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                                CREDIT AGREEMENT

                            Dated as of July 23, 1998

                                 by and between

                              P&F INDUSTRIES, INC.,

                  FLORIDA PNEUMATIC MANUFACTURING CORPORATION,

                   EMBASSY INDUSTRIES, INC., as "Co-Borrowers"

                                       and

                        EUROPEAN AMERICAN BANK, as "Bank"

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                                TABLE OF CONTENTS


ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS ............................................  1
   SECTION 1.01.  Definitions ...............................................  1
   SECTION 1.02.  Accounting Terms .......................................... 13

ARTICLE II
LOANS ....................................................................... 13
   SECTION 2.01.  Revolving Credit Loans .................................... 13
   SECTION 2.02.  Revolving Credit Note ..................................... 14
   SECTION 2.03.  Equipment Loans ........................................... 14
   SECTION 2.04.  Term Loans ................................................ 15
   SECTION 2.05.  Term Notes ................................................ 16
   SECTION 2.06   Letters of Credit and Documentary
                  Banker's Acceptances ...................................... 16

ARTICLE III
INTEREST RATE; FEES AND PAYMENTS; USE OF PROCEEDS ........................... 19
   SECTION 3.01.  Interest Rate ............................................. 19
   SECTION 3.02.  Use of Proceeds ........................................... 22
   SECTION 3.03.  Prepayments ............................................... 22
   SECTION 3.04.  Fees and Discounting of Acceptances ....................... 22
   SECTION 3.05.  Inability to Determine Interest Rate ...................... 23
   SECTION 3.06.  Illegality ................................................ 23
   SECTION 3.07.  Other Events .............................................. 24
   SECTION 3.08.  Indemnity ................................................. 25
   SECTION 3.09.  Funds; Manner of Payment .................................. 25

ARTICLE IV
REPRESENTATIONS AND WARRANTIES .............................................. 27
   SECTION 4.01.  Organization, Corporate Powers, etc. ...................... 27
   SECTION 4.02.  Authorization of Borrowing, Enforceable
                  Obligations ............................................... 27
   SECTION 4.03.  Financial Condition ....................................... 28
   SECTION 4.04.  Taxes ..................................................... 29
   SECTION 4.05.  Title to Properties ....................................... 29
   SECTION 4.06.  Litigation ................................................ 29
   SECTION 4.07.  Agreements ................................................ 29
   SECTION 4.08.  Compliance with ERISA ..................................... 30
   SECTION 4.09.  Federal Reserve Regulations; Use of
                  Proceeds .................................................. 30
   SECTION 4.10.  Approval .................................................. 30
   SECTION 4.11.  Subsidiaries .............................................. 31
   SECTION 4.12.  Hazardous Materials ....................................... 31
   SECTION 4.13.  Investment Company Act .................................... 31
   SECTION 4.14.  Security Agreement ........................................ 31
   SECTION 4.15.  No Default ................................................ 31
   SECTION 4.16.  Permits and Licenses ...................................... 31
   SECTION 4.17.  Compliance with Law ....................................... 32
   SECTION 4.18.  Disclosure ................................................ 32


                                        i

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   SECTION 4.19.  Year 2000 Compliance ...................................... 32
   SECTION 4.20.  Pledge Agreement .......................................... 32
   SECTION 4.21.  Inventory at Outside Locations ............................ 33

ARTICLE V
CONDITIONS OF LENDING ....................................................... 33
   SECTION 5.01.  Conditions to the Initial Loan ............................ 33
   SECTION 5.02.  Conditions to all Loans ................................... 36
   SECTION 5.03.  Conditions to Each Term Loan .............................. 36
   SECTION 5.04.  Additional Condition with respect to each
                  Equipment Loan ............................................ 38


ARTICLE VI
AFFIRMATIVE COVENANTS ....................................................... 38
   SECTION 6.01.  Corporate Existence, Properties, etc. ..................... 38
   SECTION 6.02.  Payment of Indebtedness, Taxes, etc. ...................... 39
   SECTION 6.03.  Financial Statements, Reports, etc. ....................... 39
   SECTION 6.04.  Access to Premises and Records ............................ 41
   SECTION 6.05.  Notice of Adverse Change .................................. 41
   SECTION 6.06.  Notice of Default ......................................... 41
   SECTION 6.07.  Notice of Litigation ...................................... 41
   SECTION 6.08.  ERISA ..................................................... 42
   SECTION 6.09.  Compliance with Applicable Laws ........................... 43
   SECTION 6.10.  Subsidiaries .............................................. 43
   SECTION 6.11.  Default in Other Agreements ............................... 43
   SECTION 6.12.  Environmental Laws ........................................ 43
   SECTION 6.13.  Outside Inventory Locations ............................... 44

ARTICLE VII
NEGATIVE COVENANTS .......................................................... 44
   SECTION 7.01.  Liens ..................................................... 44
   SECTION 7.02.  Indebtedness .............................................. 45
   SECTION 7.03.  Guaranties ................................................ 46
   SECTION 7.04.  Sale of Assets ............................................ 47
   SECTION 7.05.  Sales of Notes ............................................ 47
   SECTION 7.06.  Loans and Investments ..................................... 47
   SECTION 7.07.  Nature of Business ........................................ 47
   SECTION 7.08.  Sale and Leaseback ........................................ 47
   SECTION 7.09.  Federal Reserve Regulations ............................... 47
   SECTION 7.10.  Change in Fiscal Year ..................................... 48
   SECTION 7.11.  Limitations on Fundamental Changes ........................ 48
   SECTION 7.12.  Financial Condition Covenants ............................. 48
   SECTION 7.13.  Subordinated Debt ......................................... 49
   SECTION 7.14.  Transactions with Affiliates .............................. 49
   SECTION 7.15.  Impairment of Security Interest ........................... 49

ARTICLE VIII
EVENTS OF DEFAULT ........................................................... 49
   SECTION 8.01.  Events of Default ......................................... 49


                                       ii

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ARTICLE IX
MISCELLANEOUS ............................................................... 52
   SECTION  9.01. Notices ................................................... 52
   SECTION  9.02. Survival of Agreement ..................................... 53
   SECTION  9.03. Expenses of the Bank ...................................... 53
   SECTION  9.04. No Waiver of Rights by the Bank ........................... 54
   SECTION  9.05. APPLICABLE LAW ............................................ 54
   SECTION  9.06. SUBMISSION TO JURISDICTION ................................ 54
   SECTION  9.07. Extension of Maturity ..................................... 55
   SECTION  9.08. Modification of Agreement ................................. 55
   SECTION  9.09. Severability .............................................. 55
   SECTION  9.10. Sale of Participations .................................... 55
   SECTION  9.11. Reinstatement; Certain Payments ........................... 55
   SECTION  9.12. Right of Setoff ........................................... 56
   SECTION  9.13. Joint and Several Obligations of the Co-
                  Borrowers ..................................................56
   SECTION  9.14. Counterparts .............................................. 56
   SECTION  9.15. Headings .................................................. 56

ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS ............................................  1
   SECTION 1.01.  Definitions ...............................................  1
   SECTION 1.02.  Accounting Terms .......................................... 13

ARTICLE II
LOANS ....................................................................... 13
   SECTION 2.01.  Revolving Credit Loans .................................... 13
   SECTION 2.02.  Revolving Credit Note ..................................... 14
   SECTION 2.03.  Equipment Loans ........................................... 14
   SECTION 2.04.  Term Loans ................................................ 15
   SECTION 2.05.  Term Notes ................................................ 16
   SECTION 2.06   Letters of Credit and Documentary
                  Banker's Acceptances ...................................... 16

ARTICLE III
INTEREST RATE; FEES AND PAYMENTS; USE OF PROCEEDS ........................... 19
   SECTION 3.01.  Interest Rate ............................................. 19
   SECTION 3.02.  Use of Proceeds ........................................... 22
   SECTION 3.03.  Prepayments ............................................... 22
   SECTION 3.04.  Fees and Discounting of Acceptances ....................... 22
   SECTION 3.05.  Inability to Determine Interest Rate ...................... 23
   SECTION 3.06.  Illegality  ............................................... 23
   SECTION 3.07.  Other Events .............................................. 24
   SECTION 3.08.  Indemnity ................................................. 25
   SECTION 3.09.  Funds; Manner of Payment .................................. 25

ARTICLE IV
REPRESENTATIONS AND WARRANTIES .............................................. 27
   SECTION 4.01.  Organization, Corporate Powers, etc. ...................... 27
   SECTION 4.02.  Authorization of Borrowing, Enforceable
                  Obligations ............................................... 27
   SECTION 4.03.  Financial Condition ....................................... 28


                                       iii

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   SECTION 4.04.  Taxes ..................................................... 29
   SECTION 4.05.  Title to Properties ....................................... 29
   SECTION 4.06.  Litigation ................................................ 29
   SECTION 4.07.  Agreements ................................................ 29
   SECTION 4.08.  Compliance with ERISA ..................................... 30
   SECTION 4.09.  Federal Reserve Regulations; Use of
                  Proceeds .................................................. 30
   SECTION 4.10.  Approval .................................................. 30
   SECTION 4.11.  Subsidiaries .............................................. 31
   SECTION 4.12.  Hazardous Materials ....................................... 31
   SECTION 4.13.  Investment Company Act .................................... 31
   SECTION 4.14.  Security Agreement ........................................ 31
   SECTION 4.15.  No Default ................................................ 31
   SECTION 4.16.  Permits and Licenses ...................................... 31
   SECTION 4.17.  Compliance with Law ....................................... 32
   SECTION 4.18.  Disclosure ................................................ 32
   SECTION 4.19.  Year 2000 Compliance ...................................... 32
   SECTION 4.20.  Pledge Agreement .......................................... 32
   SECTION 4.21.  Inventory at Outside Locations ............................ 33

ARTICLE V
CONDITIONS OF LENDING ....................................................... 33
   SECTION 5.01.  Conditions to the Initial Loan ............................ 33
   SECTION 5.02.  Conditions to all Loans ................................... 36
   SECTION 5.03.  Conditions to Each Term Loan .............................. 36
   SECTION 5.04.  Additional Condition with respect to each
                  Equipment Loan ............................................ 38


ARTICLE VI
AFFIRMATIVE COVENANTS ....................................................... 38
   SECTION 6.01.  Corporate Existence, Properties, etc. ..................... 38
   SECTION 6.02.  Payment of Indebtedness, Taxes, etc. ...................... 39
   SECTION 6.03.  Financial Statements, Reports, etc. ....................... 39
   SECTION 6.04.  Access to Premises and Records ............................ 41
   SECTION 6.05.  Notice of Adverse Change .................................. 41
   SECTION 6.06.  Notice of Default ......................................... 41
   SECTION 6.07.  Notice of Litigation ...................................... 41
   SECTION 6.08.  ERISA ..................................................... 42
   SECTION 6.09.  Compliance with Applicable Laws ........................... 43
   SECTION 6.10.  Subsidiaries .............................................. 43
   SECTION 6.11.  Default in Other Agreements ............................... 43
   SECTION 6.12.  Environmental Laws ........................................ 43
   SECTION 6.13.  Outside Inventory Locations ............................... 44

ARTICLE VII
NEGATIVE COVENANTS .......................................................... 44
   SECTION 7.01.  Liens ..................................................... 44
   SECTION 7.02.  Indebtedness .............................................. 45
   SECTION 7.03.  Guaranties ................................................ 46
   SECTION 7.04.  Sale of Assets ............................................ 47
   SECTION 7.05.  Sales of Notes ............................................ 47


                                       iv

<PAGE>

   SECTION 7.06.  Loans and Investments ..................................... 47
   SECTION 7.07.  Nature of Business ........................................ 47
   SECTION 7.08.  Sale and Leaseback ........................................ 47
   SECTION 7.09.  Federal Reserve Regulations ............................... 47
   SECTION 7.10.  Change in Fiscal Year ..................................... 48
   SECTION 7.11.  Limitations on Fundamental Changes ........................ 48
   SECTION 7.12.  Financial Condition Covenants ............................. 48
   SECTION 7.13.  Subordinated Debt ......................................... 49
   SECTION 7.14.  Transactions with Affiliates .............................. 49
   SECTION 7.15.  Impairment of Security Interest ........................... 49

ARTICLE VIII
EVENTS OF DEFAULT ........................................................... 49
   SECTION 8.01.  Events of Default ......................................... 49

ARTICLE IX
MISCELLANEOUS ............................................................... 52
   SECTION  9.01. Notices ................................................... 52
   SECTION  9.02. Survival of Agreement ..................................... 53
   SECTION  9.03. Expenses of the Bank ...................................... 53
   SECTION  9.04. No Waiver of Rights by the Bank ........................... 54
   SECTION  9.05. APPLICABLE LAW ............................................ 54
   SECTION  9.06. SUBMISSION TO JURISDICTION ................................ 54
   SECTION  9.07. Extension of Maturity ..................................... 55
   SECTION  9.08. Modification of Agreement ................................. 55
   SECTION  9.09. Severability .............................................. 55
   SECTION  9.10. Sale of Participations .................................... 55
   SECTION  9.11. Reinstatement; Certain Payments ........................... 55
   SECTION  9.12. Right of Setoff ........................................... 56
   SECTION  9.13. Joint and Several Obligations of the Co-
                  Borrowers ................................................. 56
   SECTION  9.14. Counterparts .............................................. 56
   SECTION  9.15. Headings .................................................. 56


                                        v

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SCHEDULES

Schedule I            -        Subsidiaries and Affiliates
Schedule II           -        Liens
Schedule III          -        Existing Indebtedness
Schedule IV           -        Existing Guarantees
Schedule V            -        Outside Inventory Locations
Schedule VI           -        Permitted Investments
Schedule VII          -        Litigation
Schedule VIII         -        Environmental Matters


EXHIBITS

Exhibit A             -        Form of Revolving Credit Note
Exhibit B             -        Form of Equipment Loan Note
Exhibit C             -        Form of Term Note
Exhibit D             -        Form of Corporate Guaranty
Exhibit E-1           -        Form of Co-Borrower Security Agreement
Exhibit E-2           -        Form of Corporate Guarantor Security Agreement
Exhibit F             -        Form of Notice of Borrowing
Exhibit G             -        Form of Opinion of Counsel
Exhibit H             -        Form of Pledge Agreement


                                       vi

<PAGE>

         CREDIT AGREEMENT dated as of July 23, 1998, by and among P&F
INDUSTRIES, INC., a Delaware corporation ("P&F"), FLORIDA PNEUMATIC
MANUFACTURING CORPORATION, a Florida corporation ("Florida Pneumatic") and
EMBASSY INDUSTRIES, INC., a New York corporation ("Embassy", collectively with
P&F and Florida Pneumatic, the "Co-Borrowers") and EUROPEAN AMERICAN BANK, a
New York banking corporation (the "Bank").

                                    RECITALS

         The Co-Borrowers have requested the Bank to extend credit from time to
time and the Bank is willing to extend credit to the Co-Borrowers, subject to
the terms and conditions hereinafter set forth.

         Accordingly, the Co-Borrowers and the Bank agree as follows:


                                    ARTICLE I
                        DEFINITIONS AND ACCOUNTING TERMS

         SECTION 1.01. Definitions. As used herein, the following words and
terms shall have the following meanings:

         "Affiliate" shall mean with respect to any Person, any corporation,
partnership, limited liability company, limited liability partnership, joint
venture, trust or unincorporated organization which, directly or indirectly,
controls or is controlled by or is under common control with such Person. For
the purpose of this definition, "control" of a Person shall mean the power,
direct or indirect, to direct or cause the direction of the management or
policies of such Person whether through the ownership of voting securities, by
contract or otherwise; provided that, in any event, any Person who owns directly
or indirectly 10% or more of the securities having ordinary voting power for the
election of directors or other governing body of a corporation or 10% or more of
the partnership or other ownership interest of any Person (other than as a
limited partner of such other Person) will be deemed to control such corporation
or other Person.

         "Aggregate Banker's Acceptances Outstanding" shall mean on the date of
determination thereof, the aggregate principal balance of outstanding
Documentary Banker's Acceptances created on behalf of or for the benefit of the
Co-Borrowers, or any of them, hereunder.

         "Aggregate Letters of Credit Outstanding" shall mean on the date of
determination thereof, the sum of (a) the aggregate maximum amount which is
available or available in the future to be drawn under all outstanding Letters
of Credit under this Agreement plus (b) the aggregate amount of any payments
made by the Bank under any Letter of Credit issued pursuant to this Agreement
that has not been reimbursed by the Co-Borrowers.

<PAGE>

         "Aggregate Outstandings" shall mean on the date of determination
thereof, the sum of (i) the Aggregate Letters of Credit Outstanding, plus (ii)
the Aggregate Banker's Acceptances Outstanding, plus (iii) the aggregate
outstanding principal amount of the Revolving Credit Loans plus (iv) the
aggregate outstanding principal amount of the Equipment Loans at such time.

         "Aggregate Term Loan Outstandings" shall mean, on the date of
determination thereof, the aggregate outstanding principal amount of the Term
Loans at such time.

         "Agreement" shall mean this Credit Agreement dated as of July 23, 1998,
as it may hereafter be amended, restated, supplemented or otherwise modified
from time to time.

         "Applicable Term Loan Margin" shall mean with respect to Term Loans
that are Prime Rate Loans or LIBOR Loans hereunder, the percentage set forth
below under the headings "Prime Rate Margin" and "LIBOR Margin", respectively,
opposite the applicable ratio:

  Consolidated
  Senior Debt to                     Prime Rate
  Consolidated EBITDA                  Margin                 LIBOR Margin
  -------------------                ----------               ------------

  Greater than 3.25:1.00                0.25%                    2.00%

  Less than or equal to
  3.25:1.00                             0%                       1.75%

The Applicable Term Loan Margins will be initially set with respect to each Term
Loan on the date which is five (5) Business Days following the date of receipt
by the Bank of the pro forma financial statements referred to in Section 5.03(f)
on the basis of such financial statements and thereafter shall be reset on the
date which is five (5) Business Days following the date of receipt by the Bank
of the financial statements referred to in 6.03(a) and Section 6.03(b), together
with a certificate of the Chief Financial Officer of the Co-Borrowers certifying
the ratio of Consolidated Senior Debt to Consolidated EBITDA and setting forth
the calculation thereof in detail; provided, however, that if any such financial
statement and certificate are not received by the Bank within the time period
required pursuant to Section 6.03(a) or Section 6.03(b), as the case may be, the
Applicable Term Loan Margin will be established at the highest rates provided
above from the date such financial statement and certificate were due until the
date which is five (5) Business Days following the receipt by the Bank of such
financial statements and certificate; and provided, further, that the Bank shall
not in any way be deemed to have waived any Event of Default, or any rights or
remedies hereunder or under any other Loan Document in connection with the
foregoing proviso. During the occurrence and continuance of a Default or an
Event of Default, no downward adjustment, and only 



                                       2
<PAGE>

upward adjustments, shall be made to the Applicable Term Loan Margin.

         "Available Revolving Credit Commitment" shall mean at any time the
Revolving Credit Commitment reduced by the aggregate principal amount of the
Revolving Credit Loans and of the Equipment Loans then outstanding and by
Aggregate Banker's Acceptances Outstanding and Aggregate Letters of Credit
Outstanding.

         "Available Term Loan Commitment" shall mean at any time the Term Loan
Commitment reduced by the aggregate outstanding principal amount of the Term
Loans.

         "Availability Period" shall have the meaning specified in Section 2.04
hereof.

         "Borrowing Date" shall mean, with respect to any Loan, the date on
which such Loan is disbursed to a Co-Borrower.

         "Business Day" shall mean any day not a Saturday, Sunday or legal
holiday, on which banks in New York City are open for business; provided,
however, that when used in connection with an LIBOR Loan the term "Business Day"
shall exclude any day on which the Bank is not open for dealings in dollar
deposits in the London interbank eurodollar market.

         "Capital Expenditures" shall mean additions to property and equipment
of P&F and its Subsidiaries, which, in conformity with GAAP, are included as
"additions to property, plant or equipment" or similar items which would be
reflected in the consolidated statement of cash flow of P&F and its
Subsidiaries, including without limitation, property and equipment which are the
subject of Capital Leases.

         "Capital Lease" shall mean (a) any lease of property, real or personal,
if the then present value of the minimum rental commitment thereunder should, in
accordance with GAAP, be capitalized on the balance sheet of the lessee, and (b)
any other such lease the obligations with respect to which are required to be
capitalized on the balance sheet of the lessee.

         "Chief Financial Officer" shall mean, with respect to any entity, the
Chief Financial Officer of such entity or in the event no such officership
exists, the Corporate Controller/Treasurer of such entity or the person
performing comparable duties.

         "Closing Date" shall mean July 23, 1998.

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



                                       3
<PAGE>

         "Commitments" shall mean, collectively, the Revolving Credit Commitment
and the Term Loan Commitment.

         "Consolidated" shall mean, as applied to any financial or accounting
term, such term determined on a consolidated basis in accordance with GAAP for
P&F and its Subsidiaries.

         "Consolidated Capital Base" shall mean on a Consolidated basis, the
shareholders' equity of P&F and its Subsidiaries plus, Subordinated Debt, less
all intangible assets, including without limitation, organization expenses,
intellectual property, goodwill, loans or mortgages due from shareholders and/or
employees and/or Affiliates, treasury stock or deferred charges.

         "Consolidated Current Maturities on Long Term Debt" shall mean the
portion of any Indebtedness which is classified as the current portion of long
term debt on the Consolidated financial statements of P&F and its Subsidiaries,
in accordance with GAAP.

         "Consolidated EBITDA" shall mean for P&F and its Subsidiaries for any
period, the Consolidated Net Income (or Consolidated net loss) of P&F and its
Subsidiaries for such period, plus the sum, without duplication, of (a) gross
interest expense, (b) depreciation and amortization expenses or charges, (c) all
income taxes to any government or governmental instrumentality, expenses on
P&F's or its Subsidiaries' books (whether paid or accrued) minus the sum of (a)
all extraordinary gains, (b) all interest income and (c) all non-cash income or
gain, in each case determined on a Consolidated basis for P&F and its
Subsidiaries in accordance with GAAP.

         "Consolidated Interest Expense" shall mean the Consolidated interest
expense of P&F and its Subsidiaries, determined in accordance with GAAP.

         "Consolidated Net Income" shall mean, for any period, the net income
(or net loss) of P&F and its Subsidiaries on a Consolidated basis for such
period determined in accordance with GAAP.

         "Consolidated Net Worth" shall mean (a) total Consolidated assets of
P&F and its Subsidiaries less (b) the total Consolidated liabilities of P&F and
its Subsidiaries, in each case determined in accordance with GAAP.

         "Consolidated Senior Debt" shall mean all Indebtedness of P&F and its
Subsidiaries for borrowed money other than (i) Indebtedness described in clause
"(i)", but only to the extent such Banker's acceptance do not constitute
Documentary Banker's Acceptances, and clause "(j)" of the definition of the term
"Indebtedness" and (ii) Subordinated Debt.



                                       4
<PAGE>

         "Corporate Guarantors" shall mean, collectively, each Person listed on
Schedule IV hereto and each Person who, from time to time, is required to
execute a Corporate Guaranty in accordance with Section 5.01(b) or Section 6.10;
provided such Person's status as a Corporate Guarantor shall be effective as of
the date of such execution.

         "Corporate Guaranty" means the Corporate Guaranty in the form attached
hereto as Exhibit D to be executed and delivered by the Corporate Guarantors, as
the same may hereafter be amended, restated, supplemented or otherwise modified
from time to time.

         "Default" shall mean any event or condition which upon notice, lapse of
time or both, would constitute an Event of Default.

         "Documentary Banker's Acceptances" shall mean banker's acceptances
created by the Bank accepting a draft drawn on the Bank and which satisfy
eligibility requirements established by the Board of Governors of the Federal
Reserve System and the Bank's internal requirements as in effect from
time-to-time.

         "Environmental Law" shall mean any federal, state, local or foreign
environmental law, ordinance, rule, regulation or policy relating to the
pollution or the protection of the environment or to the use, handling,
transportation, treatment, storage, disposal, release or discharge of Hazardous
Materials, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended (42 U.S.C.
ss.ss.9601, et. seq.), the Hazardous Materials Transportation Act, as amended
(49 U.S.C. ss.ss.1801, et. seq.), the Resource Conservation and Recovery Act, as
amended (42 U.S.C. ss.ss.6901, et. seq.) and the rules and regulations
promulgated pursuant thereto.

         "Equipment Loan" shall have the meaning given to such term in Section
2.03 hereof.

         "Equipment Loan Maturity Date" means, with respect to each Equipment
Loan, the date on which such Equipment Loan becomes due and payable in
accordance with its terms, which date shall be the date determined as set forth
in Section 2.03 but which shall not be more than five (5) years from the date
such Equipment Loan is made.

         "Equipment Loan Note" shall mean a promissory note of the Co-Borrower
in the form attached as Exhibit B hereto as the same may be amended,
supplemented or otherwise modified from time to time.

         "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.

         "ERISA Affiliate" shall mean each person (as defined in Section 3(9) of
ERISA) which together with the Co-Borrowers or any of them would be deemed to be
a member of the same "controlled 



                                       5
<PAGE>

group" within the meaning of Section 414(b), (c), (m) and (o) of the Code.

         "Eurocurrency Reserve Requirement" shall mean 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 applicable statutory reserve requirements
(expressed as a decimal) for the Bank (without duplication, but including,
without limitation, basic, supplemental, marginal and emergency reserves), from
time to time in effect under Regulation D with respect to eurocurrency funding
currently referred to as "Eurocurrency liabilities" in Regulation D. It is
agreed that for purposes hereof each LIBOR Loan shall be deemed to constitute a
"Eurocurrency liability" as defined in Regulation D, and to be subject to the
reserve requirements of Regulation D without benefit of credit or proration,
exemptions or offsets which might otherwise be available to the Bank from time
to time under Regulation D.

         "Event of Default" shall have the meaning set forth in Article VIII.

         "Executive Officer" shall mean with respect to any entity, the
Chairman, the President, the Chief Financial Officer or the Secretary of such
entity, as applicable, and their respective successors, if any, designated by
the board of directors.

         "Existing Indebtedness" shall mean the aggregate Indebtedness of the
Co-Borrowers to Hong Kong Shanghai Bank and to all other persons in respect of
Loans made by such Persons, other than Indebtedness permitted pursuant to
Section 7.02 and contingent obligations permitted pursuant to Section 7.03.

         "Fixed Rate" shall mean a rate of interest per annum quoted to the
Co-Borrowers by the Bank, from time to time at the request of the Co-Borrowers,
as the "Fixed Rate". Such quoted rate shall be the fixed rate which would be
applicable to a Fixed Rate Loan made by the Bank on the requested date for a
proposed Fixed Rate Loan, in the specified amount and for the specified term
thereof. Notwithstanding any other provision of this Agreement, the rate so
quoted by the Bank shall be the rate, at the time of election, on United States
Treasury Notes (as determined by the Bank) having maturities approximately equal
to the maturity of such Fixed Rate Loan plus 175 basis points.

         "Fixed Rate Loan" shall mean a Loan at such time as it is made or being
maintained at the rate of interest based upon the Fixed Rate.

         "Foreign Exchange Line" shall mean that credit line more particularly
described in that certain Line Letter dated June 30, 1998 from Bank to
Co-Borrowers.



                                       6
<PAGE>

         "GAAP" shall mean generally accepted accounting principles and
practices which are recognized as such by the American Institute of Certified
Public Accountants acting through the financial Accounting Standards Board and
which are consistently applied for all periods so as to properly reflect the
consolidated financial condition and the consolidated results of operations and
cash flows of P&F and its Subsidiaries.

         "Green Acquisition" shall mean the acquisition by P&F of all of the
issued and outstanding stock or substantially all of the assets of Green
Manufacturing, Inc.

         "Green Debt" shall mean the indebtedness assumed by a Co-Borrower in
connection with the Green Acquisition, which indebtedness shall not exceed
$1,095,000.

         "Hazardous Materials" shall mean any explosives, radioactive materials,
or other materials, wastes, chemicals or substances regulated as toxic,
hazardous, or as a pollutant, contaminant, or waste under any Environmental Law.

         "Indebtedness" shall mean, without duplication, as to any Person or
Persons (a) indebtedness for borrowed money; (b) indebtedness for the deferred
purchase price of property or services; (c) indebtedness evidenced by bonds,
debentures, term notes or other similar instruments; (d) obligations and
liabilities secured by a Lien upon property owned by such Person, whether or not
owing by such Person and even though such Person has not assumed or become
liable for the payment thereof; (e) Indebtedness of others directly or
indirectly guaranteed by such Person; (f) obligations or liabilities created or
arising under any conditional sales contract or other title retention agreement
with respect to property used and/or acquired by such Person; (g) obligations of
such Person as lessee under Capital Leases; (h) all obligations of such Person
under hedging agreements and foreign currency exchange agreements, as calculated
on a basis satisfactory to the Bank and in accordance with accepted practice;
(i) all obligations of such Person in respect of bankers acceptances; and (j)
all obligations, contingent or otherwise of such Person as an account party in
respect of letters of credit.

         "Interest Payment Date" means, (i) with respect to Prime Rate Loans or
LIBOR Loans, the first business day of each calendar month during the term of
such Loan commencing with the month following the month in which such Loan is
made and the date such Loan is required to be repaid in full; and (ii) with
respect to Fixed Rate Loans the monthly or quarterly interest payment dates
established by the Bank at the time such Fixed Rate Loan is made.



                                       7
<PAGE>

         "Interest Period" shall mean with respect to any LIBOR Loan:

         (a) initially, the period commencing on the date such LIBOR Loan is
made and ending one, three or six months thereafter, as selected by the
Co-Borrowers in their Notice of Borrowing, or in their notice of conversion from
a Prime Rate Loan as provided in Section 3.01(e); and

         (b) thereafter, each period commencing on the last day of the next
preceding Interest Period applicable to such LIBOR Loan and ending one, three or
six months thereafter, as selected by the Co-Borrowers by irrevocable written
notice to the Bank not later than 11:00 a.m. three Business Days prior to the
last day of the then current Interest Period with respect to such LIBOR Loan;
provided, however, that all of the foregoing provisions relating to Interest
Periods are subject to the following:

               (i) if any Interest Period pertaining to a LIBOR Loan would
          otherwise end on a day which is not a Business Day, the Interest
          Period shall be extended to the next succeeding Business Day unless
          the result of such extension would be to carry such Interest Period
          into another calendar month in which event such Interest Period shall
          end on the immediately preceding Business Day;

               (ii) if the Co-Borrowers shall fail to give notice as provided in
          clause (b) above, the Co-Borrowers shall be deemed to have requested
          conversion of the affected LIBOR Loan to a Prime Rate Loan on the last
          day of the then current Interest Period with respect thereto;

               (iii) any Interest Period that begins on the last Business Day of
          a calendar month (or on a day for which there is no numerically
          corresponding day in the calendar month at the end of such Interest
          Period) shall end on the last Business Day of a calendar month;

               (iv) no Interest Period may be selected with respect to (a) a
          Revolving Credit Loan which ends later than the Revolving Credit
          Termination Date, and (b) the Term Loan which ends later than the Term
          Loan Maturity Date; and

               (v) no more than twelve (12) Interest Periods may exist at any
          one time.

         "Letter of Credit" shall mean any Sight Letter of Credit or Standby
Letter of Credit issued by the Bank for the account of the Co-Borrowers, or any
of them, pursuant to the terms of this Agreement. Letters of Credit issued by
the Bank hereunder shall be for the account of the Co-Borrowers for the purpose
of providing the primary payment mechanism in connection with the purchase of



                                       8
<PAGE>

any materials, goods or service by the Co-Borrowers in the ordinary course of
their business and to support repayment of the Green Debt.

         "LIBOR Loan" shall mean any Loan at such time as it is made and/or
being maintained at a rate of interest based upon Reserve Adjusted Libor.

         "Liens" shall mean any lien (statutory or otherwise) security interest,
mortgage, deed of trust, pledge, charge, conditional sale, title retention
agreement, Capital Lease or other encumbrance or similar right of others, or any
agreement to give any of the foregoing.

         "Loans" shall mean, collectively, the Revolving Credit Loans, the Term
Loans and the Equipment Loans and shall refer to a Prime Rate Loan, a LIBOR Loan
or a Fixed Rate Loan, each of which shall be a "Type" of Loan.

         "Loan Documents" shall mean, collectively, this Agreement, the Notes,
the Security Agreements, the Corporate Guaranties, the Pledge Agreement and each
other agreement executed in connection with the transactions contemplated hereby
or thereby, as each of the same may hereafter or thereafter be amended,
supplemented or otherwise modified from time to time.

         "Material Adverse Effect" shall mean a material adverse effect on (i)
the business, operations, properties or condition, financial or otherwise, of
the Co-Borrowers taken as a whole or of the Co-Borrowers and their Subsidiaries,
taken as a whole, or (ii) the ability of the Co-Borrowers, their Subsidiaries or
any of them to perform their obligations hereunder or under the Loan Documents.

         "Notice of Borrowing" shall mean the Notice of Borrowing substantially
in the form attached hereto as Exhibit F.

         "Obligations" shall mean all obligations, liabilities and indebtedness
of the Co-Borrowers to the Bank, whether now existing or hereafter created,
absolute or contingent, direct or indirect, due or not, whether created directly
or acquired by assignment or otherwise, including, without limitation, all
obligations, liabilities and indebtedness of the Co-Borrowers with respect to
the principal of and interest on the Loans and the payment and performance of
all other obligations, liabilities, and indebtedness of the Co-Borrowers to the
Bank hereunder, under the Notes or any other Loan Document or with respect to
the Loans, including without limitation all fees, costs, expenses and indemnity
obligations hereunder.

         "Payment Office" shall mean the Bank's office located at 730 Veterans
Memorial Highway, Hauppauge, New York 11788.



                                       9
<PAGE>

         "PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor thereto.

         "Permitted Acquisition" shall mean any acquisition by a Co-Borrower of
more than 50% of the outstanding capital stock, membership interest, partnership
interest or other similar ownership interest of a Person organized under the
laws of the United States or any state thereof which is engaged in a line of
business similar to the business of P&F or any of its Subsidiaries or the
purchase of all or substantially all of the assets used by such Person or a
division of such Person; provided (a) the acquisition complies with the terms
and conditions of Section 5.03 (regardless of whether the Co-Borrowers have
requested the Bank to finance the acquisition with the proceeds of a Term Loan);
(b) no Default or Event of Default shall have occurred and be continuing
immediately prior to or would occur after giving effect to the acquisition, and
(c) the acquisition has either (i) been approved by the Board of Directors or
other governing body of the Person which is the subject of the acquisition or
(ii) been recommended for approval by the Board of Directors or other governing
body of such Person to the shareholders or other members of such Person and
subsequently approved by all of the shareholders or all of such members if
shareholder or such member approval is required under applicable law or by the
by-laws, certificate of incorporation or other governing instruments of such
Person.

         "Permitted Investments" shall mean (a) direct obligations of the United
States of America or any governmental agency thereof, provided that such
obligations mature within one year from the date of acquisition thereof; (b)
dollar denominated certificates of time deposit maturing within eighteen months
issued by the Bank or any commercial bank organized and existing under the laws
of the United States or any state thereof and having aggregate capital and
surplus in excess of $1,000,000,000; (c) money market mutual funds having assets
in excess of $2,500,000,000; (d) commercial paper rated not less than P-1 or A-1
or their equivalent by Moody's Investor Services, Inc. or Standard & Poor's
Corporation, respectively; or (e) tax exempt securities of a U.S. issuer rated A
or better by Standard and Poor's Corporation or Moody's Investors Service, Inc.

         "Person" shall mean any natural person, corporation, limited liability
company, limited liability partnership, business trust, joint venture,
association, company, partnership or government, or any agency or political
subdivision thereof.

         "Plan" shall mean any multi-employer or single-employer plan defined in
Section 4001 of ERISA, which is maintained, or at any time during the five
calendar years preceding the date of this Agreement was maintained, by any
Co-Borrower or an ERISA Affiliate for employees of any Co-Borrower or an ERISA
Affiliate.



                                       10
<PAGE>

         "Pledge Agreement" shall mean the Pledge Agreement in the form annexed
hereto as Exhibit I.

         "Prime Rate" shall mean the rate per annum publicly announced by the
Bank from time to time as its prime rate in effect at its principal office, each
change in the Prime Rate to be effective on the date such change is announced to
become effective.

         "Prime Rate Loan" shall mean the portion of a Loan at such time as it
is bearing interest at the Prime Rate.

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

         "Reportable Event" shall mean an event described in Section 4043(c) of
ERISA as to which the 30 day notice requirement has not been waived by the PBGC
and which event occurs with respect to a Plan.

         "Reserve Adjusted Libor" shall mean with respect to the Interest Period
pertaining to a LIBOR Loan, the rate per annum equal to the product (rounded
upwards to the next higher 1/100 of one percent) of (a) the annual rate of the
interest determined by the Bank at which dollar deposits of an amount comparable
to the amount of such Loan and for a period equal to the Interest Period
applicable thereto are offered to leading banks in immediately available funds
in the London interbank market for eurodollars at approximately 11:00 A.M.
(London time) on the second Business Day prior to the commencement of such
Interest Period, multiplied by (b) the Eurocurrency Reserve Requirement.

         "Revolving Credit Commitment" shall mean the Bank's obligation to make
Revolving Credit Loans to the Co-Borrowers pursuant to Section 2.01 hereof in an
aggregate principal amount not to exceed $12,000,000.

         "Revolving Credit Loan" shall have the meaning specified in Section
2.01.

         "Revolving Credit Note" shall mean the promissory note of the
Co-Borrowers in the form attached as Exhibit A hereto evidencing the Revolving
Credit Loans, as the same may be amended, supplemented or otherwise modified
from time to time.

         "Revolving Credit Termination Date" shall mean the earlier of (i) July
22, 1999 or (ii) the date on which the Revolving Credit Commitment shall have
been terminated hereunder.

         "Security Agreements" shall mean the Security Agreements in the form
annexed hereto as Exhibit E-1 in the case of those Security Agreements to be
executed and delivered by each Co-



                                       11
<PAGE>

Borrower and as Exhibit E-2 in the case of those Security Agreements to be
executed by each Corporate Guarantor.

         "Sight Letter of Credit" shall mean a Letter of Credit wherein the
draft is drawn at sight (i.e., drawn payable upon presentment).

         "Solvent" shall mean with respect to any Person as of the date of
determination thereof that (a) the amount of the "present fair saleable value"
of the assets of such Person will, as of such date, exceed the amount of all
"liabilities of such Person, contingent or otherwise," as of such date, as such
quoted terms are determined in accordance with applicable federal and state laws
governing determinations of the insolvency of debtors, (b) the present fair
saleable value of the assets of such Person will, as of such date, be greater
than the amount that will be required on its debts as such debts become absolute
and matured, (c) such Person will not have as of such date, an unreasonably
small amount of capital with which to conduct its business, and (d) such Person
will be able to pay its debts as they mature.

         "Standby Letter of Credit" shall mean any letter of credit issued to
support an obligation of a Person and which may only be drawn upon the failure
of such Person to perform such obligation or another contingency.

         "Subordinated Debt or Subordinated Indebtedness" shall mean all debt
which is subordinated in right of payment to the prior indefeasible payment in
full of the obligations of any Co-Borrower and/or any of their Subsidiaries to
the Bank on terms satisfactory to and approved in writing by the Bank.

         "Subsidiaries" shall mean with respect to any Person any corporation,
association or other business entity more than 50% of the voting stock or other
ownership interest of which is at the time owned or controlled, directly or
indirectly, by such Person or one or more of its Subsidiaries or a combination
thereof.

         "Term Loan Commitment" shall mean the Bank's obligation to make Term
Loans to the Co-Borrowers pursuant to Section 2.04 hereof in an aggregate
principal amount of $15,000,000.

         "Term Loan Commitment Termination Date" shall mean July 22, 1999.

         "Term Loan" shall have the meaning specified in Section 2.04.

         "Term Loan Maturity Date" shall mean, with respect to any Term Loan,
the date on which such Term Loan becomes due and payable in accordance with its
terms, which date shall be the date determined as set forth in Section 2.04 but
which shall not be more than seven (7) years from the date such Term Loan was
made.



                                       12
<PAGE>

         "Term Loan Note" shall mean the promissory note of the Co-Borrowers in
the form attached as Exhibit C hereto evidencing the Term Loans, as the same may
be amended, supplemented or otherwise modified from time to time.

         "Type" shall have the meaning set forth in the definition of "Loans".

         "Unfunded Current Liability" of any Plan shall mean the amount, if any,
by which the present value of the accrued benefits under the Plan as of the
close of its most recent plan year exceeds the fair market value of the assets
allocable thereto, determined in accordance with Section 412 of the Code.

         SECTION 1.02. Accounting Terms. Except as otherwise herein specifically
provided, each accounting term used herein shall have the meaning given to it
under GAAP.

                                   ARTICLE II
                                      LOANS

         SECTION 2.01. Revolving Credit Loans. (a) Subject to the terms and
conditions, and relying upon the representations and warranties, set forth
herein, the Bank agrees to make loans (individually, a "Revolving Credit Loan"
and, collectively, the "Revolving Credit Loans") to the Co-Borrowers at any time
or from time to time on or after the Closing Date and until the Revolving Credit
Termination Date. Within the foregoing limits, the Co-Borrowers may borrow,
repay and reborrow hereunder on or after the Closing Date and prior to the
Revolving Credit Termination Date, subject to the terms, provisions and
limitations set forth herein. The Revolving Credit Loans may be LIBOR Loans or
Prime Rate Loans or a combination thereof.

         (b) The initial Revolving Credit Loan made by the Bank shall be made
against delivery to the Bank of the Revolving Credit Note, payable to the order
of the Bank, as referred to in Section 2.02 hereof. The Bank will make available
each requested Revolving Credit Loan to the Co-Borrowers by crediting the
proceeds thereof into an account of the Co-Borrowers at the Payment Office on
the date and in the amount set forth in the applicable Notice of Borrowing.

         (c) The Co-Borrowers shall give the Bank a completed irrevocable Notice
of Borrowing, no later than 11:00 a.m., New York City time, three Business Days
prior to the date of each proposed LIBOR Loan under this Section 2.01 or no
later than 11:00 a.m. on the date of each proposed Prime Rate Loan under this
Section 2.01. Each borrowing pursuant to the Revolving Credit Commitment shall
be in an aggregate principal amount of (A) the lesser of (x) $50,000 or whole
multiples of $25,000 in excess thereof and (y) the Available Revolving Credit
Commitment, with respect to Prime Rate



                                       13
<PAGE>

Loans, and (B) $250,000 or whole multiples of $50,000 in excess thereof, with
respect to LIBOR Loans.

         (d) The Co-Borrowers shall have the right, upon not less than three
Business Days' prior written notice to the Bank, to terminate the Revolving
Credit Commitment or, from time to time, to permanently reduce the amount of the
Revolving Credit Commitment; provided, however, that no such termination or
reduction shall be permitted if, after giving effect thereto and to any
prepayments of the Revolving Credit Loans made on the effective date thereof,
Aggregate Outstandings would exceed the Revolving Credit Commitment, as then
reduced; and provided, further, that any such terminations or reduction of LIBOR
Loans shall be made only on the last day of the Interest Period with respect
thereto or on the date of payment in full of all amounts owing to the Bank
pursuant to Section 3.08 as a result of such termination or reduction. Any such
reduction shall be in the amount of $1,000,000 or an amount in excess thereof,
and shall reduce permanently the amount of the Revolving Credit Commitment then
in effect.

         (e) The Revolving Credit Commitment shall automatically terminate on
the Revolving Credit Termination Date. Upon such termination, the Co-Borrowers
shall immediately repay in full the principal amount of the Revolving Credit
Loans then outstanding, together with all accrued interest thereon and all other
amounts due and payable hereunder with respect to the Revolving Credit Loans.

         SECTION 2.02. Revolving Credit Note. The Revolving Credit Loans made by
the Bank shall be evidenced by the Revolving Credit Note, appropriately
completed, duly executed and delivered on behalf of the Co-Borrowers and payable
to the order of the Bank in a principal amount equal to the Revolving Credit
Commitment. The date, Type and amount of each Revolving Credit Loan and the date
and amount of each payment or prepayment of principal of each Revolving Credit
Loan shall be recorded on the grid schedule annexed to the Revolving Credit
Note, and the Co-Borrowers authorize the Bank to make such recordation;
provided, however, that the failure of the Bank to set forth each such Revolving
Credit Loan, payment and other information on such grid shall not in any manner
affect the obligation of the Co-Borrowers to repay each Revolving Credit Loan
made by the Bank in accordance with the terms of the Revolving Credit Note and
this Agreement. The Revolving Credit Note, the grid schedule and the books and
records of the Bank shall be prima facie evidence of the Revolving Credit Loans
absent manifest error. The aggregate unpaid amount of the Revolving Credit Loans
of the Bank at any time shall be the principal amount owing on the Revolving
Credit Note of the Co-Borrowers at such time.

         SECTION 2.03. Equipment Loans. (a) Subject to the terms and conditions
set forth in this Agreement, the Co-Borrowers may



                                       14
<PAGE>

utilize up to $3,000,000 of the Revolving Credit Commitment to borrow equipment
term loans from the Bank and the Bank agrees to make loans (individually, an
"Equipment Loan" and, collectively, the "Equipment Loans") to the Co-Borrowers
at any time and from time to time on and after the Closing Date until the
Revolving Credit Termination Date, in an aggregate principal amount not in
excess of $3,000,000 at any one time outstanding, provided that the Aggregate
Outstandings shall not at any time exceed the Revolving Credit Commitment (it
being understood that this provision does not affect the maturity of any
Equipment Loan).

                  (b) Each Equipment Loan made by the Bank to the Co-Borrowers
shall be made against delivery to the Bank of an Equipment Loan Note,
appropriately completed, duly executed on behalf of the Co-Borrowers and payable
to the order of the Bank. Each Equipment Loan shall be a Prime Rate Loan or a
Fixed Rate Loan and shall have a term designated by the Co-Borrower in the
Notice of Borrowing but which shall not exceed five (5) years from the date of
the borrowing and, in the absence of any such designation shall be five (5)
years. Each Equipment Loan shall be payable in monthly or quarterly (as
determined by the Bank) installments of interest and principal. The date and
amount of each Equipment Loan and the date and amount of each payment or
prepayment of principal of such Equipment Loan shall be recorded on a schedule
annexed to such Equipment Loan Note, and the Co-Borrowers authorize the Bank to
make such recordation; provided, however, that the failure of the Bank to set
forth payments and other information in such grid shall not in any manner affect
the obligation of the Co-Borrowers to repay any Equipment Loan made by the Bank
in accordance with the terms of this Agreement. Each Equipment Loan Note, the
grid schedule and the books and records of the Bank shall be prima facie
evidence of the information so recorded absent manifest error.

                  (c) The Co-Borrowers shall deliver to the Bank a completed
Notice of Borrowing for each Prime Rate Loan no later than 11:00 a.m., New York
City time, on the date of each proposed borrowing of a Prime Rate Loan pursuant
to this Section 2.03, and for each Fixed Rate Loan, no later than 11:00 a.m.,
New York City time, two days prior to the date of each proposed borrowing of a
Fixed Rate Loan pursuant to this Section 2.03. The Bank will make available each
requested Equipment Loan to the Co-Borrowers by crediting the proceeds thereof
into an account of the Co-Borrower specified in the Notice of Borrowing at the
Payment Office.

         SECTION 2.04. Term Loans. (a) Subject to the terms and conditions, and
relying upon the representations and warranties, set forth herein, the Bank
agrees to make loans (individually, a "Term Loan" and, collectively, the "Term
Loans") to the Co-Borrowers at any time and from time to time on and after the
Closing Date and until the Term Loan Commitment Termination Date or until the
Term Loan Commitment shall have been terminated in accordance with the terms
hereof (the "Availability Period"), in an




                                       15
<PAGE>

aggregate principal amount at any one time outstanding not in excess of the Term
Loan Commitment. Within the foregoing limits, the Co-Borrowers may borrow during
the Availability Period subject to the terms, provisions and limitations set
forth herein. The Term Loan Commitment shall automatically terminate on the Term
Loan Commitment Termination Date.

                  (b) The initial Term Loan by the Bank shall be made against
delivery to the Bank of a Term Note, payable to the order of the Bank, as
referred to in Section 2.05. Each Term Loan shall be a Prime Rate Loan or a
LIBOR Loan. The Co-Borrowers shall deliver to the Bank a completed Notice of
Borrowing for each Prime Rate Loan no later than 11:00 a.m., New York City time,
on the date of each proposed borrowing of a Prime Rate Loan under this Section
2.04, and for each LIBOR Loan, no later than 11:00 a.m. three (3) Business Day
prior to the date of each proposed borrowing of a LIBOR Loan under this Section
2.04. The Bank will make available each requested Term Loan to the Co-Borrowers
by crediting the proceeds thereof into an account of the Co-Borrowers specified
in the Notice of Borrowing at the Payment Office. Each borrowing pursuant to the
Term Loan Commitment shall be in an aggregate principal amount of (A) the lesser
of (x) $50,000 or whole multiples thereof, and (y) the Available Term Loan
Commitment, with respect to Prime Rate Loans, and (B) at least $250,000 with
respect to LIBOR Loans. Such notice shall be irrevocable and shall specify the
amount and Type of Term Loan, and if applicable, the requested Interest Period
with respect thereto.

         SECTION 2.05. Term Notes. Each Term Loan by the Bank shall be evidenced
by a Term Loan Note, appropriately completed, duly executed and delivered on
behalf of the Co-Borrowers and payable to the order of the Bank in a principal
amount equal to the amount of such Term Loan. Each Term Loan shall have a term
designated by the Co-Borrower in the Notice of Borrowing but which term shall
not exceed seven (7) years from the date of the borrowing and, in the absence of
any such designation, shall not exceed seven (7) years and, at the option of the
Co-Borrowers, may allow for interest only to be paid during the first year of
the term thereof. The date and amount of each Term Loan and the date and amount
of each payment or prepayment of principal of such Term Loan shall be recorded
on the grid schedule annexed to such Term Loan Note, and the Co-Borrowers
authorize the Bank to make such recordation; provided, however, that the failure
of the Bank to set forth payments and other information on such grid shall not
in any manner affect the obligation of the Co-Borrowers to repay any Term Loan
made by the Bank in accordance with the terms of this Agreement. Each Term Loan
Note, the grid schedule and the books and records of the Bank shall be prima
facie evidence of the information so recorded absent manifest error.

         SECTION 2.06 Letters of Credit and Documentary Banker's Acceptances.
(a) Subject to the terms and conditions set forth in




                                       16
<PAGE>

this Agreement, upon the written request of the Co-Borrowers in accordance
herewith, the Bank shall issue Letters of Credit and create Documentary Banker's
Acceptances, at any time from the date hereof through the Revolving Credit
Termination Date. Notwithstanding the foregoing, no Letter of Credit or
Documentary Banker's Acceptance shall be issued or created if, after giving
effect to the same, the Aggregate Outstandings would exceed the Revolving Credit
Commitment. Furthermore, in no event shall the Aggregate Bankers Acceptances
Outstanding exceed $8,000,000 at any time and in no event shall the Aggregate
Letters of Credit Outstanding exceed $8,000,000 at any time. Notwithstanding
anything contained herein to the contrary, the Bank shall be under no obligation
to issue a Letter of Credit or create a Documentary Banker's Acceptance, if any
order, judgment or decree of any court, arbitrator or governmental authority
shall purport by its terms to enjoin, restrict or restrain the Bank in any
respect relating to the issuance of such Letter of Credit or creation of such
Documentary Banker's Acceptance or a similar letter of credit or documentary
banker's acceptance, or any law, rule, regulation, policy, guideline or
directive (whether or not having the force of law) from any governmental
authority with jurisdiction over the Bank shall prohibit or direct the Bank in
any respect relating to the issuance of such Letter of Credit or the creation of
such Documentary Banker's Acceptance or similar letter of credit or documentary
banker's acceptance, or shall impose upon the Bank with respect to any Letter of
Credit or Documentary Banker's Acceptance any restrictions, any reserve or
capital requirement or any loss, cost or expense not reimbursed by the
Co-Borrowers to the Bank. Each request for issuance of a Letter of Credit shall
be in writing and shall be received by the Bank by no later than 12:00 p.m. on
the day which is at least one Business Day prior to the proposed date of
issuance. Such issuance shall occur by no later than 5:00 p.m. on the proposed
date of issuance (assuming proper prior notice as aforesaid). Subject to the
terms and conditions contained herein, the expiry dates, the type of Letter of
Credit, the purpose, the amounts and the beneficiaries of the Letters of Credit
will be as designated by the Co-Borrowers. Each Letter of Credit issued by the
Bank hereunder shall identify: (i) the dates of issuance and expiry of such
Letter of Credit, (ii) the amount of such Letter of Credit (which shall be a sum
certain, although partial drawings shall be permitted), (iii) the beneficiary
and account party of such Letter of Credit, and (iv) the drafts and other
documents necessary to be presented to the Bank upon drawing thereunder. No
Sight Letter of Credit issued hereunder shall expire more than 180 days from the
date of issuance, no Standby Letter of Credit issued hereunder shall expire more
than one year from the date of issuance and no Documentary Banker's Acceptance
shall mature more than 180 days from the date of creation thereof, and in no
event shall any Letter of Credit expire or any Documentary Banker's Acceptance
mature, after the Business Day which is immediately prior to the Revolving
Credit Termination Date. The Co-Borrowers agree to execute and deliver to the
Bank



                                       17
<PAGE>

such further documents and instruments in connection with any Letter of Credit
issued or Documentary Banker's Acceptance created hereunder (including, without
limitation, applications therefor and the Bank's Master Letter of Credit
Agreement and Standard Acceptance Credit Agreement) as the Bank in accordance
with its customary practices may request. To the extent of any inconsistency
between those documents and this Agreement, the provisions of this Agreement
shall control and such other documents shall not impose any operating
restrictions, financial covenants, or payment obligations or require
Co-Borrowers to provide any collateral in addition to or different from those
imposed under this Agreement.

                  (b) Drawings Under Letters of Credit and Payments of
Documentary Banker's Acceptances. The Co-Borrowers hereby absolutely and
unconditionally promise to pay to the Bank on the date of any drawing under a
Letter of Credit or the maturity of a Documentary Banker's Acceptance, in
immediately available funds from its accounts, the amount of such drawing under
such Letter of Credit or Documentary Banker's Acceptance. If the Co-Borrowers so
request by a Notice of Borrowing delivered to the Bank not later than 12:30 p.m.
(New York City time) on the date of the drawing under a Letter of Credit or the
maturity of a Documentary Banker's Acceptance in accordance with the terms
hereof and if each of the conditions precedent to the making of a Loan set forth
in Article V of this Agreement has been satisfied, on the Business Day on which
a drawing under a Letter of Credit or the maturity of a Documentary Banker's
Acceptance occurs, the amount of such drawing, plus interest thereon, or the
amount of such Documentary Banker's Acceptance, for which the Bank has not been
reimbursed by the Co-Borrowers, shall become a Prime Rate Loan made by the Bank
to the Co-Borrowers on such day.

                  (c) Letter of Credit and Documentary Banker's Acceptance
Obligations Absolute. (i) The obligations of the Co-Borrowers to reimburse the
Bank as provided hereunder in respect of drawings or payments under Letters of
Credit and Documentary Banker's Acceptances shall rank pari passu with the
obligations of the Co-Borrowers to repay the Loans hereunder, shall be absolute
and unconditional under any and all circumstances and shall be secured pro rata
with the other Obligations (if any) pursuant to the Security Agreements in
accordance with the provisions of the Security Agreements. Without limiting the
generality of the foregoing, the obligation of the Co-Borrowers to reimburse the
Bank in respect of drawings under Letters of Credit and upon the maturity of
Documentary Banker's Acceptances shall not be subject to any defense based on
the non-application or misapplication by the beneficiary of the proceeds of any
such payment or the legality, validity, regularity or enforceability of the
Letters of Credit or Documentary Banker's Acceptances or any related document or
any dispute between or among the Co-Borrowers, or any of them, the beneficiary
of any Letter of Credit or any financing 



                                       18
<PAGE>

institution or other party to which any Letter of Credit or Documentary Banker's
Acceptances may be transferred. The Bank may accept or pay any draft presented
to it under any Letter of Credit regardless of when drawn or made and whether or
not negotiated, if such draft, accompanying certificate or documents and any
transmittal advice are presented or negotiated on or before the expiry date of
the Letter of Credit or any renewal or extension thereof then in effect, and
conforms to the terms and conditions of such Letter of Credit. Furthermore,
neither the Bank nor any of its correspondents shall be responsible, as to any
document presented under a Letter of Credit which appears to be regular on its
face, and appears on its face to conform to the terms of the Letter of Credit,
for the validity or sufficiency of any signature or endorsement, for delay in
giving any notice or failure of any instrument to bear adequate reference to the
Letter of Credit, or for failure of any Person to note the amount of any draft
on the reverse of the Letter of Credit.

                  (ii) Any action, inaction or omission on the part of the Bank
or any of its correspondents under or in connection with any Letter of Credit or
the related instruments, documents or property, if in good faith and in
conformity with such laws, regulations or customs as are applicable, shall be
binding upon the Co-Borrowers and shall not place the Bank or any of its
correspondents under any liability to the Co-Borrowers, or any of them, in the
absence of (i) gross negligence or willful misconduct by the Bank or its
correspondents or (ii) the failure by the Bank to pay under a Letter of Credit
after presentation of a draft and documents strictly complying with such Letter
of Credit. The Bank's rights, powers, privileges and immunities specified in or
arising under this Agreement are in addition to any heretofore or at any time
hereafter otherwise created or arising, whether by statute or rule of law or
contract. All Letters of Credit issued hereunder will, except to the extent
otherwise expressly provided hereunder, be governed by the Uniform Customs and
Practice for Documentary Credits (1993 Revision), International Chamber of
Commerce, Publication No. 500, and any subsequent revisions thereof.

                                   ARTICLE III
                INTEREST RATE; FEES AND PAYMENTS; USE OF PROCEEDS

         SECTION 3.01. Interest Rate. (a) Each Prime Rate Loan shall bear
interest for the period from the date thereof on the unpaid principal amount
thereof at a fluctuating rate per annum equal to the Prime Rate, plus, in the
case of Equipment Loans only, a margin equal to 0.25% per annum and in the case
of Term Loans, the applicable Prime Rate Margin as provided in the definition of
the term "Applicable Term Loan Margin".

                  (b) Each LIBOR Loan shall bear interest for the Interest
Period applicable thereto on the unpaid principal amount thereof at



                                       19
<PAGE>

a rate per annum equal to the Reserve Adjusted Libor determined for each
Interest Period thereof in accordance with the terms hereof plus, in the case of
Revolving Credit Loans, a margin of 1.60% per annum and, in the case of Term
Loans, the applicable LIBOR Margin as provided in the definition of the term
"Applicable Term Loan Margin".

                  (c) Each Fixed Rate Loan shall bear interest on the unpaid
principal amount thereof at a rate per annum equal to the Fixed Rate established
by the Bank for such Loan in accordance with the terms hereof.

                  (d) If the Co-Borrowers shall default in the payment of the
principal of or interest on any portion of any Loan or any other amount becoming
due hereunder, including, without limitation, fees, the Co-Borrowers shall on
demand from time to time pay interest on such defaulted amount accruing from the
date of such default (without reference to any period of grace) up to and
including the date of actual payment (after as well as before judgment) at a
rate per annum equal to the Prime Rate plus a margin of 2% per annum.

                  (e) Upon the occurrence and during the continuance of an Event
of Default, the outstanding principal amount of the Loans (excluding any
defaulted payment accruing interest in accordance with clause (c) above), shall,
in the Bank's sole and absolute discretion, bear interest payable on demand at a
rate of interest equal to 2% above the rate otherwise in effect with respect to
such Loans.

                  (f) The Co-Borrowers may elect from time to time to convert
outstanding Revolving Credit Loans and Term Loans from LIBOR Loans to Prime Rate
Loans by giving the Bank at least three Business Days' prior irrevocable notice
of such election, provided that any such conversion of LIBOR Loans shall only be
made on the last day of an Interest Period with respect thereto or upon the date
of payment in full of any amounts owing pursuant to Section 3.08 as a result of
such conversion. The Co-Borrowers may elect from time to time to convert
outstanding Revolving Credit Loans and Term Loans from Prime Rate Loans to LIBOR
Loans by giving the Bank irrevocable written notice of such election not later
than 11:00 a.m. three Business Days prior to the date of the proposed
conversion. All or any part of outstanding Prime Rate Loans may be converted as
provided herein, provided that each conversion shall be in the principal amount
of $50,000 or whole multiples of $25,000 in excess thereof. Any conversion to or
from LIBOR Loans hereunder shall be in such amounts and be made pursuant to such
elections so that, after giving effect thereto, the aggregate principal amount
of all LIBOR Loans having the same Interest Period shall not be less than
$250,000.



                                       20
<PAGE>

                  (g) Any LIBOR Loans may be continued as such upon the
expiration of an Interest Period with respect thereto by compliance by the
Co-Borrowers with the notice provisions contained in the definition of Interest
Period.

                  (h) No Revolving Credit Loan may be funded, converted to or
continued as a LIBOR Loan if the Interest Period would extend beyond the
Revolving Credit Termination Date. No Term Loan may be funded, converted to, or
continued as a LIBOR Loan if the Interest Period would extend beyond the Term
Loan Maturity Date.

                  (i) Notwithstanding any other provision of this Agreement,
during the occurrence and continuance of a Default hereunder, the Co-Borrowers
may not select Interest Periods longer than one month.

                  (j) Anything in this Agreement or in any Note to the contrary
notwithstanding, the obligation of the Co-Borrowers to make payments of interest
shall be subject to the limitation that payments of interest shall not be
required to be paid to the Bank to the extent that the charging or receipt
thereof would not be permissible under the law or laws applicable to the Bank
limiting the rates of interest that may be charged or collected by the Bank. If
the provisions of this Agreement or any Note would at any time otherwise require
payment by the Co-Borrowers to the Bank of any amount of interest in excess of
the maximum amount permitted by applicable law the interest payments shall be
reduced to the extent necessary so that the Bank shall not receive interest in
excess of such maximum amount. To the extent that, pursuant to the foregoing
sentence, the Bank shall receive interest payments hereunder or under any Note
in an amount less than the amount otherwise provided herein or in any Note, such
deficit (hereinafter called the "Interest Deficit") will accumulate and will be
carried forward (without interest) until the termination of this Agreement.
Interest otherwise payable to the Bank hereunder and under such Note for any
subsequent period shall be increased by such maximum amount of the Interest
Deficit that may be so added without causing the Bank to receive interest in
excess of the maximum amount then permitted by applicable law. The amount of the
Interest Deficit relating to any Note at the time of complete payment of such
Note and termination of the Commitment shall be cancelled and not paid.

                  (k) Interest on each Loan shall be payable to the Bank in
arrears on each Interest Payment Date for such Loan and shall be calculated on a
year of 360 days for the actual days elapsed.



                                       21
<PAGE>

         SECTION 3.02. Use of Proceeds. The proceeds of the Revolving Credit
Loans shall be used by the Co-Borrowers for general corporate purposes and to
finance ongoing working capital requirements. The proceeds of the Term Loans
shall be used by the Co-Borrowers to finance all or a portion of the cash
portion of the purchase price of Permitted Acquisitions and of the Green
Acquisition. The proceeds of the Equipment Loans shall be used by the
Co-Borrowers to finance the acquisition of equipment.

         SECTION 3.03. Prepayments. The Co-Borrowers may repay the then
outstanding Loans, in whole or in part, without premium or penalty except as
provided in Section 3.08, upon not less than three Business Days' irrevocable
written notice to the Bank with respect to prepayments of LIBOR Loans or Fixed
Rate Loans and on the same Business Day irrevocable written notice with respect
to Prime Rate Loans, specifying the date and amount of repayment and whether
such repayment is of LIBOR Loans, Fixed Rate Loans or Prime Rate Loans or a
combination thereof, and if a combination thereof, the amount of repayment
allocable to each. If such notice is given, the Co-Borrowers shall make such
repayment and the payment amount specified in such notice shall be due and
payable, on the date specified therein, together with accrued interest to such
date on the amount repaid to the Bank. Partial prepayments of any Term Loan or
Equipment Loan pursuant to this Section 3.03 shall be (a) in an aggregate
principal amount of (i) $50,000 or whole multiples of $25,000 in excess thereof
with respect to Prime Rate Loans or Fixed Rate Loans and (ii) $250,000 or whole
multiples of $50,000 in excess thereof with respect to LIBOR Loans and (b)
applied to the remaining installments of principal of the Term Loan or Equipment
Loan, as the case may be, in inverse order of maturity.

         SECTION 3.04. Fees and Discounting of Acceptances. (a) Term Loans. The
Co-Borrowers agree to pay to the Bank a non-refundable utilization fee of 1/2 of
1% of each Term Loan, which fee shall be payable on the date such Term Loan is
made.

                  (b) Letters of Credit. The Co-Borrowers agree to pay to the
Bank, with respect to each Sight Letter of Credit, upon the issuance of such
Letter of Credit an amount equal to 1/8 of 1% of the face amount of such Letter
of Credit (subject to a maximum of $2,000) and upon presentation of such Letter
of Credit for payment to the Bank, a payment commission equal to 1/8 of 1% on
the face amount of such Letter of Credit (subject to a maximum of $2,000). The
Co-Borrowers agree to pay to the Bank, with respect to each Standby Letter of
Credit a fee equal to 1% of the face amount of such Letter of Credit upon the
issuance of such Letter of Credit.

                  (c) Discount of Acceptances. The Bank agrees, subject to the
terms and conditions of this Agreement, that any date on which it creates a
Documentary Banker's Acceptance hereunder, it will discount such Documentary
Banker's Acceptance at the acceptance rate, as determined by the Bank, plus 1
1/2% per annum, 



                                       22
<PAGE>

by making available to the Co-Borrowers an amount in immediately available funds
equal to the face amount of such Documentary Acceptance less such discount.

                  (d) Additional Letter of Credit and Bankers Acceptance Fees.
The Co-Borrowers agree to pay the Bank, on demand, in addition to the amounts
set forth in clauses (b) and (c) alone, all standard fees and commissions
charged by the Bank with respect to the issuance and maintenance of Letters of
Credit (including, without limitation, amendments to letters of credit) and the
creation of bankers acceptances which fees and commissions may change from time
to time without notice to the Co-Borrowers.

         SECTION 3.05. Inability to Determine Interest Rate. In the event that
the Bank shall have determined (which determination shall be conclusive and
binding upon the Co-Borrowers) that, by reason of circumstances affecting the
London interbank market, adequate and reasonable means do not exist for
ascertaining the Reserve Adjusted Libor applicable pursuant to Section 3.01(b)
for any requested Interest Period with respect to (a) the making of an LIBOR
Loan, (b) a LIBOR Loan that will result from the requested conversion of a Prime
Rate Loan into a LIBOR Loan, or (c) the continuation of a LIBOR Loan beyond the
expiration of the then current Interest Period with respect thereto, the Bank
shall forthwith give notice of such determination, confirmed in writing, to the
Co-Borrowers at least one Business Day prior to, as the case may be, the
requested Borrowing Date for such LIBOR Loan, the conversion date of such Prime
Rate Loan or the last day of such Interest Period. If such notice is given (a)
any LIBOR Loan that was to have been made shall be made as a Prime Rate Loan,
(b) any Prime Rate Loan that was to have been converted to a LIBOR Loan shall be
continued as a Prime Rate Loan and (c) any outstanding LIBOR Loan shall be
converted, on the last day of the then current Interest Period with respect
thereto, to a Prime Rate Loan. Until such notice has been withdrawn by the Bank,
which notice of withdrawal shall be given promptly after the Bank determines
that such conditions no longer exist, the Co-Borrowers shall not have the right
to request a LIBOR Loan or to convert a Prime Rate Loan to a LIBOR Loan.

         SECTION 3.06. Illegality. Notwithstanding any other provisions herein,
if any introduction of or change in any law, regulation, treaty or directive or
in the interpretation or application thereof shall make it unlawful for the Bank
to make or maintain LIBOR Loans as contemplated by this Agreement, the Bank
shall forthwith give notice of such circumstances, confirmed in writing, to the
Co-Borrowers and (a) the commitment of the Bank to make and to allow conversion
to or continuations of LIBOR Loans shall forthwith be cancelled for the duration
of such illegality and (b) the Loans then outstanding as LIBOR Loans, if any,
shall be converted automatically to Prime Rate Loans on the next succeeding last
day of each Interest Period applicable to such LIBOR Loans or



                                       23
<PAGE>

within such earlier period as may be required by law. The Co-Borrowers shall pay
to the Bank, upon demand, any additional amounts required to be paid pursuant to
Section 3.08 hereof.

         SECTION 3.07. Other Events. (a) In the event that any introduction of
or change in any applicable law, regulation, treaty, order, directive or in the
interpretation or application thereof (including, without limitation, any
request, guideline or policy, whether or not having the force of law of, or from
any central bank or other governmental authority, agency or instrumentality and
including, without limitation, Regulation D), by any authority charged with the
administration or interpretation thereof shall occur, which:

                  (i) shall subject the Bank to any tax of any kind whatsoever
with respect to this Agreement, any Note, the Loans, or change the basis of
taxation of payments to the Bank of principal, interest, fees or any other
amount payable hereunder (other than any tax that is measured with respect to
the overall net income of the Bank or of a lending office of the Bank and that
is imposed by the United States of America, or any political subdivision or
taxing authority thereof or therein, or by the jurisdiction in which the Bank is
making or maintaining any Loan hereunder, or by any jurisdiction in which the
Bank is organized, has its principal office or is managed and controlled); or

                  (ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement (whether or not having
the force of law but excluding any of the foregoing including in the computation
of Reserve Adjusted LIBOR) against assets held by, or deposits or other
liabilities in or for the account of, advances or loans by, or other credit
extended by, or any other acquisition of funds by, any office of the Bank; or

                  (iii) shall impose on the Bank any other condition, or change
therein;

and the result of any of the foregoing is to increase the cost to the Bank of
making, renewing or maintaining advances or extensions of credit or to reduce
any amount receivable hereunder, in each case by an amount which the Bank deems
material, then, in any such case, the Co-Borrowers, shall pay the Bank, upon
demand, such additional amount or amounts as the Bank shall have determined will
compensate the Bank for such increased costs or reduction. The Bank's
determination of such additional amounts shall be conclusive absent manifest
error. This Section 3.07 shall survive the termination of this Agreement and
payment of the Notes.

                  (b) No failure on the part of the Bank to demand compensation
under clause (a) above on one occasion shall constitute a waiver of its right to
demand compensation on any other occasion and no failure on the part of the Bank
to promptly 



                                       24
<PAGE>

notify the Co-Borrowers shall in any way reduce any obligations of the
Co-Borrowers to the Bank under this Section 3.07, except that no compensation
shall be payable with respect to any event giving rise to a request for
compensation unless such request is made within 180 days after the Bank has
actual knowledge of such event.

         SECTION 3.08. Indemnity. (a) The Co-Borrowers agree to indemnify the
Bank and to hold the Bank harmless from any loss, cost or expense which the Bank
sustains or incurs, including, without limitation, interest or fees payable by
the Bank to lenders of funds obtained by it in order to maintain LIBOR Loans
hereunder (but such loss shall not include any loss of profit), as a consequence
of (i) default by the Co-Borrowers in payment of the principal amount of or
interest on any LIBOR Loan, (ii) default by the Co-Borrowers to accept or make a
borrowing of a LIBOR Loan or a conversion or continuation of a LIBOR Loan after
the Co-Borrowers have requested such borrowing, conversion or continuation,
(iii) default by the Co-Borrowers in making any prepayment of any LIBOR Loan
after the Co-Borrowers give a notice in accordance with Section 3.03 of this
Agreement and/or (iv) the making of any payment or prepayment (whether mandatory
or optional) of a LIBOR Loan or the making of any conversion of a LIBOR Loan to
a Prime Rate Loan on a day which is not the last day of the applicable Interest
Period with respect thereto. The Bank's determination of such amounts shall be
conclusive absent manifest error.

                  (b) The Co-Borrowers agree that all prepayments of Fixed Rate
Loans hereunder shall be accompanied by interest accrued on the amount prepaid
through the date of prepayment together with a prepayment charge as liquidated
damages and not as a penalty equal to the net present value (as determined by
the Bank) of (a)(i) the difference (if positive) between the relevant Fixed Rate
(less 175 basis points) and the then current yield on U.S. Treasury Securities
with maturities approximately equal to the remaining time between the date of
prepayment and the maturity date of such Fixed Rate Loan (expressed as a
percentage), multiplied by (ii) the total amount of principal prepaid, divided
by (iii) 360 multiplied by (b) the actual number of days remaining until the
maturity date of such Fixed Rate Loan.

                  (c) This Section 3.08 shall survive termination of this
Agreement and payment of the Notes.

         SECTION 3.09. Funds; Manner of Payment. (a) Unless otherwise specified
herein each payment and prepayment of principal of and interest on each Loan
shall be made by the Co-Borrowers not later than 12:00 noon, New York City time,
on the date on which it is payable.

                  (b) All payments made by the Co-Borrowers hereunder or under
any Note will be made without setoff, counterclaim, deductions or other defense.
All such payments will be made free and clear of, 



                                       25
<PAGE>

and without deduction or withholding for, any present or future taxes, levies,
imposts, duties, fees, assessments or other charges of whatever nature now or
hereafter imposed by any jurisdiction or by any political subdivision or taxing
authority thereof or therein (but excluding any tax imposed on or measured by
the net income of the Bank) and all interest, penalties or similar liabilities
with respect thereto (such non-excluded items being hereinafter collectively
referred to as "Taxes"). If any Taxes are so levied or imposed, the Co-Borrowers
will pay the full amount of such Taxes and such additional amounts as may be
necessary so that every payment of all amounts due hereunder or under any Note,
after withholding or deduction for or on account of any Taxes, will not be less
than the amount provided for herein or in such Note. The Co-Borrowers will
furnish to the Bank within 30 days after the date the payment of any Taxes is
due pursuant to applicable law certified copies of tax receipts evidencing such
payment by the Co-Borrowers. The Co-Borrowers will indemnify and hold harmless
the Bank, and reimburse the Bank upon its written request, for the amount of any
Taxes so levied or imposed and paid by the Bank, which indemnity shall survive
termination of this Agreement and payment of the Notes. All payments under this
Agreement shall be made in lawful money of the United States of America in
immediately available funds at the Payment Office of the Bank.

                  (c) In the event that the Bank assigns all or a portion of its
obligations hereunder to a bank that is organized outside of the United States,
such bank shall deliver to the Co-Borrowers on the date of the assignment and
from time to time as required for renewal under applicable law duly completed
copies of United States Internal Revenue Service Form 1001 or 4224 (or any
successor or additional forms), as appropriate, indicating in each case that
such bank is entitled to receive payments under this Agreement without any
deduction or withholding of any United States federal income taxes. Any bank
that is organized outside the United States that becomes a party to this
Agreement shall promptly notify the Co-Borrowers and each other bank of any
change in its Lending Office and upon written request of the Co-Borrowers such
bank shall, prior to the immediately following due date of any payment by the
Co-Borrowers or any Guarantor hereunder or under any other Loan Document,
deliver to the Co-Borrowers or such Guarantor, as the case may be, such
certificates, documents or other evidence, as required by the Code or Treasury
Regulations issued pursuant thereto, including without limitation Internal
Revenue Service Form 4224, Form 1001 and any other certificate or statement of
exemption required by Treasury Regulation Section 1.1441-4(a) or Section
1.1441-6(c) or any subsequent version thereof, properly completed and duly
executed by such bank establishing that such payment is (i) not subject to
withholding under the Code because such payment is effectively connected with
the conduct by such bank of a trade or business in the United States or (ii)
totally exempt from United States tax under a provision of an applicable tax
treaty. The Co-Borrowers shall be entitled to rely on such forms in their



                                       26
<PAGE>

possession until receipt of any revised or successor form pursuant to this
Section 3.09(c). If a bank fails to provide a certificate, document or other
evidence required pursuant to this Section 3.09(c), then, unless it is no longer
entitled to such exemption due to a change in law, upon notice by the
Co-Borrowers to such bank (i) the Co-Borrowers shall be entitled to deduct or
withhold on payments to such bank as a result of such failure, as required by
law, and (ii) the Co-Borrowers shall not be required to make payments of
additional amounts with respect to such withheld Taxes pursuant to this Section
3.09(c) to the extent such withholding is required solely by reason of the
failure of such bank to provide the necessary certificate, document or other
evidence.

                  (d) The Bank shall directly charge all interest and principal
payments due in respect of the Loans and all fees payable hereunder to one or
more of the accounts of the Co-Borrowers at the Payment Office or other office
of the Bank.

                                   ARTICLE IV
                         REPRESENTATIONS AND WARRANTIES

         In order to induce the Bank to enter into this Agreement and to make
the Loans the Co-Borrowers represent and warrant to the Bank that:

         SECTION 4.01. Organization, Corporate Powers, etc. Each of the
Co-Borrowers and their respective Subsidiaries (a) is a corporation duly
incorporated, validly existing and in good standing under the laws of the state
of its incorporation, (b) has the power and authority to own its properties and
to carry on its business as now being conducted, (c) is duly qualified to do
business in every jurisdiction wherein the failure to be so qualified could
reasonably be expected to, individually or in the aggregate, have a Material
Adverse Effect, (d) has the corporate power to execute and perform each of the
Loan Documents to which it is a party, (e) with respect to each Co-Borrower, has
the corporate power to borrow hereunder and to execute and deliver the Notes,
and (f) is in compliance in all material respects with all applicable federal,
state and local laws, rules and regulations the violation of which could
reasonably be expected to, individually or the aggregate, have a Material
Adverse Effect.

         SECTION 4.02. Authorization of Borrowing, Enforceable Obligations. The
execution, delivery and performance by each Co-Borrower of this Agreement, and
the other Loan Documents to which it is a party, the borrowings by the
Co-Borrowers hereunder, and the execution, delivery and performance of each
Subsidiary of the Loan Documents to which such Subsidiary is a party, (a) have
been duly authorized by all requisite corporate action, (b) will not violate or
require any consent (other than consents as have been made or obtained and which
are in full force and effect) under (i) any provision of law applicable to any
Co-Borrower or any 



                                       27
<PAGE>

Subsidiary, any governmental rule or regulation, or the Certificate of
Incorporation, By-laws or other organizational documents, as applicable, of any
Co-Borrower or any Subsidiary or (ii) any order of any court or other agency of
government binding on any Co-Borrower or any Subsidiary or any indenture,
agreement or other instrument to which any Co-Borrower or any Subsidiary is a
party, or by which any Co-Borrower or any Subsidiary or any of its property is
bound, and (c) will not be in conflict with, result in a breach of or constitute
(with due notice and/or lapse of time) a default under, any such indenture,
agreement or other instrument, or result in the creation or imposition of any
lien, charge or encumbrance of any nature whatsoever upon any of the property or
assets of any Co-Borrower or any Subsidiary other than as contemplated by this
Agreement or the other Loan Documents. This Agreement and each other Loan
Document to which the Co-Borrowers and each Subsidiary is a party constitutes a
legal, valid and binding obligation of each Co-Borrower and each Subsidiary, as
the case may be, enforceable against each Co-Borrower and each Subsidiary, as
the case may be, in accordance with its terms except to the extent
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally or by general principles of equity, regardless of whether considered
in a proceeding in equity or at law.

         SECTION 4.03. Financial Condition. (a) The Co-Borrowers have heretofore
furnished to the Bank (i) the audited Consolidated balance sheet of P&F and its
Subsidiaries and the related Consolidated statement of income, shareholders
equity and cash flow of P&F and its Subsidiaries, dated December 31, 1997,
audited by independent certified accountants for the fiscal year ended December
31, 1997, and (ii) the unaudited Consolidated balance sheet of P&F and its
Subsidiaries and the related Consolidated statements of income, shareholders
equity and cash flow of P&F and its Subsidiaries for the three month period
ended March 31, 1998. Such financial statements were prepared in conformity with
GAAP and fairly present the financial position and results of operations of P&F
and its Subsidiaries as of the date of such financial statements and for the
periods to which they relate and, since December 31, 1997, no event which has
had a Material Adverse Effect has occurred. The Co-Borrowers shall deliver to
the Bank a certificate by the Chief Financial Officer of the Co-Borrowers to
that effect on the Closing Date. As of the Closing Date, there are no material
obligations or liabilities contingent or otherwise of P&F or any of its
Subsidiaries which are not reflected or disclosed on such audited statements
other than obligations arising in the ordinary course of business since March
31, 1998.

                  (b) Each of the Co-Borrowers and the Corporate Guarantors is
Solvent (taking into account contribution rights).



                                       28
<PAGE>

         SECTION 4.04. Taxes. To the best knowledge of the Co-Borrowers, all
assessed deficiencies resulting from Internal Revenue Service examinations of
the federal income tax returns of the Co-Borrowers, or any of them, or any of
their Subsidiaries have been discharged or reserved against in accordance with
GAAP. To the best knowledge of the Co-Borrowers, each Co-Borrower and each of
their Subsidiaries has filed or caused to be filed all federal, state and local
tax returns which are required to be filed, and has paid or has caused to be
paid all taxes as shown on said returns or on any assessment received by them,
to the extent that such taxes have become due, except taxes which are being
contested in good faith and which are reserved against in accordance with GAAP.

         SECTION 4.05. Title to Properties. Each Co-Borrower and each of their
Subsidiaries has good title to their respective properties and assets except for
such properties and assets as have been disposed of as no longer used or useful
in the conduct of their respective business or as have been disposed of in the
ordinary course of business.

         SECTION 4.06. Litigation. (a) Except as set forth in Schedule VII,
there are no actions, suits or proceedings (whether or not purportedly on behalf
of the Co-Borrowers, or any of them, or any of their Subsidiaries) pending or,
to the knowledge of the Co-Borrowers, threatened against or affecting the
Co-Borrowers, or any of them, or any of their Subsidiaries at law or in equity
or before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, which
involve any of the transactions contemplated herein or which could reasonably be
expected to result in a Material Adverse Effect; and (b) none of the
Co-Borrowers nor any of their Subsidiaries is in default with respect to any
judgment, writ, injunction, decree, rule or regulation of any court or federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, which could reasonably be
expected to have a Material Adverse Effect.

         SECTION 4.07. Agreements. None of the Co-Borrowers nor any of their
Subsidiaries is a party to any agreement or instrument or subject to any charter
or other corporate restriction or any judgment, order, writ, injunction, decree
or regulation which could reasonably be expected to have a Material Adverse
Effect. None of the Co-Borrowers nor any of their Subsidiaries is in default in
any manner which could reasonably be expected to have a Material Adverse Effect
in the performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in any agreement or instrument to which it is
a party.



                                       29
<PAGE>

         SECTION 4.08. Compliance with ERISA. Each Plan is in compliance in all
material respects with ERISA; to the knowledge of the Co-Borrowers no Plan which
is a "Multi-Employer Plan (as defined in Section 4001(a)(3) of ERISA) is
insolvent (as defined in Section 4245 of ERISA) or in reorganization (as defined
in Section 4241 of ERISA), no Plan or Plans which are single employer Plans
(within the meaning of Section 4001(a)(15) of ERISA) have an Unfunded Current
Liability in excess of $100,000 in the aggregate, and no Plan which is a single
employer Plan (within the meaning of Section 4001(a)(15) of ERISA) has an
accumulated or waived funding deficiency within the meaning of Section 412 of
the Code; none of the Co-Borrowers nor any ERISA Affiliate has incurred any
material liability to or on account of a Plan pursuant to Section 515, 4062,
4063, 4064, 4201 or 4204 of ERISA or reasonably expects to incur any liability
under any of the foregoing sections on account of the prior termination of
participation in or contributions to any such Plan; to the knowledge of the
Co-Borrowers no proceedings have been instituted to terminate any Plan; to the
knowledge of the Co-Borrowers no condition exists which presents a risk to the
Co-Borrowers, or any ERISA Affiliate of incurring a liability to or on account
of a Plan pursuant to the foregoing provisions of ERISA and the Code in excess
of $250,000 in the aggregate; and no lien imposed under the Code or ERISA on the
assets of any Co-Borrower or any of their ERISA Affiliates exists or, to the
knowledge of the Co-Borrowers, is likely to arise on account of any Plan.

         SECTION 4.09. Federal Reserve Regulations; Use of Proceeds. (a) None of
the Co-Borrowers nor any of their Subsidiaries is engaged principally in, nor
has as one of its important activities, the business of extending credit for the
purpose of purchasing or carrying any "margin stock" (within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System of the
United States, as amended from time to time). If requested by the Bank, the
Co-Borrowers will, and will cause each of their Subsidiaries to, furnish to the
Bank such a statement on Federal Reserve Form U- 1.

                  (b) No part of the proceeds of any Loan will be used, whether
directly or indirectly, and whether immediately, incidentally or ultimately, (i)
to purchase or to carry margin stock or to extend credit to others for the
purpose of purchasing or carrying margin stock, or to refund indebtedness
originally incurred for such purposes, or (ii) for any purpose which violates or
is inconsistent with the provisions of the Regulations T, U, or X of the Board
of Governors of The Federal Reserve System.

                  (c) The proceeds of the each Loan shall be used solely for the
purposes permitted under Section 3.02.

         SECTION 4.10. Approvals. No registration with or consent or approval
of, or other action by, any federal, state or other governmental authority or
regulatory body or any other Person is 



                                       30
<PAGE>

required in connection with the execution, delivery and performance of this
Agreement by any of the Co-Borrowers or any of their Subsidiaries, or with the
execution and delivery of the other Loan Documents to which it is a party or,
with respect to the Co-Borrowers, the borrowings hereunder other than
registrations, consents and approvals received prior to the date hereof and
disclosed to the Bank and which are in full force and effect or as may be
required in the perfection or continuation of perfection of any security
interest in any collateral for the Loans or in connection with any sale of
collateral for the Loans.

         SECTION 4.11. Subsidiaries. Attached hereto as Schedule I is a true,
correct and complete list as of the Closing Date of all of the Co-Borrower's
Subsidiaries and indicating, as to each Subsidiary, its name, the jurisdiction
of its incorporation, its shareholders or other owners of an interest in such
Subsidiary and the number of outstanding shares or other ownership interest
owned by each shareholder or other owner of an interest.

         SECTION 4.12. Hazardous Materials. Except as may be relevant with
respect to the matters set forth on Schedule VIII, the Co-Borrowers and each of
their Subsidiaries are in compliance in all material respects with all
applicable Environmental Laws and none of the Co-Borrowers nor any of their
Subsidiaries has used Hazardous Materials on, from, or affecting any property
now owned or occupied or hereafter owned or occupied by any of the Co-Borrowers
or any of their Subsidiaries in any manner which violates any applicable
Environmental Law. To the best knowledge of the Co-Borrowers, no prior owner of
any such property or any tenant, subtenant, prior tenant or prior subtenant have
used Hazardous Materials on, from, or affecting such property in any manner
which violates any applicable Environmental Law in any material respect.

         SECTION 4.13. Investment Company Act. None of the Co-Borrowers nor any
of their Subsidiaries is an "investment company", or a company "controlled" by
an "investment company", within the meaning of the Investment Company Act of
1940, as amended.

         SECTION 4.14. Security Agreement. Each Security Agreement when executed
by the Co-Borrowers or Corporate Guarantor, as applicable, shall pursuant to its
terms constitute a valid and continuing lien on and security interest in the
collateral referred to in such Security Agreement in favor of the Bank.

         SECTION 4.15. No Default. No event has occurred and is continuing and
no condition exists which constitutes a Default or an Event of Default.

         SECTION 4.16. Permits and Licenses. The Co-Borrowers and each of their
Subsidiaries has all permits, licenses, certifications, authorizations and
approvals required for it lawfully to own and operate their respective
businesses, except 



                                       31
<PAGE>

where the failure to do so could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.

         SECTION 4.17. Compliance with Law. The Co-Borrowers and each of their
Subsidiaries are in compliance with all laws, rules, regulations, orders and
decrees which are applicable to them, or to any of their respective properties,
except where the failure to be in compliance could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.

         SECTION 4.18. Disclosure. None of the reports, financial statements,
certificates or other documents, certificates or other written statements
furnished to the Bank by or on behalf of the Co-Borrowers, or any of them, or
any of their Subsidiaries hereunder or any other Loan Document for use in
connection with the transactions contemplated by this Agreement or any other
Loan Document taken as a whole contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading in light of the circumstances in
which they were made.

         SECTION 4.19. Year 2000 Compliance. Any reprogramming or other
corrective modifications required to permit the proper functioning, in and
following the year 2000, of (i) the computer systems of the Co-Borrowers and
each of their Subsidiaries and (ii) equipment containing embedding microchips
(including systems and equipment supplied by others or with which systems of the
Co-Borrowers and each of their Subsidiaries interface) and the testing of all
such systems and equipment, as so reprogrammed, will be substantially completed
by January 1, 1999 except to the extent that the failure to do so is not
reasonably likely to have a Material Adverse Effect. The cost to the
Co-Borrowers and their Subsidiaries of such reprogramming, modifications and
testing and of the reasonably foreseeable consequences of year 2000 to the
Co-Borrowers and their Subsidiaries (including, without limitation,
reprogramming errors and the failure of others' systems or equipment) will not
result in the occurrence of an Event of Default or have a Material Adverse
Effect. Except for such of the reprogramming and modifications referred to in
the preceding sentence as may be necessary, the computer and management
information systems of the Co-Borrowers are, and with ordinary course upgrading
and maintenance, will continue for the term of the Notes to be, sufficient to
permit the Co-Borrowers and their Subsidiaries to conduct their business without
any Material Adverse Effect.

         SECTION 4.20. Pledge Agreement. The Pledge Agreement, when executed by
P&F, shall pursuant to its terms, pledge and grant to the Bank a first security
interest in all of P&F's right, title and interest in and to all of the issued
and outstanding shares of capital stock of each of its Subsidiaries.



                                       32
<PAGE>

         SECTION 4.21. Inventory at Outside Locations. The Co-Borrowers'
inventory is located at the addresses set forth Schedule V hereto or at another
Acceptable Locations. The net present value of the inventory of (i) Florida
Pneumatic held at the locations set forth in Schedule V hereto, will not be
greater than $1,100,000, in the aggregate and (ii) Embassy held at the locations
set forth in Schedule V hereto, will not be greater than $50,000, in the
aggregate. A location is an "Acceptable Location" if (a) the Bank has been given
at least 30 days prior written notice of such location and (b) all action deemed
necessary or desireable by the Bank (including, without limitation, notice to
bailees, landlord waivers, access agreements, and filing of Uniform Commercial
Code financing statements) has been taken to create and maintain a first
priority perfected security interest in favor of the Bank securing the
Obligations in the inventory located at such location.

                                    ARTICLE V
                              CONDITIONS OF LENDING

         SECTION 5.01. Conditions to the Initial Loan. The obligation of the
Bank to make the initial Loan hereunder is subject to the following conditions
precedent:

         (a) Revolving Credit Note. On or prior to the Closing Date, the Bank
shall have received the Revolving Credit Note duly executed by the Co-Borrowers.

         (b) Corporate Guaranties. On or prior to the Closing Date, the Bank
shall have received a Corporate Guaranty duly executed by each Corporate
Guarantor.

         (c) Security Agreements. On or prior to the Closing Date, the Bank
shall have received the Security Agreements, duly executed by each Co-Borrower
and each Corporate Guarantor.

         (d) UCC-1 Financing Statements. On or prior to the Closing Date, the
Bank shall have received UCC-1 financing statements in a form acceptable to the
Bank for such jurisdictions at the Bank determines are necessary to perfect the
liens created by the Security Agreements.

         (e) Opinion of Counsel. On or prior to the Closing Date, the Bank shall
have received the favorable written opinion of counsel for the Co-Borrowers and
the Corporate Guarantors dated the date thereof, substantially in the form of
Exhibit H attached hereto.

         (f) Supporting Documents. The Bank shall have received on or prior to
the Closing Date (i) a certificate of good standing for each Co-Borrower and
each Corporate Guarantor from the secretary of the state of their respective
jurisdiction of incorporation dated as of a recent date; (ii) certified copies
of the Certificate of 



                                       33
<PAGE>

Incorporation and By-laws of each Co-Borrower and each Corporate Guarantor;
(iii) a certificate of the Secretary or an Assistant Secretary of each
Co-Borrower and each Corporate Guarantor dated the Closing Date and certifying
(a) that neither the Certificates of Incorporation nor the By-laws of such
Co-Borrower or such Corporate Guarantor has been amended since the date of their
certification; (b) that attached thereto is a true and complete copy of
resolutions adopted by the Board of Directors of such Co-Borrower and by the
Board of Directors and the shareholders of such Corporate Guarantor authorizing
the execution, delivery and performance of each Loan Document to which it is a
party and, with respect to each Co-Borrower, the borrowings hereunder; and (c)
the incumbency and specimen signature of each officer of such Co-Borrower and
such Corporate Guarantor executing each Loan Document to which such Co-Borrower
or Corporate Guarantor is a party and any certificates or instruments furnished
pursuant hereto or thereto, and a certification by another officer of each
Co-Borrower and each Corporate Guarantor as to the incumbency and signature of
the Secretary or Assistant Secretary of such Co-Borrower and such Corporate
Guarantor; and (iv) such other documents as the Bank may reasonably request.

         (g) Insurance. The Bank shall have received on or prior to the Closing
Date a certificate of insurance from an independent insurance broker confirming
the insurance required to be maintained pursuant to Section 6.01 hereof.

         (h) Assets Free from Encumbrances. The Bank shall have received on or
prior to the Closing Date evidence satisfactory to the Bank that the accounts
receivable, inventory, equipment and all other assets of each Co-Borrower and
each Corporate Guarantor are free and clear of all Liens, except those Liens
permitted pursuant to Section 7.01.

         (i) No Material Adverse Changes. There shall not have occurred any
event which could reasonably be expected to cause a Material Adverse Effect.

         (j) Fees. The Co-Borrowers shall have paid the fees payable on the
Closing Date referred to in Section 3.04 and all costs and expenses incurred by
the Bank in connection with the negotiation, preparation and execution of the
Loan Documents and the creation and perfection of the Liens granted pursuant to
the Security Agreements.

         (k) Certain Agreements. Receipt and satisfactory review by the Bank of
(i) all shareholder agreements, voting trust agreements, employment agreements,
consulting agreements, management agreements and any agreement between the
Co-Borrowers, or any of them, their Subsidiaries, and any of their respective
shareholders, and (ii) all agreements (excluding leases of real

                                       34
<PAGE>

property) governing the Existing Indebtedness of any Co-Borrower and each
Corporate Guarantor.

         (l) ERISA. Receipt and satisfactory review by the Bank of (i) the most
recent audit, if any, of the pension plans (within the meaning of Section 3(2)
of ERISA) maintained by the Co-Borrowers and their ERISA Affiliates which are
subject to audit requirements under ERISA, filed by independent qualified public
accountants, (ii) the documents comprising all Plans (except Multiemployer Plans
within the meaning of Section 4001(a)(3) of ERISA) and (iii) confirmation
satisfactory to the Bank that (a) such plans are funded in accordance with any
applicable minimum statutory requirements for funding under Section 312 of the
Code, (b) no notice of a Reportable Event has occurred with respect to any Plan
and (c) no termination of, or withdrawal from, any of such Plans has occurred or
is contemplated that could reasonably be expected to result in any liability on
the part of any Co-Borrower or any ERISA Affiliate in excess of $250,000.

         (m) Lease Schedule. Prior to the Closing Date the Bank shall have
received a schedule of all the lease agreements to which any Co-Borrower or any
Corporate Guarantor is a party (other than leases of real property, leases of
motor vehicles and leases of equipment which do not require an annual lease
expenditure in excess of $50,000) and the Bank shall have been satisfied with
its review thereof or, in lieu thereof, a copy of each lease agreement shall be
delivered to the Bank prior to the Closing Date.

         (n) Financial Statements of the Co-Borrowers and their Subsidiaries.
The Bank shall have received prior to the Closing Date the management prepared
consolidated and consolidating financial statements of the Co-Borrowers and
their Subsidiaries for the three month interim period ended March 31, 1998, all
of the foregoing statements in form, substance and detail satisfactory to the
Bank.

         (o) Payment of Indebtedness. On the Closing Date, the Bank shall have
received evidence satisfactory to it that the Existing Indebtedness of the
Co-Borrowers shall be paid in full simultaneously with the consummation of the
transactions contemplated hereby.

         (p) Completion of Proceedings. All corporate and other proceedings, and
all documents, instruments and other legal matters in connection with the
transactions contemplated by the Loan Documents shall be reasonably satisfactory
in form and substance to the Bank and its counsel.

         (q) Other Information, Documentation. The Bank shall have received such
other and further information and documentation as it may reasonably require,
including, but not limited, to any information or documentation relating to
compliance by the Co-



                                       35
<PAGE>

Borrower, or any of them, or any of their Subsidiaries with the requirements of
all federal, state and local laws, ordinances, rules, regulations or policies
governing the use, storage, treatment, transportation, refinement, handling,
production or disposal of Hazardous Materials.

         (r) Pledge Agreement. On or prior to the Closing Date, the Bank shall
have received the Pledge Agreement, duly executed by P&F along with all share
certificates evidencing the shares pledged thereunder and stock powers executed
in blank.

         SECTION 5.02. Conditions to all Loans. The obligation of the Bank to
make each Loan hereunder is subject to the conditions precedent set forth in
Section 5.01, 5.03 and 5.04, to the extent applicable, and the following
conditions precedent:

         (a) Representations and Warranties. The representations and warranties
by the Co-Borrowers and each Corporate Guarantor pursuant to this Agreement and
the Loan Documents to which each is a party shall be true and correct on and as
of the Borrowing Date with the same effect as though such representations and
warranties had been made on and as of the Borrowing Date (unless limited to an
earlier date, in which event they will be true as of such earlier date).

         (b) No Default. No Default or Event of Default shall have occurred and
be continuing at the time of each borrowing hereunder or will result after
giving effect to the Loan requested.

         (c) Notice of Borrowing. The Bank shall have received a Notice of
Borrowing duly executed by an Executive Officer of the Co-Borrowers with respect
to the requested Loan.

         Each Notice of Borrowing and the acceptance by the Co-Borrowers of the
proceeds of each Loan shall constitute a representation and warranty that the
statements contained in Sections 5.02(a) and 5.02(b) above are true and correct
as of the date of such Loan.

         SECTION 5.03. Conditions to Each Term Loan. The obligation of the Bank
to make each Term Loan is subject to the conditions precedent set forth in
Sections 5.01 and 5.02 and the following conditions precedent:

         (a) Term Loan Note. The Co-Borrowers shall have delivered to the Bank a
fully executed Term Loan Note, which shall be dated the date of such Term Loan,
be stated to mature in consecutive quarterly installments of principal, have a
term not to exceed seven (7) years and shall bear interest for a period from the
date such Loan is made on the unpaid principal amount thereof at the applicable
rates per annum specified herein.



                                       36
<PAGE>

         (b) Consideration. The aggregate consideration, including, without
limitation, cash, notes, stock, transaction costs, guarantees and other
contingent obligations, liabilities and Indebtedness, in the event of an
acquisition of assets, liabilities assumed, compensation to be paid to former
shareholders of the seller pursuant to employment agreements, consulting
agreements or non-compete agreements, fees, earn-out provisions, any deferred
portions of the purchase price or any other costs paid in connection with any
and all such acquisitions (other than the Green Acquisition), shall not exceed
$5,000,000.

         (c) Security Agreement and Guaranty. The Bank shall have received, to
the extent not previously received, a duly executed Security Agreement executed
by the Person acquired in the Permitted Acquisition, and a Corporate Guaranty
duly executed by such Person.

         (d) Receipts of Consents. The Bank shall have been reasonably satisfied
that all material third party and governmental consents and approvals, necessary
in connection with the consummation of the Permitted Acquisition shall have been
obtained.

         (e) Assets Free From Encumbrances. The Bank shall have received
evidence satisfactory to it that the shares or other interest in the Person, or
the assets of the Person, which is the subject of the Permitted Acquisition are
free and clear of all Liens, except those Liens permitted pursuant to Section
7.01, including, without limitation, with respect to the acquisition of shares
or other equity interests, free of any restrictions on transfer other than
restrictions applicable to the sale of securities under the federal and state
securities laws and regulations generally.

         (f) Pro Forma Financial Statements. The Bank shall have received 5 days
prior to the date of such Loan, pro forma balance sheet and income statements of
P&F and its Subsidiaries (after giving effect to the Permitted Acquisition)
demonstrating that upon consummation of the Permitted Acquisition, the
Co-Borrowers will be in compliance with the financial condition covenants
contained in Section 7.12 hereof.

         (g) Projections. The Bank shall have received 5 days prior to the date
of such Loan combined projections for the Co-Borrowers and the Person, or the
assets of the Person, which is the subject of the Permitted Acquisition for a
period of five (5) years, which projections shall be in form reasonably
satisfactory to the Bank.

         (i) Acquisition Documents. The Bank shall have been provided 10 days
prior to the date of such Loan with copies of the relevant purchase agreement
and shall be satisfied in all respects with the term of the proposed
acquisition.



                                       37
<PAGE>

         (j) Pledge of Stock. The Bank shall have received to the extent not
previously received, (i) an amended Schedule A to the Pledge Agreement adding a
reference to the stock of the Person acquired in the Permitted Acquisition and
(ii) the applicable share certificate(s) and stock power(s) executed in blank,
with respect to such pledged stock.

         SECTION 5.04. Additional Condition with respect to each Equipment Loan.
The obligation of the Bank to make each Equipment Loan hereunder is subject to
the conditions precedent set forth in Section 5.01 and 5.02 and to the following
conditions precedent.

         (a) Equipment Loan Note. The Co-Borrowers shall have delivered to the
Bank an Equipment Loan Note which shall be dated the date of such Equipment
Loan, be stated to mature in consecutive monthly or quarterly installments of
principal, have a term not to exceed five (5) years and shall bear interest for
a period from the date such Loan is made on the unpaid principal amount thereof
at the applicable rates per annum specified herein.

         (b) Equipment Free from Encumbrances. The Bank shall have been provided
a description of the equipment to be acquired with the proceeds of such
Equipment Loan and shall be satisfied that such equipment is being acquired free
and clear of all Liens, other than Liens permitted pursuant to Section 7.01.

         (c) Security Interest of Bank. The Bank shall be satisfied that the
equipment to be acquired with the proceeds of such Equipment Loan shall be
subject to the Lien granted to the Bank pursuant to the Security Agreements and
the Co-Borrowers shall take all steps determined by the Bank to be necessary or
desirable to perfect the Bank's Liens on such equipment.


                                   ARTICLE VI
                              AFFIRMATIVE COVENANTS

         Each Co-Borrower covenants and agrees with the Bank that so long as the
Revolving Credit Commitment or the Term Loan Commitment shall remain in effect
or any of the principal of or interest on any Note or any other Obligations
shall be unpaid it will, and will cause each of its Subsidiaries to:

         SECTION 6.01. Corporate Existence, Properties, etc. Do or cause to be
done all things necessary to preserve and keep in full force and effect its
corporate existence; at all times maintain, preserve and protect all franchises
and trade names and preserve all of its property, except to the extent that
failure to do so is not reasonably likely to have a Material Adverse Effect; and
keep the same in good repair, working order and condition, ordinary wear and
tear excepted, and from time to time make, or cause to be made, all needful and
proper repairs, renewals, replacements, betterments 



                                       38
<PAGE>

and improvements thereto so that the business carried on in connection therewith
may be properly and advantageously conducted at all times; at all times keep its
insurable properties adequately insured and maintain (a) insurance to such
extent and against such risks, including fire, as is customary with companies in
the same or similar businesses, (b) workmen's compensation insurance in the
amount required by applicable law, (c) public liability insurance, which shall
include product liability insurance, in the amount customary with companies in
the same or similar business against claims for personal injury or death or
properties owned, occupied or controlled by it, and (d) such other insurance as
may be required by law or as may be reasonably required in writing by the Bank.
Each Co-Borrower shall provide to the Bank promptly upon receipt of written
request therefor, evidence of the annual renewal of each such policy.

         SECTION 6.02. Payment of Indebtedness, Taxes, etc. (a) Pay all
indebtedness and obligations, now existing or hereafter arising, as and when due
and payable except where the failure to make such payment pending such contest
could not reasonably be expected to have Material Adverse Effect, and (b) pay
and discharge or cause to be paid and discharged promptly all taxes, assessments
and government charges or levies imposed upon it or upon its income and profits,
or upon any of its property, real, personal or mixed, or upon any part thereof,
before the same shall become in default, as well as all lawful claims for labor,
materials and supplies or otherwise which, if unpaid, might become a Lien or
charge upon such properties or any part thereof; provided, however, that none of
the Co-Borrowers nor any of their Subsidiaries shall be required to pay and
discharge or cause to be paid and discharged any such tax, assessment, charge,
levy or claim so long as the validity thereof shall be contested in good faith
by appropriate proceedings, and the relevant Co-Borrower or Subsidiary, as the
case may be, shall have set aside on its books adequate reserves determined in
accordance with GAAP with respect to any such tax, assessment, charge, levy or
claim so contested and; further, provided that, subject to the foregoing
proviso, each Co-Borrower and each of its Subsidiaries will pay or cause to be
paid all such taxes, assessments, charges, levies or claims upon the
commencement of proceedings to foreclose any lien which has attached as security
therefor.

         SECTION 6.03. Financial Statements, Reports, etc. Furnish to the Bank:

                  (a) (i) as soon as available, but in any event within 90 days
         after the end of each fiscal year of the Co-Borrowers, a copy of the
         audited consolidated balance sheet of P&F and its Subsidiaries as of
         the end of such year and the related audited consolidated statements of
         income, shareholders equity and cash flow for such year, setting forth
         in each case in comparative form the respective figures for the
         previous



                                       39
<PAGE>

         fiscal year end, and accompanied by a report thereon of BDO Siedman,
         LLP or other independent certified public accountants of recognized
         standing selected by the Co-Borrowers and reasonably satisfactory to
         the Bank (the "Auditor"), which report shall be unqualified; and (ii)
         as soon as available, but in any event within 90 days after the end of
         each fiscal year of P&F and each of its Subsidiaries, a copy of the
         management prepared consolidating financial statements of the
         Co-Borrowers setting forth in comparative form the respective figures
         for the previous fiscal year end and which support the financial
         statements delivered pursuant to clause (i), in each case of (i) and
         (ii) prepared in accordance with GAAP, applied on a consistent basis
         and with respect to the statements referred to in clause (ii)
         accompanied by a certificate to that effect executed by the Chief
         Financial Officer;

                  (b) as soon as available, but in any event not later than 60
         days after the end of each quarterly period of each fiscal year of the
         Co-Borrowers, a copy of the unaudited interim consolidated and
         consolidating balance sheet of P&F and its Subsidiaries as of the end
         of each such quarter and the related unaudited interim consolidated and
         consolidating statements of income, shareholders equity and cash flow
         for such quarter and the portion of the fiscal year through such date
         and setting forth in each case in comparative form the respective
         figures for the corresponding date and period in the previous fiscal
         year, in each case prepared by the Chief Financial Officer in
         accordance with GAAP, applied on a consistent basis and accompanied by
         a certificate to that effect executed by the Chief Financial Officer;

                  (c) a certificate prepared and signed by the Chief Financial
         Officer with each delivery required by (a) and (b), as to whether or
         not, as of the close of such preceding period and at all times during
         such preceding period, the Co-Borrowers were in compliance with all
         the provisions in this Agreement, showing computation of financial
         covenants and quantitative negative covenants, and if the Auditor or
         Chief Financial Officer, as the case may be, shall have obtained
         knowledge of any default in such compliance or notice of such default,
         it shall disclose in such certificate such default or defaults or
         notice thereof and the nature thereof, whether or not the same shall
         constitute an Event of Default hereunder;

                  (d) at all times indicated in (a) above, a copy of the
         management letter, if any, prepared by the Auditor;

                  (e) promptly after filing thereof, copies of all regular and
         periodic financial information, proxy materials and other information
         and reports which P&F or any of its Subsidiaries shall file with the
         Securities and Exchange Commission;



                                       40
<PAGE>

                  (f) simultaneously with the delivery of the financial
         statements referred to in clauses (a) and (b) above, quarterly accounts
         receivable aging reports for the Co-Borrowers, in form satisfactory to
         the Bank;

                  (g) promptly after submission to any government or regulatory
         agency, all documents and information furnished to such government or
         regulatory agency other than such documents and information prepared in
         the normal course of business and which could not reasonably be
         expected to result in any materially adverse action to be taken by such
         agency; and

                  (h) promptly, from time to time, such other information
         regarding the operations, business affairs and condition, financial or
         otherwise, of the Co-Borrowers, or any of them, or any of their
         Subsidiaries as the Bank may reasonably request.

         SECTION 6.04. Access to Premises and Records. Maintain financial
records in accordance with GAAP and permit representatives of the Bank upon
reasonable written prior notice to have access during normal business hours to
the premises of each Co-Borrower and each of their Subsidiaries upon request,
and to examine and make excerpts from the minute books, books of accounts,
reports and other records and to discuss the affairs, finances and accounts of
each Co-Borrower and their Subsidiaries with their respective executive officers
or with their respective independent accountants. The Co-Borrowers shall be
entitled to have a representative present at any meetings with such accountants.

         SECTION 6.05. Notice of Adverse Change. Promptly notify the Bank in
writing of (a) any change in the business or the operations of the Co-Borrowers,
or any of them, or any of their Subsidiaries which could reasonably be expected
to have a Material Adverse Effect, disclosing the nature thereof, and (b) any
information which indicates that any financial statements which are the subject
of any representation contained in this Agreement, or which are furnished to the
Bank pursuant to this Agreement, fail, in any material respect, to present
fairly, as of the date thereof and for the periods covered thereby, the
financial condition and results of operations purported to be presented therein,
disclosing the nature thereof.

         SECTION 6.06. Notice of Default. Promptly notify the Bank of any
Default or Event of Default which notice shall include a written statement as to
such occurrence, specifying the nature thereof and the action which is proposed
to be taken with respect thereto.

         SECTION 6.07. Notice of Litigation. Give the Bank prompt written notice
of any action, suit or proceeding at law or in equity or by or before any
governmental instrumentality or other 



                                       41
<PAGE>

agency which, if adversely determined against the Co-Borrowers, or any of them,
or any of their Subsidiaries on the basis of the allegations and information set
forth in the complaint or other notice of such action, suit or proceeding, or in
the amendments thereof, if any, would (a) materially impair the right of the
Co-Borrowers, or any of them, or any of their Subsidiaries to carry on their
business substantially as now conducted or (b) have a Material Adverse Effect.

         SECTION 6.08. ERISA. Promptly deliver to the Bank a certificate of the
Chief Financial Officer of the Co-Borrowers setting forth details as to such
occurrence and such action, if any, which the Co-Borrowers, or any of them, or
any ERISA Affiliate is required or proposes to take, together with any notices
required to be given to or filed with or by (as applicable) the Co-Borrowers, or
any of them, any ERISA Affiliate, the PBGC, a Plan participant or the Plan
Administrator, with respect thereto: that a Reportable Event has occurred with
respect to a Plan, that an accumulated funding deficiency (as defined in Section
412 of the Code) has been incurred or an application has been made to the
Secretary of the Treasury for a waiver or modification of the minimum funding
standard (including of any required installment payments) or for an extension of
any amortization period under Section 412 of the Code with respect to a Plan
that is a single employer plan (within the meaning of Section 4001(a)(15) of
ERISA), that a Plan has been terminated, reorganized, partitioned or declared
insolvent under Title IV of ERISA, that one or more Plans that are Single
Employer Plans within the meaning of Section 4001(a)(15) of ERISA) have an
Unfunded Current Liability in excess of $100,000 in the aggregate, that
proceedings have been instituted to terminate a Plan, that a proceeding has been
instituted pursuant to Section 515 of ERISA to collect a delinquent contribution
to a Plan, or that the Co-Borrowers, or any of them, or any ERISA Affiliate will
incur any liability (including any contingent or secondary liability) to or on
account of the termination of or withdrawal from a Plan under Section 4062,
4063, 4064, 4201 or 4204 of ERISA. Upon request of the Bank, the Co-Borrowers
will deliver to the Bank a complete copy of the annual report (Form 5500) of
each Plan that is a single employer Plan (within the meaning of Section
4001(a)(15) of ERISA), required to be filed with the Internal Revenue Service.
In addition to any certificates or notices delivered to the Bank pursuant to the
first sentence hereof, copies of annual reports and any other notices received
by the Co-Borrowers, or any of them, or any of their Subsidiaries required to be
delivered to the Bank hereunder shall be delivered to the Bank no later than 10
days after the later of the date such report or notice has been filed with the
Internal Revenue Service or the PBGC, given to Plan participants or received by
the Co-Borrowers, or any of them, or any of the Subsidiaries.



                                       42
<PAGE>

         SECTION 6.09. Compliance with Applicable Laws. Comply in all material
respects with the requirements of all applicable laws, rules, regulations and
orders of any governmental authority.

         SECTION 6.10. Subsidiaries. Promptly notify the Bank prior to the
occurrence thereof, of the creation, establishment or acquisition, in any
manner, including without limitation, as a result of a Permitted Acquisition, of
any Subsidiary of any Co-Borrower or any Corporate Guarantor not existing on
the date hereof. The Co-Borrowers shall cause each Subsidiary to execute a
Corporate Guaranty and a Security Agreement, in each case, concurrently with the
creation, establishment or acquisition of such Subsidiary and in connection
therewith shall provide to the Bank the supporting documents identified in
Section 5.01(f) in each case with respect to such Subsidiary, together with a
favorable written opinion of counsel to such Subsidiary in form and substance
satisfactory to the Bank and such counsel, as to the due execution, delivery and
enforceability of such documents and such other usual and customary matters
(with usual and customary exceptions) as the Bank may reasonably request. All
costs and expenses incurred by the Bank or its representatives in connection
with the execution of such Corporate Guaranties or Security Agreements shall be
for the account of the Co-Borrowers, including the Bank's reasonable attorneys'
fees.

         SECTION 6.11. Default in Other Agreements. Promptly notify the Bank of
any default in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any agreement or instrument to
which the Co-Borrowers, or any of them, or any of their Subsidiaries is a party,
which default could reasonably be expected to have a Material Adverse Effect.

         SECTION 6.12. Environmental Laws. Comply in all material respects with
the requirements of all applicable Environmental Laws, provide to the Bank all
documentation in connection with such compliance that the Bank may reasonably
request, and defend, indemnify, and hold harmless the Bank, its employees,
agents, officers, and directors, from and against any claims, demands,
penalties, fines, liabilities, settlements, damages, costs, or expenses of
whatever kind or nature, known or unknown, contingent or otherwise, arising out
of, or in any way related to, (a) the presence, disposal, release, or threatened
release of any Hazardous Materials on any property at any time owned or occupied
by the Co-Borrowers, or any of them, or any of their Subsidiaries; (b) any
personal injury (including wrongful death) or property damage (real or personal)
arising out of or related to such Hazardous Materials; (c) any lawsuit brought
or threatened, settlement reached, or government order relating to such
Hazardous Materials; and/or (d) any violation of laws, orders, regulations,
requirements, or demands of government authorities, which are based upon or in
any way related to such Hazardous Materials including, without



                                       43
<PAGE>

limitation, reasonable attorney and consultant fees, investigation and
laboratory fees, court costs, and litigation expenses.

         SECTION 6.13. Outside Inventory Locations. The Co-Borrowers shall keep
all inventory at the location(s) set forth on Schedule V hereto and shall not
remove any inventory from such location(s) without the prior written consent of
the Bank, except to an Acceptable Location (as described in Section 4.21 above)
with respect to the sale of inventory in the ordinary course of business. In
addition, at any time after November 1, 1998, Florida Pneumatic shall keep all
of its inventory at its Jupiter, Florida location or at an Acceptable Location.

                                   ARTICLE VII
                               NEGATIVE COVENANTS

         Each Co-Borrower covenants and agrees with the Bank that so long as the
Revolving Credit Commitment or the Term Loan Commitment shall remain in effect
or any of the principal of or interest on any Note or any other Obligations
shall be unpaid, it will not, and will not cause or permit any of its
Subsidiaries, directly or indirectly, to:

         SECTION 7.01. Liens. Incur, create, assume or suffer to exist any Lien
on any of their respective assets now or hereafter owned, other than:

                  (a) Liens existing on the date hereof as set forth on Schedule
II attached hereto including any renewals or extensions thereof, or, with
respect to the liens of Barnett Bank of Palm Beach County or MetLife Capital
Financial Corporation on the real property of Florida Pneumatic and Embassy,
respectively, any refinancings of such debt with the same or new lenders;
provided that no such Lien is extended to cover any additional property and that
the amount of Indebtedness secured thereby is not increased;

                  (b) Liens for taxes, assessments or other governmental charges
or levies not yet delinquent or which are being contested in good faith by
appropriate proceedings, provided, however, that adequate reserves with respect
thereto are maintained on the books of the relevant Co-Borrower or Subsidiary in
accordance with GAAP;

                  (c) carriers', warehousemans', mechanics', suppliers, or other
like Liens arising in the ordinary course of business and not overdue for a
period of more than 45 days or which are being contested in good faith by
appropriate proceedings in a manner which will not jeopardize or diminish in any
material respect the interest of the Bank in any of the collateral subject to
the Security Agreements;

                  (d) Liens incurred or deposits to secure the performance of
tenders, bids, trade contracts, leases, statutory obligations,


                                       44
<PAGE>

surety, performance and appeal bonds, and other obligations of a similar nature
incurred in the ordinary course of business;

                  (e) any attachment, judgment or similar Lien arising in
connection with any court or governmental proceeding provided that the execution
or other enforcement of such Lien is effectively stayed;

                  (f) easements, rights of way, restrictions and other similar
charges or encumbrances which in the aggregate do not materially interfere with
the occupation, use and enjoyment by the Co-Borrowers, or any of them, or any of
their Subsidiaries of the property or assets encumbered thereby in the normal
course of their respective business or materially impair the value of the
property subject thereto;

                  (g) deposits under workmen's compensation, unemployment
insurance and social security laws;

                  (h) purchase money Liens for fixed or capital assets,
including obligations under any Capital Lease; provided, in each case, (x) no
Event of Default or event which, upon notice or lapse of time or both, would
constitute an Event of Default shall have occurred and be continuing or shall
occur after the grant of the proposed Lien, and (y) such purchase money Lien
does not exceed 100% of the purchase price and encumbers only the property being
acquired and such other property that may have been previously acquired from
such Person or an affiliate of such Person, so long as such Lien does not, at
any time, extend to any items of collateral not so acquired from such Person;

                  (i) Liens on assets acquired in a Permitted Acquisition or in
the Green Acquisition;

                  (j) Liens on assets acquired in the Green Acquisition,
provided, that such Liens only cover assets acquired thereunder;

                  (k) Liens granted to the Bank.

         SECTION 7.02. Indebtedness. Incur, create, assume or suffer to exist or
otherwise become liable in respect of any Indebtedness, other than:

                  (a) Indebtedness incurred prior to the date hereof as
         described in Schedule III attached hereto including any renewals or
         extensions thereof; provided such renewal or extension does not result
         in an increase in the aggregate principal amount of such Indebtedness;

                  (b) Indebtedness to the Bank;



                                       45
<PAGE>

                  (c) Indebtedness for trade payables incurred in the ordinary
         course of business which are not overdue;

                  (d) Indebtedness consisting of guarantees permitted pursuant
         to Section 7.03;

                  (e) Subordinated Indebtedness approved in writing by the Bank;

                  (f) Indebtedness secured by purchase money liens as permitted
         under Section 7.01(h) for Capital Expenditures permitted hereunder;
         provided no Default or Event of Default shall have occurred and be
         continuing or would occur after giving effect to the incurrence of such
         Indebtedness;

                  (g) Indebtedness under the Foreign Exchange Line;

                  (h) the Green Debt; and

                  (i) Additional Indebtedness not otherwise permitted by this
         Section 7.01 in an amount not to exceed $1,000,000, in the aggregate,
         at any time.

         SECTION 7.03. Guaranties. Guarantee, endorse, become surety for, or
otherwise in any way become or be responsible for the Indebtedness of any
Person, whether by agreement to maintain working capital or equity capital or
otherwise to maintain the net worth or solvency of any Person or by agreement to
purchase the Indebtedness of any other Person, or agreement for the furnishing
of funds, directly or indirectly, through the purchase of goods, supplies or
services for the purpose of discharging the Indebtedness of any other Person or
otherwise, or enter into or be a party to any contract for the purchase of
merchandise, materials, supplies or other property if such contract provides
that payment for such merchandise, materials, supplies or other property shall
be made regardless of whether delivery of such merchandise, supplies or other
property is ever made or tendered except:

                  (a) guaranties executed prior to the date hereof as described
         on Schedule IV attached hereto but not including any renewals or
         extension thereof;

                  (b) endorsements of negotiable instruments for collection or
         deposit in the ordinary course of business;

                  (c) guaranties of any Indebtedness under this Agreement or any
         other Indebtedness owing to the Bank; and

                  (d) guarantees of Indebtedness permitted under Section 7.02,
         provided, that, any guarantee of Subordinated Indebtedness shall be
         subordinated in the same manner and to the same extent as the
         Subordinated Indebtedness.



                                       46
<PAGE>

         SECTION 7.04. Sale of Assets. Sell, lease, transfer or otherwise
dispose of their respective properties and assets, whether or not pursuant to an
order of a federal agency or commission, except for (a) the sale of inventory
disposed of in the ordinary course of business and (b) the sale or other
disposition of properties or assets no longer used or useful in the conduct of
their respective businesses.

         SECTION 7.05. Sales of Notes. Sell, transfer, discount or otherwise
dispose of notes, accounts receivable or other obligations owing to the
Co-Borrowers, or any of them, or any of their Subsidiaries, with or without
recourse, except for collection in the ordinary course of business.

         SECTION 7.06. Loans and Investments. Make or commit to make any
advance, loan, extension of credit, or capital contributions to or purchase or
hold beneficially any stock or other securities, or evidence of Indebtedness of,
purchase or acquire all or a substantial part of the assets of, make or permit
to exist any interest whatsoever in, any other Person except for (a) the
ownership of stock of any Subsidiaries existing as of the Closing Date or
acquired after the date hereof whether pursuant to a Permitted Acquisition or
otherwise, provided the Co-Borrowers have complied with their obligations under
Section 6.10 with respect to such Subsidiary, (b) investments described on
Schedule VI attached hereto, (c) loans by any Co-Borrower to any other
Co-Borrower or any Corporate Guarantor and loans by any Corporate Guarantor to
any Co-Borrower or any other Corporate Guarantor, (d) Permitted Investments, (e)
Permitted Acquisitions (provided that the conditions specified in Section 5.03
hereof shall have been satisfied) and (f) the Green Acquisition.

         SECTION 7.07. Nature of Business. Change or alter, in any material
respect, the primary nature of its business from the nature of the business
engaged in by it on the date hereof but nothing herein shall prevent any
acquisition of a business which is engaged in the same line of business of the
Co-Borrowers or a business incidental thereto.

         SECTION 7.08. Sale and Leaseback. Enter into any arrangement, directly
or indirectly, with any Person whereby it shall sell or transfer any property,
whether real or personal, used or useful in its business, whether now owned or
hereafter acquired, if at the time of such sale or disposition it intends to
lease or otherwise acquire the right to use or possess (except by purchase) such
property or like property for a substantially similar purpose.

         SECTION 7.09. Federal Reserve Regulations. Permit any Loan or the
proceeds of any Loan to be used for any purpose which violates or is
inconsistent with the provisions of Regulations T, U or X of the Board of
Governors of the Federal Reserve System.



                                       47
<PAGE>

         SECTION 7.10. Change in Fiscal Year. Permit a change in the fiscal year
of the Co-Borrowers, or any of them.

         SECTION 7.11. Limitations on Fundamental Changes. 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, except with respect to a
Permitted Acquisition, acquire all of the stock or all or substantially all of
the assets or the business of any Person or liquidate, wind up or dissolve or
suffer any liquidation or dissolution; provided, however, any Corporate
Guarantor may merge or consolidate with any other Corporate Guarantor or merge
with and into a Co-Borrower (provided the Co-Borrower is the surviving
corporation).

         SECTION 7.12. Financial Condition Covenants.

         (a) Fixed Charge Coverage Ratio. Permit at any time the ratio of (i)
Consolidated EBITDA to (ii) Consolidated Interest Expense plus Consolidated
Current Maturities on Long Term Debt to be less than 1.25:1.00 at any time.

         (b) Minimum Capital Base. Maintain a Consolidated Capital Base of at
least (i) $16,000,000 at all times prior to the closing of the Green
Acquisition, and (ii) $10,000,000 at all times following the closing of the
Green Acquisition.

         (c) Consolidated Senior Debt to Consolidated EBITDA. Permit the ratio
of Consolidated Senior Debt to Consolidated EBITDA to be greater than (i)
4.00:1.00 at any time prior to the closing of the Green Acquisition or (ii)
3.50:1.00 at any time following the closing of the Green Acquisition.

         (d) Consolidated Capital Expenditures. Permit Consolidated Capital
Expenditures to exceed $3,000,000 for any fiscal year, provided, that up to
$1,500,000 of an unexpended amount in any fiscal year may be carried forward for
use in the immediately following fiscal year only.

         All financial condition covenants included in this Section 7.12 shall
be tested on a "rolling four quarters" basis. If any Permitted Acquisition is
consummated, then for purposes of calculating compliance with this Section 7.12,
for each of the first three quarters following consummation of such Permitted
Acquisition, Consolidated EBITDA shall be determined on the basis of such
quarters and shall be annualized. For purposes of calculating compliance with
the provisions of Section 7.12(a) and (c) above, Consolidated EBITDA at any time
shall mean Consolidated EBITDA as determined on the basis of the financial
statements most recently delivered to the Bank pursuant to Section 6.03.



                                       48
<PAGE>

         SECTION 7.13. Subordinated Debt. Directly or indirectly prepay,
defease, purchase, redeem, or otherwise acquire any Subordinated Debt.

         SECTION 7.14. Transactions with Affiliates. Enter into any transaction,
including, without limitation, the purchase, sale, or exchange of property or
the rendering of any service, with any Affiliate, except in the ordinary course
of and pursuant to the reasonable requirements of the business of such
Co-Borrower or of its Subsidiary and upon fair and reasonable terms no less
favorable to the such entity than it would obtain in a comparable arms-length
transaction with a Person not an Affiliate.

         SECTION 7.15. Impairment of Security Interest. Neither take or omit to
take any action which could reasonably be expected to adversely effect or impair
the security interest in any property subject to a security interest in favor of
the Bank nor grant to any Person any interest whatsoever in any property subject
to a security interest in favor of the Bank.

                                  ARTICLE VIII
                                EVENTS OF DEFAULT

         SECTION 8.01. Events of Default. In the case of the happening of any of
the following events (each an "Event of Default"):

                  (a) failure by the Co-Borrowers to (i) pay the principal or
         interest on any Loan when due and payable, (ii) pay any fees or other
         amounts payable under any Loan Document when due or payable and, with
         respect to clause (ii), such failure shall continue unremedied for a
         period of three (3) Business Days;

                  (b) default shall be made in (i) the due observance or
         performance of any covenant, condition or agreement of the Co-
         Borrowers, or any of them, or any of their Subsidiaries to be performed
         pursuant to Section 6.03, 6.04, 6.05, 6.06 or 6.07 or Article VII of
         this Agreement, or (ii) the due observance or performance of any other
         covenant, condition or agreement of the Co-Borrowers, or any of them,
         or any of their Subsidiaries to be performed pursuant to this Agreement
         or any other Loan Document (other than those specified in clause (a) of
         this Section 8.01) and such failure shall continue unremedied for a
         period of ten (10) days after written notice thereof from the Bank;

                  (c) any representation or warranty made in this Agreement or
         any other Loan Document or in any report, certificate, financial
         statement or other instrument furnished in connection with this
         Agreement or any other Loan Document, 



                                       49
<PAGE>

         shall prove to be false or misleading in any material respect when made
         or given or when deemed made or given;

                  (d) default in the performance or compliance in respect of any
         agreement or condition relating to any Indebtedness (other than any
         Note and unsecured trade payables) of the Co-Borrowers or any of their
         Subsidiaries in excess of $500,000, individually or in the aggregate,
         if the effect of such default is to accelerate the maturity of such
         Indebtedness or to permit the holder or obligee thereof (or a trustee
         on behalf of such holder or obligee) to cause such Indebtedness to
         become due prior to the stated maturity thereof, or any Indebtedness
         (other than unsecured trade payables) in excess  of $500,000,
         individually or in the aggregate, shall not be paid when due;

                  (e) the Co-Borrowers, or any of them, or any of their
         Subsidiaries shall (i) voluntarily commence any proceeding or file any
         petition seeking relief under Title 11 of the United States Code or any
         other federal or state bankruptcy, insolvency or similar law, (ii)
         consent to the institution of, or fail to controvert in a timely and
         appropriate manner, any such proceeding or the filing of any such
         petition, (iii) apply for or consent to the employment of a receiver,
         trustee, custodian, sequestrator or similar official for the Co-
         Borrowers, or any of them, or any of their Subsidiaries or for a
         substantial part of its property; (iv) file an answer admitting the
         material allegations of a petition filed against it in such proceeding,
         (v) make a general assignment for the benefit of creditors, (vi) take
         corporate action for the purpose of effecting any of the foregoing, or
         (vii) the Co-Borrowers, or any of them, or any of their Subsidiaries
         shall become unable or admit in writing its inability or fail generally
         to pay its debts as they become due;

                  (f) an involuntary proceeding shall be commenced or an
         involuntary petition shall be filed in a court of competent
         jurisdiction seeking (i) relief in respect of the Co-Borrowers, or any
         of them, or any of their Subsidiaries or of a substantial part of their
         respective property, under Title 11 of the United States Code or any
         other federal or state bankruptcy, insolvency or similar law, (ii) the
         appointment of a receiver, trustee, custodian, sequestrator or similar
         official for the Co-Borrowers, or any of them, or any of their
         Subsidiaries or for a substantial part of their property, or (iii) the
         winding-up or liquidation of the Co-Borrowers, or any of them, or any
         of their Subsidiaries and such proceeding or petition shall continue
         undismissed for 30 days or an order or decree approving or ordering any
         of the foregoing shall continue unstayed and in effect for 30 days;



                                       50
<PAGE>

                  (g) One or more orders, judgments or decrees for the payment
         of money in excess of $250,000 in the aggregate shall be rendered
         against the Co-Borrowers, or any of them, or any of their Subsidiaries
         and the same shall not have been paid in accordance with such judgment,
         order or decree and either (i) an enforcement proceeding shall have
         been commenced by any creditor upon such judgment, order or decree
         which is not stayed, or (ii) there shall have been a period of sixty
         (60) days during which a stay of enforcement of such judgment order or
         decree, by reason of pending appeal or otherwise, was not in effect;

                  (h) any Plan which is a single employer Plan shall fail to
         comply in any material respect with the minimum funding standard
         required under Section 412 of the Code for any Plan year or part
         thereof or a waiver of such standard is applied for or granted under
         Section 412 of the Code, any Plan is terminated by the Co-Borrowers, or
         any of them, or any ERISA Affiliate or the subject of termination
         proceedings by the PBGC under ERISA, any Plan shall have an Unfunded
         Current Liability, a Reportable Event shall have occurred with respect
         to a Plan or the Co-Borrowers, or any of them, or any ERISA Affiliate
         shall have incurred a liability to or on account of a Plan under
         Section 515, 4062, 4063, 4063, 4201 or 4204 of ERISA, and there shall
         result from any such event or events the imposition of a lien upon the
         assets of the Co-Borrowers, or any of them, or any ERISA Affiliate, the
         granting of a security interest on such assets, or a liability to the
         PBGC or a Plan or a trustee appointed under ERISA or a penalty under
         Section 4971 of the Code, and in each case, such event or condition,
         together with all such events or conditions, if any, could reasonably
         be expected to result in liability of the Co-Borrowers, or any of them,
         or any of their Subsidiaries in an aggregate amount exceeding $250,000;

                  (i) any material provision of any Loan Document shall for any
         reason cease to be in full force and effect in accordance with its
         terms or the Co-Borrowers, or any of them, or any Corporate Guarantor
         shall so assert in writing; or

                  (j) any of the Liens purposed to be granted pursuant to any
         Security Agreement shall cease for any reason to be legal, valid and
         enforceable Liens on the collateral purported to be covered thereby or
         shall cease to have the priority purported to be created thereby,

then, at any time thereafter during the continuance of any such event, the Bank
may, without notice to the Co-Borrowers, or any of them, or any Corporate
Guarantor, (A) terminate the Commitments and declare (i) the Notes, both as to
principal and interest, (ii) an amount equal to the Aggregate Letters of Credit
Outstanding, and (iii) an amount equal to the Aggregate Banker's Acceptances



                                       51
<PAGE>

Outstanding, to be forthwith due and payable, without presentment, demand,
protest or other notice of any kind, all of which are hereby expressly waived,
anything contained herein or in the Notes to the contrary notwithstanding;
provided, however, that if an event specified in Section 8.01 (e) and (f) shall
have occurred, the Commitments shall automatically terminate and the Notes and
an amount equal to the Aggregate Letters of Credit Outstanding and to the
Aggregate Banker's Acceptances Outstanding, shall be immediately due and
payable; and (B) exercise any or all of the rights and remedies afforded to the
Bank in the Security Agreements, by the Uniform Commercial Code or otherwise
possessed by the Bank and, realize upon, dispose of, or sell, all or any part of
the collateral given by the Co-Borrowers and the Corporate Guarantors to the
Bank, and the Bank may apply the net proceeds of such realization, disposal or
sale to the payment of any liabilities of the Co-Borrowers under the Notes or
this Agreement as set forth in the Security Agreements. With respect to all
Letters of Credit that shall not have matured or presentment for honor shall not
have occurred, and with respect to Documentary Banker's Acceptances the maturity
date of which has not occurred, the amounts in respect thereof as described in
the preceding sentence shall be deposited in an account under the sole domain
and control of the Bank, as cash collateral for the obligation of the
Co-Borrowers to reimburse the Bank in the event of any drawing or payment in
respect thereof.


                                   ARTICLE IX
                                  MISCELLANEOUS

         SECTION 9.01. Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing, and unless
otherwise expressly provided herein, shall be conclusively deemed to have been
received by a party hereto and to be effective on the day on which delivered to
such party at the address set forth below, or, in the case of telecopy notice,
when acknowledged as received, or if sent by registered or certified mail, on
the third Business Day after the day on which mailed in the United States,
addressed to such party at said address:

                  (a)      if to the Bank, at

                           European American Bank
                           730 Veterans Memorial Highway
                           Hauppauge, New York  11788
                           Attention: Mr. Richard Romano
                           Telecopy:  (516) 360-7112

                  (b)      if to the Co-Borrowers at

                           P & F Industries, Inc.
                           300 Smith Street



                                       52
<PAGE>

                           Farmingdale, New York 11735
                           Attention: Mr. Joseph A. Molino, Jr.
                           Telecopy:  (516) 694-1836

                           with a copy to:

                           Willkie Farr & Gallagher
                           787 Seventh Avenue
                           New York, New York 10019-6099
                           Attention: Neil Novikoff, Esq.
                           Telecopy:  (212) 728-8111


                                     - and -

                  (c)      as to each such party at such other address as such
                           party shall have designated to the other in a written
                           notice complying as to delivery with the provisions
                           of this Section 9.01.

         SECTION 9.02. Survival of Agreement. All covenants, agreements,
representations and warranties made herein and in the other Loan Documents and
in the certificates delivered pursuant hereto or thereto shall survive the
making by the Bank of the Loans herein contemplated and the execution and
delivery to the Bank of the Notes evidencing the Loans and shall continue in
full force and effect so long as any Note is outstanding and unpaid. Whenever in
this Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party; and all covenants,
promises and agreements by or on behalf of the Co-Borrowers, or any of them, and
their Subsidiaries which are contained in this Agreement shall bind and inure to
the benefit of the respective successors and assigns of the Bank. The
Co-Borrowers may not assign or transfer any of their interest under this
Agreement, any Note or any other Loan Document without the prior written consent
of the Bank.

         SECTION 9.03. Expenses of the Bank. The Co-Borrowers agree (a) to
indemnify, defend and hold harmless the Bank and its officers, directors,
employees and affiliates (each, an "indemnified person") from and against any
and all losses, claims, damages, liabilities or judgments to which any such
indemnified person may be subject and arising out of or in connection with the
Loan Documents, the financings contemplated hereby, the use of any proceeds of
such financings or any related transaction or any claim, litigation,
investigation or proceeding relating to any of the foregoing, whether or not any
of such indemnified person is a party thereto, and to reimburse each of such
indemnified persons upon demand for any reasonable legal or other expenses
incurred in connection with the investigation or defending of any of the
foregoing; provided that the foregoing indemnity will not, as to any indemnified
person, apply to losses, claims, damages, liabilities, judgments or related
expenses to the extent arising from the wilful misconduct or gross negligence of
such indemnified person; and (b) to reimburse the Bank from time to time, upon



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<PAGE>

demand, all out-of-pocket expenses (including reasonable expenses of its due
diligence investigation, and fees and disbursements of counsel and the allocated
costs of internal counsel) incurred in connection with the financings
contemplated under this Agreement, the preparation, execution and delivery of
this Agreement and the other Loan Documents, any amendments and waivers hereof
or thereof, the security arrangements contemplated thereby and the enforcement
thereof. The provisions of this Section 9.03 shall survive termination of this
Agreement.

         SECTION 9.04. No Waiver of Rights by the Bank. Neither any failure nor
any delay on the part of the Bank in exercising any right, power or privilege
hereunder or under any Note or any other Loan Document shall operate as a waiver
thereof, nor shall a single or partial exercise thereof preclude any other or
further exercise of any other right, power or privilege.

         SECTION 9.05. APPLICABLE LAW. THIS AGREEMENT AND EACH NOTE SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.

         SECTION 9.06. SUBMISSION TO JURISDICTION; JURY WAIVER. EACH CO-BORROWER
HEREBY IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES
DISTRICT COURT FOR THE EASTERN DISTRICT OF NEW YORK AND EACH SUPREME COURT OF
THE STATE OF NEW YORK SITTING IN NEW YORK, NASSAU OR SUFFOLK COUNTY AND ANY
APPELLATE COURT FROM ANY THEREOF IN ANY ACTION, SUIT OR PROCEEDING BROUGHT
AGAINST IT AND RELATED TO OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, AND TO THE
EXTENT PERMITTED BY APPLICABLE LAW, EACH CO-BORROWER HEREBY WAIVES AND AGREES
NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, IN ANY SUCH SUIT,
ACTION OR PROCEEDING ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF SUCH COURTS, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN
AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS
IMPROPER, OR THAT THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY OTHER
DOCUMENT OR INSTRUMENT REFERRED TO HEREIN OR THEREIN OR THE SUBJECT MATTER
THEREOF MAY NOT BE LITIGATED IN OR BY SUCH COURTS. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, EACH CO-BORROWER AGREES NOT TO (a) SEEK AND HEREBY WAIVES THE
RIGHT TO ANY REVIEW OF THE JUDGMENT OF ANY SUCH COURT BY ANY COURT OF ANY OTHER
NATION OR JURISDICTION WHICH MAY BE CALLED UPON TO GRANT AN ENFORCEMENT OF SUCH
JUDGMENT AND (b) ASSERT ANY COUNTERCLAIM IN ANY SUCH SUIT, ACTION OR PROCEEDING
UNLESS SUCH COUNTERCLAIM IS A COMPULSORY COUNTERCLAIM UNDER FEDERAL LAW OR NEW
YORK LAW, AS APPLICABLE. EACH CO-BORROWER AGREES THAT SERVICE OF PROCESS MAY BE
MADE UPON IT BY CERTIFIED OR REGISTERED MAIL TO THE ADDRESS FOR NOTICES SET
FORTH IN THIS AGREEMENT OR ANY METHOD AUTHORIZED BY THE LAWS OF NEW YORK. EACH
CO-BORROWER AND THE BANK HEREBY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT, ANY NOTE OR ANY OTHER LOAN DOCUMENT.



                                       54
<PAGE>

         SECTION 9.07. Extension of Maturity. Except as otherwise expressly
provided herein, whenever a payment to be made hereunder shall fall due and
payable on any day other than a Business Day, such payment may be made on the
next succeeding Business Day, and such extension of time shall be included in
computing interest.

         SECTION 9.08. Modification of Agreement. No modification, amendment or
waiver of any provision of this Agreement, any Note or any other Loan Document,
nor consent to any departure by the Co-Borrowers therefrom shall in any event
be effective unless the same shall be in writing and signed by the Bank and the
Co-Borrowers and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given. No notice to or demand on
the Co-Borrowers in any case shall entitle the Co-Borrowers to any other or
further notice or demand in the same, similar or other circumstance.

         SECTION 9.09. Severability. In case any one or more of the provisions
contained in this Agreement, any Note or in any other Loan Document should be
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein and therein shall
not in any way be affected or impaired thereby.

         SECTION 9.10. Sale of Participations. The Bank reserves the right to
sell participations in or to sell and assign its rights, duties or obligations
with respect to the Loans or the Commitment to such banks, lending institutions
or other parties as it may choose and without the consent of the Co-Borrowers
except (a) the Bank shall not assign its rights or obligations under the Loan
Documents without the prior written consent of the Co-Borrowers (which consent
shall not be unreasonably withheld) and (b) the Bank shall not sell
participations to any competitor of the Co-Borrowers. In the event that the Bank
shall sell a participation interest in the Loans, the Bank shall, nevertheless,
remain liable to perform all obligations of the Bank hereunder as if such
participation had not been sold and shall not restrict its right to grant
waivers, amendments and consents to the Loan Documents except with respect to
the default in any payment of principal or interest on the Loans beyond any
applicable grace period, any acceleration of the maturity of the Loan, any
material amendment of the Credit Agreement or any change in the accrual status
of the Loans. The Bank may furnish any information concerning the Co-Borrowers
or any of their Subsidiaries in its possession from time to time to any assignee
or participant (or proposed assignee or participant).

         SECTION 9.11. Reinstatement; Certain Payments. If claim is ever made
upon the Bank for repayment or recovery of any amount or amounts received by the
Bank in payment or on account of any of the Obligations under this Agreement,
the Bank shall give prompt notice of such claim to the Co-Borrowers, and if the
Bank repays all or part of said amount by reason of (i) any judgment, decree or
order of any court or administrative body having jurisdiction over the Bank or
any of its property, or (ii) any settlement or compromise of any such claim
effected by the Bank with any such claimant, then



                                       55
<PAGE>

and in such event each Co-Borrower agrees that any such judgment, decree, order,
settlement or compromise shall be binding upon such Co-Borrower notwithstanding
the cancellation of any Note or other instrument evidencing the Obligations
under this Agreement or the termination of this Agreement, and the Co-Borrower
shall be and remain liable to the Bank hereunder for the amount so repaid or
recovered to the same extent as if such amount had never originally been
received by the Bank.

         SECTION 9.12. Right of Setoff. If an Event of Default shall have
occurred and be continuing, the Bank and each Affiliate of the Bank are each
hereby authorized at any time and from time to time after acceleration of the
Loan, to the fullest extent permitted by law, to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by the Bank to or for the credit
or the account of the Co-Borrowers or any of them, against any and all the
Obligations. The rights of the Bank under this Section 9.12 are in addition to
the other rights and remedies (including, without limitation, other rights of
setoff) which the Bank may have.

         SECTION 9.13. Joint and Several Obligations of the Co-Borrowers. The
obligations of the Co-Borrowers hereunder constitute joint and several
obligations of the Co-Borrowers and may be enforced against any of the
Co-Borrowers to the full extent thereof without proceeding against the others.

         SECTION 9.14. Counterparts. This Agreement may be executed in
counterparts, each of which shall constitute an original, but all of which,
taken together, shall constitute one and the same instrument.

         SECTION 9.15. Headings. Section headings used herein are for
convenience of reference only and are not to affect the construction of or be
taken into consideration in interpreting this Agreement.



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<PAGE>

         IN WITNESS WHEREOF, the Co-Borrowers and the Bank have caused this
Agreement to be duly executed by their duly authorized officers, as of the day
and year first above written.



                                            THE CO-BORROWERS:


                                            P&F INDUSTRIES, INC.


                                            By: /s/ Joseph A. Molino
                                               ---------------------------------
                                            Name: Joseph A. Molino
                                            Title: Vice President

                                            FLORIDA PNEUMATIC MANUFACTURING
                                               CORPORATION


                                            By: /s/ Joseph A. Molino
                                               ---------------------------------
                                            Name: Joseph A. Molino
                                            Title: Vice President


                                            EMBASSY INDUSTRIES, INC.


                                            By: /s/ Joseph A. Molino
                                               ---------------------------------
                                            Name: Joseph A. Molino
                                            Title: Vice President


                                            THE BANK:

                                            EUROPEAN AMERICAN BANK


                                            By: /s/ Richard Romano
                                               ---------------------------------
                                            Name: Richard Romano
                                            Title: Vice President

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