunder.
Uncollected Funds Compensation to Chase shall accrue on the amount of the
Uncollected Funds in existence from time to time at a variable rate per annum
equal to the Adjusted Base Rate plus the Applicable Margin for Base Rate Loans
for two (2) full days. Upon making such computation, the Agent is authorized to
make a Revolving Credit Loan to the Borrower for the amount thereof (or during
the continuance of an Event of Default, debit the Collateral Account) for the
payment thereof to Chase. The Agent shall notify the Borrower of the amount of
the Uncollected Funds Compensation for the preceding calendar month in the next
monthly statement rendered by the Agent to the Borrower.

     Section 2.11.   Termination of Revolving Credit Commitments. The Borrower
                     -------------------------------------------
shall have the right to terminate the amount of Revolving Credit Commitments in
whole or in part at any time, provided that the Borrower shall give notice of
such termination to the Agent as provided in (S)2.12. Any portion of the
Revolving Credit Commitments that has been terminated may not be reinstated.

     Section 2.12.   Certain Notices.  Notices by the Borrower to the Agent of
                     ---------------                                          
borrowings other than pursuant to (S) 2.02, each prepayment of a Loan pursuant
to (S) 2.09 (which does not include repayments pursuant to (S) 2.03(b)) or of
termination of the Revolving Credit Commitments pursuant to (S) 2.11 shall be
irrevocable and shall be effective only if received by the Agent in writing on a
Banking Day and (a) in the case of Base Rate Loans and prepayments of Base Rate
Loans given not later than 11:00 a.m. New York City time on the date of such
Base Rate Loan or such prepayment; (b) in the case of Eurodollar Loans and
prepayments of Eurodollar Loans, given not later than 11:00 a.m. New York City
time three (3) Banking Days prior to the date of such Eurodollar Loan or such
prepayment and (c) in the case of termination of the Revolving Credit
Commitments, given not later than 12:00 noon New York City time four Banking
Days prior thereto.  Each such notice of borrowing or prepayment shall specify
the amount of the Loans 


                                     -23-
<PAGE>
 
to be borrowed or prepaid and the date of borrowing or prepayment (which shall
be a Banking Day). The Agent shall promptly notify the Lenders of the contents
of each such notice.

     Section 2.13.   Calculation of Borrowing Base. The Agent shall calculate
                     -----------------------------
from time to time the amount of the Borrowing Base, based upon the most recent
Borrowing Base Certificate, and such amount shall be the "Borrowing Base"
hereunder; provided, however, that the Agent, in its sole reasonable discretion,
may on written notice to the Borrower, establish additional reserves against the
Borrowing Base, taking into account, among other things, on-going confirmation
of a receivable dilution percentage of not more than 5%, based upon periodic
field examinations.

     Section 2.14.   Settlement Between Agent and Lenders. The Agent and the
                     ------------------------------------
Lenders shall settle on an aggregated and netted basis (the "Settlement Amount")
on each Banking Day (the "Settlement Date") for all amounts which shall have
become due to and due from the Agent and the Lenders during the preceding day
with respect to any Obligations, other than the Settlement Amount which became
due during the preceding day. The Agent shall notify the Lenders by 11:00 A.M.
on each Settlement Date of the Settlement Amount which is payable by the Agent
or the Lenders, and the Agent or the Lenders, as the case may be, shall make
payment of the Settlement Amount by an electronic funds transfer not later than
5:00 P.M. on the Settlement Date. Nothing in this (S) 2.14 or the settlement
procedures made pursuant to this (S) 2.14 shall be deemed to change, as between
the Borrower and the Lenders, the amount of the Loans which are outstanding
under the Notes to each of the Lenders or the accrual of interest due to each of
the Lenders on such Loans.

     Section 2.15.   Fees.
                     ---- 

             (a)     The Borrower agrees to pay to the Agent quarterly after the
date hereof through the Revolving Credit Termination Date and on the Revolving
Credit Termination Date for the account of each of the Lenders a commitment fee
which shall accrue on the Unused Commitment for the period from and including
the date hereof to the earlier of the date the Revolving Credit Commitments are
terminated in their entirety or the Revolving Credit Termination Date. The
commitment fee shall be calculated on the basis of a 360 day year for the actual
number of days elapsed at a rate per year equal to the Applicable Commitment Fee
Rate. The commitment fee shall be due and payable in arrears quarterly on the
first Banking Day of each October, January, April and July and shall be computed
by Agent. On each such payment date, the Agent is authorized to make a Revolving
Credit Loan to the Borrower for the amount thereof (or during the continuance of
an Event of Default, debit the Collateral Account) for the payment thereof to
the Lenders. The Agent shall notify the Borrower of the amount of the commitment
fee for the preceding quarter in the next monthly statement rendered by the
Agent to the Borrower.

             (b)     The Borrower agrees to pay to Agent for the benefit of the
Lenders (according to each Lender's Revolving Credit Commitment Percentage) (i)
a letter of credit fee payable in advance on the issuance date of each standby
Letter of Credit in an amount computed by multiplying the face amount of such
Letter of Credit by the applicable Eurodollar Rate, calculated on the basis of a
360 day year for the maximum number of days that such Letter of Credit may be
outstanding from (and including) the issuance date to (but excluding) the
expiration date of such Letter of Credit, and (ii) a letter of credit fee
payable in advance on the issuance date of each trade or documentary Letter of
Credit in an amount equal to one hundred (100) basis points multiplied by the
face amount of such Letter of Credit. Upon making a computation of the amount of
such Letter of Credit fee, the Agent is authorized to make a Revolving Credit
Loan to the Borrower for the amount thereof. The Agent shall notify the Borrower
of the amount of such Letter of Credit fee in the next monthly statement
rendered by the Agent to the Borrower.

             (c)     In the event the Borrower elects to terminate the Revolving
Credit Commitments at any time prior to October 14, 1999, the Borrower shall pay
to the Agent for the benefit of the Lenders


                                     -24-
<PAGE>
 
(according to each Lender's Revolving Credit Commitment Percentage), a
prepayment fee in an aggregate amount equal to $275,000.

             (d)    The Borrower agrees to pay the Agent (for its own account)
such fees payable in such amounts and at the times separately agreed in writing
between the Borrower and the Agent.

     Section 2.16.  Payments Generally. All payments under this Agreement or the
                    ------------------
Notes shall be made in United States Dollars in funds which are immediately
available not later than 1:00 p.m. New York City time on the relevant dates
specified above (each such payment made after such time on such due date to be
deemed to have been made on the next succeeding Banking Day) at the Chase Office
for the account of each Lender, and all such payments may be made by making a
Revolving Credit Loan to the Borrower for the amount thereof (or during the
continuance of an Event of Default, debiting the Collateral Account for the
payment thereof to the Lenders). The Agent, or any Lender for whose account any
such payment is to be made, may (but shall not be obligated to) debit the amount
of any such payment which is not made by such time to any ordinary deposit
account of the Borrower with the Agent or such Lender, as the case may be, and
any Lender so doing shall promptly notify the Agent. Subject to (S) 11.16, the
Borrower shall, at the time of making each payment under this Agreement or the
Notes, specify to the Agent the principal or other amount payable by the
Borrower under this Agreement or the Notes to which such payment is to be
applied and in the event that it fails to so specify, or if a Default or Event
of Default has occurred and is continuing, the Agent may, subject to (S) 11.16,
apply such payment as it may elect in its sole discretion. If the due date of
any payment under this Agreement or the Notes would otherwise fall on a day
which is not a Banking Day, such date shall be extended to the next succeeding
Banking Day and interest shall be payable for any principal so extended for the
period of such extension. Each payment received by the Agent hereunder or under
any Note for the account of a Lender shall be paid promptly to such Lender, in
immediately available funds, for the account of such Lender's Lending Office.

     Section 2.17.  Purpose. The Borrower shall use the proceeds of the Loans
                    -------
(a) to refinance the Indebtedness of the Borrower listed on Schedule 2.17
                                                            -------------
hereto, (b) to finance Permitted Acquisitions (subject to the limitations set
forth in (S) 2.04), (c) to fund the Borrower's obligations in respect of foreign
exchange contracts (subject to the limitations set forth in (S) 7.16), (d) for
working capital requirements of the Borrower and its Subsidiaries (subject to
the limitations set forth in (S) 7.06 and (S) 7.10), and (e) for other general
corporate purposes.

                ARTICLE 3.  YIELD PROTECTION; ILLEGALITY; ETC.

     Section 3.01.  Additional Costs.
                    -----------------

             (a)    The Borrower shall pay directly to each Lender from time to
time within five Banking Days of demand therefor such amounts as such Lender may
reasonably determine to be necessary to compensate it for any costs which such
Lender determines are attributable to its making or maintaining any Eurodollar
Loans under this Agreement or its Note or its obligation to make any such Loans
hereunder, or any reduction in any amount receivable by such Lender hereunder in
respect of any such Loans or such obligation (such increases in costs and
reductions in amounts receivable being herein called "Additional Costs"),
                                                      ----------------
resulting from any Regulatory Change which: (i) changes the basis of taxation of
any amounts payable to such Lender under this Agreement or its Note in respect
of any of such Loans (other than taxes imposed on the overall net income of such
Lender or of its Lending Office for any of such Loans by the jurisdiction in
which such Lender has its principal office or such Lending Office); or (ii)
imposes or modifies any reserve, special deposit, deposit insurance or
assessment, minimum capital, capital ratio or similar requirements relating to
any extensions of credit or other assets of, or any deposits with or other
liabilities of, such Lender; or (iii) imposes any other condition affecting this
Agreement or

                                     -25-
<PAGE>
 
its Note (or any of such extensions of credit or liabilities). Each Lender will
notify the Borrower of any event occurring after the date of this Agreement
which will entitle such Lender to compensation pursuant to this (S) 3.01(a) as
promptly as practicable after it obtains knowledge thereof and determines to
request such compensation. If any Lender requests compensation from the Borrower
under this (S) 3.01(a), or under (S) 3.01(c), the Borrower may, by notice to
such Lender with a copy to the Agent, suspend the obligation of such Lender to
make Loans of the type with respect to which such compensation is requested (in
which case the provisions of (S) 3.04 shall be applicable).

             (b)    Without limiting the effect of the foregoing provisions of
this (S) 3.01, in the event that, by reason of any Regulatory Change, any Lender
either (i) incurs Additional Costs based on or measured by the excess above a
specified level of the amount of a category of deposits or other liabilities of
such Lender which includes deposits by reference to which the interest rate on
Eurodollar Loans is determined as provided in this Agreement or a category of
extensions of credit or other assets of such Lender which includes Eurodollar
Loans or (ii) becomes subject to restrictions on the amount of such a category
of liabilities or assets which it may hold, then, if such Lender so elects by
notice to the Borrower with a copy to the Agent, the obligation of such Lender
to make Loans of such type hereunder shall be suspended until the date such
Regulatory Change ceases to be in effect (in which case the provisions of (S)
3.04 shall be applicable).

             (c)    Without limiting the effect of the foregoing provisions of
this (S) 3.01 (but without duplication), the Borrower shall pay directly to each
Lender from time to time within five Banking Days of request therefor such
amounts as such Lender may determine to be necessary to compensate such Lender
for any costs which it determines are attributable to the maintenance by the
Lender or its bank holding company or any of its Affiliates, pursuant to any law
or regulation of any jurisdiction or any interpretation, directive or request
(whether or not having the force of law) of any court or governmental or
monetary authority, whether in effect on the date of this Agreement or
thereafter, of capital in respect of its Loans hereunder or its obligation to
make Loans hereunder (such compensation to include, without limitation, an
amount equal to any reduction in return on assets or equity of such Lender or
its bank holding company or any of its Affiliates to a level below that which it
could have achieved but for such law, regulation, interpretation, directive or
request). Each Lender will notify the Borrower if such Lender is entitled to
compensation pursuant to this (S) 3.01(c) as promptly as practicable after it
determines to request such compensation.

             (d)    Determinations and allocations by a Lender for purposes of
this (S) 3.01 of the effect of any Regulatory Change pursuant to subsections (a)
or (b), or of the effect of capital maintained pursuant to subsection (c), on
its costs of making or maintaining Loans or its obligation to make Loans, or on
amounts receivable by, or the rate of return to, it in respect of Loans or such
obligation, and of the additional amounts required to compensate such Lender
under this (S) 3.01, shall be conclusive, provided that such determinations and
allocations are made on a reasonable basis. Each Lender demanding payment from
the Borrower pursuant to this (S) 3.01 shall furnish to the Borrower at the time
of such demand a statement showing the basis for and the method of calculation
of such demand.

     Section 3.02.  Limitation on Types of Loans. Anything herein to the
                    ----------------------------
contrary notwithstanding, if:

             (a)    the Agent reasonably determines (which determination shall
be conclusive) that quotations of interest rates for the relevant deposits
referred to in the definition of "Eurodollar Rate" in (S) 1.01 are not being
provided in the relevant amounts or for the relevant maturities for purposes of
determining the rate of interest for any type of Eurodollar Loans as provided in
this Agreement; or

             (b)    any Lender reasonably determines (which determination shall
be conclusive) and notifies the Agent that the relevant rates of interest
referred to in the definition of "Eurodollar Rate" in


                                     -26-
<PAGE>
 
(S) 1.01 upon the basis of which the rate of interest for any type of Eurodollar
Loans is to be determined do not adequately cover the cost to such Lender of
making or maintaining such Loans;

then the Agent shall give the Borrower and each Lender prompt notice thereof,
and so long as such condition remains in effect, the Lenders shall be under no
obligation to make Loans of such type.

     Section 3.03.  Illegality.  Notwithstanding any other provision in this
                    ----------                                              
Agreement, in the event that it becomes unlawful for any Lender or its Lending
Office to honor its obligation to make or maintain Eurodollar Loans hereunder,
then such Lender shall promptly notify the Borrower thereof (with a copy to the
Agent) and such Lender's obligation to make or maintain Eurodollar Loans
hereunder shall be suspended until such time as such Lender may again make and
maintain such affected Loans (in which case the provisions of (S) 3.04 shall be
applicable).

     Section 3.04.  Certain Base Rate Loans pursuant to (S)(S) 3.01 and 3.03. If
                    -------------------------------------------------------- 
the obligations of any Lender to make Loans of a particular type (Loans of such
type being herein called "Affected Loans" and such type being herein called the
"Affected Type") shall be suspended pursuant to (S)(S) 3.01 or 3.03, all Loans
which would otherwise be made by such Lender as Loans of the Affected Type shall
be made instead as Base Rate Loans and, if an event referred to in (S) 3.01(b)
or 3.03 has occurred and such Lender so requests by notice to the Borrower with
a copy to the Agent, all Affected Loans of such Lender then outstanding shall be
automatically converted into Base Rate Loans on the date specified by such
Lender in such notice, and, to the extent that Affected Loans are so made as (or
converted into) Base Rate Loans, all payments of principal which would otherwise
be applied to such Lender's Affected Loans shall be applied instead to its Base
Rate Loans.

     Section 3.05.  Certain Compensation. The Borrower shall pay to the Agent
                    --------------------
for the account of each Lender, upon the request of such Lender through the
Agent, such amount or amounts as shall be sufficient (in the reasonable opinion
of such Lender) to compensate it for any loss, cost or expense which such Lender
determines is attributable to:

             (a)    any payment of a Eurodollar Loan made by the Borrower on a
date other than the last day of a Eurodollar Interest Period or the maturity
date, respectively, for such Loan (whether by reason of acceleration or
otherwise) (other than pursuant to Section 3.04); or

             (b)    any failure by the Borrower to borrow any Loan to be made by
such Lender on the date specified therefor in the relevant notice under (S)2.12.

Without limiting the foregoing, such compensation shall include an amount equal
to the excess, if any, of (i) the amount of interest which otherwise would have
accrued on the principal amount so paid or not borrowed for the period from and
including the date of such payment or failure to borrow to but excluding the
last day of the Eurodollar Interest Period for such Loan (or, in the case of a
failure to borrow, to but excluding the last day of the Eurodollar Interest
Period for such Loan which would have commenced on the date specified therefor
in the relevant notice) at the applicable rate of interest for such Loan
provided for herein over (ii) the amount of interest (as reasonably determined
by such Lender) such Lender would have bid in the London interbank market for
Dollar deposits for amounts comparable to such principal amount and maturities
comparable to such period. A determination of any Lender as to the amounts
payable pursuant to this (S) 3.05 shall be conclusive, provided that such
determination is made on a reasonable basis.

     Section 3.06.  Mitigation Obligations   If any Lender requests compensation
                    ----------------------                                      
under Section 3.01, then such Lender shall use reasonable efforts to designate a
different lending office for funding or booking its Loans hereunder or to assign
its rights and obligations hereunder to another of its offices, 


                                     -27-
<PAGE>
 
branches or affiliates, if, in the judgment of such Lender, such designation or
assignment (i) would eliminate or reduce amounts payable pursuant to Section
3.01 in the future and (ii) would not subject such Lender to any unreimbursed
cost or expense and would not otherwise be disadvantageous to such Lender. The
Borrower hereby agrees to pay all reasonable costs and expenses incurred by any
Lender in connection with any such designation or assignment.

                       ARTICLE 4.  CONDITIONS PRECEDENT

     Section 4.01.  Documentary Conditions Precedent. The obligations of the
                    --------------------------------
Initial Lenders to make the Loans constituting the initial borrowings are
subject to the condition precedent that on or before the Effective Date each of
the following documents shall have been delivered to the Agent in form and
substance satisfactory to the Agent and its counsel, and each of the following
actions shall have been performed to the satisfaction of the Agent and its
counsel:

             (a)    The Agent shall have received the Facility Documents duly
executed by each of the parties thereto, and in full force and effect;

             (b)    The Agent shall have received a certificate of the Clerk or
Assistant Clerk of the Borrower, dated the Effective Date, attesting to all
corporate action taken by the Borrower, including resolutions of its Board of
Directors authorizing the execution, delivery and performance of the Facility
Documents to which the Borrower is a party and each other document to be
executed and delivered by the Borrower pursuant to this Agreement and certifying
the names and true signatures of the officers of the Borrower authorized to sign
the Facility Documents and the other documents to be executed and delivered by
the Borrower under this Agreement;

             (c)    The Agent shall have received a certificate of the Secretary
or Assistant Secretary (or equivalent) of the Subsidiary Guarantor, dated the
Effective Date, attesting to all corporate action taken by the Subsidiary
Guarantor, including resolutions of their Board of Directors (or equivalent)
authorizing the execution, delivery and performance of the Facility Documents to
which the Subsidiary Guarantor is a party and each other document to be executed
and delivered by the Subsidiary Guarantor pursuant to this Agreement and
certifying the names and true signatures of the officers of the Subsidiary
Guarantor authorized to sign the Facility Documents and the other documents to
be executed and delivered by the Subsidiary Guarantor under this Agreement;

             (d)    The Agent shall have received a certificate of a duly
authorized officer of the Borrower dated the Effective Date, stating that the
representations and warranties in Article 5 are true and correct on such date as
though made on and as of such date and that no event has occurred and is
continuing which constitutes a Default or Event of Default;

             (e)    The Agent shall have received (i) a favorable opinion of
counsel for the Borrower and the Subsidiary Guarantor, dated the Effective Date,
in substantially the form of Exhibit H hereto, and covering such other matters
                             ---------
as the Agent or any Lender may reasonably request, and (ii) a favorable opinion
of local Irish counsel for Advanced Component Technologies Limited regarding the
pledge of the Borrower's equity in Advanced Component Technologies Limited and
covering such other matters as the Agent or any Lender may reasonably request;

             (f)    The Agent shall have received a certificate of a duly
authorized officer of the Borrower certifying as to the solvency of the Borrower
and its Subsidiaries after giving effect to the funding of the initial Loans.


                                     -28-
<PAGE>
 
             (g)    The Agent shall have received insurance certificates in form
satisfactory to the Agent evidencing casualty, all-risk, product liability and
other insurance having coverages and issued by insurance companies satisfactory
to the Agent and naming the Agent as a lender's loss payee and (as appropriate)
an additional insured.

             (h)    The Agent shall have received an initial Borrowing Base
Certificate, remittance, debit and credit reports, and a statement of accounts
in a form acceptable to the Agent with respect to the Borrower and consistent
with the requirements of (S) 6.09 hereof, dated as of not more than 30 days
prior to the date of the Loan;

             (i)    The Agent shall be satisfied that the Borrower has on the
Effective Date and will continue to have on the Banking Day subsequent to the
Effective Date, in each case after giving effect to the funding of the initial
Revolving Credit Loans, Availability equal to or exceeding $6,000,000;

             (j)    The Borrower shall have delivered to the Agent evidence
reasonably satisfactory to the Agent that the Leased Premises do not pose a
violation of any Environmental Laws or any liability to the Borrower under any
Environmental Laws;

             (k)    The Agent shall be satisfied with its due diligence review
of the Borrower and its Subsidiaries, including, but not limited to,
satisfactory review by the Agent of the projections of the Borrower and its
Subsidiaries;

             (l)    The Agent shall be satisfied with its review of (i)
estimated closing balance sheets for the Borrower and its Subsidiaries
(including all Foreign Subsidiaries), prepared in accordance with GAAP, and (ii)
consolidated and consolidating monthly profit and loss statements, balance
sheets and cash flow projections for the Borrower and its Subsidiaries
(including all Foreign Subsidiaries), prepared in accordance with GAAP, for the
12-month period from the Closing Date forward, and on an annual basis for Fiscal
Years ending December 31, 1999 and December 31, 2000;

             (m)    The Borrower shall have delivered to the Agent a schedule of
all fixed assets of the Credit Parties with a value greater than or equal to
$250,000 (which schedule shall identify the net book value of such assets and
identify the amounts of all liens and the identities of lien holders);

             (m)    The Agent shall be satisfied with the results of its checks
on the suppliers and customers of the Borrower and its Subsidiaries;

             (n)    The Agent shall be satisfied with the cash management
arrangements (including domestic lock box arrangements) and management
information systems in place with respect to the Borrower and its Subsidiaries;

             (o)    The Agent shall be satisfied with its review of the
Borrower's and its Subsidiaries' Year 2000 MIS conversion and related matters;

             (p)    The Agent shall be satisfied with the arrangements between
the Borrower and its equipment lessors with respect to the Borrower's equipment
leases, which equipment leases are listed on Schedule 4.01(p) hereto;

             (q)    The Borrower shall have entered into an Interest Rate
Protection Agreement with the Agent on such terms as the Agent shall reasonably
require; and

             (r)    The Agent shall have received letters in form satisfactory
to the Agent from the 


                                     -29-
<PAGE>
 
landlords of all real property leased by the Borrower covering such matters as
the Agent may reasonably request.

     Section 4.02.  Additional Conditions Precedent. The obligations of the
                    -------------------------------
Lenders to make any Loans (including the initial Loans) shall be subject to the
further conditions precedent that on the date of such Loan:

             (a)    The following statements shall be true:

                    (i)   the representations and warranties contained in
     Article 5 of this Agreement are true and correct on and as of the date of
     such Loan as though made on and as of such date; and

                    (ii)  No Default or Event of Default has occurred and is
     continuing, or would result from such Loan;

             (b)    The Agent shall have received such approvals, opinions or
documents as the Agent or any Lender may reasonably request;

             (c)    At or before the time of making the first Revolving Credit
Loan hereunder and as of the date of each subsequent Revolving Credit Loan
hereunder, the Agent shall determine that the making of such Revolving Credit
Loan will not cause the amounts outstanding hereunder to exceed the Borrowing
Base , and there shall be delivered or in the possession of the Agent all
documents pertaining to the Qualified Accounts, the Qualified Raw Material and
Finished Goods Inventory and the Qualified Excess Inventory, as the Agent shall
reasonably require, dated as of not more than 30 days prior to the date of the
Loan;

             (d)    The Borrower shall have paid to the Agent all accrued fees
and expenses payable to the Agent in connection with this Agreement, including
all reasonable fees and disbursements of legal counsel to the Agent.

     Section 4.03.  Deemed Representations. Each notice of a Loan and acceptance
                    ----------------------
by the Borrower of the proceeds of such Loan shall constitute a representation
and warranty that the conditions set forth in Subsection (a) of (S) 4.02 are
true and correct as of the date of each such Loan. The Agent may from time to
time require certificate(s) of duly authorized officer(s) of one or more of the
Borrower, stating that the representations and warranties in Article 5 are true
and correct on such date as though made on and as of such date and that no event
has occurred and is continuing which constitutes a Default or an Event of
Default.

                  ARTICLE 5.  REPRESENTATIONS AND WARRANTIES

     The Borrower and the Subsidiary Guarantor hereby jointly and severally
represent and warrant, as of the date hereof and as of the date of each Loan,
that:

     Section 5.01.  Incorporation, Good Standing and Due Qualification. The
                    --------------------------------------------------   
Borrower and each of its Subsidiaries is an entity which is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its assets and to
transact the business in which it is now engaged or proposed to be engaged, and
is duly qualified as a foreign corporation and in good standing under the laws
of each other jurisdiction in which such qualification is required, except where
the failure to be so qualified would not have a Material Adverse Effect.


                                     -30-
<PAGE>
 
     Section 5.02.  Corporate Power and Authority; No Conflicts.  The execution,
                    -------------------------------------------                 
delivery and performance of the Facility Documents: (a) have been duly
authorized by all necessary corporate action by the Borrower and the Subsidiary
Guarantor and do not and will not require any consent or approval of the
equityholders of the Borrower or the Subsidiary Guarantor or contravene their
charters or by-laws; (b) will not violate any provision of, or require any
filing, registration, consent or approval under, any law, rule, regulation
(including, without limitation, Regulation U), order, writ, judgment,
injunction, decree, determination or award presently in effect having
applicability to the Borrower or any of its Subsidiaries; (c) will not result in
a breach of or constitute a default in any material respect or require any
consent which has not been obtained under any indenture or loan or credit
agreement or any other agreement, lease or instrument to which the Borrower or
the Subsidiary Guarantor is a party or by which the properties of the Borrower
or the Subsidiary Guarantor may be bound or affected; (d) will not result in, or
require, the creation or imposition of any Lien, upon or with respect to any of
the properties now owned or hereafter acquired by the Borrower or any of its
Subsidiaries, except as provided in the Security Documents; or (e) will not
cause the Borrower or any Subsidiary Guarantor or any Security Document Party,
as the case may be, to be in default in any material respect under any such law,
rule, regulation, order, writ, judgment, injunction, decree, determination or
award or any such indenture, agreement, lease or instrument.

     Section 5.03.  Legally Enforceable Agreements. Each Facility Document is,
                    ------------------------------
or when delivered under this Agreement will be, a legal, valid and binding
obligation of the Borrower and the Subsidiary Guarantor, enforceable against the
Borrower and the Subsidiary Guarantor, in accordance with its terms, except to
the extent that enforceability may be subject to limitations imposed by general
principles of equity or applicable bankruptcy, insolvency and other similar laws
affecting creditors' rights generally.

     Section 5.04.  Litigation. Except as set forth on Schedule 5.04 hereto,
                    ----------
there are no actions, suits or proceedings pending or, to the knowledge of the
Borrower, threatened, against or affecting the Borrower or any of its
Subsidiaries before any court, governmental agency or arbitrator, which may, in
any one case or in the aggregate, materially adversely affect the financial
condition, operations, properties or business of the Borrower and its
Subsidiaries taken as a whole or the ability of the Borrower or the Subsidiary
Guarantor to perform their obligations under the Facility Documents.

     Section 5.05.  Financial Statements.  The consolidated balance sheet of the
                    --------------------                                        
Borrower and its Subsidiaries as at December 31, 1997, and the related
consolidated statements of income, cash flows and stockholders' equity of the
Borrower and its Subsidiaries for the fiscal year then ended, and the
accompanying footnotes, together with the opinion thereon of Deloitte & Touche
LLP, independent certified public accountants, copies of which have been
furnished to each of the Initial Lenders, are complete and correct and fairly
present the financial condition of the Borrower and its Subsidiaries as at
December 31, 1997 and the results of the operations of the Borrower and its
Subsidiaries for the period covered by such statements, all in accordance with
GAAP consistently applied.  No information, exhibit or report furnished by the
Borrower to the Lenders in connection with the negotiation of this Agreement
contained any material misstatement of fact or omitted to state a material fact
or any fact necessary to make the statement contained therein in the light of
the circumstances in which it was made not materially misleading.  Since
December 31, 1997, there has been no material adverse change in the condition
(financial or otherwise), business, operations of the Borrower and its
Subsidiaries taken as a whole.

     Section 5.06.  Ownership and Liens. The Borrower and its Subsidiaries have
                    -------------------  
title to, or valid leasehold interests in, all of its properties and assets,
real and personal, including the properties and assets, and leasehold interests
reflected in the financial statements referred to in (S) 5.05 (other than any
properties or assets disposed of in the ordinary course of business), and none
of the properties and assets owned by the Borrower or any of its Subsidiaries
(excluding any of its leasehold interests) is subject to any Lien, 


                                     -31-
<PAGE>
 
except as disclosed in such financial statements or as may be permitted
hereunder or as listed in Schedule 5.06 hereto.
                          -------------        

     Section 5.07.  Existing Indebtedness.  Neither the Borrower nor any of its
                    ---------------------                                      
Subsidiaries owes Indebtedness as of the Effective Date for borrowed money or
under any title retention agreements (including conditional sale contracts and
Capital Leases) except as listed on Schedule 5.07 hereto.
                                    -------------        

     Section 5.08.  Taxes. The Borrower and each of its Subsidiaries has filed
                    -----
all tax returns (federal, state and local) required to be filed and has paid all
taxes, assessments and governmental charges and levies thereon to be due,
including interest and penalties, except for such taxes which are not material
in amount and are being contested by the Borrower in good faith in appropriate
proceedings. The federal income tax liability of the Borrower and its
Subsidiaries has been audited by the Internal Revenue Service through the
Borrower's Fiscal Year ending December 31, 1994, and no tax issues relating to
tax audits prior to such date are outstanding.

     Section 5.09.  ERISA. The Borrower and its Subsidiaries are in compliance
                    -----
in all material respects with all applicable provisions of ERISA. Neither a
Reportable Event nor a Prohibited Transaction has occurred with respect to any
Plan; no notice of intent to terminate a Plan has been filed nor has any Plan
been terminated; no circumstance exists which constitutes grounds under Section
4042 of ERISA entitling the PBGC to institute proceedings to terminate, or
appoint a trustee to administer, a Plan, nor has the PBGC instituted any such
proceedings; neither the Borrower nor any ERISA Affiliate has completely or
partially withdrawn under Sections 4201 or 4204 of ERISA from a Multiemployer
Plan; the Borrower and each of its ERISA Affiliates has met its minimum funding
requirements under ERISA with respect to all of its Plans and there are no
Unfunded Vested Liabilities in excess of $250,000; and neither the Borrower nor
any ERISA Affiliate has incurred any liability to the PBGC under ERISA in excess
of $250,000.

     Section 5.10.  Subsidiaries and Affiliates.  As of the Effective Date, the
                    ---------------------------                                
Borrower has no Subsidiaries and no corporate Affiliates except as set forth on
Schedule 5.10 hereto.
--------------       

     Section 5.11.  Operation of Business. The Borrower and each of its
                    ---------------------
Subsidiaries possesses all licenses, permits, franchises, patents, copyrights,
trademarks and trade names, or rights thereto, to conduct its business
substantially as now conducted and as presently proposed to be conducted, and
neither the Borrower nor any of its Subsidiaries is in violation of any valid
rights of others with respect to any of the foregoing which could reasonably be
expected to have a Material Adverse Effect.

     Section 5.12.  No Default on Outstanding Judgments or Orders. The Borrower
                    ---------------------------------------------
and each of its Subsidiaries has satisfied all judgments and none of the
Borrower or any of its Subsidiaries is in default with respect to any judgment,
writ, injunction, decree, rule or regulation of any court, arbitrator or
federal, state, municipal or other governmental authority, commission, board,
bureau, agency or instrumentality, domestic or foreign, except for judgments
which are not material in amount and are being contested in good faith by the
Borrower in appropriate proceedings.

     Section 5.13.  No Defaults on Other Agreements. Neither the Borrower nor
                    -------------------------------
any of its Subsidiaries is a party to any indenture, loan or credit agreement or
any lease or other agreement or instrument or subject to any charter or
corporate restriction which could reasonably be expected to have a Material
Adverse Effect. Neither the Borrower nor any of its Subsidiaries is in default
in any material respect in the performance, observance or fulfillment of any of
the obligations, covenants or conditions contained in any agreement or
instrument material to its business to which it is a party.


                                     -32-
<PAGE>
 
       Section 5.14. Labor Disputes and Acts of God. Neither the business nor
                     ------------------------------
the properties of the Borrower or of any of its Subsidiaries have been affected
by any fire, explosion, accident, strike, lockout or other labor dispute,
drought, storm, hail, earthquake, embargo, act of God or of the public enemy or
other casualty (whether or not covered by insurance) which materially and
adversely affects such business or properties or the operations of the Borrower
and its Subsidiaries taken as a whole.

       Section 5.15. Investment Company Act. Neither the Borrower nor any of its
                     ---------------------- 
Subsidiaries is an "investment company" within the meaning of the United States
Investment Company Act of 1940, as amended.
 
       Section 5.16. Environmental Matters. No real property owned or leased by
                     ---------------------
the Borrower or any of its Subsidiaries is in violation of any Environmental
Laws, no Hazardous Materials are present on said real property other than
Hazardous Materials used, generated, treated, stored, disposed of or otherwise
introduced compliance with all applicable Environmental Laws. Neither the
Borrower nor any of its Subsidiaries has been identified in any litigation,
administrative proceedings or investigation as a responsible party or
potentially responsible party for any liability under any Environmental Laws.

       Section 5.17. Regulation U. Neither the Borrower nor any of its
                     ------------ 
Subsidiaries owns, directly or indirectly any "margin stock" (as defined in
Regulation U of the Board of Governors of the Federal Reserve System, as
supplemented from time to time). The proceeds of the Loans are not being used
for the purpose, whether immediate, incidental or ultimate, of buying or
carrying any "margin stock".

       Section 5.18. No Guaranties or Indemnities. Except as set forth on
                     ----------------------------  
Schedule 5.07 hereto, neither the Borrower nor any of its Subsidiaries is
-------------
obligated on any Guaranty or any indemnification of any kind for the debts,
liabilities or obligations of any Person, including without limitation any
Affiliate, other than indemnities and hold harmless provisions entered into in
favor of customers, bonding agencies and sureties in the ordinary course of
business.


                       ARTICLE 6.  AFFIRMATIVE COVENANTS


       So long as any of the Notes shall remain unpaid or any Lender shall have
any Revolving Credit Commitment under this Agreement, the Borrower shall:


       Section 6.01. Maintenance of Existence. Except as permitted by (S) 7.03,
                     ------------------------
preserve and maintain, and cause each of its Subsidiaries to preserve and
maintain, its legal existence and good standing in the jurisdiction of its
organization, and qualify and remain qualified, and cause each of its
Subsidiaries to qualify and remain qualified, as a foreign organization in each
jurisdiction in which such qualification is required, except where the failure
to be so qualified could not reasonably be expected to have a Material Adverse
Effect.

                                                                                
       Section 6.02. Conduct of Business. Continue, and cause each of its
                     -------------------
Subsidiaries to continue, to engage in an efficient and economical manner in a
business of the same general type as conducted by it on the date of this
Agreement.

       Section 6.03. Maintenance of Properties. Maintain, keep and preserve, and
                     -------------------------
cause each of its Subsidiaries to maintain, keep and preserve, all of its
properties, (tangible and intangible) necessary or useful in the proper conduct
of its business in good working order and condition, ordinary wear and tear
excepted.

                                                                                
       Section 6.04. Maintenance of Records; Fiscal Year. Keep, and cause each
                     -----------------------------------
of its Subsidiaries to keep, adequate records and books of account, in which
complete entries will be made in accordance with



                                     -33-
<PAGE>
 
GAAP, reflecting all financial transactions of the Borrower and its
Subsidiaries. To enable the ready and consistent determination of compliance
with the covenants set forth in Article 8 of this Agreement, the Borrower shall
maintain, and shall cause each of its Subsidiaries (including each Foreign
Subsidiary) to maintain, December 31st of each year as the end of the Borrower's
or such Subsidiary's Fiscal Year.

       Section 6.05.  Maintenance of Insurance.  Maintain, and cause each of its
                      ------------------------                                  
Subsidiaries to maintain, insurance with financially sound and reputable
insurance companies or associations in such amounts and covering such risks as
the Agent deems appropriate.  The Agent will be named "Lender's Loss Payable"
and/or "Additional Named Insured," as appropriate, on all insurance policies.

       Section 6.06. Compliance with Laws. Comply, and cause each of its
                     --------------------
Subsidiaries to comply, in all material respects with all applicable laws,
rules, regulations and orders (including ERISA and Environmental Laws), such
compliance to include, without limitation, paying all taxes, assessments and
governmental charges imposed upon it or upon its property before the same become
delinquent, except for such taxes, assessments, and governmental charges which
are not material in amount and which are being contested by the Borrower in
appropriate proceedings.

       Section 6.07. Right of Inspection. At any reasonable time and from time
                     -------------------
to time during regular business hours and upon reasonable prior notice (except
that no such prior notice shall be required after the occurrence and during the
continuance of a Default), permit the Agent or any agent or representative
thereof, to examine and make copies and abstracts from the records and books of
account of, and visit the properties of, the Borrower and any of its
Subsidiaries, and the Borrower hereby gives its irrevocable permission to
discuss to the extent necessary the affairs, finances and accounts of the
Borrower and any of its Subsidiaries with the Borrower's or its Subsidiaries'
respective officers and directors and the Borrower's independent accountants.

       Section 6.08. Reporting Requirements. Furnish to the Agent which shall in
                     ----------------------
turn furnish to each of the Lenders:


               (a)  As soon as available and in any event within 90 days after
the end of each Fiscal Year of the Borrower, consolidated and consolidating
balance sheets of the Borrower and its Subsidiaries as of the end of such Fiscal
Year and consolidated and consolidating statements of income, cash flows and
stockholders' equity of the Borrower and its Subsidiaries for such Fiscal Year,
all in reasonable detail and all prepared in accordance with GAAP, and as to the
consolidated statements, accompanied by an opinion thereon by Deloitte & Touche
LLP or other independent accountants of national standing selected by the
Borrower and reasonably acceptable to Agent, which opinion shall not be
qualified by reason of audit limitations imposed by the Borrower.

               (b)  As soon as available and in any event within 45 days after
the end of each Fiscal Quarter of the Borrower (including the Fiscal Quarter
ending December 31 of each Fiscal Year), consolidated and consolidating balance
sheets of the Borrower and its Subsidiaries as of the end of such Fiscal Quarter
and consolidated and consolidating statements of income, and cash flows of the
Borrower and its Subsidiaries for the period commencing at the end of the
previous Fiscal Year and ending with the end of such Fiscal Quarter, all in
reasonable detail and stating in comparative form the respective consolidated
figures for the corresponding date in the current Fiscal Quarter, and all
prepared in accordance with GAAP and certified by the chief financial officer,
the treasurer or the corporate controller of the Borrower (subject to year-end
adjustments and the absence of footnotes);

               (c)  As soon as available and in any event within 30 days after
the end of each Fiscal Month of the Borrower, consolidated and consolidating
balance sheets of the Borrower and its Subsidiaries as of the end of such Fiscal
Month and consolidated and consolidating statements of income,



                                     -34-
<PAGE>
 
and cash flows of the Borrower and its Subsidiaries for the period commencing at
the end of the previous Fiscal Year and ending with the end of such Fiscal
Month, all in reasonable detail and stating in comparative form the respective
consolidated figures for the corresponding date in the current Fiscal Year, and
all prepared in accordance with GAAP and certified by the chief financial
officer, the treasurer or the corporate controller of the Borrower (subject to
year-end adjustments and the absence of footnotes);

               (d)  Simultaneously with the delivery of the financial statements
     referred to above for each Fiscal Year and each Fiscal Quarter of the
     Borrower, a certificate of the chief financial officer, the treasurer or
     the corporate controller of the Borrower in substantially the form of
     Exhibit I hereto (a "Compliance Certificate") (i) certifying that to the
     ---------            ----------------------
     best of his knowledge no Default or Event of Default has occurred and is
     continuing or, if a Default or Event of Default has occurred and is
     continuing, a statement as to the nature thereof and the action which is
     proposed to be taken with respect thereto, (ii) with computations set forth
     in reasonable detail satisfactory to the Lenders which demonstrate
     compliance with the covenants contained in Article 8, (iii) with a schedule
     listing all Liens of which they have knowledge on the assets of the
     Borrower and its Subsidiaries which are in addition to those in favor of
     the Agent and Lenders or those listed on Schedule 5.06 hereto; and (iv)
                                              -------------
     with a schedule listing all environmental matters of the type described in
     (S) 5.16 which are in addition to those listed on Schedule 5.04 hereto if
                                                       -------------
     the aggregate amount of all liabilities, losses, damages, costs and
     expenses of such additional environmental matters, including but not
     limited to clean-up or remediation costs, is estimated to exceed an
     aggregate amount of $100,000;

               (e)  Promptly after the commencement thereof, notice of all
     actions, suits, and proceedings before any court or governmental
     department, commission, board, bureau, agency or instrumentality, domestic
     or foreign, against the Borrower or any of its Subsidiaries which, if
     determined adversely to the Borrower or such Subsidiary, could reasonably
     be expected to have a Material Adverse Effect;

               (f)  As soon as possible and in any event within 10 days after
     the occurrence of each Default or Event of Default that becomes known to a
     responsible officer of the Borrower, a written notice setting forth the
     details of such Default or Event of Default and the action which is
     proposed to be taken by the Borrower with respect thereto;

               (g)  Promptly after the receiving thereof, copies of all reports
     and notices which the Borrower or any of its Subsidiaries receives from the
     PBGC or the U.S. Department of Labor under ERISA; and as soon as possible
     and in any event within 10 days after the Borrower or any of its
     Subsidiaries knows or has reason to know that any Reportable Event or
     Prohibited Transaction has occurred with respect to any Plan or that the
     PBGC or the Borrower or any of its Subsidiaries has instituted or will
     institute proceedings under Title IV of ERISA to terminate any Plan, the
     Borrower will deliver to each of the Lenders a certificate of the chief
     financial officer, the treasurer or the corporate controller of the
     Borrower setting forth details as to such Reportable Event or Prohibited
     Transaction or Plan termination and the action the Borrower propose to take
     with respect thereto;

               (h)  Within 90 days of the end of each Fiscal Year, a forecast of
     the balance sheet, income statement and statement of cash flows for the
     then current Fiscal Year of the Borrower in a form reasonably acceptable to
     the Agent and prepared by management in accordance with GAAP; and

               (i)  Such other information respecting the condition or
     operations, financial or otherwise, of the Borrower or any of its
     Subsidiaries as the Agent at the request of any Lender may from time to
     time reasonably request.


                                     -35-
<PAGE>
 
     Section 6.09. Special Periodic Reports. The Borrower shall execute and
                   ------------------------
deliver to the Agent the following documents compiled as of the last day of the
applicable fiscal period, and the Borrower acknowledges that the Agent and the
Lenders will rely on such documents in making loans hereunder:


        (a)    Weekly, by the Monday of the following week:


               (i)     Weekly Collateral Certificate in substantially the form
                             
     of Exhibit C annexed hereto; and
        ---------

               (ii)    at the Agent's request, at the same time as delivery of
     the Weekly Collateral Certificate, copies of customer's invoices, or the
     equivalent, and the original shipping or delivery receipts for all
     merchandise sold;


        (b)    Monthly, by the 10th day of the following month:

               (i)     a declaration or statement of:  (A) inventory levels, (B)
     Accounts (identifying both Qualified Accounts and ineligible Accounts), (C)
     sales, (D) aging of Accounts, (E) aging of accounts payable, (F) order
     backlog, (G) approval or comments on the loan reconciliation provided to
     Borrower by the Agent, and (H) an accounts receivable reconciliation; all
     as of the prior month end and certified by the chief financial officer of
     the Borrower on forms reasonably acceptable to Chase; and

               (ii)    a Monthly Borrowing Base Certificate in substantially the
     form of Exhibit D annexed hereto.
             ---------                

        (c)    At the Agent's reasonable request, and within a reasonable time
     period, certified true copies of customer's invoices, or the equivalent,
     and the original shipping or delivery receipts for all merchandise sold;
     and

        (d)    At the Agent's reasonable request, and within a reasonable time
     period, certified true copies of all contracts, security agreements,
     mortgages and other documents executed by the customers in connection with
     all merchandise sold and any other information, reports, reconciliations,
     Account debtor's addresses or documents the Agent may call upon the
     Borrower to submit from time to time.


The failure by the Agent or the Lenders to request any or all of the foregoing
or the failure of the Borrower to perform the same shall not affect the security
interest of the Agent or the Lenders in or rights to any of the Collateral.  The
pledge and assignment of each Account under the Security Agreement shall
constitute and be a transaction separate from and independent of each other, but
all such transactions shall be subject to and governed by each and every one of
the terms and provisions of this Agreement.


     Section 6.10. Reports on Disputes and Federal Contracts. The Borrower shall
                   -----------------------------------------
notify the Agent:


        (a)    within thirty days of the occurrence of any material dispute or
     claim involving Accounts in the amount of $100,000 for any one Account or
     $250,000 in the aggregate for all Accounts; and

        (b)    immediately in writing of each Account which arises out of
     contracts with the United States of America or any department, agency, or
     instrumentality thereof.


                                     -36-
<PAGE>
 
     Section 6.11.  Physical Inventories; Inventory and Equipment Appraisals and
                    ------------------------------------------------------------
Field Audits.
------------ 

        (a)         The Borrower shall conduct a physical examination of its
inventory not less than once each Fiscal Quarter during the period from the
Effective Date through the first anniversary of the Effective Date, and
thereafter with such frequency as the Agent shall reasonably request. The
Borrower shall permit the Agent's representatives to be present at any and all
such inventory examinations if the Agent so requests. Upon completion of each
such inventory examination, the Borrower shall deliver to the Agent an inventory
reconciliation setting forth, with respect to each category of inventory at each
location, the differences between the results of such inventory examination and
the inventory amounts shown on the Borrower's general ledger.

        (b)         The Agent may, at the request of the Required Lenders,
require a valuation appraisal to be made from time to time of the Borrower's and
its Subsidiaries' inventory and/or Equipment and for this purpose the Agent may
hire an outside appraiser of its choice or use the Agent's personnel. In either
case, the Borrower shall reimburse the Agent for the reasonable costs and
expenses of each such appraisal. The Borrower will permit the Agent to conduct
field audit examinations of the Borrower's and its Subsidiaries' assets,
liabilities, books and records twice every Fiscal Year; provided further that
the Borrower will permit the Agent to conduct such examinations at any time and
with any reasonable frequency upon the occurrence and during the continuance of
a Default. The Borrower will reimburse the Agent for the expense of each field
audit examination at the rate of $650 per person per day, plus out-of-pocket
expenses. In connection with such field audits, the Borrower will permit the
Agent to make test verifications of the Accounts with the Borrower's and its
Subsidiaries' customers.

     Section 6.12.  Cooperation and Further Assurance. At all times until the
                    ---------------------------------
Loans are repaid in full, the Borrower shall, and shall cause its Subsidiaries
to, cooperate with the Agent and the Lenders to effectuate the intent and
purposes of the Facility Documents. Without limiting the foregoing, the Borrower
agrees to execute and deliver any financing statements or other instruments and
do such other acts and things, as Agent may reasonably deem necessary or
advisable to effectuate the intent and purposes of this Agreement, and shall
cause its Subsidiaries to do likewise.

     Section 6.13.  Deposits Into Collateral Account.  The Borrower shall remit
                    --------------------------------                           
immediately to the Agent upon receipt, and shall hold in trust for the Agent and
the Lenders until so remitted, any and all moneys received from any source for
deposit into the Collateral Account, including without limitation any proceeds
from any equity investment or extraordinary transaction.

     Section 6.14.  Lock Box Operation. The Borrower shall at all times cause
                    ------------------
its account debtors to make all payments directly to the Agent pursuant to the
Lock Box Agreements.

     Section 6.15.  Year 2000 Compliance.  Not later than December 31, 1998, the
                     --------------------                                  
Borrower and its Subsidiaries shall have taken all actions necessary to assure
that its computer-based systems are able to effectively process data, including
dates, on and after each of September 9, 1999, and January 1, 2000. The Borrower
and its Subsidiaries shall promptly notify the Agent in writing (i) in the event
of any potential "Year 2000 Problem" (as hereinafter defined) and (ii) in the
event the Borrower or any of its Subsidiaries believe that the requirement
specified in the first sentence of this (S)6.15 has not been met or is not
likely to be met by December 31, 1998. Such written notice shall specify and
describe in detail the nature of the Year 2000 Problem, or reason for actual or
anticipated failure to satisfy the requirements set forth in this (S)6.15, as
the case may be, including a description of the equipment or systems involved,
the event causing such Year 2000 Problem or actual or anticipated failure and
the Borrower's plan to address such Year 2000 problem or actual or anticipated
failure. For purposes of this (S)6.15, the term "Year 2000 Problem" means any
significant risk that computer hardware or software used in the business or
operations of the Borrower and its Subsidiaries will not in the case of any
dates or time periods occurring

                                     -37-
<PAGE>
 
after each of September 9, 1999 and December 31, 1999 function at least as
effectively as in the case of dates or times occurring prior to such dates.


                        ARTICLE 7.  NEGATIVE COVENANTS


     So long as any of the Notes shall remain unpaid or any Lender shall have
any Revolving Credit Commitment under this Agreement, the Borrower covenants and
agrees that it shall not (unless waived in accordance with the provisions of (S)
12.01 hereof):


     Section 7.01.  Sale of Assets.  Sell, lease, assign, transfer or otherwise
                     --------------                                             
dispose of, or permit any of its Subsidiaries to sell, lease, assign, transfer
or otherwise dispose of, any of its now owned or hereafter acquired assets
(including, without limitation, shares of stock and indebtedness of such
Subsidiaries, receivables and leasehold interests); except: (a) for inventory
disposed of, or other assets consumed, in the ordinary course of business; (b)
any sale, lease, assignment or other transfer by a Subsidiary of its assets to
the Borrower or to the Subsidiary Guarantor; (c) any sale or other disposition
of assets no longer used or useful in the conduct of its business; and (d) any
other sale, lease, assignment, or other transfer of assets by the Borrower or
its Subsidiaries of assets provided that the aggregate value of such assets,
together with all assets of the type described in clause (c) above shall not
exceed $500,000 during any fiscal year.

     Section 7.02.  Stock of Subsidiaries, Etc. Sell or otherwise dispose of any
                    ---------------------
shares of capital stock of any of its Subsidiaries, except in connection with a
transaction permitted under (S) 7.03, or permit any such Subsidiary to issue any
additional share of its capital stock, except (a) directors' qualifying shares,
and (b) the issuance of shares by any Subsidiary to the Borrower or to the
Subsidiary Guarantor.

     Section 7.03.  Mergers, Etc. Merge or consolidate with, or sell, assign,
                    ------------
lease or otherwise dispose of (whether in one transaction or in a series of
transactions) all or substantially all of its assets (whether now owned or
hereafter acquired) to, any Person, or permit any of its Subsidiaries to do so,
except that: (a) any Wholly-Owned Subsidiary may merge into the Borrower (so
long as the Borrower is the surviving corporation) or transfer assets to the
Borrower; and (b) any Subsidiary may merge into or consolidate with or transfer
assets to any other Subsidiary.

     Section 7.04.  Dividends.  Declare or pay any dividends, purchase, redeem,
                    ---------                                                  
retire or otherwise acquire for value any of its capital stock now or hereafter
outstanding, or make any distribution of assets to its stockholders as such
whether in cash, assets or in obligations of the Borrower, or allocate or
otherwise set apart any sum for the payment of any dividend or distribution on,
or for the purchase, redemption or retirement of any shares of its capital
stock, or make any other distribution by reduction of capital or otherwise in
respect of any shares of its capital stock or permit any Subsidiary to purchase
or otherwise acquire for value any stock of the Borrower or another Subsidiary,
except that:  (a) the Borrower may declare and deliver dividends and make
distributions payable solely in common stock of the Borrower; (b) the Borrower
may purchase or otherwise acquire shares of its capital stock by exchange for or
out of the proceeds received from a substantially concurrent issue of new shares
of its capital stock; and (c) the Borrower may purchase or otherwise acquire
shares of its capital stock from employees or directors in connection with the
termination of their employment or affiliation with the Company provided that
the aggregate cash consideration paid by the Borrower to all such employees and
directors for such shares does not exceed $250,000 during any fiscal year.

     Section 7.05.  Liens. Create, incur, assume or suffer to exist, or permit
                    ----- 
any of its Subsidiaries to create, incur, assume or suffer to exist, any Lien,
upon or with respect to any of its properties, now owned or hereafter acquired,
except:


                                     -38-
<PAGE>
 
           (a)  Liens in favor of the Agent on behalf of the Lenders securing
the Loans hereunder;

           (b)  Liens for taxes or assessments or other government charges or
levies if not yet due and payable or, if due and payable, if they are being
contested in good faith by appropriate proceedings and for which appropriate
reserves are maintained;

           (c)  Liens imposed by law, such as mechanic's, materialmen's,
landlord's, warehousemen's and carrier's Liens, and other similar Liens,
securing obligations incurred in the ordinary course of business which are not
past due for more than 30 days, or which are being contested in good faith by
appropriate proceedings and for which appropriate reserves have been
established;

           (d)  Liens under workmen's compensation, unemployment insurance,
social security or similar legislation (other than ERISA);

           (e)  Liens, deposits or pledges to secure the performance of bids,
tenders, contracts (other than contracts for the payment of money), leases
(permitted under the terms of this Agreement), public or statutory obligations,
surety, stay, appeal, indemnity, performance or other similar bonds, or other
similar obligations arising in the ordinary course of business;

           (f)  Judgment and other similar Liens arising in connection with
court proceedings; provided that the execution or other enforcement of such
Liens is effectively stayed and the claims secured thereby are being actively
contested in good faith and by appropriate proceedings;

           (g)  Easements, rights-of-way, restrictions and other similar
encumbrances which, in the aggregate, do not materially interfere with the
occupation, use and enjoyment by the Borrower or any of its Subsidiaries of the
property or assets encumbered thereby in the normal course of its business or
materially impair the value of the property subject thereto;

           (h)  Liens in existence on the Effective Date and listed on Schedule
                                                                       --------
5.06 hereto; or
----

           (i)  Liens consisting only of purchase money security interests
securing purchase money indebtedness of the Borrower or its Subsidiaries or
related to leases of Equipment, provided that the Borrower shall be in
compliance with Article 8 of this Agreement after giving effect to such
transactions.


   Section 7.06. Transactions with Affiliates.  Enter into any transaction,
                 ----------------------------
including, without limitation, the purchase, sale or exchange of property or the
rendering of any service, or permit any Subsidiary to enter into any such
transaction, with any Affiliate, except in the ordinary course of and pursuant
to the reasonable requirements of the Borrower's or any of its Subsidiaries'
business and upon fair and reasonable terms no less favorable to such Borrower
or such Subsidiary than would obtain in a comparable arm's length transaction
with a Person not an Affiliate; provided further, however, that none of the
Borrower or its Subsidiaries shall make any loan, Guaranty or indemnification of
any kind to or on behalf of any Affiliate other than (a) loans and capital
contributions constituting Foreign Intercompany Equity and Foreign Intercompany
Indebtedness in an aggregate outstanding amount not in excess of $6,000,000 at
any time, and (b) Guaranties of the Obligations.

   Section 7.07. Hazardous Materials; Indemnification.  Use, generate, treat,
                 ------------------------------------                        
store, dispose of or otherwise introduce, or permit any Subsidiary to use,
generate, treat, store, dispose of or otherwise introduce, any Hazardous
Materials into or on any real property owned or leased by any of them and will
not cause, suffer, allow or permit anyone else to do so, except in compliance
with all applicable 



                                     -39-
<PAGE>
 
Environmental Laws. The Borrower hereby agrees to indemnify, reimburse, defend
and hold harmless the Lenders and their directors, officers, agents and
employees ("Indemnified Parties") for, from and against all demands,
liabilities, damages, costs, claims, suits, actions, legal or administrative
proceedings, interest, losses, expenses and reasonable attorney's fees
(including any such fees and expenses incurred in enforcing this indemnity)
asserted against, imposed on or incurred by any of the Indemnified Parties,
directly or indirectly pursuant to or in connection with the application of any
Environmental Law to acts or omissions occurring at any time on or in connection
with any real estate owned or leased by the Borrower or any Subsidiary or any
business conducted thereon.

        Section 7.08.    Acquisitions. Make or permit any Subsidiary to make any
                         ------------                                  
Acquisition, other than Permitted Acquisitions.

        Section 7.09.    Subsidiaries. Create any Subsidiary after the date
                         ------------
hereof unless the Borrower shall (a) have obtained the Agent's prior written
consent, and (b) as soon as possible but in any case not later than fifteen (15)
days subsequent to the creation of such Subsidiary, cause such Subsidiary (other
than a Foreign Subsidiary) to execute and deliver to the Agent a Loan Guaranty
in form satisfactory to the Agent and Security Documents in substantially the
same form as the Security Documents executed concurrently herewith, together
with all supporting documentation in such form as the Lenders may reasonably
require, including a favorable opinion of counsel to such Subsidiary in respect
of such Loan Guaranty and Security Documents.

        Section 7.10.    Certain Investments. Make after the date of this
                         -------------------
Agreement any loans, advances (excluding advances for travel and entertainment
in the ordinary course of business, and other ordinary course business advances
and loans to employees) or investments of any kind in or make any distributions
of cash or other assets of any kind to any other Person, except that the
Borrower may make loans and equity contributions to the Foreign Subsidiaries to
enable them to meet their working capital needs, provided that (a) the aggregate
outstanding amount of all Foreign Intercompany Equity and Foreign Intercompany
Indebtedness shall not exceed $6,000,000 at any time, and (b) all Foreign
Intercompany Indebtedness is evidenced by documentation acceptable to the Agent,
and all rights and interests of the Borrower in respect of such Foreign
Intercompany Indebtedness are assigned to the Agent.


        Section 7.11.  Indebtedness. Create, incur, assume or suffer to exist,
                       ------------
or permit any of its Subsidiaries to create, incur, assume or suffer to exist
any Indebtedness, except:


                (a)    Indebtedness of the Borrower under this Agreement or the
Notes;                 ------------  
                      
                (b)    Capitalized Leases and purchase money Indebtedness in an
aggregate amount not in excess of $5,000,000, provided that the Borrower shall
be in compliance with Article 8 of this Agreement after giving effect to such
transactions;

                (c)    Subordinated Indebtedness;

                (d)    Foreign Intercompany Indebtedness;

                (e)    Receivables factoring/working capital Indebtedness of
Advanced Component Technologies Limited in an aggregate amount not in excess of
$2,000,000; and

                (f)    Trade debt incurred in the ordinary course of business.

        Section 7.12.  Guarantees, Etc. Except as set forth in (S)5.1 or
                       ---------------
otherwise expressly permitted by (S)7.06 assume, guarantee, endorse or
otherwise be or become directly or contingently responsible or


                                     -40-
<PAGE>
 
liable, or permit any of its Subsidiaries to assume, guarantee, endorse or
otherwise be or become directly or contingently responsible or liable
(including, but not limited to, an agreement to purchase any obligation, stock,
assets, goods or services or to supply or advance any funds, assets, goods or
services, or an agreement to maintain or cause such Person to maintain a minimum
working capital or net worth or otherwise to assure the creditors of any Person
against loss) for the obligations of any Person, except (a) guarantees by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business, and (b) guarantees by any
Subsidiary of Indebtedness of the Borrower permitted hereunder.

        Section 7.13.  Subordinated Indebtedness. Purchase, redeem, retire or
                       -------------------------
otherwise acquire for value, or set apart any money for a sinking, defeasance or
other analogous fund for the purchase, redemption, retirement or other
acquisition of, or make, or permit any of its Subsidiaries to do any of the
foregoing in respect of any voluntary payment or prepayment of the principal of
or interest on, or other amount owing in respect of, any Subordinated
Indebtedness.

        Section 7.14.  Restrictive Agreements. Enter into, incur or permit to
                       ----------------------
exist, or permit any of its Subsidiaries to enter into, incur or permit to
exist, any agreement or other arrangement that prohibits, restricts or imposes
any condition upon (a) the ability of the Borrower or any Subsidiary to create,
incur or permit to exist any Lien upon any of its property or assets in favor of
the Agent or the Lenders, or (b) the ability of any Subsidiary to pay dividends
or other distributions with respect to any shares of its capital stock or to
make or repay loans or advances to the Borrower or the ability of the Subsidiary
Guarantor to Guarantee Indebtedness of the Borrower; provided that (i) the
foregoing shall not apply to restrictions and conditions imposed by law or by
this Agreement, and (ii) clause (a) of the foregoing shall not apply to
restrictions or conditions imposed by any agreement relating to secured
Indebtedness permitted to be incurred by the Borrower or its Subsidiaries under
the terms of this Agreement if such restrictions or conditions apply only to the
property or assets securing such Indebtedness.



         Section 7.15. Capital Expenditures. Make, directly or indirectly, any
                       --------------------
Capital Expenditures or permit any Subsidiary to do so, if immediately after
giving effect to any such action the aggregate amount of Capital Expenditures on
a consolidated basis for the Borrower and its Subsidiaries shall exceed the
following amounts in the referenced Fiscal Year:

                                                            
                 Fiscal Year Ending                 Amount
                 ------------------                 ------
                 December 31, 1998                  $6,250,000
                 December 31, 1999                  $3,000,000
                 December 31, 2000                  $5,000,000
                 December 31, 2001                  $5,000,000
                                                    

provided, however, that the maximum amount of Capital Expenditures during any
Fiscal Year after the Fiscal Year ending December 31, 1998 may be increased by
an amount equal to fifty percent (50%) of the amount by which the limitation set
forth in the foregoing table for the immediately preceding Fiscal Year exceeds
the actual amount expended in that preceding Fiscal Year.


         Section 7.16. Foreign Exchange Obligations.  Enter into, or permit any
                       ----------------------------                            
Subsidiary to enter into any foreign exchange contract or foreign exchange
agreement if, immediately after giving effect thereto, either (a) the aggregate
Foreign Exchange Obligations of the Borrower and its Subsidiaries would exceed
$3,000,000, or (b) the Foreign Exchange Exposure of the Borrower and its
Subsidiaries would exceed $450,000.


                                     -41-
<PAGE>
 
                        ARTICLE 8.  FINANCIAL COVENANTS


     So long as any of the Notes shall remain unpaid or any Lender shall have
any Revolving Credit Commitment under this Agreement:

     Section 8.01.  Minimum Availability.  The Borrower shall have Availability
                    --------------------                                       
of at least the following minimum amounts at all times during the periods
indicated below:


       Time Period                 Minimum Availability
       -----------                 --------------------

       Effective Date-12/15/98         $2,000,000
         12/16/98-1/19/99              $4,000,000
          1/20/99-3/16/99              $3,000,000
          3/17/99-4/13/99              $4,000,000
          4/14/99-6/15/99              $3,000,000
          6/16/99-9/30/99              $4,000,000
 
     Section 8.02.  Fixed Charge Coverage Ratio. The Borrower shall maintain a
                    ---------------------------
Fixed Charge Coverage Ratio at or above the following minimum levels measured at
the following dates for the four quarter period then ended:


       Measurement Date              Minimum Ratio
       ----------------              -------------

       December 31, 1999               2.25 to 1
       March 31, 2000                  2.50 to 1
       June 30, 2000                   2.50 to 1
       September 30, 2000              2.75 to 1
       December 31, 2000 and           3.00 to 1
       at the end of each
       Fiscal Quarter Thereafter



     Section 8.03.  Leverage Ratio. The Borrower shall maintain a Leverage Ratio
                    --------------
at or below the following maximum levels measured at the following dates for the
four quarter period then ended:


       Measurement Date              Maximum Ratio
       ----------------              -------------

       December 31, 1999               2.75 to 1
       March 31, 2000                  2.50 to 1
       June 30, 2000                   2.50 to 1
       September 30, 2000              2.25 to 1
       December 31, 2000 and           2.00 to 1
       at the end of each
       Fiscal Quarter Thereafter



      Section 8.04. Minimum Net Income.  The Borrower shall have net income
                    ------------------                                     
(determined on a consolidated basis in accordance with GAAP excluding
extraordinary gains) measured at the following dates for the single Fiscal
Quarter then ended:



                                     -42-
<PAGE>
 
       Measurement Date             Minimum Net Income
       ----------------             ------------------

       December 31, 1998                 $450,000
       March 31, 1999                    $550,000
       June 30, 1999                     $700,000
       September 30, 1999                $800,000


                         ARTICLE 9.  EVENTS OF DEFAULT

Section 9.01.  Events of Default.  Any of the following events shall be an
               -----------------                                          
"Event of Default":

        (a)  The Borrower shall fail to pay any principal of or interest on the
Loans when due, or any fee or other amount due hereunder within five days of the
due date thereof;

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

        (c)  The Borrower or any of its Subsidiaries shall fail to perform or
observe any term, covenant or agreement contained in this Agreement or fail to
perform or observe any term, covenant or agreement on its part to be performed
or observed (other than the obligations specifically referred to elsewhere in
this (S)9.01) in any other Facility Document, and such failure shall continue
for 15 consecutive days after notice of such failure shall have been made to the
Borrower by the Agent at the request of the Required Lenders;

        (d)  The Borrower or any of its Subsidiaries shall: (i) fail to pay any
Funded Indebtedness singly or in the aggregate exceeding $250,000, including but
not limited to Indebtedness for borrowed money (other than the payment
obligations described in (a) above), of the Borrower or such Subsidiary, or any
interest or premium thereon, when due (whether by scheduled maturity, required
prepayment, demand or otherwise); or (ii) fail to perform or observe any term,
covenant or condition on its part to be performed or observed under any
agreement or instrument relating to any such Funded Indebtedness, when required
to be performed or observed, if the effect of such failure to pay, perform or
observe is to accelerate the maturity of such Funded Indebtedness (or, after the
giving of applicable notice or passage of time, or both, to permit the
acceleration of the maturity of such Funded Indebtedness); and in either case,
such failure shall continue for more than ten days, whether or not the holder of
such Funded Indebtedness shall accelerate the payment of such Funded
Indebtedness, or any such Funded Indebtedness shall be declared to be due and
payable, or required to be prepaid (other than by a regularly scheduled required
prepayment), prior to the stated maturity thereof;

        (e)  The Borrower or any of its Subsidiaries: (i) shall generally not,
or be unable to, or shall admit in writing its inability to, pay its debts as
such debts become due; or (ii) shall make an assignment for the benefit of
creditors, petition or apply to any tribunal for the appointment of a custodian,
receiver or trustee for it or a substantial part of its assets; or (iii) shall
commence any proceeding under any bankruptcy, reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect; or (iv) shall have had any
such petition or application filed or any such proceeding shall have been
commenced, against it, in which an adjudication or appointment is made or order
for relief is entered, or which petition, application or proceeding remains
undismissed for a period of 45 days or more; or (v) by any act or omission shall
indicate its consent to, approval of or acquiescence in any such petition,
application or proceeding or 

                                     -43-
<PAGE>
 
order for relief or the appointment of a custodian, receiver or trustee for all
or any substantial part of its property; or (vi) shall suffer any such
custodianship, receivership or trusteeship to continue undischarged for a period
of 45 days or more;

        (f)  One or more judgments, decrees or orders for the payment of money
in excess of $250,000 in the aggregate shall be rendered against the Borrower or
any of its Subsidiaries and such judgments, decrees or orders shall continue
unsatisfied and in effect for a period of 60 consecutive days without being
vacated, discharged, satisfied or stayed or bonded pending appeal;

        (g)  Any of the following events shall occur or exist with respect to
the Borrower or any ERISA Affiliate: (i) any Prohibited Transaction involving
any Plan; or (ii) any Reportable Event shall occur with respect to any Plan; or
(iii) the filing under Section 4041 of ERISA of a notice of intent to terminate
any Plan or the termination of any Plan; or (iv) any event or circumstance
exists which might constitute grounds entitling the PBGC to institute
proceedings under Section 4042 of ERISA for the termination of, or for the
appointment of a trustee to administer, any Plan, or the institution by the PBGC
of any such proceedings; or (v) complete or partial withdrawal under Section
4201 or 4204 of ERISA from a Multiemployer Plan or the reorganization,
insolvency, or termination of any Multiemployer Plan; and in each case above,
such event or condition, together with all other events or conditions, if any,
could subject the Borrower to any tax, penalty, or other liability to a Plan,
Multiemployer Plan, the PBGC, or otherwise (or any combination thereof) which in
the aggregate exceed or may exceed $50,000;

        (h)  After the date hereof, any Person who does not now possess Control
of the Borrower shall acquire Control of the Borrower, alone or together with
its Affiliates, by stock purchase, tender offer or otherwise, other than
transfers of the capital stock of the Borrower which shall occur by operation of
law;

        (i)  The Security Documents shall at any time or for any reason cease:
(i) to create a valid and perfected security interest or lien in and to the
property purported to be subject to the same for any reason other than the
failure of the secured parties thereunder to continue any UCC-1 Financing
Statement; or (ii) to be in full force and effect or shall be declared null and
void, or the validity or enforceability thereof shall be contested by any party
thereto or any party thereto shall deny it has any further liability or
obligations to the secured parties thereunder;

        (j)  The Facility Documents shall at any time or for any reason cease to
be in full force and effect or shall be declared null and void, or the validity
or enforceability thereof shall be contested by the Borrower or any of its
Subsidiaries, or the Borrower or any of its Subsidiaries shall deny it has any
further liability or obligations thereunder;

        (k)  There shall occur on or after September 9, 1999, any Year 2000
Problem, and such Year 2000 Problem shall not be corrected within 3 Banking
Days; or

        (l)  The Agent shall have reasonably determined that an event or
condition has occurred which has had a Material Adverse Effect.

     Section 9.02.  Remedies. If any Event of Default shall occur and be
                    --------
continuing, the Agent shall, upon request of the Required Lenders, by a written
notice to the Borrower: (a) declare the Revolving Credit Commitments to be
terminated, whereupon the same shall forthwith terminate, and (b) declare the
outstanding principal of the Loans, all interest thereon and all other amounts
payable under this Agreement and the Loans to be forthwith due and payable,
whereupon the Notes, all such interest and all such amounts shall become and be
forthwith due and payable, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by the Borrower;
provided that, in the 

                                     -44-
<PAGE>
 
case of an Event of Default referred to in (S) 9.01(e) above, the Revolving
Credit Commitments shall be immediately terminated, and the Loans, all interest
thereon and all other amounts payable under this Agreement and the Notes shall
be immediately due and payable without notice, presentment, demand, protest or
other formalities of any kind, all of which are hereby expressly waived by the
Borrower. Further, upon the occurrence and during the continuance of an Event of
Default, the Agent, acting on behalf of and at the direction of the Required
Lenders (and subject to the provisions of (S) 11.17), may then exercise any and
all rights and remedies available under the Facility Documents or at law or in
equity.


                             ARTICLE 10.  GUARANTY

     Section 10.01. The Guarantee. The Subsidiary Guarantor, and each other
                    -------------
Person who may from time to time become a Guarantor hereunder, hereby jointly
and severally guarantees to each Lender and the Agent and its respective
successors and assigns the prompt payment in full when due (whether at stated
maturity, by acceleration or otherwise) of the principal of and interest on the
Loans made by the Lenders to the Borrower, all fees and other amounts from time
to time owing from the Borrower to the Lenders hereunder, and all other
Obligations of the Borrower and each of its Subsidiaries under the Facility
Documents (such obligations being herein collectively called the "Guaranteed
                                                                  ----------
Obligations"). The Subsidiary Guarantor and each other Guarantor hereby further
-----------
agrees that if the Borrower or any of its Subsidiaries shall fail to pay in full
when due (whether at stated maturity, by acceleration or otherwise) any of the
Guaranteed Obligations, the Subsidiary Guarantor and each such other Guarantor
shall promptly pay the same upon demand therefor by the Agent or the Lenders,
without any further demand or notice whatsoever, and that in the case of any
extension of time of payment or renewal of any of the Guaranteed Obligations,
the same will be promptly paid in full when due (whether at extended maturity,
by acceleration or otherwise) in accordance with the terms of such extension or
renewal.

     Section 10.02. Obligations Unconditional. The obligations of the Subsidiary
                    -------------------------
Guarantor and each other Guarantor under (S)10.01 are absolute and unconditional
irrespective of the value, genuineness, validity, regularity or enforceability
of this Agreement, the other Facility Documents or any other agreement or
instrument referred to herein or therein, or any substitution, release or
exchange of any other guarantee of or security for any of the Guaranteed
Obligations, and, to the fullest extent permitted by applicable law,
irrespective of any other circumstance whatsoever that might otherwise
constitute a legal or equitable discharge or defense of a surety or guarantor,
it being the intent of this (S)10.02 that the obligations of the Subsidiary
Guarantor and each other Guarantor hereunder shall be absolute and unconditional
under any and all circumstances. Without limiting the generality of the
foregoing, it is agreed that the occurrence of any one or more of the following
shall not, to the extent permitted by applicable law, alter or impair the
liability of the Subsidiary Guarantor and each other Guarantor under this
Article 10 which shall remain absolute and unconditional as described above:

        (a)  at any time or from time to time, without notice to the Subsidiary
Guarantor or any of the other Guarantors, the time for any performance of or
compliance with any of the Guaranteed Obligations shall be extended, or such
performance or compliance shall be waived;

        (b)  any of the acts mentioned in any of the provisions hereof or of
the other Facility Documents or any other agreement or instrument referred to
herein or therein shall be done or omitted;

        (c)  the maturity of any of the Guaranteed Obligations shall be
accelerated, or any of the Guaranteed Obligations shall be modified,
supplemented or amended in any respect, or any right hereunder or under the
other Facility Documents or any other agreement or instrument referred to herein
or therein shall be waived or any other guarantee of any of the Guaranteed
Obligations or any security therefor shall be released or exchanged in whole or
in part or otherwise dealt with; or

        (d)  any lien or security interest granted to, or in favor of, the
Agent or the Lenders as security for any of the Guaranteed Obligations shall
fail to be perfected.


                                     -45-
<PAGE>
 
The Subsidiary Guarantor and each other Guarantor hereby expressly waive, to the
extent permitted by applicable law, diligence, presentment, demand of payment,
protest and all notices whatsoever, and any requirement that the Agent or the
Lenders exhaust any right, power or remedy or proceed against the Borrower
hereunder or under the other Facility Documents or any other agreement or
instrument referred to herein or therein, or against any other Person under
other guarantee of, or security for, any of the Guaranteed Obligations.

     Section 10.03. Reinstatement. The obligations of the Subsidiary Guarantor
                    -------------
and of each other Guarantor under this Article 10 shall be automatically
reinstated if and to the extent that for any reason any payment in respect of
the Guaranteed Obligations is rescinded or must be otherwise restored by any
holder of any of the Guaranteed Obligations, whether as a result of any
proceedings in bankruptcy or reorganization or otherwise, and the Subsidiary
Guarantor and each other Guarantor agrees that it will indemnify the Agent and
each Lender on demand for all reasonable costs and expenses (including
reasonable fees and expenses of counsel) incurred by the Agent or any Lender in
connection with such rescission or restoration, including any such costs and
expenses incurred in defending against any claim alleging that such payment
constituted a preference, fraudulent transfer or similar payment under any
bankruptcy, insolvency or similar law.

     Section 10.04. Subrogation. Unless and until all of the Loans have been
                    -----------
repaid in full and the Revolving Credit Commitments have been irrevocably
terminated, neither the Subsidiary Guarantor nor any other Guarantor shall have
any rights of subrogation or contribution, whether arising by contract or
operation of law (including, without limitation, any such right arising under
the Federal Bankruptcy Code of 1978, as amended) or otherwise by reason of any
payment by it pursuant to the provisions of this Article 10.

     Section 10.05. Remedies. The Subsidiary Guarantor and each other Guarantor
                    --------                                                   
agrees that, as between the Subsidiary Guarantor or such other Guarantor and the
Lenders, the obligations of the Borrower hereunder may be declared to be
forthwith due and payable as provided in (S)9.01 hereof (and shall be deemed to
have become automatically due and payable in the circumstances provided in
(S)9.01) for purposes of (S)10.01 notwithstanding any stay, injunction or other
prohibition preventing such declaration (or such obligations from becoming
automatically due and payable) as against the Borrower and that, in the event of
such declaration (or such obligations being deemed to have become automatically
due and payable), such obligations (whether or not due and payable by the
Borrower) shall forthwith become due and payable by the Subsidiary Guarantor and
such other Guarantor for purposes of (S)10.01.

     Section 10.06. Instrument for the Payment of Money. The Subsidiary
                    -----------------------------------
Guarantor and each other Guarantor hereby acknowledges that the guarantee in
this Article 10 constitutes an instrument for the payment of money, and consents
and agrees that the Agent and the Lenders, in the event of a dispute by the
Subsidiary Guarantor or any other Guarantor in the payment of any moneys due
hereunder, shall have the right to summary judgment or such other expedited
procedure as may be available for a suit on a note or other instrument for the
payment of money.

     Section 10.07. Continuing Guarantee.  The guarantee in this Article 10 is a
                    --------------------                                        
continuing guarantee, and shall apply to all Guaranteed Obligations whenever
arising.

     Section 10.08. General Limitation on Guarantee Obligations.  In any action
                    -------------------------------------------
or proceeding involving any state corporate law, or any state or Federal
bankruptcy, insolvency, reorganization or other law affecting the rights of
creditors generally, if the obligations of the Subsidiary Guarantor or any other
Guarantor under (S)10.01 would otherwise, taking into account the provisions of
(S) 10.08, be held or determined to be void, invalid or unenforceable, or
subordinated to the claims of any other creditors, on account of the amount of
its liability under (S)10.01, then, notwithstanding any other provision hereof
to


                                     -46-
<PAGE>
 
the contrary, the amount of such liability shall, without any further action by
the Subsidiary Guarantor, any other Guarantor, any Lender, the Agent or any
other Person, be automatically limited and reduced to the highest amount that is
valid and enforceable and not subordinated to the claims of other creditors as
determined in such action or proceeding.

         ARTICLE 11.  THE AGENT; RELATIONS AMONG LENDERS AND BORROWER

     Section 11.01. Appointment, Powers and Immunities of Agent. Each Lender
                    -------------------------------------------
hereby irrevocably (but subject to removal by the Required Lenders pursuant to
(S) 11.09) appoints and authorizes the Agent to act as its agent hereunder and
under any other Facility Document with such powers as are specifically delegated
to the Agent by the terms of this Agreement and any other Facility Document,
together with such other powers as are reasonably incidental thereto. The Agent
shall have no duties or responsibilities except those expressly set forth in
this Agreement and any other Facility Document, and shall not by reason of this
Agreement be a trustee for any Lender. The Agent shall not be responsible to the
Lenders for any recitals, statements, representations or warranties made by the
Borrower or any officer or official of the Borrower or any other Person
contained in this Agreement or any other Facility Document, or in any
certificate or other document or instrument referred to or provided for in, or
received by any of them under, this Agreement or any other Facility Document, or
for the value, legality, validity, effectiveness, genuineness, enforceability or
sufficiency of this Agreement or any other Facility Document or any other
document or instrument referred to or provided for herein or therein, for the
perfection or priority of any collateral security for the Loans, or for any
failure by the Borrower to perform any of its obligations hereunder or
thereunder. The Agent may employ agents and attorneys-in-fact and shall not be
responsible, except as to money or securities received by it or its authorized
agents, for the negligence or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care. Neither the Agent nor any of its directors,
officers, employees or agents shall be liable or responsible for any action
taken or omitted to be taken by it or them hereunder or under any other Facility
Document or in connection herewith or therewith, except for its or their own
gross negligence or willful misconduct.

     Section 11.02. Reliance by Agent. The Agent shall be entitled to rely upon
                    -----------------
any certification, notice or other communication (including any thereof by
telephone, telex, telegram, telecopier or cable) believed by it to be genuine
and correct and to have been signed or sent by or on behalf of the proper Person
or Persons, and upon advice and statements of legal counsel, independent
accountants and other experts selected by the Agent. The Agent may deem and
treat each Lender as the holder of the Loans made by it for all purposes hereof
unless and until a notice of the assignment or transfer thereof satisfactory to
the Agent signed by such Lender shall have been furnished to the Agent but the
Agent shall not be required to deal with any Person who has acquired a
participation in any Loan from a Lender. As to any matters not expressly
provided for by this Agreement or any other Facility Document, the Agent shall
in all cases be fully protected in acting, or in refraining from acting,
hereunder in accordance with instructions signed by the Required Lenders, and
such instructions of the Required Lenders and any action taken or failure to act
pursuant thereto shall be binding on all of the Lenders and any other holder of
all or any portion of any Loan.

     Section 11.03. Defaults. The Agent shall not be deemed to have knowledge of
                    ---------
the occurrence of a Default or an Event of Default (other than the non-payment
of principal of or interest on the Loans to the extent the same is required to
be paid to the Agent for the account of the Lenders) unless the Agent has
received notice from a Lender or the Borrower specifying such Default or Event
of Default and stating that such notice is a "Notice of Default." In the event
that the Agent receives such a notice of the occurrence of a Default or Event of
Default, the Agent shall give prompt notice thereof to the Lenders (and shall
give each Lender prompt notice of each such non-payment). The Agent shall
(subject to (S) 11.08) take such action with respect to such Default or Event of
Default which is continuing as shall be directed by the Required Lenders;
provided that, unless and until the Agent shall have received such 


                                     -47-
<PAGE>
 
directions, the Agent may take such action, or refrain from taking such action,
with respect to such Default or Event of Default as it shall deem advisable in
the best interest of the Lenders; and provided further that the Agent shall not
be required to take any such action which it determines to be contrary to law.

     Section 11.04. Rights of Agent as a Lender.  With respect to any Revolving
                    ---------------------------                                
Credit Commitment and the Loans made by it, the Agent in its capacity as a
Lender hereunder shall have the same rights and powers hereunder as any other
Lender and may exercise the same as though it were not acting as the Agent, and
the term "Lenders" shall, unless the context otherwise indicates, include the
Agent in its capacity as a Lender.  The Agent and its Affiliates may (without
having to account therefor to any Lender) accept deposits from, lend money to
(on a secured or unsecured basis), and generally engage in any kind of banking,
trust or other business with, the Borrower (and any of its Affiliates) as if it
were not acting as the Agent, and the Agent may accept fees and other
consideration from the Borrower for services in connection with this Agreement
or otherwise without having to account for the same to the Lenders.  Although
the Agent and its Affiliates may in the course of such relationships and
relationships with other Persons acquire information about the Borrower, its
Affiliates and such other Persons, the Agent shall have no duty to disclose such
information to the Lenders.

     Section 11.05. Indemnification of Agent. The Lenders agree to indemnify the
                    ------------------------
Agent (to the extent not reimbursed under (S) 12.03 or under the applicable
provisions of any other Facility Document, but without limiting the obligations
of the Borrower under (S) 12.03 or such provisions), ratably in accordance with
the aggregate unpaid principal amount of the Loans made by the Lenders (without
giving effect to any participations, in all or any portion of such Loans, sold
by them to any other Person) (or, if no Loans are at the time outstanding,
ratably in accordance with their respective Revolving Credit Commitments), for
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind and nature
whatsoever which may be imposed on, incurred by or asserted against the Agent in
any way relating to or arising out of this Agreement, any other Facility
Document or any other documents contemplated by or referred to herein or the
transactions contemplated hereby or thereby (including, without limitation, the
costs and expenses which the Borrower is obligated to pay under (S) 12.03 or
under the applicable provisions of any other Facility Document but excluding,
unless a Default or Event of Default has occurred, normal administrative costs
and expenses incident to the performance of its agency duties hereunder) or the
enforcement of any of the terms hereof or thereof or of any such other documents
or instruments; provided that no Lender shall be liable for any of the foregoing
to the extent they arise from the gross negligence or willful misconduct of the
Agent.

     Section 11.06. Documents. The Agent will forward to each Lender, promptly
                    ----------
after the Agent's receipt thereof, a copy of each report, notice or other
document required by this Agreement or any other Facility Document to be
delivered to the Agent for such Lender.

     Section 11.07. Non-Reliance on Agent and Other Lenders. Each Lender agrees
                    ---------------------------------------
that it has, independently and without reliance on the Agent or any other
Lender, and based on such documents and information as it has deemed
appropriate, made its own credit analysis of the Borrower and its Subsidiaries
and its own decision to enter into this Agreement and that it will,
independently and without reliance upon the Agent or any other Lender, and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own analysis and decisions in taking or not taking action
under this Agreement or any other Facility Document. The Agent shall not be
required to keep itself informed as to the performance or observance by the
Borrower of this Agreement or any other Facility Document or any other document
referred to or provided for herein or therein or to inspect the properties or
books of the Borrower or any Subsidiary. Except for notices, reports and other
documents and information expressly required to be furnished to the Lenders by
the Agent hereunder, the Agent shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning 


                                     -48-
<PAGE>
 
the affairs, financial condition or business of the Borrower or any of its
Subsidiaries which may come into the possession of the Agent or any of its
Affiliates. The Agent shall not be required to file this Agreement, any other
Facility Document or any document or instrument referred to herein or therein,
for record or give notice of this Agreement, any other Facility Document or any
document or instrument referred to herein or therein, to anyone.

     Section 11.08. Failure of Agent to Act. Except for action expressly
                    -----------------------
required of the Agent hereunder, the Agent shall in all cases be fully justified
in failing or refusing to act hereunder unless it shall have received further
assurances (which may include cash collateral) of the indemnification
obligations of the Lenders under (S) 11.05 in respect of any and all liability
and expense which may be incurred by it by reason of taking or continuing to
take any such action.

     Section 11.09. Resignation or Removal of Agent. Subject to the appointment
                    -------------------------------
and acceptance of a successor Agent as provided below, the Agent may resign at
any time by giving written notice thereof to the Lenders and the Borrower, and
the Agent may be removed at any time with or without cause by the Required
Lenders; provided that the Borrower and the other Lenders shall be promptly
notified thereof. Upon any such resignation or removal, the Required Lenders
shall have the right to appoint a successor Agent. If no successor Agent shall
have been so appointed by the Required Lenders and shall have accepted such
appointment within 30 days after the retiring Agent's giving of notice of
resignation or the Required Lenders' removal of the retiring Agent, then the
retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which
shall be a bank which has an office in the United States. The Required Lenders
or the retiring Agent, as the case may be, shall upon the appointment of a
successor Agent promptly so notify the Borrower and the other Lenders. Upon the
acceptance of any appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations hereunder. After any
retiring Agent's resignation or removal hereunder as Agent, the provisions of
this Article 11 shall continue in effect for its benefit in respect of any
actions taken or omitted to be taken by it while it was acting as the Agent.

     Section 11.10. Amendments Concerning Agency Function. The Agent shall not
                    -------------------------------------
be bound by any waiver, amendment, supplement or modification of this Agreement
or any other Facility Document which affects its duties hereunder or thereunder
unless it shall have given its prior consent thereto.

     Section 11.11. Liability of Agent. The Agent shall not have any liabilities
                    ------------------ 
or responsibilities to the Borrower on account of the failure of any Lender to
perform its obligations hereunder or to any Lender on account of the failure of
the Borrower to perform its obligations hereunder or under any other Facility
Document. The Agent shall have no liability to the Borrower or to any Lender by
reason of any error in the computation of the Borrowing Base.

     Section 11.12. Transfer of Agency Function. Without the consent of the
                    ---------------------------
Borrower or any Lender, the Agent may at any time or from time to time transfer
its functions as Agent hereunder to any of its offices wherever located,
provided that the Agent shall promptly notify the Borrower and the Lenders
thereof.

     Section 11.13. Non-Receipt of Funds by the Agent. Unless the Agent shall
                    ---------------------------------
have been notified by a Lender or the Borrower (either one as appropriate being
the "Payor") prior to the date on which such Lender is to make payment hereunder
to the Agent of the proceeds of a Loan or the Borrower are to make payment to
the Agent, as the case may be (either such payment being a "Required Payment"),
which notice shall be effective upon receipt, that the Payor does not intend to
make the Required Payment to the Agent, the Agent may assume that the Required
Payment has been made and may, in reliance upon such assumption (but shall not
be required to), make the amount thereof available to the intended recipient on


                                     -49-
<PAGE>
 
such date and, if the Payor has not in fact made the Required Payment to the
Agent, the recipient of such payment (and if such recipient is the Borrower and
the Payor Lender fails to pay the amount thereof to the Agent upon demand, the
Borrower) shall, on demand, repay to the Agent the amount made available to it
together with interest thereon for the period from the date such amount was so
made available by the Agent until the date the Agent recovers such amount at a
rate per annum equal to the average daily Federal Funds Rate for such period;
provided further that as used in this (S) 11.13, "Required Payment" does not
include any amounts due from a Lender to the Agent which are to be settled on
the next Settlement Date pursuant to (S) 2.14, but "Required Payment" shall
include as of each Settlement Date any amounts due from a Lender to the Agent as
part of the Settlement Amount to be paid on such Settlement Date pursuant to (S)
2.14.

     Section 11.14. Withholding Taxes. Each Lender represents that it is
                    -----------------
entitled to receive any payments to be made to it hereunder without the
withholding of any tax and will furnish to the Agent such forms, certifications,
statements and other documents as the Agent may request from time to time to
evidence such Lender's exemption from the withholding of any tax imposed by any
jurisdiction or to enable the Agent to comply with any applicable laws or
regulations relating thereto. Without limiting the effect of the foregoing, if
any Lender is not created or organized under the laws of the United States of
America or any state thereof, in the event that the payment of interest by the
Borrower is treated for U.S. income tax purposes as derived in whole or in part
from sources from within the U.S., such Lender will furnish to the Agent Form
4224 or Form 1001 of the Internal Revenue Service, or such other forms,
certifications, statements or documents, duly executed and completed by such
Lender as evidence of such Lender's exemption from the withholding of U.S. tax
with respect thereto. The Agent shall not be obligated to make any payments
hereunder to such Lender in respect of any Loan or such Lender's Revolving
Credit Commitment until such Lender shall have furnished to the Agent the
requested form, certification, statement or document.

     Section 11.15. Several Obligations and Rights of Lenders. The failure of
                    ----------------------------------------- 
any Lender to make any Loan to be made by it on the date specified therefor
shall not relieve any other Lender of its obligation to make its Loan on such
date, but no Lender shall be responsible for the failure of any other Lender to
make a Loan to be made by such other Lender. The amounts payable at any time
hereunder to each Lender shall be a separate and independent debt, and each
Lender shall be entitled to protect and enforce its rights arising out of this
Agreement, and it shall not be necessary for any other Lender to be joined as an
additional party in any proceeding for such purpose.

     Section 11.16. Pro Rata Treatment of Loans, Etc.
                    ---------------------------------

        (a)  Except to the extent otherwise provided, each borrowing under (S)
2.02 shall be made from the Lenders, each payment of commitment fee accruing
under (S) 2.15 shall be made for the account of the Lenders, each prepayment and
payment of principal of or interest on Revolving Credit Loans shall be made for
the account of the Lenders, pro rata according to the relative amounts of the
Revolving Credit Commitment of each Lender.

        (b)  If the Agent receives funds for application to the Obligations
under the Facility Documents under circumstances for which the Facility
Documents do not specify the Loans or other Obligations to which, or the manner
in which, such funds are to be applied, the Agent may, but shall not be
obligated to, elect to distribute such funds to each Lender ratably in
accordance with such Lender's proportionate share of the principal amount of all
Loans then outstanding, in repayment or prepayment of such of the outstanding
Loans or other Obligations owed to such Lender, and for application to such
principal installments, as the Agent shall direct.


                                     -50-
<PAGE>
 
     Section 11.17. Sharing of Payments Among Lenders.  If a Lender shall obtain
                    ---------------------------------                           
payment of any principal of or interest on any Loan made by it through the
exercise of any right of setoff, banker's lien, counterclaim, or by any other
means (including any receipt of proceeds from the Collateral Account), it shall
promptly purchase from the other Lenders participations in (or, if and to the
extent specified by such Lender, direct interests in) the Loans made by the
other Lenders in such amounts, and make such other adjustments from time to time
as shall be equitable to the end that all the Lenders shall share the benefit of
such payment (net of any expenses which may be incurred by such Lender in
obtaining or preserving such benefit) pro rata in accordance with the unpaid
principal and interest on the Loans held by each of them.  To such end the
Lenders shall make appropriate adjustments among themselves (by the resale of
participations sold or otherwise) if such payment is rescinded or must otherwise
be restored.  The Borrower agrees that any Lender so purchasing a participation
(or direct interest) in the Loans made by other Lenders may exercise all rights
of setoff, banker's lien, counterclaim or similar rights with respect to such
participation (or direct interest).  Nothing contained herein shall require any
Lender to exercise any such right or shall affect the right of any Lender to
exercise, and retain the benefits of exercising, any such right with respect to
any other indebtedness of the Borrower.

     Section 11.18. Enforcement of Facility Documents. After the Agent has
                    ---------------------------------
received written notice from any Lender that an Event of Default has occurred
and is continuing, the Agent shall, subject to the other provisions of this
Article 11 and to the terms of the Facility Documents (and subject to the
rights, if any, of other persons holding liens on, security interests in or
claims to the Collateral which are prior to those of the Security Agreement),
take such steps toward collection or enforcement of any Facility Document and
the Collateral (or any portion thereof), including without limitation an action
to enforce the Security Agreements, as may be instructed in writing by the
Required Lenders, provided, however, that in no event shall the Agent be
required, and in all cases it shall be fully justified in failing or refusing,
to take any action under or pursuant to this Agreement (including without
limitation this (S) 11.18) which, in the reasonable opinion of the Agent, would
be contrary to law or to the terms of this Agreement or any Facility Document or
would subject it or its officers, employees or directors to liability, unless
and until the Agent shall be indemnified or tendered security to its
satisfaction by the Lenders, ratably as provided in (S) 11.05 hereof, against
any and all loss, cost, expense or liability in connection therewith, anything
herein or elsewhere contained to the contrary notwithstanding. Except as
expressly provided in this (S) 11.18, the Agent shall not be required to take
steps toward the collection of any amounts becoming payable upon any Collateral,
or to take any action towards enforcing any Facility Document or to institute,
appear in or defend any action, suit or other proceeding in connection
therewith. The foregoing provisions of this paragraph shall not be construed to
limit the power of the Agent to take any action permitted under any Facility
Document to be taken by the Agent, and the Agent may, in accordance with this
agreement, take any aforesaid action without the receipt of indemnity or
security or any request therefor and the taking of any such action shall not be
construed as a waiver of any provision of this Agreement. Each Lender agrees
with the other Lenders and the Agent that (i) such Lender will not take any
action whatsoever to enforce any term or provision of any Facility Document or
otherwise to realize the benefits of the Collateral, except through the Agent in
accordance with this Agreement, and (ii) if the Required Lenders shall instruct
the Agent pursuant to this (S) 11.18 to commence action to enforce any Facility
Document, such Lender (a) shall not thereafter commence any proceeding of its
own seeking payment of the Loans and/or any other Obligation held by such Lender
so long as such enforcement action is ongoing, and (b) if such a proceeding
shall be pending at the time such instructions are given to the Agent, shall
promptly (but in no event later than the commencement of such enforcement
action) cause such proceeding to be discontinued, provided that if such Lender
shall fail to discontinue such proceeding, the Agent is hereby authorized and
directed by such Lender and the other Lenders to commence and maintain such
foreclosure action on behalf of such other Lenders (excluding such Lender) and
any distribution of amounts required by this Agreement or the Facility Documents
shall be made only to such other Lenders and/or the Agent as provided therein
and, notwithstanding anything herein or in the Security Agreement to the
contrary, such Lender shall not be entitled to share therein.


                                     -51-
<PAGE>
 
     Section 11.19. Borrowing Base Statements, Etc.  The Agent shall provide to
                    -------------------------------
the Lenders and the Borrower, within thirty (30) days after receipt of the
Borrower's reports required under (S) 6.09, a copy of the computations of the
Borrowing Base made by the Agent on the basis of such reports in substantially
the same format which has been furnished to the Lenders as of the date of this
Agreement; provided, however, that the Agent shall not be liable to the Lenders
for the accuracy of any information contained in such statements. The Agent
shall provide to the Lenders each Borrowing Base Certificate promptly after
receipt thereof from the Borrower.

                          ARTICLE 12.  MISCELLANEOUS

     Section 12.01. Amendments and Waivers.  Except as otherwise expressly 
                    ----------------------
provided in this Agreement, any provision of this Agreement or any of the other
Facility Documents may be amended or modified only by an instrument in writing
signed by the Borrower, the Agent and the Required Lenders, or by the Borrower
and the Agent acting with the consent of the Required Lenders and any provision
of this Agreement or the other Facility Documents for the benefit of the
Required Lenders or the Agent may be waived by the Required Lenders or by the
Agent acting with the consent of the Required Lenders; provided that no
                                                       --------
amendment, modification or waiver shall, unless by an instrument signed by all
of the Lenders or by the Agent acting with the consent of all of the Lenders:
(a) increase or extend the term, or extend the time or waive any requirement for
the termination, of the Revolving Credit Commitments, (b) extend the date fixed
for the payment of principal of or interest on any Loan or any fee payable
hereunder, (c) reduce the amount of any payment of principal thereof or the rate
at which interest is payable thereon or any fee payable hereunder, (d) increase
the percentages (or maximum amounts) of Qualified Accounts, Qualified Raw
Material and Finished Goods Inventory or Qualified Excess Inventory included in
the Borrowing Base, (e) release the Liens in favor of the Agent on any material
portion of the Collateral, (f) alter the terms of this (S)12.01, (g) amend the
definition of the term "Required Lenders", or (h) waive any of the documentary
conditions precedent set forth in (S)4.01 hereof and provided, further, that any
                                                     --------  -------      
amendment of Article 10 hereof or any amendment which increases the obligations
of the Agent hereunder shall require the consent of the Agent. No failure by any
party (Agent, any Lender or the Borrower) to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof or preclude
any other or further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.

     Section 12.02. Usury.  Anything herein to the contrary notwithstanding, the
                    -----                                                       
obligations of the Borrower under this Agreement and the Notes shall be subject
to the limitation that payments of interest shall not be required to the extent
that receipt thereof would be contrary to provisions of law applicable to a
Lender limiting rates of interest which may be charged or collected by such
Lender.

     Section 12.03. Expenses.  The Borrower shall reimburse the Agent and the 
                    --------
Lenders on demand for all reasonable costs, expenses, and charges (including,
without limitation, reasonable fees and charges of external legal counsel for
the Agent and each Lender and costs allocated by its respective internal legal
departments, which shall include the internal legal department of the Lenders)
incurred in connection with the transactions contemplated by this Agreement,
including without limitation: (a) any such costs, expenses and advances incurred
in the protection of its security interests (including but not limited to
reasonable fees and out-of-pocket expenses incurred in perfection of, or
checking the status of such security interests and examinations to determine the
value of Accounts), (b) in the enforcement and collection of the Notes, the
security interests created by the Security Documents, if any, made in connection
herewith, including court costs; (c) the fees and expenses for services rendered
in connection with this Agreement and the Facility Documents (including the
preparation, execution and administration hereof and thereof, whether or not
consummated); (d) the amount of any taxes which Agent may have been required to
pay either by reason of any assessment made against it as to the assignee
hereunder of any Collateral or to free any Collateral from a lien thereon; (e)
the amount of any and all out-of-pocket

                                      -52-
<PAGE>
 
expenses which Agent may incur in connection with the collection of any item
deposited in the Controlled Disbursement Account or received by Agent in
connection with any Collateral, together with interest on any of the above from
the date of such expenditure to the date of repayment in full to Agent at the
rate of interest payable on the Note; or (f) by the Agent or the Lenders
subsequent to any Default in connection with the enforcement or work-out of the
Loans, including the negotiation and preparation of any other agreements,
instruments or documents pertaining to the Loans or any of the debts,
liabilities or obligations of the Borrower or its Subsidiaries under any of the
Facility Documents. The Borrower agrees to indemnify the Agent and each Lender
and their respective directors, officers, employees and agents (each, an
"Indemnified Party") from, and hold each of them harmless against, any and all
losses, liabilities, claims, damages or expenses incurred by any of them arising
out of or by reason of any investigation or litigation or other proceedings
(including any threatened investigation or litigation or other proceedings)
relating to any actual or proposed use by the Borrower or any Subsidiary of the
proceeds of the Loans, including without limitation, the reasonable fees and
disbursements of counsel incurred in connection with any such investigation or
litigation or other proceedings (but excluding any such losses, liabilities,
claims, damages or expenses incurred by reason of the gross negligence or
willful misconduct of any Indemnified Party). At its option, Agent may charge
such costs, expenses and amounts as a Revolving Credit Loan pursuant to this
Agreement.

     Section 12.04. Survival.  The obligations of the Borrower under (S)12.03 
                    --------
shall survive the repayment of the Loans and the termination of the Revolving
Credit Commitments.

     Section 12.05. Assignment; Participations.
                    -------------------------- 

               (a)  Each Lender may assign to one or more Eligible Assignees all
or a portion of its rights and obligations under this Agreement (including,
without limitation, all or a portion of its Revolving Credit Commitment, the
Loans owing to it and the Note or Notes held by it); provided, however, that (i)
                                                     --------  -------          
each such assignment shall be of a uniform, and not a varying, percentage of all
rights and obligations under and in respect of the Revolving Credit Loans; (ii)
except in the case of an assignment to a Person that, immediately prior to such
assignment, was a Lender or an assignment of all of a Lender's rights and
obligations under this Agreement, the amount of the Revolving Credit Commitment
of the assigning Lender being assigned pursuant to each such assignment
(determined as of the date of the Assignment and Acceptance with respect to such
assignment) shall in no event be less than $5,000,000; (iii) each such
assignment shall be to an Eligible Assignee; (iv) no such assignments shall be
permitted without the consent of the Agent and the Borrower (not to be
unreasonably withheld) except that if a Default or Event of Default shall have
occurred and be continuing, the consent of the Borrower shall not be required;
and (v) the parties to each such assignment shall execute and deliver to the
Agent, for its acceptance and recording in the Register, an Assignment and
Acceptance, together with any Note or Notes subject to such assignment and a
processing and recordation fee of $3,000.

               (b)  Upon such execution, delivery, acceptance and recording,
from and after the effective date specified in such Assignment and Acceptance,
(i) the assignee thereunder shall be a party hereto and, to the extent that
rights and obligations hereunder have been assigned to it pursuant to such
Assignment and Acceptance, have the rights and obligations of a Lender hereunder
and (ii) the Lender assignor thereunder shall, to the extent that rights and
obligations hereunder have been assigned by it pursuant to such Assignment and
Acceptance, relinquish its rights and be released from its obligations under
this Agreement (and, in the case of an Assignment and Acceptance covering all or
the remaining portion of an assigning Lender's rights and obligations under this
Agreement, such Lender shall cease to be a party hereto).

               (c)  By executing and delivering an Assignment and Acceptance,
the Lender assignor thereunder and the assignee thereunder confirm to and agree
with each other and the other parties hereto

                                      -53-
<PAGE>
 
as follows: (i) other than as provided in such Assignment and Acceptance, such
assigning Lender makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with this Agreement or any other Loan Document or the
execution, legality, validity, enforceability, genuineness, sufficiency or value
of, or the perfection or priority of any lien or security interest created or
purported to be created under or in connection with, this Agreement or any other
Loan Document or any other instrument or document furnished pursuant hereto or
thereto; (ii) such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the
Borrower or any of its Subsidiaries or the performance or observance by the
Borrower or its Subsidiaries of any of their obligations under any Facility
Document or any other instrument or document furnished pursuant thereto; (iii)
such assignee confirms that it has received a copy of this Agreement, together
with copies of the financial statements referred to in (S)(S) 5.05 and 6.08(a)
and such other documents and information as it has deemed appropriate to make
its own credit analysis and decision to enter into such Assignment and
Acceptance; (iv) such assignee will, independently and without reliance upon the
Agent, such assigning Lender or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement; (v) such
assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints
and authorizes the Agent to take such action as agent on its behalf and to
exercise such powers and discretion under the Loan Documents as are delegated to
the Agent by the terms hereof, together with such powers and discretion as are
reasonably incidental thereto; and (vii) such assignee agrees that it will
perform in accordance with their terms all of the obligations which by the terms
of this Agreement are required to be performed by it as a Lender.

               (d)  The Agent shall maintain at its address referred to in
(S)12.06 a copy of each Assignment and Acceptance delivered to and accepted by
it and a register for the recordation of the names and addresses of the Lenders
and the Revolving Credit Commitment and principal amount of the Loans owing to
each Lender from time to time (the "Register"). The entries in the Register
                                    --------
shall be conclusive and binding for all purposes, absent manifest error, and the
Borrower, the Agent and the Lenders may treat each Person whose name is recorded
in the Register as a Lender hereunder for all purposes of this Agreement. The
Register shall be available for inspection by the Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice.

               (e)  Upon its receipt of an Assignment and Acceptance executed by
an assigning Lender and an assignee, together with any Note or Notes subject to
such assignment, the Agent shall, if such Assignment and Acceptance has been
completed and is in substantially the form of Exhibit G hereto, (i) accept such
                                              ----------                  
Assignment and Acceptance; (ii) record the information contained therein in the
Register; and (iii) give prompt notice thereof to the Borrower. In the case of
any assignment by a Lender, within five Banking Days after its receipt of such
notice, the Borrower, at its own expense, shall execute and deliver to the Agent
in exchange for the surrendered Note or Notes a new Note to the order of such
Eligible Assignee in an amount equal to the Commitment assumed by it under a
credit facility pursuant to such Assignment and Acceptance and, if the assigning
Lender has retained a Commitment hereunder under such credit facility, a new
Note to the order of the assigning Lender in an amount equal to the Commitment
retained by it hereunder. Such new Note or Notes shall be in an aggregate
principal amount equal to the aggregate principal amount of such surrendered
Note or Notes, shall be dated the effective date of such Assignment and
Acceptance and shall otherwise be in substantially the form of Exhibit A hereto.
                                                               ---------

               (f)  Each Lender may sell participations to one or more Persons
(other than the Borrower or any of its Affiliates) in or to all or a portion of
its rights and obligations under this Agreement (including, without limitation,
all or a portion of its Revolving Credit Commitments, the Loans owing to it and
the Note or Notes (if any) held by it); provided, however, that (i) such
                                        --------  -------
Lender's obligations under this Agreement (including, without limitation, its
Revolving Credit Commitments) shall 

                                      -54-
<PAGE>
 
remain unchanged; (ii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations; (iii) such Lender shall
remain the holder of any such Note for all purposes of this Agreement; (iv) the
Borrower, the Agent and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement; (v) no participant under any such
participation shall have any right to approve any amendment or waiver of any
provision of any Facility Document, or any consent to any departure by the
Borrower or any of its Subsidiaries therefrom, except to the extent that such
amendment, waiver or consent would reduce the principal of, or interest on, the
Notes or any fees or other amounts payable hereunder, in each case to the extent
subject to such participation, postpone any date fixed for any payment of
principal of, or interest on, the Notes or any fees or other amounts payable
hereunder, in each case to the extent subject to such participation, or release
all or substantially all of the Collateral; and (vi) the identity of the
participant shall have been approved by the Agent in writing to such Lender.

               (g)  Any Lender may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this 
(S)12.05, disclose to the assignee or participant or proposed assignee or
participant, any information relating to the Borrower furnished to such Lender
by or on behalf of the Borrower; provided, however, that, prior to any such
                                 --------  -------                         
disclosure, the assignee or participant or proposed assignee or participant
shall agree in writing to preserve the confidentiality of any confidential
information received by it from such Lender.

               (h)  Notwithstanding any other provision set forth in this
Agreement, any Lender may at any time create a security interest in all or any
portion of its rights under this Agreement (including, without limitation, the
Loans owing to it and the Note or Notes held by it) in favor of any Federal
Reserve Bank in accordance with Regulation A of the Board of Governors of the
Federal Reserve System.

     Section 12.06. Notices.  All notices and other communications provided for
                    -------                                                    
herein (including, without limitation, any modifications of, or waivers or
consents under, this Agreement) shall be given or made in writing and,
telecopied, mailed or delivered to the intended recipient at the "Address for
Notices" specified below its name on the signature page hereof or, as to any
party, at such other address as shall be designated by such party in a notice to
each other party.  Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given when transmitted by
telecopier, personally delivered or, in the case of a mailed notice, upon
receipt, in each case given or addressed as aforesaid.

     Section 12.07. Table of Contents; Headings.  Any table of contents and the
                    ---------------------------                                
headings and captions hereunder are for convenience only and shall not affect
the interpretation or construction of this Agreement.

     Section 12.08. Severability.  The provisions of this Agreement are intended
                    ------------
to be severable. If for any reason any provision of this Agreement shall be held
invalid or unenforceable in whole or in part in any jurisdiction, such provision
shall, as to such jurisdiction, be ineffective to the extent of such invalidity
or unenforceability without in any manner affecting the validity or
enforceability thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction.

     Section 12.09. Counterparts.  This Agreement may be executed in any number
                    ------------
of counterparts, all of which taken together shall constitute one and the same
instrument, and any party hereto may execute this Agreement by signing any such
counterpart. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.

                                      -55-
<PAGE>
 
     Section 12.10. Governing Law.  Pursuant to Section 5-1401 of the New York
                    -------------                                             
General Obligations Law, the whole of this Agreement and the rights and
obligations of the parties hereto shall be governed, construed and interpreted
in accordance with, the laws of the State of New York without regard to any
conflicts-of-laws rules which would require the application of the laws of any
other jurisdiction.

     Section 12.11. Incorporation By Reference; Conflicts.  The rights and 
                    -------------------------------------
remedies of Agent and the Lenders under the other Facility Documents are
incorporated herein by reference and the rights and remedies of the Agent and
the Lenders under this Agreement and all of the terms of this Agreement, are
likewise incorporated in the other Facility Documents by reference. In the case
of any conflict between the terms of this Agreement and the terms of any other
Facility Document, the terms of this Agreement shall govern.

     Section 12.12. Jurisdiction, Venue and Service.  For purposes of this 
                    -------------------------------
Agreement, each of the Borrower hereby irrevocably consents and submits to the
nonexclusive jurisdiction and venue of all federal and state courts located in
the County of Monroe, State of New York and consents that any order, process,
notice of motion or other application to or by any of said courts or a judge
thereof may be served within or without such court's jurisdiction by registered
mail or by personal service, provided a reasonable time for appearance is
                             --------
allowed, in connection with any action or proceeding arising out of, under or
relating to this Agreement or the Facility Documents. At the option of the
Agent, upon the instructions of the Required Lenders, the Borrower may be joined
in any action or proceeding commenced by the Agent or the Lenders against any
Security Document Party in connection with or based on the Security Documents,
and recovery may be had against the Borrower in such action or proceeding or in
any independent action or proceeding against the Borrower, without any
requirement that the Agent or the Lenders first assert, prosecute or exhaust any
remedy or claim against any Security Document Party. Each of the Borrower hereby
irrevocably waives (to the fullest extent permitted by applicable law) any
objection that it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of, under or relating to this Agreement or any
Facility Document brought in any federal or state court located in the County of
Monroe, State of New York, and hereby further irrevocably waives (to the fullest
extent permitted by applicable law) any claim that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum.

     Section 12.13. Waiver of Jury Trial.
                    -------------------- 

     EACH OF THE AGENT, THE LENDERS, THE SUBSIDIARY GUARANTOR AND THE BORROWER
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES (TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW) ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY OF ANY
DISPUTE ARISING UNDER OR RELATING TO THIS AGREEMENT OR ANY FACILITY DOCUMENT,
AND AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A
JURY.  IN ADDITION, EACH OF THE AGENT, THE LENDERS, THE SUBSIDIARY GUARANTOR AND
THE BORROWER WAIVES THE RIGHT TO INTERPOSE ANY DEFENSE BASED UPON ANY STATUTE OF
LIMITATIONS OR ANY CLAIM OF LACHES AND ANY SET-OFF OR COUNTER CLAIM OF ANY
NATURE OR DESCRIPTION. EACH OF THE AGENT, THE LENDERS, THE SUBSIDIARY GUARANTOR
AND THE BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE FREELY MADE.

                                      -56-
<PAGE>
 
     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.


                                 BORROWER:

                                 ACT MANUFACTURING, INC.


                                 By: /s/ John A. Pino
                                    -----------------------------
                                 Name:   John A. Pino
                                      ---------------------------
                                 Title:  President
                                       --------------------------


                                 Address for Notices:

                                 ACT Manufacturing, Inc.
                                 2 Cabot Road
                                 Hudson, MA  01749
                                 Attn: Chief Financial Officer
                                 Facsimile #: 978-567-4099




                                 SUBSIDIARY GUARANTOR:

                                 ACT MANUFACTURING SECURITIES CORPORATION


                                 By: /s/ John A. Pino
                                    -----------------------------
                                 Name:   John A. Pino
                                      ---------------------------
                                 Title:  President
                                       --------------------------


                                 Address for Notices:

                                 c/o ACT Manufacturing, Inc.
                                 2 Cabot Road
                                 Hudson, MA  01749
                                 Attn: Chief Financial Officer
                                 Facsimile #: 978-567-4099

<PAGE>
 
                                    AGENT:

                                    THE CHASE MANHATTAN BANK, as Administrative,
                                    Documentation, Collateral and Syndication
                                    Agent


                                    By: /s/ Peter N. Langburd
                                       -----------------------------
                                    Name:   Peter N. Langburd
                                         ---------------------------
                                    Title:  Vice President 
                                          --------------------------


                                    Address for Notices:

                                    The Chase Manhattan Bank
                                    Asset Based Lending
                                    One Chase Square
                                    Rochester, New York  14643
                                    Attn: ACT Manufacturing
                                          Account Representative
                                    Telecopier #716-258-7440

 

                                    LENDERS:

                                    THE CHASE MANHATTAN BANK


                                    By: /s/ Peter N. Langburd
                                       -----------------------------
                                    Name:   Peter N. Langburd
                                         ---------------------------
                                    Title:  Vice President 
                                          --------------------------


                                    Address for Notices:

                                    The Chase Manhattan Bank
                                    200 Jericho Quadrangle
                                    Jericho, New York 11753
                                    Attn: ACT Manufacturing
                                          Account Representative
                                    Telecopier # 516-828-4658

<PAGE>
 
                                     NATIONAL BANK OF CANADA


                                    By: /s/ R. Uhrig   /s/ Michael R. Brace
                                       -------------------------------------
                                    Name:   R. Uhrig       Michael R. Brace
                                         -----------------------------------
                                    Title:  VP & Mgr.      Marketing Officer
                                          ----------------------------------


                                    Address for Notices:

                                    National Bank of Canada
                                    Main Place Tower, Suite 2540
                                    350 Main Street
                                    Buffalo, New York 14202
                                    Attn: Robert G. Uhrig,
                                          Vice President and Manager
                                    Telecopier # 716-852-6832