FOURTEEN HILL MANAGEMENT, L.L.C.
                        --------------------------------
                               OPERATING AGREEMENT
                               -------------------

                                       by
                                       --
                         Point West Capital Corporation
                         ------------------------------ 
                        
                                       and
                                       --- 
                        Fourteen Hill Management, L.L.C.
                        --------------------------------
                        

                                      as of
                                      -----
   
                                  June 9, 1997
                                  ------------



<PAGE>


                                       

                                TABLE OF CONTENTS
                                ----------------- 
                                                                                
                                                                           PAGE
                                                                           ====
                            
SECTION I.                 DEFINED TERMS.................................    1

SECTION II.           FORMATION AND NAME; OFFICE; PURPOSE; TERM.....         3
   2.1      ORGANIZATION.................................................    3
   2.2      NAME OF THE COMPANY..........................................    3
   2.3      PURPOSE......................................................    3
   2.4      TERM.........................................................    4
   2.5      PRINCIPAL OFFICE.............................................    4
   2.6      RESIDENT AGENT...............................................    4
   2.7      MEMBERS......................................................    4
   2.8      OFFICERS,DIRECTORS, AND MANAGERS.............................    4

SECTION III.          MEMBERS; CAPITAL; CAPITAL ACCOUNTS............         4
   3.1      INITIAL CAPITAL CONTRIBUTIONS................................    4
   3.2      NO OTHER CAPITAL CONTRIBUTIONS REQUIRED......................    4
   3.3      LOANS........................................................    4

SECTION IV.           PROFIT, LOSS AND DISTRIBUTIONS................         4
   4.1      DISTRIBUTIONS OF CASH FLOW...................................    4
   4.2      ALLOCATION OF PROFIT OR LOSS.................................    4
   4.3      LIQUIDATION AND DISSOLUTION..................................    4

SECTION V.            MANAGEMENT: RIGHTS, POWER AND DUTIES..........         5
   5.1      MANAGEMENT...................................................    5
   5.2      PERSONAL SERVICES............................................    5
   5.3      LIABILITY AND INDEMNIFICATION................................    5

SECTION VI.           TRANSFER OF INTERESTS AND WITHDRAWALS OF MEMBERS...    5
   6.1      TRANSFERS....................................................    5
   6.2      TRANSFER TO A SUCCESSOR......................................    5

SECTION VII.      DISSOLUTION, LIQUIDATION AND TERMINATION OF THE
                      COMPANY............................................    5
   7.1      EVENTS OF DISSOLUTION........................................    5
   7.2      PROCEDURE FOR WINDING UP AND DISSOLUTION.....................    6
   7.3      FILING OF ARTICLES OF CANCELLATION...........................    6

SECTION VIII.         BOOKS, RECORDS, ACCOUNTING AND TAX ELECTIONS.......    6


                                      (i)
<PAGE>

                            TABLE OF CONTENTS -Cont.
                            -----------------
                                                                           Page 
                                                                           ----
   8.1      BANK ACCOUNTS................................................    6
   8.2      BOOKS AND RECORDS............................................    6
   8.3      ANNUAL ACCOUNTING PERIOD.....................................    6
   8.4      DISREGARD OF ENTITY..........................................    6
   8.5      TAX MATTERS PARTNER..........................................    6

SECTION IX.           GENERAL PROVISIONS.................................    7
   9.1      ASSURANCES...................................................    7
   9.2      NOTIFICATIONS................................................    7
   9.3      SPECIFIC PERFORMANCE.........................................    7
   9.4      COMPLETE AGREEMENT...........................................    7
   9.5      APPLICABLE LAW...............................................    7
   9.6      SECTION TITLES...............................................    7
   9.7      BINDING PROVISIONS...........................................    8
   9.8      JURISDICTION AND VENUE.......................................    8
   9.9      TERMS........................................................    8
   9.10     SEPARABILITY OF PROVISIONS...................................    8
   9.11     COUNTERPARTS.................................................    8


Exhibit A          -  Member Taxpayer Identification and Percentage
---------
Exhibit B          -  Point West's Cash and Property Contribution
---------
                                      (ii)
<PAGE>

  
 .
                        FOURTEEN HILL MANAGEMENT, L.L.C.
                        --------------------------------

                               OPERATING AGREEMENT
                               -------------------

         This Operating  Agreement (this "Agreement") is entered into as of this
9th day of June, 1997, by and among Point West Capital  Corporation,  a Delaware
corporation ("Point West") and Fourteen Hill Management, L.L.C.
(the "Company").

                              EXPLANATORY STATEMENT
                              =====================

         The Company was organized as a limited liability company in Delaware on
June 5, 1997 in accordance  with the terms of, and subject to the conditions set
forth in, this Agreement.  This Agreement sets forth the agreements  under which
the Company  will  operate.  The Company was formed as a single  Member  limited
liability  company,  which is intended to be disregarded  for federal income tax
purposes.

         NOW,  THEREFORE,  for good and  valuable  consideration,  the  parties,
         ---------------
intending legally to be bound, agree as follows:

                                       I.
                                  DEFINED TERMS
                                  -------------

         The following  capitalized  terms shall have the meanings  specified in
this  Section I. Other  terms are  defined in the text of this  Agreement;  and,
throughout  this  Agreement,  those terms shall have the  meanings  respectively
ascribed to them.

         "Agreement" means this Agreement, as amended from time to time.
          ---------

         "Code" means the  Internal  Revenue  Code of 1986,  as amended,  or any
          ----
corresponding provision of any succeeding law.

         "Company" means the limited  liability  company organized in accordance
          ------- 
with this Agreement.

         "Delaware  Act" means the Delaware  Limited  Liability  Company Act, as
          -------------
amended from time to time.

         "Interest" means a Person's share of the Profits and Losses of, and the
          --------
right to receive distributions from, the Company.

         "Interest Holder" means any Person who holds an Interest,  whether as a
          ---------------  
Member or as an unadmitted assignee of a Member.



<PAGE>


         "Involuntary  Withdrawal"  means,  with  respect  to  Point  West,  the
          -----------------------
occurrence of any of the following events:

               (a)  Point West makes an assignment for the benefit of creditors;
               ---
               (b)  Point West files a voluntary petition of bankruptcy;
               ---
               (c)  Point West is adjudged  bankrupt or insolvent or there is 
               ---
         entered  against Point West an  order for relief in any bankruptcy or 
         insolvency proceeding;

               (d)  Point West files a petition  or answer  seeking  for Point
               ---
         West  any  reorganization,   arrangement,  composition,   readjustment,
         liquidation,  dissolution, or similar relief under any statute, law, or
         regulation;

               (e)  Point  West  seeks,  consents  to, or  acquiesces  in the
               ---
         appointment  of a trustee for,  receiver for, or  liquidation  of Point
         West or of all or any substantial part of Point West's properties;

               (f)  Point West files an answer or other pleading  admitting or
               --- 
         failing to contest the material allegations of a petition filed against
         Point West in any proceeding described in subsections (a) through (e);

               (g)  any proceeding against Point West seeking  reorganization,
               ---
         arrangement,  composition,  readjustment,  liquidation, dissolution, or
         similar relief under any statute, law, or regulation, continues for one
         hundred  twenty  (120)  days  after the  commencement  thereof,  or the
         appointment of a trustee, receiver, or liquidator for Point West or all
         or any substantial part of Point West's properties without Point West's
         Agreement or acquiescence,  which  appointment is not vacated or stayed
         for one hundred twenty (120) days or, if the appointment is stayed, for
         one hundred  twenty (120) days after the  expiration of the stay during
         which period the appointment is not vacated; or

               (h)  Point West's death or adjudication by a court of competent
               ---
         jurisdiction as incompetent to manage Point West's person or property.

         "Member" means Point West and any Person who subsequently is admitted
         ========
as a member of the Company.

         "Membership Rights" means all of the rights of a Member in the Company,
         ===================
including a Member's (a) Interest;  (b) right to inspect the Company's books and
records;  (c) right to  participate  in the  management  of and vote on  matters
coming  before the  Company;  and (d) unless this  Agreement  or the Articles of
Organization provide to the contrary, right to act as an agent of the Company.

                                       2
<PAGE>


         "Person"  means and includes an individual,  corporation,  partnership,
         --------
association, limited liability company, trust, estate, or other entity.

         "Positive  Capital  Account"  means a  Capital  Account  with a balance
         ---------------------------- 
greater than zero.

         "Profit"  and "Loss"  means,  for each  taxable year of the Company (or
         --------       ---- 
other period for which Profit or Loss must be computed)  the  Company's  taxable
income or loss determined in accordance with the Code.

         "Regulation" means the income tax regulations,  including any temporary
         ------------
regulations, from time to time promulgated under the Code.

         "Successor" means all Persons to whom all or any part of an Interest is
         -----------
transferred  either  because of (a) the sale or gift by Point West of all or any
part of its Interest,  (b) an  assignment of Point West's  Interest due to Point
West's Involuntary  Withdrawal,  or (c) because such Person dies and the persons
are such Person's personal representatives, heirs, or legatees.

         "Transfer"   means,   when  used  as  a  noun,   any  voluntary   sale,
         ----------
hypothecation, pledge, assignment, attachment, or other transfer, and, when used
as a verb, means voluntarily to sell, hypothecate,  pledge, assign, or otherwise
transfer.

         "Withdrawal" means a Member's dissociation from the Company by any 
         ------------
means.

                                  SECTION II.
                                  -----------
                  FORMATION AND NAME; OFFICE; PURPOSE; TERM
                  =========================================

         II.1  ORGANIZATION.  Point West has  organized  a limited  liability  
         ----  ============ 
company pursuant to the Act and the  provisions of this Agreement and, for that
purpose, has caused Articles of Organization to be prepared, executed and filed 
under the Delaware Act on June 5, 1997.

         II.2  NAME OF THE COMPANY. The name of the Company shall be "Fourteen
         ----  ===================
Hill Management,L.L.C.". The Company may do business under that name and under
any other name or names upon  which Point  West  may,  in its  sole  discretion,
determine.  If the Company does business  under a name other than that set forth
in its  Articles  of  Organization,  then the  Company  shall  file a trade name
certificate as required by law.

         II.3  PURPOSE. Company is organized solely for the purpose of serving 
         ----  =======
as the  general  partner of one or more small business investment company.

                                       3
<PAGE>


         II.4  TERM.  The term of the Company began upon the filing of the 
         ----  ====  
Articles of Organization under the Delaware Act and shall continue in existence 
until June 30, 2027, unless its existence is sooner terminated  pursuant to 
Section VII of this Agreement.

         II.5  PRINCIPAL OFFICE. The principal office of the Company in the 
         ----  ================
State of Delaware  shall be located at 1220 North Market Street,  Suite 606,  
Wilmington, Delaware  19801, or at any other place within the State of Delaware 
which Point West, in its sole discretion, determines.

         II.6  RESIDENT  AGENT.  The name and address of the Company's resident 
         ----  ===============
agent in the State of Delaware shall be Registered Agents, Ltd.

         II.7  MEMBERS.  The name,  present  mailing  address,  taxpayer  
         ----  =======
identification  number and  Percentage  of each Member are set forth on Exhibit
                                                                        -------
"A".
--
         II.8  OFFICERS,  DIRECTORS AND MANAGERS.  The Small  Business  
         ----  ================================= 
Administration must approve any person who will serve as an  officer, director, 
manager,  or general partner of the Company.

                                  SECTION III.
                                  ------------
                       MEMBERS; CAPITAL; CAPITAL ACCOUNTS
                       ==================================
     
         III.1 INITIAL  CAPITAL  CONTRIBUTIONS.  Upon the execution of this 
         ----- ===============================
Agreement, Point West shall contribute to the Company the cash and property set
forth on Exhibit "B", as the single and sole Member of the Company.
         ----------

         III.2 NO OTHER CAPITAL CONTRIBUTIONS REQUIRED. No Member shall be 
         ----- =======================================
required to contribute any additional capital to the Company, and except as set 
forth in the Act,no Member shall have any personal liability for any obligations
of the Company.

         II.3  LOANS.  Any Member may, at any time, make or cause a loan to be 
         ----  =====
made to the  Company  in any amount and on those  terms upon which the  Company
and the Member agree.

                                       IV.
                                       --
                         PROFIT, LOSS AND DISTRIBUTIONS
                         ==============================


         IV.1  DISTRIBUTIONS  OF CASH  FLOW.  Cash Flow for each  taxable  year 
         ----  ============================
of the Company shall be distributed to Point West no later than  seventy-five 
(75) days after the end of the taxable year.

         IV.2  ALLOCATION OF PROFIT OR LOSS.   All   Profit  or   Loss shall be 
         ----  ============================
allocated to Point West, as the single and sole Member of the Company.

                                       4
<PAGE>


         IV.3  LIQUIDATION  AND  DISSOLUTION.  If the  Company  is  liquidated,
         ----  =============================
the  assets  of  the  Company  shall  be distributed to Point West or to a 
Successor or Successors.

                                       V.
                                       --
                      MANAGEMENT: RIGHTS, POWER AND DUTIES
                      ====================================   

         V.1   MANAGEMENT.  The Company shall be managed solely by the Members.
         ---   ==========
 
         V.2   PERSONAL SERVICES. No  member  shall be  required  to   perform 
         ---   =================
services for the Company  solely by virtue of being a Member.


         V.2   LIABILITY AND INDEMNIFICATION.
         ---   =============================
               1.    The Members shall not be liable,  responsible,  or
               --
         accountable,  in  damages  or  otherwise,  to the  Company  for any act
         performed  by any of them with respect to Company  matters,  except for
         fraud.

               2.    The Company shall indemnify  Members for any act performed 
               --
         by any of them with respect to Company matters, except for fraud.

                                       VI.
                                       ---
                           TRANSFER OF INTERESTS AND
                           ========================= 
                             WITHDRAWALS OF MEMBERS
                             ======================

         VI.1  TRANSFERS.Point  West may  Transfer  all,  or any  portion  of,  
         ----  =========
or its interest or rights in, its Membership Rights to one or more Successors.

         VI.2  TRANSFER  TO A  SUCCESSOR.  In the event of any  Transfer of all 
         ----  ==========================
or any part of Point West's  Interest to a Successor,  the  Successor  shall  
thereupon become a Member and the Company shall be continued.

                                      VII.
                                      ----
                          DISSOLUTION, LIQUIDATION AND
                          ----------------------------
                           TERMINATION OF THE COMPANY
                           ==========================
 
        VII.1  EVENTS OF DISSOLUTION.  The Company shall be dissolved upon the 
        -----  =====================
happening of any of the following events:

               1.   When the period fixed for its duration in Section 2.4 has 
               --
               expired; or

               2.   If one or all of the Members unanimously determine to 
               --
               dissolve the Company.
                                       5
<PAGE>


         The  Company  shall  not  dissolve   merely  because  of  Point  West's
Involuntary Withdrawal.

         VII.2 PROCEDURE FOR WINDING UP AND DISSOLUTION.  If the Company is 
         ----- ========================================
dissolved,  the affairs of the  Company  shall be wound up. On winding up of the
Company, the assets of the Company shall be distributed,  first, to creditors of
the Company in satisfaction  of the liabilities of the Company,  and then to the
Persons who are the Members of the Company in proportion to their Interests.

         VII.3 FILING OF ARTICLES OF CANCELLATION. If the Company is dissolved,
         ----- ==================================
Articles of Cancellation  shall be promptly filed with the Delaware Secretary of
State.  If there are no remaining  Members,  the Articles  shall be filed by the
last Person to be a Member; if there are no remaining  Members,  or a Person who
last  was a  Member,  the  Articles  shall be  filed  by the  legal or  personal
representatives of the Person who last was a Member.

                                      VIII.
                                      -----
                           BOOKS, RECORDS, ACCOUNTING
                           --------------------------
                                AND TAX ELECTIONS
                                =================

         VIII.1 BANK  ACCOUNTS.  All funds of the Company shall be deposited in 
         ------ ==============
a bank account or accounts opened in the Company's  name. The Member shall  
unanimously determine the  institution or  institutions at which the accounts 
will be opened and maintained, the types of accounts, and the Persons who will
have authority with respect to the accounts and the funds therein.

         VIII.2 BOOKS AND RECORDS.  The Members shall keep or cause to be kept 
         ------ =================
complete and accurate  books and records of the Company and supporting  
documentation of the transactions  with respect to the conduct of the Company's 
business.  The books and  records  shall be  maintained  in  accordance  with 
sound  accounting principles and practices.

         VIII.3 ANNUAL ACCOUNTING  PERIOD.  The annual accounting period of the 
         ------ =========================
Company shall be its taxable year.The Company's taxable year shall be selected 
by the members, subject to the requirements and limitations of the Code.

         VIII.4 DISREGARD OF ENTITY.  Point West and the Company intend for the 
         ------ ===================
Company to be treated as a partnership  for federal income tax purposes, if the 
Company has two or more Members, and otherwise as an entity that is disregarded 
as an entity separate from its owner for federal  income tax purposes  pursuant
to Treasury Regulation Section 301.7701-3.

         VIII.5 TAX MATTERS PARTNER. To the extent applicable, Point West shall
         ------ =================== 
act as the "tax matters partner" within the meaning of Section 623(a)(7) of the
Code.

                                       6
<PAGE>


                                       IX.
                                       ---
                              GENERAL PROVISIONS
                              ==================
         IX.1  ASSURANCES. Each Member shall execute all such  certificates and
         ----  ========== 
other documents and shall do all such filing, recording,  publishing,  and other
acts as the Members deem  appropriate to comply with the requirements of law for
the formation  and operation of the Company and to comply with any laws,  rules,
and  regulations  relating  to the  acquisition,  operation,  or  holding of the
property of the Company.

         IX.2  NOTIFICATIONS.  Any notice, demand,  consent,  election,  offer,
         ----  =============
approval, require, or other communication (collectively, a "notice") required or
                                                            ------
permitted  under  this  Agreement  must  be  in  writing  and  either  delivered
personally  or sent by certified or registered  mail,  postage  prepaid,  return
receipt  requested.  A notice must be  addressed  to an  Interest  Holder at the
Interest Holder's last known address on the records of the Company.  A notice to
the Company  must be  addressed  to the  Company's  principal  office.  A notice
delivered  personally will be deemed given only when  acknowledged in writing by
the person to whom it is delivered. A notice that is sent by mail will be deemed
given three (3) business days after it is mailed.  Any party may  designate,  by
notice to all of the others, substitute addresses or addresses for notices; and,
thereafter,  notices  are  to be  directed  to  those  substitute  addresses  or
addressees.

         IX.3  SPECIFIC  PERFORMANCE. The parties  recognize  that  irreparable
         ----  =====================
injury will result from a breach of any  provision  of this  Agreement  and that
money damages will be inadequate to fully remedy the injury. Accordingly, in the
event of a breach or threatened  breach of one or more of the provisions of this
Agreement, any party who may be injured (in addition to any other remedies which
may be available to that party) shall be entitled to one or more  preliminary or
permanent  orders 1.  restraining and enjoining any act which would constitute a
                  -
breach  or 2.  compelling  the  performance  of  any  obligation  which,  if not
           -
performed, would constitute a breach.

         IX.4  COMPLETE AGREEMENT.  This Agreement constitutes the complete and
         ----  ================== 
exclusive  statement of the agreement among the Company and the original Member.
It  supersedes  all  prior  written  and oral  statements,  including  any prior
representation,  statement, condition, or warranty. Except as expressly provided
otherwise herein,  this Agreement may not be amended without the written consent
of all of the Members.

         IX.5  APPLICABLE  LAW.  All  questions  concerning  the  construction,
         ----  ===============
validity,  and  interpretation  of this  Agreement  and the  performance  of the
obligations imposed by this Agreement shall be governed by the internal law, not
the law of conflicts, of the State of Delaware.

         IX.6  SECTION TITLES.  The headings herein are inserted as a matter of
         ----  ===============
convenience  only,  and do not  define,  limit  or  describe  the  scope of this
Agreement or the intent of the provisions hereof.

                                       7
<PAGE>


         IX.7  BINDING PROVISIONS. This Agreement is binding upon, and inures to
         ----  ==================
the  benefit  of, the  parties  hereto and their  respective  heirs,  executors,
administrators,  personal and legal representatives,  Successors,  and permitted
assigns.

         IX.8  JURISDICTION AND VENUE. Any suit involving any dispute or matter
         ----  ======================
arising under this  Agreement may only be brought in the United States  District
Court  for  the  District  of  Delaware  or  any  Delaware  State  Court  having
jurisdiction  over the  subject  matter of the  dispute or matter.  All  Members
hereby consent to the exercise of personal  jurisdiction  by any such court with
respect to any such proceeding.

         IX.9  TERMS.  Common nouns and pronouns shall be deemed to refer to the
         ----  =====   
masculine,  feminine, neuter, singular and plural, as the identity of the Person
may in the context require.

         IX.10 SEPARABILITY  OF  PROVISIONS.  Each provision of this Agreement
         ----- ============================
shall  be  considered  separable;  and if,  for any  reason,  any  provision  or
provisions  herein are  determined to be invalid and contrary to any existing or
future law,  such  invalidity  shall not impair the operation of or affect those
portions of this Agreement which are valid.

         IX.11 COUNTERPARTS.  This Agreement may be executed  simultaneously in
         ----- ============
two or more counterparts  each of which shall be deemed an original,  and all of
which, when taken together,  constitute one and the same document. The signature
of any party to any  counterpart  shall be  deemed a  signature  to,  and may be
appended to, any other counterpart.

                                       8

<PAGE>

         IN WITNESS WHEREOF, the parties have executed, or caused this Agreement
         ------------------
to be executed, under seal, as of the date set forth hereinabove.

WITNESS OR ATTEST:
=================
                                                FOURTEEN HILL MANAGEMENT, L.L.C.
                                                ------------------------------


By:/s/Joanna Woodward                            By:/s/JOHN WARD ROTTER
------------------------------                   ------------------------------
                                                 Title:PRINCIPAL
 
 


                                                POINT WEST CAPITAL CORPORATION




 By:/s/Joanna Woodward
-----------------------------                     By:/s/ALAN B. PERPER
                                                  --------------------
                                                  PRESIDENT

                                       9
<PAGE>


                                    Exhibit A
                                    ---------

Point West Capital Corporation
1700 Montgomery Street, Suite 250
San Francisco, CA 94111
EIN:  94-3165263

Percentage of Member: 100%


                                       10
<PAGE>


                                    Exhibit B
                                    ---------
 
3.1 INITIAL CAPITAL CONTRIBUTIONS.
Cash contribution to Fourteen Hill Management, LLC

$5,000,000


                                       11