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                                CREDIT AGREEMENT

                                  by and among

                            THREE-FIVE SYSTEMS, INC.
                              and its Subsidiaries


                             The Banks Named Herein


                                       and


                              IMPERIAL BANK ARIZONA

                                    as Agent


                                   Dated as of

                                November 5, 1998








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<PAGE>
                                TABLE OF CONTENTS

                                                                         Page
                                                                         ----
RECITALS..................................................................1

ARTICLE 1           DEFINITION OF TERMS...................................2

         1.1        Definitions...........................................2
         1.2        Terms Generally......................................13

ARTICLE 2           THE RLC..............................................14

         2.1        RLC Commitment.......................................14
         2.2        Revolving Line.......................................14
         2.3        RLC Notes............................................14
         2.4        RLC..................................................15
         2.5        Excess Balance Repayment.............................18
         2.6        Reduction of RLC Commitment..........................18
         2.7        Conditions...........................................18
         2.8        Other RLC Advances...................................19
         2.9        Assignment...........................................19
         2.10       Issuance of Letters of Credit........................19
         2.11       Issuance Procedure for Letter of Credit..............20
         2.12       Letter of Credit Fees................................20
         2.13       Disbursements........................................20
         2.14       Reimbursement Obligations of Borrower................20
         2.15       Nature of Reimbursement Obligations..................21
         2.16       Banks Obligation.....................................21
         2.17       Certain Requirements.................................22
         2.18       Risk Participations, Drawings, and Reimbursements....22
         2.19       Repayment of Participations..........................24
         2.20       Role of the Issuing Bank.............................25

ARTICLE 2A          THE RLCT.............................................26

         2A.1       RLCT Commitment......................................26
         2A.2       Revolving Line.......................................26
         2A.3       RLCT Notes...........................................26
         2A.4       RLCT.................................................27
         2A.5       Excess Balance Repayment.............................30
         2A.6       Reduction of RLCT Commitment.........................30
         2A.7       Conditions...........................................30
         2A.8       Other RLCT Advances..................................31

                                       -i-
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         2A.9       Assignment...........................................31

ARTICLE 3           PAYMENTS, FEES AND EURODOLLAR PROVISIONS.............32

         3.1        Payments.............................................32
         3.2        Loan Fees............................................32
         3.3        Computations.........................................33
         3.4        Maintenance of Accounts..............................33
         3.5        Certain Contingencies................................33
         3.6        Increased Capital Requirements; Tax..................34
         3.7        Special Provisions for LIBOR Rate Advances...........35
         3.8        Prepayments..........................................37
         3.9        Non U.S. Subsidiaries - Currency Indemnity...........38

ARTICLE 4           SECURITY DOCUMENTS...................................39

         4.1        Security.............................................39
         4.2        Security Documents...................................39

ARTICLE 5           CONDITIONS PRECEDENT.................................40

         5.1        Initial Advance......................................40
         5.2        No Event of Default..................................41
         5.3        No Material Adverse Effect...........................41
         5.4        Representations and Warranties.......................41

ARTICLE 6           REPRESENTATIONS AND WARRANTIES.......................42

         6.1        Recitals.............................................42
         6.2        Organization and Good Standing.......................42
         6.3        Authorization and Power..............................42
         6.4        Enforceable Obligations..............................42
         6.5        No Conflicts or Consents.............................42
         6.6        No Litigation........................................43
         6.7        Financial Condition..................................43
         6.8        Taxes................................................43
         6.9        No Stock Purchase....................................43
         6.10       Advances.............................................43
         6.11       Solvent..............................................43
         6.12       ERISA................................................44
         6.13       Full Disclosure......................................44
         6.14       No Default...........................................44
         6.15       Significant Debt Agreements..........................44
         6.16       Compliance with Law..................................44

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         6.17       Subsidiaries.........................................44
         6.18       Year 2000 Compliance.................................44

ARTICLE 7           AFFIRMATIVE COVENANTS................................45

         7.1        Financial Statements, Reports and Documents..........45
         7.2        Maintenance of Existence.............................46
         7.3        Maintain Business....................................46
         7.4        Insurance............................................46
         7.5        Compliance with Credit Documents.....................47
         7.6        Books and Records; Access............................47
         7.7        Payment of Taxes and Other Indebtedness..............47
         7.8        Notice of Default....................................47
         7.9        Other Notices........................................47
         7.10       ERISA Compliance.....................................47
         7.11       Further Assurances...................................48
         7.12       Compliance with Significant Debt Agreements..........48
         7.13       Compliance with Law..................................48
         7.14       Authorizations and Approvals.........................48
         7.15       News Releases........................................48
         7.16       New Subsidiaries.....................................48
         7.17       Change in Control....................................48
         7.18       Year 2000 Compliance.................................49
         7.19       Treasury Stock.......................................49

ARTICLE 8           NEGATIVE COVENANTS...................................50

         8.1        No Debt..............................................50
         8.2        Liens................................................50
         8.3        Loans................................................50
         8.4        Dividends............................................50
         8.5        Existence; Sale or Transfer of Assets................50
         8.6        Fiscal Year..........................................51
         8.7        Margin Stock.........................................51
         8.8        Amendments to Organizational Documents...............51
         8.9        Treasury Stock.......................................51
         8.10       Investment in China..................................51
         8.11       Financial Covenants..................................51

ARTICLE 9           EVENTS OF DEFAULT....................................53

         9.1        Events of Default....................................53
         9.2        Remedies Upon Event of Default.......................55
         9.3        Performance by the Banks.............................57

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ARTICLE 9A          ADMINISTRATIVE AGENT.................................58

         9A.1       Appointment and Authorization........................58
         9A.2       Exculpation..........................................58
         9A.3       Administrative Agent and Affiliates..................58
         9A.4       Banks' Credit Decisions..............................58
         9A.5       Indemnification......................................59
         9A.6       Administration.......................................59
         9A.7       Default by a Bank....................................61
         9A.8       Collections; Sharing of Payments.....................62
         9A.9       Successor Administrative Agent.......................62
         9A.10      Issuing Bank.........................................62

ARTICLE 10          MISCELLANEOUS........................................64

         10.1       Modification.........................................64
         10.2       Waiver...............................................64
         10.3       Payment of Expenses..................................64
         10.4       Notices..............................................64
         10.5       Governing Law; Jurisdiction, Venue...................65
         10.6       Invalid Provisions...................................66
         10.7       Binding Effect.......................................66
         10.8       Entirety.............................................66
         10.9       Relationship of the Banks and Borrower...............66
         10.10      Time of the Essence..................................66
         10.11      Good Faith Standard..................................66
         10.12      Assignments and Participations; Transferees..........67
         10.13      Headings.............................................69
         10.14      Survival.............................................69
         10.15      No Third Party Beneficiary...........................69
         10.16      Joint Liability......................................70
         10.17      Schedules and Exhibits Incorporated..................70
         10.18      Waiver of Jury Trial.................................70
         10.19      Counterparts.........................................71


Schedule 1.1 - Pro Rata Share and Notice Address of each Bank

Schedule 6.17 - Subsidiaries

Schedule 8.2 - Existing Liens

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<PAGE>
Exhibit "A" - Form of Compliance Certificate

Exhibit "B" - Form of Advance Notice

Exhibit "C" - Form of Notes

Exhibit "D" - Form of Assumption Agreement

Exhibit "E" - Administrative Details Reply Form

Exhibit "F" - Form of Assignment and Acceptance

                                       -v-
<PAGE>
                                CREDIT AGREEMENT

         BY  THIS   CREDIT   AGREEMENT   (together   with  any   amendments   or
modifications,  the  "Credit  Agreement"),  entered  into  as of the  5th day of
November,  1998 by and between THREE- FIVE SYSTEMS, INC., a Delaware corporation
(the "Company"), all present and future Subsidiaries (as hereinafter defined) of
the Company (with the Company,  the  "Borrower"),  the banks listed from time to
time in Schedule  1.1 (the  "Banks"),  and  IMPERIAL  BANK  ARIZONA,  an Arizona
banking  corporation,  as administrative  agent for the Banks (in such capacity,
together with any  successor  agent  appointed  hereunder,  the  "Administrative
Agent") and as Issuing Bank (as hereinafter defined) or as agent for the Issuing
Bank (as  Administrative  Agent and as agent for the Issuing Bank, the "Agent"),
in  consideration of the mutual promises herein contained and for other valuable
consideration, the parties hereto do hereby agree as follows:

                                    RECITALS
                                    --------

         A.  Borrower  has  requested  that the Banks  establish  the  following
financial accommodations:

                  1. A revolving  line of credit  (the  "RLC") in the  principal
         amount of  $15,000,000.00  to provide working capital financing and for
         the issuance from time to time of letters of credit; and

                  2. A revolving  line of credit  term loan (the  "RLCT") in the
         principal amount of  $10,000,000.00  to provide  liquidity for a common
         stock repurchase program by Borrower.

         B. The  Banks  have  agreed  to do so upon the  terms,  conditions  and
provisions set forth herein.

         C. Effective as of the delivery of this Credit  Agreement,  the Company
acknowledges  and agrees  that the  Credit  Agreement  dated as of May 23,  1997
between the Company and Imperial Bank, a California banking  corporation,  shall
be terminated and Imperial Bank shall have no further obligations to the Company
under said Credit Agreement and the Company shall have no further  obligation to
Imperial Bank under said Credit Agreement.

         Accordingly, the parties hereto agree as follows:

<PAGE>
                                    ARTICLE 1

                               DEFINITION OF TERMS
                               -------------------

         1.1 Definitions.  For the purposes of this Credit Agreement, unless the
context  otherwise  requires,  the  following  terms  shall have the  respective
meanings assigned to them in this Article 1 or in the section hereof referred to
below:

                  "Administrative Agent": See the Preamble hereto.

                  "Administrative   Questionnaire"   means  that  Administrative
Details  Reply Form  substantially  in the form of Exhibit "E"  attached  hereto
delivered to the Agent pursuant to Section 10.12.

                  "Advance" means an RLC Advance or an RLCT Advance.

                  "Affiliate" of any Person means any Person which,  directly or
indirectly,  controls,  is controlled by, or is under common control with,  such
Person.  For  the  purposes  of  this  definition,  "control"  (including,  with
correlative  meanings,  the terms  "controlled  by" and  "under  common  control
with"), as used with respect to any Person, shall mean the possession,  directly
or  indirectly,  of the power to direct or cause the direction of the management
and policies of such Person, whether by contract or otherwise.

                  "Agent": See the Preamble hereto.

                  "Assignment   and   Acceptance"   means  that  Assignment  and
Acceptance substantially in the form of Exhibit "F" attached hereto delivered to
the Agent pursuant to Section 10.12.

                  "Authorized Officer" means the chief executive officer,  chief
financial  officer or the chief  accounting  officer of Borrower,  or such other
individual  who is from time to time  designated to the Banks in writing by said
officer as authorized to act for Borrower with respect to the Loans.

                  "Banking  Day"  means a day of the  year on  which  commercial
banks are not required or  authorized to close in  Inglewood,  California,  and,
with respect to a LIBOR Rate Advance,  a day on which dealings are carried on in
the London interbank market.

                  "Banks": See the Preamble hereto.

                  "Borrower": See the Preamble hereto.

                  "Cash  Flow"  means  the  sum  for  the  relevant   period  of
Borrower's  Net  Income,  tax  expense  (less  taxes  actually  paid  in  cash),
depreciation expense,  amortization of intangibles expense and interest expense,
all to the extent deducted in the calculation of Net Income.

                                       -2-
<PAGE>
                  "Change in  Control"  means the  occurrence  or  existence  of
either of the following  events or conditions  without the prior written consent
of the Banks, if different than the state of affairs as of the Closing Date:

                           (a)  the  acquisition  by any  Person  or two or more
                  Persons  acting in concert of "beneficial  ownership"  (within
                  the  meaning  of Rule 13d-3  promulgated  by the SEC under the
                  Exchange Act or as otherwise specified under the provisions of
                  this Credit  Agreement) of securities of Borrower  having more
                  than 50% of the  ordinary  voting  power for the  election  of
                  directors; or

                           (b) the  acquisition  of Control of  Borrower  by any
                  Person or two or more Persons  acting in concert of Control of
                  Borrower.

                  "Closing Date" means November 5, 1998.

                  "Co-Borrowers,"  each a "Co-Borrower"  means the  Subsidiaries
that are a party to this Credit Agreement from time to time.

                  "Code" means the Internal Revenue Code of 1986, as amended.

                  "Collateral"  means  any  property  subject  to  the  Security
Documents.

                  "Commitment" means the RLC Commitment and the RLCT Commitment.

                  "Company": See the Preamble hereto.

                  "Compliance Certificate": See Section 7.1(c).

                  "Control"  when  used with  respect  to any  Person  means the
power, directly or indirectly, to direct the management policies of such Person,
whether  through the ownership of voting  securities,  by contract or otherwise;
and the terms  "controlling" and "controlled"  have meanings  correlative to the
foregoing.

                  "Controlled  Group"  means,  severally and  collectively,  the
members  of the group  controlling,  controlled  by and/or in common  control of
Borrower, within the meaning of Section 4001(b) of ERISA.

                  "Controlled  Subsidiary"  means  any  Subsidiary  in which the
Company owns in excess of fifty  percent  (50.0%) of both all voting  rights and
all equity interests.

                  "Credit Agreement": See the Preamble hereto.

                                       -3-
<PAGE>
                  "Credit  Documents"  means this  Credit  Agreement,  the Notes
(including any renewals,  extensions,  restatements and refundings thereof), the
Security Documents,  and any written agreements,  certificates or documents (and
with respect to this Credit  Agreement,  the Notes,  the Security  Documents and
such other written  agreements  and  documents,  any  amendments or  supplements
thereto or modifications thereof) executed or delivered pursuant to the terms of
this Credit Agreement.

                  "Credit Facilities" means the RLC and the RLCT.

                  "Current  Assets"  means all assets of Borrower  classified as
current assets under GAAP, determined on a consolidated basis.

                  "Current   Liabilities"  means  all  liabilities  of  Borrower
classified  as current  liabilities  under GAAP,  determined  on a  consolidated
basis.

                  "Current  Ratio" means as of any date the ratio of  Borrower's
Current Assets as of such date to its Current Liabilities as of such date.

                  "Debt  Coverage  Ratio"  means  for  any  date  the  ratio  of
Borrower's  Cash Flow to its Debt Service  Requirement,  calculated on a rolling
four-quarter basis.

                  "Debt Service Requirement" means the sum of the following that
are due within the relevant  period:  all current  maturities of long-term  debt
(excluding the RLC), capital lease obligations, interest expense and off-balance
sheet lease expense.

                  "Default  Rate" means an interest rate per annum equal to five
percent (5.0%) over the Variable Rate,  which Default Rate shall change when and
as the Variable Rate changes.

                  "Disbursement": See Section 2.13.

                  "Disbursement Date": See Section 2.13.

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

                  "EBITDA"  means  Net  Income,  plus  the  sum of all  interest
expense, tax expense,  depreciation and amortization  deducted in computing such
Net Income.

                  "EBITDA  Ratio"  means as of any date the ratio of Funded Debt
to EBITDA, calculated on a rolling four-quarter basis.

                  "Equity" means Borrower's stockholders' equity,  determined on
a consolidated basis in accordance with GAAP.

                                       -4-
<PAGE>
                  "ERISA" means the Employee  Retirement  Income Security Act of
1974,  as amended,  together  with all final and  permanent  regulations  issued
pursuant  thereto.  References  herein to sections and  subsections of ERISA are
deemed to refer to any successor or substitute provisions therefor.

                  "Eurocurrency  Liabilities"  has the meaning  assigned to that
term in Regulation D of the Board of Governors to the Federal Reserve System, as
in effect from time to time.

                  "Eurodollar  Rate Reserve  Percentage"  for the LIBOR Interest
Period for each LIBOR Rate Advance means the reserve  percentage  applicable two
(2)  Banking  Days  before the first day of such  LIBOR  Interest  Period  under
regulations  issued from time to time by the Board of  Governors  of the Federal
Reserve  System  (or  any  successor)  for   determining   the  maximum  reserve
requirement  (including,  but not limited to, any  emergency,  supplemental,  or
other marginal  reserve  requirement)  for a member bank of the Federal  Reserve
System in San Francisco with respect to  liabilities or assets  consisting of or
including  Eurocurrency  Liabilities  (or with respect to any other  category of
liabilities  which includes  deposits by reference to which the interest rate on
LIBOR Rate Advances) having a term equal to such Interest Period.

                  "Event of Default": See Section 9.1.

                  "Exchange Act" means the  Securities  Exchange Act of 1934, as
amended.

                  "Federal Funds Rate" means,  as of any date of  determination,
the rate set forth in the weekly statistical release designated as H.15(519), or
any successor publication, published by the Federal Reserve Board (including any
such successor,  "H.15(519)")  for such date opposite the caption "Federal Funds
(Effective)."  If for any  relevant  date  such  rate is not  yet  published  in
H.15(519),  the rate  for such  date  will be the  rate set  forth in the  daily
statistical  release  designated as the Composite 3:30 p.m.  Quotations for U.S.
Government Securities,  or any successor  publication,  published by the Federal
Reserve Bank of New York (including any such successor, the "Composite 3:30 p.m.
Quotation") for such date under the caption  "Federal Funds Effective  Rate." If
on any relevant date the appropriate  rate for such date is not yet published in
either H.15(519) or the Composite 3:30 p.m.  Quotations,  the rate for such date
will be the arithmetic  mean of the rates for the last  transaction in overnight
Federal funds  arranged  prior to 9:00 a.m. (New York City time) on that date by
each of three  leading  brokers of Federal funds  transactions  in New York City
selected by the Agent.

                  "Financial Covenants": See Section 8.11 hereof.

                  "Funded Debt" means as of the end of any fiscal quarter,  with
respect to any  Person,  its  interest-bearing  Indebtedness  including  without
limitation any capital lease debt.

                  "GAAP" means those generally  accepted  accounting  principles
and  practices  which  are  recognized  as such  by the  American  Institute  of
Certified Public Accountants  acting through its Accounting  Principles Board or
by the Financial Accounting Standards Board or through other

                                       -5-
<PAGE>
appropriate boards or committees thereof and which are consistently  applied for
all  periods  after the date  hereof so as to  properly  reflect  the  financial
condition,  and the results of operations and changes in the financial position,
of Borrower,  including without limitation accounting rules promulgated pursuant
to  Regulations  SX and SK,  except that any  accounting  principle  or practice
required  to be changed by the said  Accounting  Principles  Board or  Financial
Accounting  Standards Board (or other appropriate board or committee of the said
Boards) in order to continue as a generally  accepted  accounting  principle  or
practice may be so changed.

                  "Governmental   Authority"   means  any   government  (or  any
political subdivision or jurisdiction  thereof),  court, bureau, agency or other
governmental authority having jurisdiction over Borrower or any of its business,
operations or properties.

                  "Honor Date" has the meaning specified in Section 2.18(b).

                  "Imperial"  means  Imperial Bank Arizona,  an Arizona  banking
corporation.

                  "Indebtedness"  means, with respect to any Person,  all of its
monetary  and  contingent   obligations  and  liabilities,   including   without
limitation each of the following (without duplication):  (a) obligations of that
Person to any other  Person for payment of  borrowed  money,  (b) capital  lease
obligations,  (c) notes and drafts  drawn or accepted by that Person  payable to
any other Person,  whether or not  representing  obligations  for borrowed money
(but without duplication of indebtedness for borrowed money), (d) any obligation
for the  purchase  price of property  the payment of which is deferred  for more
than one year or evidenced by a note or equivalent instrument, (e) guarantees of
Indebtedness  of third  parties,  and (f) a  recourse  or non  recourse  payment
obligation  of any other Person that is secured by a Lien on any property of the
first Person,  whether or not assumed by the first Person, up to the fair market
value  (from time to time) of such  property  (absent  manifest  evidence to the
contrary,  the fair market value of such property shall be the amount determined
under GAAP for financial reporting purposes),  but excluding any trades accounts
payables and any accruals.

                  "Insolvency  Proceeding" means any proceeding undertaken under
the Debtor Relief Laws.

                  "Issuance  Date" means the date on which a Letter of Credit is
delivered to the beneficiary thereof.

                  "Issuance Request" means a request for a Letter of Credit duly
executed by Borrower in a form satisfactory to the Issuing Bank.

                  "Issue" means,  with respect to any Letter of Credit, to issue
or, by amendment or otherwise,  to extend the expiry of, or to renew or increase
or  decrease  the amount of,  such  Letter of  Credit;  and the terms  "Issued,"
"Issuing" and "Issuance" have corresponding meanings.

                                       -6-
<PAGE>
                  "Issuing Bank" means Imperial and/or any Affiliate  thereof in
its capacity as issuer of one or more Letters of Credit hereunder, together with
any replacement Letter of Credit issuer arising under this Credit Agreement.

                  "LC Borrowing"  means an extension of credit  resulting from a
drawing  under any Letter of Credit which shall not have been  reimbursed on the
date when made nor converted into a Variable Rate Advance.

                  "LC  Obligations"  means  at any  time  the  sum  of  (a)  the
Outstanding  LC Balance under the RLC,  plus (b) the amount of all  unreimbursed
drawings under all Letters of Credit, including all outstanding LC Borrowings.

                  "Letter  of  Credit"  means a letter of  credit  issued by the
Issuing Bank for the account of Borrower pursuant to Article 2.

                  "LIBOR" means the London Interbank Offered Rate, determined as
provided herein, for the applicable LIBOR Interest Period to be specified by the
Borrower as provided herein.  For each Advance under the LIBOR option, the LIBOR
rate will remain in effect  through  the end of the LIBOR  Interest  Period.  If
prior to the due date for a LIBOR Rate Advance Borrower  requests a continuation
of said LIBOR Rate  Advance,  Borrower's  request  shall comply with the request
procedure specified below and the LIBOR rate for the LIBOR Rate Advance shall be
re-determined for the next LIBOR Interest Period as provided below.  LIBOR shall
mean with respect to any LIBOR Interest  Period the rate equal to the arithmetic
mean (rounded upwards, if necessary,  to the nearest  one-sixteenth  (1/16th) of
one percent (1%)) of:

                           (a) the offered  rates per annum for deposits in U.S.
                  Dollars for a period equal to such LIBOR Interest Period which
                  appears at 11:00 a.m.,  London  time,  on the  Reuters  Screen
                  LIBOR Page on the  Banking  Day that is two (2)  Banking  Days
                  before the first day of such LIBOR  Interest  Period,  in each
                  case if at least four (4) such  offered  rates  appear on such
                  page, or

                           (b) if clause (a) is not  available,  (x) the offered
                  rate per annum for deposits in U.S. Dollars for a period equal
                  to  such  LIBOR  Interest  Period  for a  LIBOR  Rate  Advance
                  hereunder  which appears as of 11:00 a.m.,  London time on the
                  Telerate  Monitor on  Telerate  Screen 3750 on the Banking Day
                  which is two (2)  Banking  Days  before  the first day of such
                  LIBOR  Interest  Period;  or (y) if  clause  (x)  above is not
                  available, the arithmetic mean (rounded upwards, if necessary,
                  to the nearest one-sixteenth  (1/16th) of one percent (1%)) of
                  the  interest  rates per annum  offered by at least  three (3)
                  prime banks selected by the Banks at approximately 11:00 a.m.,
                  London time,  on the Banking Day which is two (2) Banking Days
                  before such date for deposits in U.S. Dollars to prime banks

                                       -7-
<PAGE>
                  in the  London  interbank  market,  in each  case for a period
                  equal to such LIBOR  Interest  Period for a LIBOR Rate Advance
                  hereunder  in an amount equal to the amount to which the LIBOR
                  applies.  "Reuters Screen LIBOR Page" as used herein means the
                  display  designated as page LIBOR on the Reuters Monitor Money
                  Rates Service or such other page as may replace the LIBOR page
                  on that service for the purpose of displaying London interbank
                  offered rates of major banks.

                  "LIBOR  Advance"  means  an  Advance  or a  portion  of a Loan
designated by Borrower, that bears, or is requested to bear, interest at a LIBOR
Based Rate. Each LIBOR Advance shall be in a minimum amount of $500,000.00  with
integral multiples of $1,000.00 in excess thereof.

                  "LIBOR  Based  Rate" means the rate per annum equal (A) to the
sum of LIBOR and the following margin:

                           (i) one hundred seventy-five basis points (175 bp) as
                  to an RLC Advance;

                           (ii) two  hundred  thirty-seven  and  one-half  basis
                  points (237.5 bp) as to an RLCT Advance;

in each case divided by (B) a  percentage  equal to one hundred  percent  (100%)
minus  the  Eurodollar  Rate  Reserve  Percentage  for the  period  equal to the
applicable LIBOR Interest Period.

                  "LIBOR  Interest  Period" means,  for each LIBOR Rate Advance,
the period  commencing  on the date of such LIBOR Rate Advance and ending on the
last day of the period  selected by Borrower  pursuant to the provisions  herein
and,  thereafter,  each  subsequent  period  commencing  on the  last day of the
immediately  preceding  LIBOR Interest  Period and ending on the last day of the
period selected by Borrower pursuant to the provisions  herein.  The duration of
each LIBOR Interest  Period shall be one, two, three or six months,  as selected
by Borrower  (A), for a new Advance,  in the request for a LIBOR Rate Advance or
(B),  for an  outstanding  Advance,  in the request for a LIBOR Rate  Advance to
continue  bearing  interest at the LIBOR Based Rate or (C),  for an  outstanding
Variable  Rate  Advance,  in the  request to  convert  to a LIBOR Rate  Advance;
provided, however, that:

                           (i) LIBOR  Interest  Periods  commencing  on the same
                  date shall be of the same duration;

                           (ii)  Whenever  the  last day of any  LIBOR  Interest
                  Period  would  otherwise  occur on a day other  than a Banking
                  Day,  the  last day of such  LIBOR  Interest  Period  shall be
                  extended to occur on the next succeeding Banking Day, provided
                  that if such extension

                                       -8-
<PAGE>
                  would  cause  the last day of such  LIBOR  Interest  Period to
                  occur in the next following  calendar  month,  the last day of
                  such LIBOR  Interest  Period shall occur on the next preceding
                  Banking Day; and

                           (iii) No LIBOR  Interest  Period with  respect to any
                  RLC Advance shall extend beyond the applicable Maturity Date.

                  "Lien" means any lien, mortgage,  security interest, tax lien,
pledge,  encumbrance,  conditional sale or title retention  arrangement,  or any
other  interest in property  designed to secure the  repayment  of  Indebtedness
whether arising by agreement or under any statute or law, or otherwise.

                  "Loans"  means  together  the RLC and the RLCT,  each  being a
Loan.

                  "Loan Fees": See Section 3.2 hereof.

                  "Material  Adverse  Effect"  means any  circumstance  or event
which (i) has any material adverse effect upon the validity or enforceability of
any Credit Document,  (ii) materially impairs the ability of Borrower to fulfill
its obligations under the Credit Documents,  or (iii) causes an Event of Default
or any event which,  with notice or lapse of time or both, would become an Event
of Default.

                  "Maturity  Date"  means  the RLC  Maturity  Date  or the  RLCT
Maturity Date, as applicable.

                  "Maximum LC  Commitment"  means  SEVEN  MILLION  FIVE  HUNDRED
THOUSAND AND NO/100 DOLLARS ($7,500,000.00).

                  "Net  Income"  means for any period the net income of Borrower
for such period in accordance with GAAP, determined on a consolidated basis.

                  "New Subsidiary": See Section 7.16 hereof.

                  "Notes"  means the RLC Note and the RLCT  Note,  each  being a
Note.

                  "Obligation"  means  all  present  and  future   indebtedness,
obligations  and  liabilities  of Borrower to the Banks,  and all  renewals  and
extensions  thereof,  or any  part  thereof,  arising  pursuant  to this  Credit
Agreement or represented by the Notes,  including  without  limitation the Loans
and  all  interest  accruing  thereon,  and  attorneys'  fees  incurred  in  the
enforcement  or collection  thereof,  regardless  of whether such  indebtedness,
obligations and  liabilities are direct,  indirect,  fixed,  contingent,  joint,
several or joint and several;  together with all  indebtedness,  obligations and
liabilities of Borrower evidenced or arising pursuant to any of the other Credit
Documents, and all renewals and extensions thereof, or part thereof.

                                       -9-
<PAGE>
                  "Outstanding  LC  Balance"  in  effect  at any time  means the
maximum  aggregate  amount  available  to  be  drawn  at  such  time  under  all
outstanding  Letters of Credit,  the  determination  of such  maximum  amount to
assume compliance with all conditions for a Disbursement.

                  "Payment Date" means:

                           (i) as to a Variable Rate  Advance,  the first day of
                  each  month,  provided  that if any such day is not a  Banking
                  Day,  then  such  Payment  Date  shall be the next  successive
                  Banking Day; and

                           (ii) as to a LIBOR Rate  Advance,  the earlier of (A)
                  the last day of its LIBOR Interest Period, or (B) the last day
                  of each three month period during such LIBOR Interest Period.

                  "PBGC" means the Pension Benefit Guaranty Corporation, and any
successor  to  all  or  substantially   all  of  the  Pension  Benefit  Guaranty
Corporation's functions under ERISA.

                  "Permitted Liens" means Liens which consist of the following:

                  (a) Liens for taxes,  assessments or governmental  charges not
         yet delinquent;

                  (b) Liens to which the Banks  shall  consent  in  writing,  in
         their sole and absolute discretion; and

                  (c) Existing Liens listed on Schedule 8.2.

                  "Person"  includes  an  individual,  a  corporation,  a  joint
venture, a partnership,  a trust, a limited liability company, an unincorporated
organization or a government or any agency or political subdivision thereof.

                  "Plan"  means an employee  defined  benefit plan or other plan
maintained  by Borrower  for  employees  of Borrower  and covered by Title IV of
ERISA,  or subject to the minimum  funding  standards  under  Section 412 of the
Code.

                  "Prime  Rate"  means  the  interest  rate per  annum  publicly
announced by Imperial Bank, a California banking corporation, or its successors,
as its "prime rate" as in effect from time to time.  Borrower  acknowledges that
the Prime Rate is not  necessarily  the best or lowest rate  offered by Imperial
Bank and Imperial  Bank may lend to its customers at rates that are at, above or
below its Prime Rate.

                                      -10-
<PAGE>
                  "Pro Rata Share" means,  as to each Bank, that amount shown at
any  time  on  Schedule  1.1  attached  hereto  as  that  Bank's  share  of each
Commitment, each Advance and each Letter of Credit.

                  "Quarterly  End Date" means the last day of each March,  June,
September and December.

                  "Regulation U" means  Regulation U promulgated by the Board of
Governors  of the  Federal  Reserve  System,  12 C.F.R.  Part 221,  or any other
regulation hereafter promulgated by said Board to replace the prior Regulation U
and having substantially the same function.

                  "Regulatory  Change" means any change effective after the date
of this Credit  Agreement  in United  States  federal,  state,  or foreign  law,
regulations,  or  rules  or the  adoption  or  making  after  such  date  of any
interpretation, directive, or request applying to a class of banks including the
Banks, of or under any United States federal,  state, or foreign law, regulation
or rule (whether or not having the force of law) by any court or governmental or
monetary authority charged with the interpretation or administration thereof.

                  "Reportable  Event" means any "reportable  event" as described
in Section  4043(b) of ERISA  with  respect to which the thirty  (30) day notice
requirement has not been waived by the PBGC.

                  "Required  Banks"  means,  at any time,  Banks having Pro Rata
Shares  representing  at  least  sixty-five  percent  (65.0%)  of the  aggregate
Commitment.

                  "RLC": See Recital A hereto.

                  "RLC Advance" means a disbursement of the proceeds of the RLC.

                  "RLC  Balance"  means (i) with respect to the RLC on any date,
the aggregate  outstanding  principal  amount thereof after giving effect to any
borrowings and prepayments or repayments of RLC Advances occurring on such date;
plus (ii) with respect to any outstanding LC Obligations on any date, the amount
of such LC  Obligations  on such date after  giving  effect to any  Issuances of
Letters of Credit  occurring on such date and any other changes in the aggregate
amount of the LC Obligations as of such date,  including  changes occurring as a
result of any reimbursements of outstanding unpaid drawings under any Letters of
Credit or any  reductions  in the maximum  amount  available  for drawing  under
Letters of Credit taking effect on such date.

                  "RLC  Commitment"  means  FIFTEEN  MILLION AND NO/100  DOLLARS
($15,000,000.00).

                  "RLC Maturity Date" means May 22, 2000.

                  "RLC Non-Use Fee": See Section 3.2(a).

                                      -11-
<PAGE>
                  "RLC  Note"  means a  Revolving  Promissory  Note of even date
herewith substantially in the form attached hereto as Exhibit C-1, in the amount
of a Bank's Pro Rata  Share of the RLC  Commitment,  executed  by  Borrower  and
delivered  to a Bank  pursuant to the terms of this Credit  Agreement,  together
with any  renewals,  extensions,  modifications,  restatements  or  replacements
thereof.

                  "RLCT": See Recital A hereto.

                  "RLCT  Advance"  means a  disbursement  of the proceeds of the
RLCT.

                  "RLCT  Balance"  means  the  aggregate  outstanding  principal
amount  of  all  RLCT  Advances,  after  giving  effect  to any  borrowings  and
prepayments or repayments of RLCT Advances occurring on such date.

                  "RLCT   Commitment"  means  TEN  MILLION  AND  NO/100  DOLLARS
($10,000,000.00).

                  "RLCT Maturity Date" means August 5, 2004.

                  "RLCT Non-Use Fee": See Section 3.2(c).

                  "RLCT  Note" means a  Revolving  Promissory  Note of even date
herewith  substantially in the form attached hereto as Exhibit C-2 in the amount
of a Bank's Pro Rata  Share of the RLCT  Commitment  executed  by  Borrower  and
delivered  to a Bank  pursuant to the terms of this Credit  Agreement,  together
with any renewals, extensions, modifications or replacements thereof.

                  "RLCT  Principal  Date" means  initially  November 5, 1999 and
every 3 month anniversary thereafter.

                  "RLCT Termination Date" means August 5, 1999.

                  "SEC" means the Securities and Exchange Commission.

                  "Security Agreement": See Section 4.1.

                  "Security Documents": See Section 4.2.

                  "Significant Debt Agreement" means all documents,  instruments
and  agreements  executed by  Borrower,  evidencing,  securing  or ensuring  any
Indebtedness  of  Borrower or any  guaranty in excess of $50,000 in  outstanding
principal (or principal equivalent) amount.

                  "Stated  Amount" of a Letter of Credit means the amount of the
Letter of Credit as stated in the Letter of Credit.

                                      -12-
<PAGE>
                  "Stated  Expiry  Date" of a Letter of Credit  means the stated
expiry date or expiration date as stated in the Letter of Credit.

                  "Subsidiary"  means  any  business   association  directly  or
indirectly controlled by the Borrower.

                  "Tangible  Net  Worth"  means,  at any given  date,  the total
shareholder's  equity (including  capital stock,  additional paid in capital and
retained  earnings  after  deducting  treasury  stock)  which would  appear on a
balance sheet of Borrower  prepared as of such date in accordance with generally
accepted accounting  principles  consistently  applied,  less the aggregate book
value of  "Intangible  Assets" (as defined  below) shown on such balance  sheet.
"Intangible Assets" means those assets that are (i) deferred assets,  other than
prepaid taxes; (ii) patents,  copyrights,  trademarks,  tradenames,  franchises,
goodwill,  experimental  expenses  and  other  similar  assets  which  would  be
classified as intangible  assets on a balance sheet prepared in accordance  with
generally  accepted  accounting  principles   consistently  applied;  and  (iii)
unamortized debt discount and expense.

                  "Tangible   Net   Worth   Minimum"   means   the  sum  of  (i)
$55,000,000.00,  plus (ii) beginning December 31, 1998, fifty percent (50.0%) of
its  positive  Net Income for each  fiscal  quarter  thereafter,  less (iii) the
amount of its treasury stock acquired by Borrower since August 1, 1998.

                  "U.S." means the United States of America.

                  "Variable  Rate"  means the rate per annum  equal to the Prime
Rate per annum as in effect from time to time.  The Variable Rate will change on
each day that the "Prime Rate" changes.

                  "Variable  Rate  Advance"  means an  Advance or a portion of a
Loan designated by Borrower,  that bears,  or is requested to bear,  interest at
the Variable Rate.

         1.2 Terms Generally.

                  (a) The definitions in Section 1.1 shall apply equally to both
         the singular and plural forms of the terms defined.

                  (b)  Whenever  the context  may  require,  any  pronoun  shall
         include the corresponding masculine, feminine and neuter forms.

                  (c) All references herein to Articles,  Sections, Exhibits and
         Schedules  shall be deemed  references to Articles and Sections of, and
         Exhibits and  Schedules  to, this  Agreement  unless the context  shall
         otherwise require.

                                      -13-
<PAGE>
                  (d) Except as otherwise  expressly  provided herein, all terms
         of an accounting  or financial  nature shall be construed in accordance
         with GAAP, as in effect from time to time.

                                    ARTICLE 2

                                     THE RLC
                                     -------

         2.1 RLC  Commitment.  Each Bank agrees,  severally but not jointly,  to
loan to or for the benefit of Borrower,  and Borrower  shall be entitled to draw
upon and borrow,  in the manner and upon the terms and  conditions  contained in
this  Credit  Agreement,  an amount  that shall not exceed  that Bank's Pro Rata
Share of the RLC Commitment.

         2.2 Revolving Line.

                  (a)  Subject  to the  terms and  conditions  set forth in this
         Credit Agreement,  each Bank shall provide to Borrower a revolving line
         of credit (each, a "RLC"), against which a Bank shall fund its Pro Rata
         Share of each RLC Advance to be made to  Borrower,  repaid by Borrower,
         and  readvanced to Borrower,  as Borrower may request,  and the Issuing
         Bank shall  issue such  Letters of Credit as  Borrower  shall  request,
         which may be  terminated  or repaid by Borrower and  reissued  provided
         that (i)  there is no Event of  Default  under  any  provision  of this
         Credit Agreement, (ii) no RLC Advance shall be made or Letter of Credit
         issued that would  cause the RLC Balance to exceed the RLC  Commitment,
         (iii) no Bank shall be obligated under any circumstances to fund an RLC
         Advance in excess of that  Bank's Pro Rata Share of the  requested  RLC
         Advance,  (iv) the  aggregate  amount  of a Bank's  funding  of the RLC
         Balance at any one time outstanding shall not exceed its Pro Rata Share
         of the RLC Commitment, and (v) no Letter of Credit shall be issued with
         a Stated Expiry Date later than the RLC Maturity  Date. The Banks shall
         not be  obligated  to fund their Pro Rata Share of any RLC  Advance if,
         after giving effect thereto, any of the foregoing  limitations would be
         exceeded.

                  (b) The  failure  of any Bank to fund its Pro Rata Share of an
         RLC Advance in accordance with its Pro Rata Share of the RLC Commitment
         shall not relieve any other Bank of its several obligations  hereunder,
         but no Bank shall be liable with respect to the obligation of any other
         Bank hereunder.

                  (c) RLC  Advances  may be made for the purpose of providing to
         Borrower working capital financing or in connection with a Disbursement
         under a Letter of Credit.

         2.3 RLC Notes.  The RLC of each Bank shall be  evidenced by an RLC Note
and shall bear  interest and be payable to the order of such Bank upon the terms
and conditions  contained  therein.  The aggregate amount funded by a Bank under
its RLC Note less all repayments of

                                      -14-
<PAGE>
principal thereof shall be the principal amount owing and unpaid on its RLC Note
and its RLC. The principal  amount  funded by a Bank and all principal  payments
and prepayments  thereof may be noted by such Bank on a schedule attached to its
RLC Note and shall be entered by the Bank on its ledgers and  computer  records;
provided  that the failure of the Bank to make such  notations or entries  shall
not affect the  principal  amount owing and unpaid on its RLC Note.  The entries
made in the  ordinary  course of business by a Bank on its ledgers and  computer
records and any notations  made in the ordinary  course of business by a Bank on
any such schedule annexed to its RLC Note shall be presumed to be accurate until
the contrary is established. If requested,  Borrower shall confirm in writing to
the Administrative Agent each RLC Advance.

         2.4 RLC.  The RLC shall bear  interest and be payable to the Banks upon
the  terms  and  conditions  contained  therein,  which  include  the  following
provisions:

                  (a) Interest shall accrue:

                           (i) On the unpaid  principal of an RLC Advance at the
                  Variable  Rate except to the extent that an RLC Advance  bears
                  interest at the LIBOR Based Rate.

                           (ii) On the unpaid principal of an RLC Advance at the
                  LIBOR Based Rate to the extent Borrower shall elect and to the
                  extent not otherwise provided herein.

                  (b) All  interest  shall be computed on the basis of a 360-day
         year and accrue on a daily basis for the actual number of days elapsed.
         All accrued interest shall be due and payable on each Payment Date.

                  (c) The entire  unpaid  principal  balance,  all  accrued  and
         unpaid interest, and all other amounts payable under the RLC Note shall
         be due and payable in full on the RLC Maturity Date.

                  (d) Each request for an RLC Advance shall be  substantially in
         the form attached hereto as Exhibit "B" from an Authorized  Officer and
         shall,  in addition to complying  with the other  requirements  in this
         Credit Agreement,  (i) specify the date and amount of the requested RLC
         Advance,  (ii) specify  whether the RLC Advance shall be an RLC Advance
         that bears  interest  at the  Variable  Rate or shall be an RLC Advance
         that bears  interest  at the LIBOR  Based  Rate,  (iii) be in a minimum
         amount of  $500,000.00  with integral  multiples of $1,000.00 in excess
         thereof,  and (iv) if the RLC Advance is to bear  interest at the LIBOR
         Based Rate, (A) specify the LIBOR Interest Period, and (B) be delivered
         to Administrative Agent before 9:00 a.m.  (Inglewood,  California local
         time)  at  least  three  (3)  Banking  Days  prior  to the  date of the
         requested  RLC  Advance.  Any request for an RLC Advance not  complying
         with the foregoing  requirements for an RLC Advance bearing interest at
         the LIBOR Based Rate shall bear interest at the

                                      -15-
<PAGE>
         Variable Rate; provided that in the event such non-compliance is due to
         Borrower's failure to specify the required information, the Banks agree
         to  notify  Borrower  of  such  failure  and to  provide  Borrower  the
         opportunity  to provide such  information  prior to directing  that the
         Advance bear interest at the Variable Rate.

                  (e) After receiving a request for an RLC Advance in the manner
         provided herein, the Administrative Agent shall promptly,  before 11:30
         a.m.  (Inglewood,  California local time) on the date an RLC Advance is
         requested,  notify  each  Bank  by  telephone  (confirmed  promptly  in
         writing),  telefacsimile or cable of the terms of such request and such
         Bank's Pro Rata Share of the requested  Rate Advance.  Each Bank shall,
         before 1:00 p.m. (Inglewood,  California local time) on the date an RLC
         Advance is to be made as  specified  in a request  for an RLC  Advance,
         deposit with the Administrative Agent such Bank's Pro Rata Share of the
         requested RLC Advance in immediately  available funds. Upon fulfillment
         of all applicable  conditions set forth herein and after receipt by the
         Administrative  Agent of such funds, the Administrative Agent shall pay
         or  deliver  all  funds so  received  to the order of  Borrower  at the
         principal office of the  Administrative  Agent. The failure of any Bank
         to fund its Pro Rata Share of any RLC Advance  required of it hereunder
         shall not relieve any other Bank of its obligation to fund its Pro Rata
         Share of any RLC Advance  hereunder.  If any Bank fails to fund its Pro
         Rata Share of the requested  RLC Advance and if all  conditions to such
         RLC Advance have apparently been satisfied,  the  Administrative  Agent
         will make available to Borrower the funds received by it from the other
         Bank.  Neither  the   Administrative   Agent  nor  any  Bank  shall  be
         responsible  for the  performance by any other Bank of its  obligations
         hereunder.

                  Unless the  Administrative  Agent shall have  received  notice
         from a Bank  prior to the date of any RLC  Advance  that such Bank will
         not make  available  to the  Administrative  Agent such Bank's Pro Rata
         Share of the requested RLC Advance, the Administrative Agent may assume
         that such Bank has made such  amount  available  to the  Administrative
         Agent on the date of such RLC Advance in  accordance  with this Section
         and the  Administrative  Agent may, in reliance  upon such  assumption,
         make  available a  corresponding  amount to or on behalf of Borrower on
         such date. If and to the extent any Bank shall not have so made its Pro
         Rata Share of the requested RLC Advance available to the Administrative
         Agent (the "Principal Shortfall Amount"),  Borrower agrees to repay the
         Principal  Shortfall  Amount to the  Administrative  Agent forthwith on
         demand,   together  with  interest  thereon  for  each  day  from  (and
         including)  the date such amount is made  available  to or on behalf of
         Borrower  to (but  excluding)  the date  such  amount  is repaid to the
         Administrative Agent, at the rate per annum equal to the rate otherwise
         applicable to the RLC Advance in question.

                  (f) If Borrower  desires that a LIBOR Rate Advance continue to
         bear  interest  at the LIBOR  Based Rate  after the end of an  existing
         LIBOR Interest

                                      -16-
<PAGE>
         Period,  Borrower  shall deliver to the  Administrative  Agent at least
         three (3) Banking Days prior to the end of the existing  LIBOR Interest
         Period;  a notice  making such  election and  specifying  the new LIBOR
         Interest  Period.  If Borrower does not deliver such notice within such
         time,  then after the  existing  LIBOR  Interest  Period the LIBOR Rate
         Advance shall become a Variable Rate Advance and shall bear interest at
         the Variable Rate.

                  (g) Borrower  may upon  written  notice to and received by the
         Administrative  Agent not later than 9:00 a.m.  (Inglewood,  California
         local time) (i) on the third Banking Day, in the case of any conversion
         of a Variable  Advance  into a LIBOR Rate Advance and (ii) on the first
         Banking Day in the case of any  conversion of a LIBOR Rate Advance into
         a Variable Rate Advance,  prior to the date of the proposed conversion,
         convert  any RLC  Advance of one type into an RLC  Advance of the other
         type;  provided,  however,  that any conversion of a LIBOR Rate Advance
         (A) shall only be made on the last day of the applicable LIBOR Interest
         Period except as otherwise  provided herein, and (B) shall be made only
         as to an RLC Advance in a minimum amount of  $500,000.00  with integral
         multiples  of  $1,000.00  in  excess  thereof.  Each  such  notice of a
         conversion  shall  specify  the  date  of such  conversion  and the RLC
         Advance(s)  to be  converted.  After  receiving  any such  notice,  the
         Administrative  Agent shall  promptly  notify  each Bank by  telephone,
         telefacsimile or cable and deliver a copy thereof to each Bank.

                  (h) Each  request for an RLC Advance as well as each  election
         by the Borrower  that an RLC Advance  continue to bear  interest at the
         LIBOR Based Rate after the end of an existing LIBOR Interest Period and
         each  conversion  request shall be irrevocable  and binding on Borrower
         once the  request  is  received  by the  Administrative  Agent  and the
         Administrative  Agent  notifies the Banks of the request.  Prior to the
         Administrative Agent's notice of the request to the Banks, Borrower may
         revoke the  request.  Borrower  shall  indemnify  each Bank against any
         cost,  loss or expense  incurred by any Bank as a result of  Borrower's
         failure to fulfill,  on or before the date specified for an RLC Advance
         in any request for an RLC Advance,  the  conditions to such RLC Advance
         set forth  herein,  including  any cost,  loss or expense  incurred  by
         reason of the  liquidation or  reemployment  of deposits or other funds
         acquired by a Bank to fund such RLC Advance when such RLC Advance, as a
         result of such failure, is not made on the date so specified.

                  (i) No RLC Advance  shall be  requested  by Borrower to bear a
         LIBOR Based Rate, whether pursuant to a request for an RLC Advance or a
         conversion hereunder,  so long as there shall have occurred an Event of
         Default and such Event of Default is continuing.

                                      -17-
<PAGE>
                  (j)  Nothing  herein  shall be deemed to relieve any Bank from
         its  obligation  to fulfill  its Pro Rata  Share of the RLC  Commitment
         hereunder or to prejudice any right which the  Administrative  Agent or
         the  Borrower  may have  against any Bank as a result of any default by
         such Bank hereunder.

                  (k)  If  any  payment  of  interest  and/or  principal  is not
         received by the Administrative  Agent when such payment is due, then in
         addition  to the  remedies  conferred  upon the Banks  under the Credit
         Documents,  a late  charge of five  percent  (5%) of the  amount of the
         installment  due and unpaid will be added to the  delinquent  amount to
         compensate  the Banks for the expense of handling the  delinquency  for
         any  payment  past due in excess of ten (10)  days,  regardless  of any
         notice and cure period.

                  (l) Upon the  occurrence  of an Event  of  Default  and  after
         maturity,  including maturity upon  acceleration,  the unpaid principal
         balance,  all accrued and unpaid interest and all other amounts payable
         hereunder shall bear interest at the Default Rate.

         2.5 Excess  Balance  Repayment.  There  shall be due and  payable  from
Borrower to the Banks, and Borrower shall  immediately  repay to the Banks three
(3) days after  notice to Borrower,  from time to time,  any amount by which the
RLC Balance exceeds the RLC Commitment.

         2.6 Reduction of RLC  Commitment.  Borrower shall have the right at any
time upon at least seven days' prior written notice to the Administrative  Agent
to reduce the aggregate amount of the RLC Commitment;  provided, that the amount
of each such reduction shall be in a minimum  aggregate  amount of $1,000,000.00
or an integral  aggregate  multiple of $100,000.00 in excess thereof and that no
such  reduction  shall reduce (i) the amount of the RLC  Commitment to less than
the RLC  Balance,  or (ii)  the  amount  of a Bank's  Pro Rata  Share of the RLC
Commitment to less than the amount of the RLC Balance  funded by such Bank.  Any
reduction in the aggregate amount of the RLC Commitment shall reduce each Bank's
share of the RLC  Commitment  by its Pro Rata Share of the  aggregate  amount of
such reduction.  The Administrative Agent shall promptly notify each Bank of any
such notice of reduction  received from the  Borrower.  Any reduction in the RLC
Commitment  may not be  reinstated  without  the  mutual  prior  consent  of the
Borrower and the Banks.

         2.7  Conditions.  The Banks shall have no  obligation to fund their Pro
Rata  Shares of any RLC  Advance  unless  and until  all of the  conditions  and
requirements of this Credit Agreement are fully satisfied. However, the Banks in
their sole and  absolute  discretion  may elect to make one or more RLC Advances
prior to full satisfaction of one or more such conditions  and/or  requirements.
Notwithstanding  that  such  an RLC  Advance  or RLC  Advances  are  made,  such
unsatisfied  conditions  and/or  requirements  shall not be  waived or  released
thereby.  Borrower  shall be and continue to be obligated to fully  satisfy such
conditions and requirements, and the

                                      -18-
<PAGE>
Banks, at any time, in their sole and absolute  discretion,  may stop making RLC
Advances until all conditions and requirements are fully satisfied.

         2.8 Other RLC Advances.  The Administrative  Agent, at the direction of
the Banks, after giving written notice to Borrower,  from time to time, may make
RLC  Advances  in any  amount  in  payment  of (i)  insurance  premiums,  taxes,
assessments,  liens  or  encumbrances  existing  against  the  Collateral,  (ii)
interest accrued and payable upon the RLC, (iii) any  indebtedness,  charges and
expenses that are the  obligation of Borrower under this Credit  Agreement,  and
(iv) any charges or matters necessary to cure any Event of Default.

         2.9  Assignment.  Borrower shall have no right to any RLC Advance other
than to have the same disbursed by the  Administrative  Agent in accordance with
the disbursement  provisions contained in this Credit Agreement.  Any assignment
or transfer,  voluntary or  involuntary,  of this Credit  Agreement or any right
hereunder shall not be binding upon or in any way affect the Banks without their
written  consent;  the  Administrative  Agent, at the direction of the Banks may
make RLC Advances under the disbursement provisions herein,  notwithstanding any
such assignment or transfer.

         2.10 Issuance of Letters of Credit.

                  (a)  Subject  to the  terms  and  conditions  of  this  Credit
         Agreement, (i) the Issuing Bank agrees from time to time before the RLC
         Maturity  Date to  issue  Letters  of  Credit  for the  account  of the
         Borrower;  and (ii) the Banks severally agree to participate in Letters
         of Credit issued for the account of the Borrower,  subject to the prior
         approval by each Bank of the provisions of each Letter of Credit.  Each
         reference  in this Credit  Agreement  to the "issue" or  "issuance"  or
         other  forms of such words in  relation  to Letters of Credit  shall be
         deemed to include any extension or renewal of a Letter of Credit.

                  (b) Each Letter of Credit  shall (i) by its terms be issued in
         a Stated  Amount;  (ii) have a Stated Expiry Date no later than the RLC
         Maturity  Date;  (iii)  expire  or be  terminated  by  the  beneficiary
         thereunder on or before its Stated Expiry Date;  (iv) not cause the RLC
         Balance  after the  issuance of said Letter of Credit to exceed the RLC
         Commitment;  and (v) not cause the  Outstanding  LC  Balance  after the
         issuance of said Letter of Credit to exceed the Maximum LC Commitment.

                  (c) In addition to the conditions  otherwise specified in this
         Section, the obligation of the Issuing Bank to issue a Letter of Credit
         shall be subject to the further condition  precedent that the following
         statements  shall  be  correct,  and each of the  application  for such
         Letter of  Credit  and the  issuance  of such  Letter  of Credit  shall
         constitute a  representation  and warranty by Borrower that on the date
         of the issuance of such Letter of Credit such statements are correct:

                                      -19-
<PAGE>
                           (i) The  representations  and warranties in Article 6
                  are  correct  on and as of the  date of the  issuance  of such
                  Letter  of  Credit,  before  and after  giving  effect to such
                  issuance, as though made on and as of such date;

                           (ii)  No  Event  of  Default  has   occurred  and  is
                  continuing; and

                           (iii) The  conditions in Section 2.2(a) are satisfied
                  as of the date of issuance of the Letter of Credit, before and
                  after giving effect to such issuance.

         2.11  Issuance  Procedure  for Letter of  Credit.  By  delivery  to the
Issuing  Bank  of  an  Issuance  Request  on or  before  9:00  a.m.  (Inglewood,
California  time) three (3) Banking Days prior to the requested  Issuance  Date,
and the execution of such  applications  and  agreements as the Issuing Bank may
reasonably  request,  Borrower may request the issuance of a Letter of Credit in
such form as Borrower  may  reasonably  request.  Each  Issuance  Request  shall
include the form of the Letter of Credit,  the amount and other  terms  thereof.
Subject to the terms and conditions of this Credit  Agreement,  the Issuing Bank
will issue such Letter of Credit on the Issuance Date  specified in the Issuance
Request submitted in connection  therewith.  The Issuing Bank and Borrower agree
that all Letters of Credit issued pursuant to the terms of this Article shall be
subject to the terms and  conditions,  and  entitled  to the  benefits,  of this
Credit Agreement and the other Credit Documents.

         2.12 Letter of Credit Fees.  Borrower agrees to pay to the Issuing Bank
a charge for all  reasonable  administrative  expenses  of the  Issuing  Bank in
connection  with  the  issuance,   amendment  or   modification   (if  any)  and
administration  of the Letter of Credit  upon  demand  from time to time,  which
charge shall not exceed $150.00 per draw, transfer or transaction.

         2.13  Disbursements.  The  Issuing  Bank will  notify  Borrower  of the
presentment  for  payment  of a Letter  of Credit  by any  beneficiary  thereto,
together with notice of the date (the "Disbursement Date") such payment shall be
made.  Subject to the terms and provisions of the Letter of Credit,  the Issuing
Bank shall make such payment (a "Disbursement") to the beneficiary of the Letter
of  Credit.  Each  such  Disbursement  shall  be  deemed  to be an  RLC  Advance
hereunder.

         2.14 Reimbursement Obligations of Borrower. Borrower's obligation under
Section 2.13 to reimburse the Banks with respect to each Disbursement (including
interest  thereon)  in  respect of any Letter of Credit  shall be  absolute  and
unconditional  under any and all  circumstances  and irrespective of any setoff,
counterclaim,  or defense to payment which Borrower may have or have had against
the  Banks,  the  Issuing  Bank,  the  Administrative  Agent or the  beneficiary
thereof,  including  any  defense  based  upon the  occurrence  of any  Event of
Default,  any draft, demand or certificate or other document presented under the
Letter of Credit proving to be forged, fraudulent,  invalid or insufficient, the
failure of any Disbursement to conform to the terms

                                      -20-
<PAGE>
of the  Letter of Credit  (if,  in  Issuing  Bank's  good  faith  opinion,  such
Disbursement  is  determined  to  be  appropriate)  or  any  non-application  or
misapplication by the beneficiary of the proceeds of such  Disbursement,  or the
legality,  validity, form, regularity or enforceability of the Letter of Credit;
provided,  however,  that  nothing  herein shall  adversely  affect the right of
Borrower  to commence  any  proceeding  against  Issuing  Bank for any  wrongful
Disbursement made by Issuing Bank under the Letter of Credit as a result of acts
or omissions  constituting gross negligence or willful misconduct on the part of
Issuing Bank.

         2.15 Nature of  Reimbursement  Obligations.  Borrower  shall assume all
risks  of  the  acts,  omissions  or  misuse  of any  Letter  of  Credit  by the
beneficiary  thereof.  Neither  the Banks nor the  Issuing  Bank  (except to the
extent of its own gross negligence or willful  misconduct)  shall be responsible
for:

                  (a) the form, validity, sufficiency,  accuracy, genuineness or
         legal effect of any Letter of Credit or any  document  submitted by any
         party in connection with the issuance of any Letter of Credit,  even if
         such  document  should  in  fact  prove  to be in any  or all  respects
         invalid, insufficient, inaccurate, fraudulent or forged;

                  (b) the form, validity, sufficiency,  accuracy, genuineness or
         legal effect of any instrument  transferring or assigning or purporting
         to transfer or assign any Letter of Credit;

                  (c)  failure  of any  beneficiary  of any  Letter of Credit to
         comply fully with conditions  required in order to demand payment under
         a Letter of Credit;

                  (d) errors, omissions,  interruption or delays in transmission
         or  delivery  of any  messages,  by mail,  cable,  telegraph,  telex or
         otherwise; or

                  (e) any loss or delay in the  transmission or otherwise of any
         document  or draft  required  by or from a  beneficiary  of a Letter of
         Credit in order to make a  Disbursement  under a Letter of Credit or of
         the proceeds thereof.

None of the foregoing shall affect,  impair or prevent the vesting of any of the
rights or powers granted the Banks or the Issuing Bank hereunder. In furtherance
and extension,  and not in limitation or derogation of any of the foregoing, any
action  taken or  omitted to be taken by the Banks or the  Issuing  Bank in good
faith  shall be  binding  upon the  Borrower  and shall not put the Banks or the
Issuing Bank under any resulting liability to Borrower.

         2.16 Banks  Obligation.  Nothing  herein shall be deemed to relieve any
Bank from its  obligations  to fulfill its Pro Rata Share of the RLC  Commitment
hereunder  or to  prejudice  any  right  which the  Administrative  Agent or the
Borrower  may have  against  any Bank as a result  of any  default  by such Bank
hereunder.

                                      -21-
<PAGE>
         2.17 Certain  Requirements.  The Issuing Bank is under no obligation to
Issue any Letter of Credit if:

                           (i) any order, judgment or decree of any Governmental
         Authority  or  arbitrator  shall by its  terms  purport  to  enjoin  or
         restrain the Issuing  Bank from  Issuing such Letter of Credit,  or any
         requirement  of law  applicable  to the Issuing  Bank or any request or
         directive  (with  which  it is  customary  for  banks  in the  relevant
         jurisdiction to comply whether or not having the force of law) from any
         Governmental  Authority with  jurisdiction  over the Issuing Bank shall
         prohibit,  or request that the Issuing Bank refrain from,  the Issuance
         of letters of credit  generally or such Letter of Credit in  particular
         or shall  impose upon the Issuing  Bank with  respect to such Letter of
         Credit any restriction,  reserve, or capital requirement (for which the
         Issuing Bank is not otherwise  compensated  hereunder) not in effect on
         the  Closing   Date,   or  shall  impose  upon  the  Issuing  Bank  any
         unreimbursed  loss,  cost, or expense  which was not  applicable on the
         Closing Date and which the Issuing Bank in good faith deems material to
         it;

                           (ii) the Issuing  Bank has  received  written  notice
         from any Bank, the Administrative Agent or Borrower, on or prior to the
         Banking Day prior to the  requested  date of Issuance of such Letter of
         Credit,  that one or more of the  applicable  conditions  contained  in
         Article 5 is not then satisfied;

                           (iii) the Stated Expiry Date of any requested  Letter
         of Credit is not in accord with the  requirements  of Section  2.10(b),
         unless all of the Banks have approved such Stated Expiry Date;

                           (iv) any requested  Letter of Credit does not provide
         for drafts, or is not otherwise in form and substance acceptable to the
         Issuing  Bank,  or the Issuance of a Letter of Credit shall violate any
         applicable policies of the Issuing Bank; or

                           (v) such Letter of Credit is to be  denominated  in a
         currency other than Dollars.

         2.18 Risk Participations, Drawings, and Reimbursements.

                  (a)  Immediately  upon the  Issuance of each Letter of Credit,
         each  Bank   shall  be  deemed   to,   and   hereby   irrevocably   and
         unconditionally   agrees  to,   purchase   from  the  Issuing   Bank  a
         participation  in such Letter of Credit and each drawing  thereunder in
         an amount  equal to the product of (i) the Pro Rata Share of such Bank,
         times (ii) the maximum  amount  available to be drawn under such Letter
         of Credit and the amount of any Drawing,  respectively. For purposes of
         the applicable Commitment, each Issuance of a Letter of Credit shall be
         deemed to

                                      -22-
<PAGE>
         utilize  each  Bank's  Pro Rata Share of said  Commitment  by an amount
         equal to the amount of such participation.

                  (b) In the event of any request  for a drawing  under a Letter
         of Credit by the  beneficiary or transferee  thereof,  the Issuing Bank
         will  promptly  notify the  Borrower.  The Issuing Bank shall honor any
         Disbursement  request  under  any  Letter  of  Credit  only if (i) such
         request is  delivered to the Issuing  Bank by the  beneficiary  of such
         Letter of Credit,  and (ii) such request is accompanied by the original
         documents required by the Letter of Credit for any Disbursement. Except
         as otherwise  provided herein, the Borrower shall reimburse the Issuing
         Bank prior to 11:00 a.m.  (Inglewood,  California  local  time) on each
         date that any  amount is paid by the  Issuing  Bank under any Letter of
         Credit  (each such date,  an "Honor  Date"),  in an amount equal to the
         amount  so paid by the  Issuing  Bank.  In the event  the  Borrower  is
         required but fails to reimburse the Issuing Bank for the full amount of
         any  drawing  under any  Letter of  Credit  by 11:00  a.m.  (Inglewood,
         California  local  time) on the  Honor  Date,  the  Issuing  Bank  will
         promptly notify the Administrative  Agent and the Administrative  Agent
         will promptly notify each Bank thereof. Any notice given by the Issuing
         Bank or the  Administrative  Agent pursuant to this Section may be oral
         if immediately confirmed in writing (including by facsimile);  provided
         that the lack of such an  immediate  confirmation  shall not affect the
         conclusiveness or binding effect of such notice.

                  (c) Each Bank shall upon any notice  pursuant to this  Section
         make  available  to the  Administrative  Agent for the  account  of the
         Issuing Bank an amount in Dollars and in  immediately  available  funds
         equal to its Pro Rata Share of the amount of the drawing, whereupon the
         Banks shall  (subject to  paragraph  (d)) each be deemed to have made a
         Variable  Rate Advance to the  Borrower in that amount.  If any Bank so
         notified  fails to make available to the  Administrative  Agent for the
         account of the Issuing Bank the amount of such Bank's Pro Rata Share of
         the  amount of the  drawing  by no later  than  3:00  p.m.  (Inglewood,
         California local time) on the Honor Date, then interest shall accrue on
         such Bank's obligation to make such payment, from the Honor Date to the
         date such Bank makes  such  payment,  at a rate per annum  equal to the
         Federal  Funds Rate in effect  from time to time during such period and
         such amount and interest  shall be  immediately  due and payable to the
         Administrative  Agent; the obligation of such Bank to make such payment
         to the  Administrative  Agent shall not be waived by the Administrative
         Agent  without  the  prior  written   consent  of  the  Borrower.   The
         Administrative Agent will promptly give notice of the occurrence of the
         Honor Date,  but failure of the  Administrative  Agent to give any such
         notice on the Honor  Date or in  sufficient  time to enable any Bank to
         effect such  payment on such date shall not relieve  such Bank from its
         obligations under this Section.

                                      -23-
<PAGE>
                  (d) With  respect to any  unreimbursed  drawing,  the Borrower
         shall be deemed to have  incurred from the Issuing Bank a Variable Rate
         RLC Advance in the amount of such drawing.

                  (e) Each  Bank's  obligation  in  accordance  with this Credit
         Agreement to make the Variable Rate Advance,  as  contemplated  by this
         Section,  as a result of a drawing  under a Letter of Credit,  shall be
         absolute and unconditional and without recourse to the Issuing Bank and
         shall not be affected by any  circumstance,  including (i) any set-off,
         counterclaim,  recoupment,  defense, or other right which such Bank may
         have against the Issuing Bank,  the  Borrower,  or any other Person for
         any reason whatsoever, (ii) the occurrence or continuance of a default,
         an Event of Default,  or a Material Adverse Effect,  or (iii) any other
         circumstance, happening, or event whatsoever, whether or not similar to
         any of the foregoing.

         2.19 Repayment of Participations.

                  (a) Upon (and only upon) receipt by the  Administrative  Agent
         for the account of the Issuing Bank of immediately available funds from
         the  Borrower (i) in  reimbursement  of any payment made by the Issuing
         Bank under a Letter of Credit  with  respect to which any Bank has paid
         the  Administrative  Agent for the account of the Issuing Bank for such
         Bank's participation in such Letter of Credit pursuant to Section 2.18,
         or (ii) in payment of interest thereon,  the Administrative  Agent will
         pay  to  each  Bank,  in  the  same  funds  as  those  received  by the
         Administrative Agent for the account of the Issuing Bank, the amount of
         such  Bank's Pro Rata Share of such funds,  and the Issuing  Bank shall
         receive the amount of the Pro Rata Share of such funds of any Bank that
         did not so pay the Administrative  Agent for the account of the Issuing
         Bank.

                  (b)  If  the  Administrative  Agent  or the  Issuing  Bank  is
         required  at any  time to  return  to the  Borrower,  or to a  trustee,
         receiver,  liquidator,  custodian,  or any  official in any  Insolvency
         Proceeding,  any portion of the  payments  made by the  Borrower to the
         Administrative  Agent for the account of the Issuing  Bank  pursuant to
         paragraph  (a) in  reimbursement  of a payment  made  under a Letter of
         Credit or interest or fee  thereon,  each Bank shall,  on demand of the
         Administrative  Agent,  forthwith return to the Administrative Agent or
         the  Issuing  Bank the amount of its Pro Rata  Share of any  amounts so
         returned by the Administrative  Agent or the Issuing Bank plus interest
         thereon  from the date such demand is made to the date such amounts are
         returned by such Bank to the Administrative  Agent or the Issuing Bank,
         at a rate per annum equal to the Federal Funds Rate in effect from time
         to time.

                                      -24-
<PAGE>
         2.20 Role of the Issuing Bank.

                  (a) Each Bank and Borrower  agree that,  in paying any drawing
         under a  Letter  of  Credit,  the  Issuing  Bank  shall  not  have  any
         responsibility  to obtain any document  (other than any sight draft and
         certificates  expressly  required  by  the  Letter  of  Credit)  or  to
         ascertain  or  inquire  as to the  validity  or  accuracy  of any  such
         document or the  authority of the Person  executing or  delivering  any
         such document.

                  (b) No  Administrative  Agent-related  Person  nor  any of the
         respective  correspondents,  participants  or  assignees of the Issuing
         Bank shall be liable to any Bank for:  (i) any action  taken or omitted
         in connection herewith at the request or with the approval of the Banks
         or (ii) any action taken or omitted in the absence of gross  negligence
         or willful misconduct.

                                      -25-
<PAGE>
                                   ARTICLE 2A

                                    THE RLCT
                                    --------

         2A.1 RLCT Commitment.  Each Bank agrees,  severally but not jointly, to
loan to or for the benefit of Borrower,  and Borrower  shall be entitled to draw
upon and borrow,  in the manner and upon the terms and  conditions  contained in
this  Credit  Agreement,  an amount  that shall not exceed  that Bank's Pro Rata
Share of the RLCT Commitment.

         2A.2 Revolving Line.

                  (a)  Subject  to the  terms and  conditions  set forth in this
         Credit Agreement,  each Bank shall provide to Borrower a revolving line
         of credit  (each,  a "RLCT"),  against  which a Bank shall fund its Pro
         Rata  Share of each  RLCT  Advance  to be made to  Borrower,  repaid by
         Borrower, and readvanced to Borrower, as Borrower may request, provided
         that (i)  there is no Event of  Default  under  any  provision  of this
         Credit  Agreement,  (ii) no RLCT Advance shall be made that would cause
         the RLCT Balance to exceed the RLCT Commitment,  (iii) no Bank shall be
         obligated under any  circumstances to fund an RLCT Advance in excess of
         that  Bank's Pro Rata Share of the  requested  RLCT  Advance,  (iv) the
         aggregate  amount of a Bank's  funding  of the RLCT  Balance at any one
         time  outstanding  shall  not  exceed  its Pro  Rata  Share of the RLCT
         Commitment,  and (v) no RLCT  Advance  shall  be made  after  the  RLCT
         Termination  Date.  The Banks shall not be  obligated to fund their Pro
         Rata Share of any RLCT Advance if, after giving effect thereto,  any of
         the foregoing limitations would be exceeded.

                  (b) The  failure  of any Bank to fund its Pro Rata Share of an
         RLCT  Advance  in  accordance  with  its Pro  Rata  Share  of the  RLCT
         Commitment shall not relieve any other Bank of its several  obligations
         hereunder,  but no Bank shall be liable with respect to the  obligation
         of any other Bank hereunder.

                  (c) RLCT  Advances  may be made for the  purpose of  providing
         liquidity for a common stock repurchase  program by Borrower  including
         without  limitation of reimbursing  itself for common stock repurchases
         made since August 1, 1998.

         2A.3 RLCT Notes.  The RLCT of each Bank shall be  evidenced  by an RLCT
Note and shall bear  interest  and be payable to the order of such Bank upon the
terms and conditions  contained  therein.  The aggregate amount funded by a Bank
under  its RLCT Note  less all  repayments  of  principal  thereof  shall be the
principal  amount owing and unpaid on its RLCT Note and its RLCT.  The principal
amount funded by a Bank and all principal  payments and prepayments  thereof may
be noted by such  Bank on a  schedule  attached  to its RLCT  Note and  shall be
entered by the Bank on its  ledgers  and  computer  records;  provided  that the
failure  of the Bank to make such  notations  or  entries  shall not  affect the
principal amount owing and unpaid on

                                      -26-
<PAGE>
its RLCT Note. The entries made in the ordinary  course of business by a Bank on
its ledgers and computer  records and any notations made in the ordinary  course
of  business  by a Bank on any such  schedule  annexed to its RLCT Note shall be
presumed  to be  accurate  until the  contrary  is  established.  If  requested,
Borrower shall confirm in writing to the Administrative Agent each RLCT Advance.

         2A.4 RLCT.  The RLCT shall  bear  interest  and be payable to the Banks
upon the terms and  conditions  contained  therein,  which include the following
provisions:

                  (a) Interest shall accrue:

                           (i) On the unpaid principal of an RLCT Advance at the
                  Variable  Rate except to the extent that an RLCT Advance bears
                  interest at the LIBOR Based Rate.

                           (ii) On the unpaid  principal  of an RLCT  Advance at
                  the LIBOR Based Rate to the extent Borrower shall elect and to
                  the extent not otherwise provided herein.

                  (b) All  interest  shall be computed on the basis of a 360-day
         year and accrue on a daily basis for the actual number of days elapsed.
         All accrued interest shall be due and payable on each Payment Date.

                  (c) Principal  under the RLCT Note shall be due and payable on
         each RLCT Principal Date,  beginning with the first RLCT Principal Date
         after  the  RLCT  Termination  Date in an  amount  sufficient  to fully
         amortize the principal balance of the RLCT on the RLCT Termination Date
         over  twenty  equal  payments  of such  principal.  The  entire  unpaid
         principal  balance,  all  accrued  and unpaid  interest,  and all other
         amounts payable under the RLCT Note shall be due and payable in full on
         the RLCT Maturity Date.

                  (d) Each request for an RLCT Advance shall be substantially in
         the form attached hereto as Exhibit "A" from an Authorized Officer, and
         shall,  in addition to complying  with the other  requirements  in this
         Credit Agreement, (i) specify the date and amount of the requested RLCT
         Advance, (ii) specify whether the RLCT Advance shall be an RLCT Advance
         that bears  interest at the  Variable  Rate or shall be an RLCT Advance
         that bears  interest  at the LIBOR  Based  Rate,  (iii) be in a minimum
         amount of  $500,000.00  with integral  multiples of $1,000.00 in excess
         thereof,  and (iv) if the RLCT Advance is to bear interest at the LIBOR
         Based Rate, (A) specify the LIBOR Interest Period, and (B) be delivered
         to Administrative Agent before 9:00 a.m.  (Inglewood,  California local
         time)  at  least  three  (3)  Business  Days  prior  to the date of the
         requested  RLCT Advance.  Any request for an RLCT Advance not complying
         with the foregoing requirements for an RLCT Advance bearing interest at
         the LIBOR Based Rate shall bear interest at

                                      -27-
<PAGE>
         the Variable Rate;  provided that in the event such  non-compliance  is
         due to  Borrower's  failure to specify the  required  information,  the
         Banks agree to notify Borrower of such failure and to provide  Borrower
         the opportunity to provide such information prior to directing that the
         Advance bear interest at the Variable Rate.

                  (e) After  receiving  a  request  for an RLCT  Advance  in the
         manner provided herein, the Administrative Agent shall promptly, before
         11:30  a.m.  (Inglewood,  California  local  time)  on the date an RLCT
         Advance is requested, notify each Bank by telephone (confirmed promptly
         in  writing),  telefacsimile  or cable of the terms of such request and
         such Bank's Pro Rata Share of the  requested  RLCT  Advance.  Each Bank
         shall, before 1:00 p.m. (Inglewood,  California local time) on the date
         an RLCT  Advance is to be made as  specified  in a request  for an RLCT
         Advance,  deposit  with the  Administrative  Agent such Bank's Pro Rata
         Share of the requested  RLCT Advance in  immediately  available  funds.
         Upon  fulfillment  of all  applicable  conditions  set forth herein and
         after  receipt  by  the   Administrative   Agent  of  such  funds,  the
         Administrative  Agent shall pay or deliver all funds so received to the
         order of Borrower at the principal office of the Administrative  Agent.
         The failure of any Bank to fund its Pro Rata Share of any RLCT  Advance
         required  of it  hereunder  shall not  relieve  any  other  Bank of its
         obligation to fund its Pro Rata Share of any RLCT Advance hereunder. If
         any Bank fails to fund its Pro Rata Share of the requested RLCT Advance
         and if all  conditions  to  such  RLCT  Advance  have  apparently  been
         satisfied, the Administrative Agent will make available to Borrower the
         funds  received by it from the other Bank.  Neither the  Administrative
         Agent nor any Bank  shall be  responsible  for the  performance  by any
         other Bank of its obligations hereunder.

                  Unless the  Administrative  Agent shall have  received  notice
         from a Bank prior to the date of any RLCT  Advance  that such Bank will
         not make  available  to the  Administrative  Agent such Bank's Pro Rata
         Share of the  requested  RLCT  Advance,  the  Administrative  Agent may
         assume  that  such  Bank  has  made  such  amount   available   to  the
         Administrative  Agent on the date of such RLCT  Advance  in  accordance
         with this Section and the  Administrative  Agent may, in reliance  upon
         such assumption,  make available a corresponding amount to or on behalf
         of Borrower on such date.  If and to the extent any Bank shall not have
         so made its Pro Rata Share of the requested  RLCT Advance  available to
         the Administrative Agent (the "Principal  Shortfall Amount"),  Borrower
         agrees to repay the Principal  Shortfall  Amount to the  Administrative
         Agent forthwith on demand,  together with interest thereon for each day
         from (and  including)  the date such amount is made  available to or on
         behalf of Borrower to (but excluding) the date such amount is repaid to
         the  Administrative  Agent,  at the  rate per  annum  equal to the rate
         otherwise applicable to the RLCT Advance in question.

                  (f) If Borrower  desires that a LIBOR Rate Advance continue to
         bear  interest  at the LIBOR  Based Rate  after the end of an  existing
         LIBOR Interest

                                      -28-
<PAGE>
         Period,  Borrower  shall deliver to the  Administrative  Agent at least
         three (3) Banking Days prior to the end of the existing  LIBOR Interest
         Period;  a notice  making such  election and  specifying  the new LIBOR
         Interest  Period.  If Borrower does not deliver such notice within such
         time,  then after the  existing  LIBOR  Interest  Period the LIBOR Rate
         Advance shall become a Variable Rate Advance and shall bear interest at
         the Variable Rate.

                  (g) Borrower  may upon  written  notice to and received by the
         Administrative  Agent not later than 9:00 a.m.  (Inglewood,  California
         local  time)  (i)  on the  third  Business  Day,  in  the  case  of any
         conversion  of a Variable  Rate  Advance  into a LIBOR Rate Advance and
         (ii) on the first Business Day in the case of any conversion of a LIBOR
         Rate Advance  into a Variable  Rate  Advance,  prior to the date of the
         proposed conversion,  convert any RLCT Advance of one type into an RLCT
         Advance of the other type; provided,  however, that any conversion of a
         LIBOR  Rate  Advance  (A)  shall  only be made on the  last  day of the
         applicable  LIBOR Interest Period except as otherwise  provided herein,
         and (B) shall be made only as to an RLCT Advance in a minimum amount of
         $500,000.00  with  integral  multiples of $1,000.00 in excess  thereof.
         Each  such  notice  of a  conversion  shall  specify  the  date of such
         conversion and the RLCT Advance(s) to be converted. After receiving any
         such notice, the  Administrative  Agent shall promptly notify each Bank
         by telephone, telefacsimile or cable and deliver a copy thereof to each
         Bank.

                  (h) Each request for an RLCT Advance as well as each  election
         by the Borrower  that an RLCT Advance  continue to bear interest at the
         LIBOR Based Rate after the end of an existing LIBOR Interest Period and
         each  conversion  request shall be irrevocable  and binding on Borrower
         once the  request  is  received  by the  Administrative  Agent  and the
         Administrative  Agent  notifies the Banks of the request.  Prior to the
         Administrative Agent's notice of the request to the Banks, Borrower may
         revoke the  request.  Borrower  shall  indemnify  each Bank against any
         cost,  loss or expense  incurred by any Bank as a result of  Borrower's
         failure to fulfill, on or before the date specified for an RLCT Advance
         in any request for an RLCT Advance, the conditions to such RLCT Advance
         set forth  herein,  including  any cost,  loss or expense  incurred  by
         reason of the  liquidation or  reemployment  of deposits or other funds
         acquired by a Bank to fund such RLCT Advance when such RLCT Advance, as
         a result of such failure, is not made on the date so specified.

                  (i) No RLCT  Advance  shall be requested by Borrower to bear a
         LIBOR Based Rate,  whether pursuant to a request for an RLCT Advance or
         a conversion  hereunder,  so long as there shall have occurred an Event
         of Default and such Event of Default is continuing.

                                      -29-
<PAGE>
                  (j)  Nothing  herein  shall be deemed to relieve any Bank from
         its  obligation  to fulfill  its Pro Rata Share of the RLCT  Commitment
         hereunder or to prejudice any right which the  Administrative  Agent or
         the  Borrower  may have  against any Bank as a result of any default by
         such Bank hereunder.

                  (k)  If  any  payment  of  interest  and/or  principal  is not
         received by the Administrative  Agent when such payment is due, then in
         addition  to the  remedies  conferred  upon the Banks  under the Credit
         Documents,  a late  charge of five  percent  (5%) of the  amount of the
         installment  due and unpaid will be added to the  delinquent  amount to
         compensate  the Banks for the expense of handling the  delinquency  for
         any  payment  past due in excess of ten (10)  days,  regardless  of any
         notice and cure period.

                  (l) Upon the  occurrence  of an Event  of  Default  and  after
         maturity,  including maturity upon  acceleration,  the unpaid principal
         balance,  all accrued and unpaid interest and all other amounts payable
         hereunder shall bear interest at the Default Rate.

         2A.5 Excess  Balance  Repayment.  There  shall be due and payable  from
Borrower to the Banks, and Borrower shall  immediately  repay to the Banks three
(3) days after  notice to Borrower,  from time to time,  any amount by which the
RLCT Balance exceeds the RLCT Commitment.

         2A.6 Reduction of RLCT Commitment. Borrower shall have the right at any
time upon at least seven days' prior written notice to the Administrative  Agent
to reduce the aggregate amount of the RLCT Commitment; provided, that the amount
of each such reduction shall be in a minimum  aggregate  amount of $1,000,000.00
or an integral  aggregate  multiple of $100,000.00 in excess thereof and that no
such reduction  shall reduce (i) the amount of the RLCT  Commitment to less than
the RLCT  Balance,  or (ii) the  amount of a Bank's  Pro Rata  Share of the RLCT
Commitment to less than the amount of the RLCT Balance  funded by such Bank. Any
reduction  in the  aggregate  amount of the RLCT  Commitment  shall  reduce each
Bank's  share of the RLCT  Commitment  by its Pro  Rata  Share of the  aggregate
amount of such reduction.  The  Administrative  Agent shall promptly notify each
Bank of any such notice of reduction  received from the Borrower.  Any reduction
in the RLCT Commitment may not be reinstated without the mutual prior consent of
the Borrower and the Banks.

         2A.7  Conditions.  The Banks shall have no obligation to fund their Pro
Rata  Shares of any RLCT  Advance  unless  and until all of the  conditions  and
requirements of this Credit Agreement are fully satisfied. However, the Banks in
their sole and absolute  discretion  may elect to make one or more RLCT Advances
prior to full satisfaction of one or more such conditions  and/or  requirements.
Notwithstanding  that such an RLCT  Advance  or RLCT  Advances  are  made,  such
unsatisfied  conditions  and/or  requirements  shall not be  waived or  released
thereby.  Borrower  shall be and continue to be obligated to fully  satisfy such
conditions and requirements,

                                      -30-
<PAGE>
and the Banks,  at any time,  in their sole and  absolute  discretion,  may stop
making RLCT Advances until all conditions and requirements are fully satisfied.

         2A.8 Other RLCT Advances. The Administrative Agent, at the direction of
the Banks, after giving written notice to Borrower,  from time to time, may make
RLCT  Advances  in any  amount in  payment  of (i)  insurance  premiums,  taxes,
assessments,  liens  or  encumbrances  existing  against  the  Collateral,  (ii)
interest accrued and payable upon the RLCT, (iii) any indebtedness,  charges and
expenses that are the  obligation of Borrower under this Credit  Agreement,  and
(iv) any charges or matters necessary to cure any Event of Default.

         2A.9 Assignment. Borrower shall have no right to any RLCT Advance other
than to have the same disbursed by the  Administrative  Agent in accordance with
the disbursement  provisions contained in this Credit Agreement.  Any assignment
or transfer,  voluntary or  involuntary,  of this Credit  Agreement or any right
hereunder shall not be binding upon or in any way affect the Banks without their
written  consent;  the  Administrative  Agent, at the direction of the Banks may
make RLCT Advances under the disbursement provisions herein, notwithstanding any
such assignment or transfer.

                                      -31-
<PAGE>
                                    ARTICLE 3

                    PAYMENTS, FEES AND EURODOLLAR PROVISIONS
                    ----------------------------------------

         3.1 Payments.

                  (a) All payments and  prepayments by the Borrower of principal
         of and  interest  on the  Notes and all  fees,  expenses  and any other
         Obligation  payable  to  the  Administrative  Agent  or  the  Banks  in
         connection with the Loans shall be nonrefundable and made in Dollars or
         immediately  available  funds to the Banks not later  than  11:00  a.m.
         (Inglewood,  California  local time) on the dates called for under this
         Credit  Agreement,  at the main office of the  Administrative  Agent in
         Inglewood,  California.  Funds received after such hour shall be deemed
         to have been received by the  Administrative  Agent on the next Banking
         Day. Payment to the  Administrative  Agent as aforesaid shall be deemed
         payment to the Banks as well,  regardless of whether the Administrative
         Agent makes the distributions contemplated by Section 9A.8(a) hereof.

                  (b) Unless otherwise required by applicable law, payments will
         be applied first to accrued,  unpaid interest,  then to principal,  and
         any remaining amount to any unpaid  collection  costs, late charges and
         other charges;  provided,  however,  upon delinquency or other default,
         the  Banks  reserve  the  right  to  apply  payments  among  principal,
         interest,  late  charges,  collection  costs and other  charges  at its
         discretion.

                  (c)  Interest  shall be due and  payable  on each Loan on each
         Payment Date and on each applicable Maturity Date.

                  (d) Whenever any payment to be made hereunder  shall be stated
         to be due on a day which is not a Banking Day,  such  payment  shall be
         made on the next  succeeding  Banking Day,  and such  extension of time
         shall  in  such  case  be  included  in the  computation  of  interest,
         commission or fee, as the case may be.

         3.2 Loan Fees.

                  (a) RLC Non-Use Fee. Borrower agrees to pay the Administrative
         Agent for  distribution  to the Banks pursuant to Section 9A.8 hereof a
         quarterly fee (the "RLC Non-Use Fee") in an annualized  amount equal to
         one-quarter percent (0.25%) of the average daily undrawn balance of the
         RLC Commitment during the prior calendar quarterly period. For purposes
         of calculating  the RLC Non-Use Fee, the  Outstanding LC Balance on any
         date  shall be deemed to have been  drawn.  The RLC  Non-Use  Fee shall
         accrue  from the  Closing  Date and shall be due and payable in arrears
         within three (3) Banking Days after  written  notice of such amount due
         by the Administrative Agent to Borrower and shall be non-refundable.

                                      -32-
<PAGE>
         The first such  payment  shall be prorated  from the  Closing  Date and
         shall be due on December 31, 1998 and  thereafter on each Quarterly End
         Date.

                  (b) RLCT Fee. Borrower agrees to pay  Administrative  Agent on
         the Closing Date for distribution to the Banks pursuant to Section 9A.8
         hereof a fee (the "RLCT Fee") in an amount equal to one quarter percent
         (0.25%) of the RLCT Commitment.

                  (c) RLCT Non-Use Fee.  Borrower  agrees to pay  Administrative
         Agent for  distribution  to the Banks pursuant to Section 9A.8 hereof a
         quarterly fee (the "RLCT Non-Use Fee") in an annualized amount equal to
         one-quarter percent (0.25%) of the average daily undrawn balance of the
         RLCT Commitment during the prior calendar  quarterly  period.  The RLCT
         Non-Use  Fee  shall  accrue  from  the  Closing  Date  until  the  RLCT
         Termination  Date and shall be due and payable in arrears  within three
         (3)  Banking  Days  after  written  notice  of such  amount  due by the
         Administrative Agent to Borrower and shall be non-refundable. The first
         such payment  shall be prorated  from the Closing Date and shall be due
         on December 31, 1998 and  thereafter  on each  Quarterly End Date until
         the RLCT Termination Date. The final payment shall be prorated from the
         prior Quarterly End Date until the RLCT Termination Date.

         3.3 Computations.  All fees and interest on each Note shall be computed
on the basis of a year of  360-days/year  and  accrue  on a daily  basis for the
actual number of days elapsed.

         3.4 Maintenance of Accounts.  The Banks shall  maintain,  in accordance
with their usual practice, an account or accounts evidencing the indebtedness of
the Borrower and the amounts  payable and paid from time to time  hereunder.  In
any legal action or proceeding in respect of this Credit Agreement,  the entries
made in the  ordinary  course of business in such  account or accounts  shall be
evidence of the existence and amounts of the obligations of the Borrower therein
recorded and shall be presumed to be accurate until the contrary is established.
The failure to record any such amount  shall not,  however,  limit or  otherwise
affect the  obligations  of the  Borrower  hereunder  to repay all amounts  owed
hereunder, together with all interest accrued thereon as provided in the Notes.

         3.5 Certain Contingencies.

                  (a) If the contingency  contemplated by Section 3.6, 3.7(b) or
         3.7(c) should occur, the Borrower may at any time after receipt of such
         notice,  and as long as the  circumstances  giving rise to the relevant
         claim  continue,  require  the  Banks to  terminate  upon not less than
         thirty days' notice the participation  agreement with such participant,
         unless  such  participant  has waived any claim to payment  under those
         provisions.

                                      -33-
<PAGE>
                  (b) If  circumstances  arise  which  would (or would  upon the
         giving  of  notice)  entitle  a Bank  to  receive  additional  payments
         pursuant  to  Section  3.6,  3.7(b)  or  3.7(c),  then the  Bank  shall
         promptly,  upon  becoming  aware  of  such  circumstances,  notify  the
         Borrower and, to the extent that it can legally do so without  material
         prejudice  to its own  position,  the Bank shall  take such  reasonable
         steps  as may be  available  to it to  mitigate  the  effects  of  such
         circumstances.

         3.6 Increased Capital Requirements; Tax.

                  (a) In the event that, as a result of any  Regulatory  Change,
         compliance by any Bank with any  applicable law or  governmental  rule,
         requirement, regulation, guideline or order (with which it is customary
         for banks in the relevant  jurisdiction to comply whether or not having
         the force of law) has or would have the effect of reducing  the rate of
         return on the capital of the Bank or any  institution  controlling  the
         Bank as a  consequence  of or with  reference  to any  Commitment,  the
         issuance of a Letter of Credit or amounts  outstanding  under the Notes
         to a level  below that which the Bank or such other  corporation  could
         have  achieved  but  for  such  change  or   compliance   (taking  into
         consideration  the policies of the Bank or such other  corporation with
         respect to capital),  then from time to time the Borrower  shall pay to
         such Bank such additional amount or amounts as will compensate the Bank
         for such reduction. The Bank will notify the Borrower of any Regulatory
         Change  that will  entitle  the Bank to  compensation  pursuant to this
         Section as promptly as practicable, but in any event within ninety (90)
         days after the Bank obtains knowledge thereof; provided,  however, that
         if the Bank fails to give such notice  within ninety (90) days after it
         obtains  knowledge of such a Regulatory  Change,  the Bank shall,  with
         respect to compensation  payable in respect of any costs resulting from
         such Regulatory Change,  only be entitled to payment for costs incurred
         from and after the date that the Bank does give such notice.  Such Bank
         shall  deliver to the Borrower a written  certificate  which states the
         additional amount(s) due and payable,  showing in reasonable detail the
         calculation  of such amount and provide  evidence to  substantiate  the
         Bank's claim for such amount(s).

                  (b) Each Bank that is organized  outside the United States (i)
         on or before the date it becomes a party to this Credit  Agreement  and
         (ii) with respect to each  lending  office  located  outside the United
         States  of  such  Bank,   shall   deliver  to  the   Borrower  and  the
         Administrative Agent such certificates, documents or other evidence, as
         required by the Code or Treasury  Regulations  issued pursuant thereto,
         including  Internal  Revenue  Service Form 1001 or Form 4224,  properly
         completed  and duly  executed by such Bank  establishing  that payments
         received  hereunder are (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  Federal  withholding  tax under a provision  of an
         applicable tax treaty.  In addition,  each such Bank shall,  if legally
         able to do

                                      -34-
<PAGE>
         so, thereafter deliver such  certificates,  documents or other evidence
         from time to time establishing that payments received hereunder are not
         subject to such  withholding upon receipt of a written request therefor
         from the Borrower or the Administrative  Agent. Unless the Borrower and
         the  Administrative  Agent  have  received  forms  or  other  documents
         satisfactory to them  indicating  that payments  hereunder or under the
         Notes are not subject to United  States  Federal  withholding  tax, the
         Borrower or the  Administrative  Agent shall  withhold  such taxes from
         such payments at the applicable statutory rate.

                  (c) The Borrower  shall not be required to pay any  additional
         amounts  to any Bank or the  Administrative  Agent in respect to United
         States Federal withholding tax if the obligation to pay such additional
         amounts  would not have  arisen  but for a failure  by such Bank or the
         Administrative  Agent to deliver the  certificates,  documents or other
         evidence  specified in the preceding  paragraph (b) unless such failure
         is  attributable  to (i) a change  in  applicable  law,  regulation  or
         official interpretation thereof or (ii) an amendment or modification to
         or a revocation  of any  applicable  tax treaty or a change in official
         position regarding the application or interpretation  thereof,  in each
         case on or after the date such Bank or the Administrative Agent becomes
         a party to this Credit Agreement.

                  (d) Nothing  contained in this Section  shall require any Bank
         or the  Administrative  Agent to make  available any of its tax returns
         (or any other  information  relating to its taxes) which it deems to be
         confidential.

         3.7 Special Provisions for LIBOR Rate Advances.

                  (a)  Funding:  Notwithstanding  any  provision  of the  Credit
         Documents  to the  contrary,  the Banks  shall be  entitled to fund and
         maintain  their funding of all or any part of any Advance in any manner
         they see fit;  provided,  however,  that for the purposes of the Notes,
         all  determinations  thereunder  shall  be  made  as if the  Banks  had
         actually  funded and maintained  each Advance  bearing  interest at the
         LIBOR Based Rate during the LIBOR Interest Period therefor  through the
         purchase of deposits having a maturity corresponding to the last day of
         the LIBOR  Interest  Period and bearing an  interest  rate equal to the
         LIBOR Based Rate for such LIBOR Interest Period.

                  (b)  Inadequacy  of  Eurodollar   Pricing:   If,  due  to  any
         Regulatory Change, there shall be any increase in the cost to a Bank of
         agreeing to make or making,  funding,  or maintaining  Advances bearing
         interest at the LIBOR Based Rate (including,  without  limitation,  any
         increase in any  applicable  reserve  requirement),  then the  Borrower
         shall from time to time,  upon demand by the Bank, pay to the Bank such
         amounts  as the  Bank  may  reasonably  determine  to be  necessary  to
         compensate the Bank for any additional  costs that the Bank  reasonably
         determines are  attributable to such Regulatory  Change.  The Bank will
         notify the Borrower of

                                      -35-
<PAGE>
         any  Regulatory  Change  that  will  entitle  the Bank to  compensation
         pursuant to this paragraph as promptly as practicable, but in any event
         within  ninety  (90) days  after the Bank  obtains  knowledge  thereof;
         provided,  however,  that if the Bank fails to give such notice  within
         ninety  (90)  days  after it  obtains  knowledge  of such a  Regulatory
         Change, the Bank shall, with respect to compensation payable in respect
         of any costs resulting from such Regulatory Change, only be entitled to
         payment for costs  incurred  from and after the date that the Bank does
         give such notice.  The Bank will furnish to the Borrower a  certificate
         setting  forth in  reasonable  detail  the basis for the amount of each
         request   by  the  Bank  for   compensation   under   this   paragraph.
         Determinations  by the Bank of the amounts  required to compensate  the
         Bank shall be  conclusive,  absent  manifest  error.  The Bank shall be
         entitled to compensation in connection with any Regulatory  Change only
         for costs actually incurred by the Bank.

                  (c)  Illegality:  Notwithstanding  any provision of the Credit
         Documents,  if a Bank shall notify the  Borrower  that as a result of a
         Regulatory  Change it is unlawful for the Bank to make  Advances at the
         LIBOR Based Rate, or to fund or maintain  Advances  bearing interest at
         the LIBOR Based Rate , (i) the obligations of the Bank to make Advances
         at the LIBOR Based Rate and to convert Advances to the LIBOR Based Rate
         shall be suspended  until the Bank shall  notify the Borrower  that the
         circumstances  causing such suspension no longer exist, and (ii) in the
         event such  Regulatory  Change makes the maintenance of Advances at the
         LIBOR Based Rate unlawful,  the Borrower shall forthwith prepay in full
         all Advances bearing interest at the LIBOR Based Rate then outstanding,
         together  with interest  accrued  thereon and all amounts in connection
         with such prepayment specified herein, unless the Borrower, within five
         (5) Banking Days of notice from the Bank, converts all Advances bearing
         interest at the LIBOR Based Rate then outstanding into Advances bearing
         interest at the Variable  Rate  pursuant to the  conversion  procedures
         herein and pays all  amounts in  connection  with such  prepayments  or
         conversions specified herein.

                  (d) Market Disruption:  Notwithstanding any other provision of
         the  Credit  Documents,  if  prior  to the  commencement  of any  LIBOR
         Interest  Period,  the Banks shall  determine  (i) that  United  States
         dollar  deposits in the amount of any Advance  bearing  interest at the
         LIBOR Based Rate to be outstanding  during such LIBOR  Interest  Period
         are not readily  available to the Banks in the London interbank market,
         or (ii) by reason  of  circumstances  affecting  the  London  interbank
         market, adequate and reasonable means do not exist for ascertaining the
         LIBOR  Based  Rate  for  such  LIBOR  Interest  Period  in  the  manner
         prescribed   in  the   definition  of  "LIBOR  Based  Rate,"  then  the
         Administrative Agent shall promptly give notice thereof to the Borrower
         and the  obligation  of the  Banks to  create,  continue,  or effect by
         conversion any Advance bearing interest at the LIBOR Based Rate in such
         amount and for such LIBOR Interest  Period shall terminate until United
         States dollar deposits in such amount and for the LIBOR Interest Period

                                      -36-
<PAGE>
         shall again be readily  available  in the London  interbank  market and
         adequate and reasonable  means exist for  ascertaining  the LIBOR Based
         Rate.

                  (e)  Prepayment:  Borrower  may, upon at least two (2) Banking
         Days'  notice  in the case of LIBOR  Based  Rate  Advances  and one (1)
         Banking  Day's  notice in the case of  Variable  Rate  Advances  to the
         Administrative  Agent stating the proposed date and aggregate principal
         amount of the  prepayment,  and if such notice is given Borrower shall,
         prepay  the  outstanding  principal  balance of the Loan in whole or in
         part at any time  prior to the  applicable  Maturity  Date as stated in
         such  notice by  Borrower.  With any  prepayment  of a LIBOR Based Rate
         Advance  or with any  conversion  of a LIBOR  Based  Rate  Advance to a
         Variable  Rate  Advance,  in either case other than on the last Banking
         Day of the LIBOR  Interest  Period  for such LIBOR  Based Rate  Advance
         (including any such prepayment made  voluntarily or  involuntarily as a
         result of the  acceleration  of maturity upon a default or  otherwise),
         Borrower shall pay all accrued interest on the principal amount prepaid
         with such prepayment and, on demand, shall reimburse the Banks and hold
         the Banks  harmless from all losses and expenses  incurred by the Banks
         as a result of such  prepayment,  including,  without  limitation,  any
         losses and expenses  arising from the  liquidation or  reemployment  of
         deposits  acquired to fund or maintain the  principal  amount  prepaid.
         Such  reimbursement  shall be calculated as though the Banks funded the
         principal  amount prepaid  through the purchase of U.S. Dollar deposits
         in the London, England interbank market having a maturity corresponding
         to such LIBOR Interest Period and bearing an interest rate equal to the
         LIBOR Based Rate for such LIBOR Interest  Period,  whether in fact that
         is the case or not.  The  Banks'  determination  of the  amount of such
         reimbursement shall be conclusive in the absence of manifest error.

         3.8 Prepayments.

                  (a)  Borrower  shall have the  option to prepay the Loans,  in
         full or in  part,  at any  time,  subject  to  payment  of all  amounts
         specified hereinbelow with respect to any LIBOR Rate Advance.

                  (b)  If  for  any  reason  (including  voluntary   prepayment,
         voluntary  conversion  of a LIBOR Rate  Advance  into a  Variable  Rate
         Advance,  or  acceleration,  but excluding any mandatory  prepayment or
         mandatory  conversion  such as pursuant to Section  3.7(b)),  the Banks
         receive  all or part of the  principal  amount of a LIBOR Rate  Advance
         prior to the last day of the LIBOR  Interest  Period for such  Advance,
         the Borrower shall immediately notify the Borrower's account officer at
         the  Administrative  Agent and, on demand by the Banks,  pay the "LIBOR
         Breakage  Fees,"  defined  as the  amount  (if  any) by  which  (i) the
         additional  interest  which  would  have been  payable on the amount so
         received  had it not been  received  until  the last day of such  LIBOR
         Interest Period exceeds (ii) the interest

                                      -37-
<PAGE>
         which  would  have been  recoverable  by the Banks  (without  regard to
         whether the Banks  actually so invest said funds) by placing the amount
         so received  on deposit in the  certificate  of deposit  markets or the
         offshore   currency   interbank   markets  or  United  States  Treasury
         investment  products,  as the case may be for a period  starting on the
         date on which it was so  received  and  ending  on the last day of such
         LIBOR Interest  Period at the interest rate  determined by the Banks in
         their reasonable discretion. The Banks' determination as to such amount
         shall be conclusive and final, absent manifest error.

                  (c) The  Borrower  shall pay to the Banks,  upon the demand of
         the Required Banks, such other amount or amounts as shall be sufficient
         to compensate them for any loss,  costs or expense  ("LIBOR  Prepayment
         Charges")  incurred  by  them  as a  result  of any  prepayment  by the
         Borrower (including  voluntary  prepayment,  voluntary  conversion of a
         LIBOR Rate Advance into a Variable Rate Advance,  or prepayment  due to
         acceleration,  but  excluding  any  mandatory  prepayment  or mandatory
         conversion  such as pursuant  to Section  3.7(b)) of all or part of the
         principal  amount of a LIBOR Rate Advance  prior to the last day of the
         LIBOR Interest Period for such Advance (including  without  limitation,
         any failure by the  Borrower to borrow a LIBOR Rate Advance on the loan
         date for such borrowing  specified in the relevant  notice of borrowing
         hereunder).  Such  LIBOR  Prepayment  Charges  shall  include,  without
         limitation,  any  interest  or fees  payable by the Banks to lenders of
         funds  obtained by them in order to make or maintain  their loans based
         on the London interbank  eurodollar market. The Banks' determination as
         to such LIBOR Prepayment Charges shall be conclusive and final,  absent
         manifest error.

                  (d) The Banks  agree  that they  shall  make a best  effort to
         minimize  any such LIBOR  Breakage  Fees or any such  LIBOR  Prepayment
         Charges.

         3.9 Non U.S.  Subsidiaries - Currency Indemnity.  Borrower shall pay to
the Banks,  upon the demand of the Required Banks,  such other amount or amounts
as  shall  be  sufficient  to  compensate  them for any  loss,  cost or  expense
("Currency  Loss") incurred by them as a result of any repayment being made in a
currency other than Dollars.  The Banks'  determination as to such Currency Loss
shall be conclusive and final, absent manifest error.

                                      -38-
<PAGE>
                                    ARTICLE 4

                               SECURITY DOCUMENTS
                               ------------------
         4.1 Security.

                  (a) So long as any Loan is  outstanding,  Borrower shall cause
         such Loan and Borrower's  obligations under this Credit Agreement to be
         secured at all times by a valid and effective  security  agreement (the
         "Security  Agreement"),  duly executed and delivered by or on behalf of
         the Company,  granting the Agent on behalf of the Banks and the Issuing
         Bank a valid and  enforceable  security  interest  in all of its assets
         other  than its real  property,  subject  to no prior  Lien  other than
         Permitted Liens.

                  (b) On and after the date  hereof,  Company will not create or
         suffer to exist any Lien upon its property, real or personal, including
         without  limitation its patents,  copyrights and trademarks,  except as
         permitted under Section 8.2.

         4.2 Security Documents. All of the documents required by this Article 4
shall be in form  satisfactory to the Banks, the Issuing Bank and their counsel,
and, together with any Financing Statements for filing and/or recording, and any
other  items  required by the Banks and the  Issuing  Bank to fully  perfect and
effectuate  the liens and  security  interests of the Banks and the Issuing Bank
contemplated by the Security Agreement and this Credit Agreement, may heretofore
or hereinafter be referred to as the "Security Documents."

                                      -39-
<PAGE>
                                    ARTICLE 5

                              CONDITIONS PRECEDENT
                              --------------------

         The  obligations of the Banks to make the Loans and to make the initial
Advance  hereunder or the Issuing Bank's  obligation to issue the initial Letter
of Credit is  subject to the full prior  satisfaction  of each of the  following
conditions  precedent  and,  as to  each  future  Advance,  to  the  full  prior
satisfaction  at each such time of each of the conditions  precedent in Sections
5.2, 5.3 and 5.4 hereof:

         5.1  Initial  Advance.  Prior to its making the  initial  Advance,  the
Administrative  Agent  shall  have  received  the  following,  each in form  and
substance satisfactory to the Required Banks:

                  (a)  This  Credit  Agreement.   This  Credit  Agreement,  duly
         executed by Borrower.

                  (b) The Notes. The Notes,  each duly executed,  as provided in
         Articles 2 and 2A hereof.

                  (c)  Officer's   Certificate.   A  certificate  signed  by  an
         Authorized Officer of the Company and an Authorized Agent's Certificate
         as to each  Subsidiary,  stating that (to the best knowledge and belief
         thereof,  after reasonable  inquiry and review of matters  pertinent to
         the subject matter of such certificate): (i) all of the representations
         and warranties  contained in Article 6 of this Credit  Agreement and in
         the other  Credit  Documents  are, in all material  respects,  true and
         correct as of the date hereof (other than those of such representations
         which by their express terms speak to a date prior to such date,  which
         representations  are, in all material respects,  true and correct as of
         such respective  dates);  (ii) no event has occurred and is continuing,
         or would  result from the advance of the  proceeds of the Loans,  which
         would  constitute  an Event of Default,  and (iii) no change or changes
         having a Material  Adverse  Effect  have  occurred  in the  business or
         financial  condition of Borrower  since the date of the last  financial
         statements of Borrower heretofore delivered to the Banks.

                  (d)   Organizational   Documents.   A  copy  of  the   current
         organizational documents of Borrower, including all amendments thereto,
         except for non U.S.  Subsidiaries  certified as current and complete by
         the   appropriate   authority  of  the  state  of  said   corporation's
         incorporation,  together  with  evidence  of  said  corporation's  good
         standing  in said  corporation's  state of  incorporation  and in every
         other  state  in  which it is doing  business  or the  conduct  of said
         corporation's  business  requires such standing for the  enforcement of
         material contracts.

                  (e) Certificate.  A certificate of the corporate  secretary of
         Company,  signed by the duly appointed  secretary thereof and issued as
         of the Closing Date,

                                      -40-
<PAGE>
         certifying that (i) attached thereto is a true and complete copy of the
         corporate  by-laws of said corporation in effect on the date of passage
         of the corporate  resolutions  described  immediately  below and at all
         subsequent times to and including the date of the certificate,  (ii) no
         change has been made to said corporation's charter documents other than
         as reflected in the certified  copies  submitted in connection with the
         delivery  of this  Credit  Agreement  or as  approved in writing by the
         Administrative   Agent,   and  (iii)   attached   thereto   are  proper
         resolutions,  authorizations and certificates relating to the authority
         of any person executing  documents on behalf of such entity. As to each
         Subsidiary,  a unanimous  Written Consent in Lieu of Special Meeting of
         the Sole Shareholder together with an Authorized Agent's Certificate as
         to the organizational  documents of the Subsidiary,  certifying that no
         change has been made to said documents.

                  (f) Security  Agreement.  A Security Agreement executed by the
         Company.

                  (g) Financing Statements.  UCC-1 Financing Statements executed
         by the  Company  for each  state in which the  Company  has a  business
         location.

                  (h) Costs.  Payment of costs of the  Administrative  Agent and
         the Banks.

                  (i) Opinion of  Counsel.  An opinion of counsel to the Company
         as to those matters reasonably required by the Banks.

                  (j) Compliance  Certificate.  A Compliance  Certificate in the
         form of Exhibit "A" attached hereto executed by the Company, indicating
         that  Borrower is in  compliance  with all  Financial  Covenants  as of
         September 30, 1998.

                  (k)  Additional   Information.   Such  other  information  and
         documents as may reasonably be required by the Banks or their counsel.

         5.2 No Event of Default.  No Event of Default  known to Borrower  shall
have occurred and be continuing, or result from the making of the Loans.

         5.3 No  Material  Adverse  Effect.  Since  the date of the most  recent
financial  statements  provided to the Banks by  Borrower,  no change shall have
occurred in the  business or financial  condition of Borrower  that could have a
Material Adverse Effect.

         5.4 Representations and Warranties.  The representations and warranties
contained  in  Article  6  hereof  shall  be true and  correct  in all  material
respects, with the same force and effect as though made on and as of the Closing
Date  (other than those of such  representations  which by their  express  terms
speak to a date prior to that date, which representations shall, in all material
respects, be true and correct as of such respective date).

                                      -41-
<PAGE>
                                    ARTICLE 6

                         REPRESENTATIONS AND WARRANTIES
                         ------------------------------

         To induce the Banks to make the Loans,  the Company  and, to the extent
applicable, each Co-Borrower represents and warrants to the Banks that:

         6.1 Recitals.  The recitals and statements of intent  appearing in this
Credit Agreement are true and correct.

         6.2 Organization and Good Standing. It is duly organized under the laws
of the  jurisdiction  of its  organization,  is validly  existing and is in good
standing,  to the extent  required by law, in each  jurisdiction  in which it is
doing  business.  It has the legal power and authority to own its properties and
assets and to  transact  the  business  in which it is engaged and is or will be
qualified in those jurisdictions wherein the nature of its proposed business and
property will make such qualifications necessary or appropriate in the future.

         6.3  Authorization  and Power. It has the corporate power and requisite
authority to execute,  deliver and perform this Credit Agreement,  the Notes and
the other Credit  Documents to be executed by it; it is duly  authorized to, and
has taken all action,  corporate  or  otherwise,  necessary  to authorize it to,
execute,  deliver and perform  this Credit  Agreement,  the Notes and such other
Credit  Documents and is and will continue to be duly authorized to perform this
Credit Agreement, the Notes and such other Credit Documents.

         6.4 Enforceable  Obligations.  This Credit Agreement, the Notes and the
other Credit Documents are the legal, valid and binding obligations of Borrower,
enforceable  against Borrower in accordance with their respective terms,  except
as limited by  bankruptcy,  insolvency or other laws or equitable  principles of
general application relating to the enforcement of creditors' rights.

         6.5 No  Conflicts or Consents.  Neither the  execution  and delivery of
this Credit Agreement,  the Notes or the other Credit Documents to which it is a
party,  nor  the  consummation  of any of the  transactions  herein  or  therein
contemplated,  nor compliance  with the terms and provisions  hereof or with the
terms and  provisions  thereof,  (a) will  contravene or conflict  with: (i) any
provision  of law,  statute  or  regulation  to  which it is  subject,  (ii) any
judgment,  license, order or permit applicable to it, (iii) any indenture,  loan
agreement, mortgage, deed of trust, or other agreement or instrument to which it
is a party or by which it may be bound,  or to which it may be  subject,  or (b)
will  violate  any  provision  of  its  organizational  documents.  No  consent,
approval, authorization or order of any court or Governmental Authority or other
Person is required in  connection  with the  execution and delivery by it of the
Credit  Documents  or to  consummate  the  transactions  contemplated  hereby or
thereby, or if required,  such consent,  approval,  authorization or order shall
have been obtained.

                                      -42-
<PAGE>
         6.6 No  Litigation.  There are no actions,  suits or legal,  equitable,
arbitration or administrative  proceedings  pending,  or to its actual knowledge
overtly threatened, against Borrower that would, if adversely determined, have a
Material Adverse Effect.

         6.7  Financial  Condition.  It has delivered to the Banks copies of the
its audited  consolidated  financial  statements as most recently filed with the
SEC. Such financial  statements,  in all material  respects,  fairly present the
financial  position  of  Borrower  as of such  date and have  been  prepared  in
accordance  with  GAAP.  Since  the  date  thereof,  it has not  discovered  any
obligations,  liabilities  or  indebtedness  (including  contingent and indirect
liabilities and obligations or unusual forward or long-term  commitments)  which
in the aggregate are material and adverse to the financial  position or business
of  Borrower  that  should have been but were not  reflected  in such  financial
statements.  No changes  having a Material  Adverse  Effect have occurred in the
financial  condition or business of Borrower  since its most recent filings with
the SEC.

         6.8 Taxes.  It has filed or caused to be filed all  returns and reports
which  are  required  to be  filed  by any  jurisdiction,  and has  paid or made
provision for the payment of all taxes, assessments,  fees or other governmental
charges  imposed  upon its  properties,  income or  franchises,  as to which the
failure  to file or pay  would  have a  Material  Adverse  Effect,  except  such
assessments  or  taxes,  if any,  which  are being  contested  in good  faith by
appropriate proceedings.

         6.9 No  Stock  Purchase.  No  part  of the  proceeds  of any  financial
accommodation made by the Banks in connection with this Credit Agreement will be
used to purchase or carry "margin  stock," as that term is defined in Regulation
U, or to extend  credit to others for the purpose of purchasing or carrying such
margin stock.

         6.10 Advances.  Each request for an Advance or for the extension of any
financial  accommodation by the Banks whatsoever shall constitute an affirmation
that the representations and warranties of Section 6.7 are true and correct with
respect to any financial  statements  submitted by Borrower to the Banks between
the date of this Credit  Agreement  and the date of such  request,  and that the
representations  and  warranties  of Sections  6.1,  6.4,  6.5, 6.6, 6.7 and 6.8
hereof are true and correct as of the time of such request.  All representations
and warranties made herein shall survive the execution of this Credit Agreement,
all  advances  of proceeds of the Loans and the  execution  and  delivery of all
other  documents and instruments in connection with the Loans and/or this Credit
Agreement,  so long as any Bank has any  commitment to lend  hereunder and until
the Loans have been paid in full and all of  Borrower's  obligations  under this
Credit Agreement and the Notes been fully discharged.

         6.11  Solvent.  It (both  before and after  giving  effect to the Loans
contemplated hereby) is solvent, has assets having a fair value in excess of the
amount  required to pay its probable  liabilities  on its existing debts as they
become  absolute  and  matured,  and has,  and is  expected  to have,  access to
adequate  capital  for the  conduct of its  business  and the ability to pay its
debts from time to time incurred in connection therewith as such debts mature.

                                      -43-
<PAGE>
         6.12 ERISA. (a) No Reportable Event has occurred and is continuing with
respect to any Plan;  (b) PBGC has not  instituted  proceedings to terminate any
Plan;  (c) neither the Borrower,  any member of the  Controlled  Group,  nor any
duly-appointed  administrator  of a Plan (i) has incurred any  liability to PBGC
with  respect to any Plan other than for premiums not yet due or payable or (ii)
has  instituted or intends to institute  proceedings to terminate any Plan under
Section  4041 or  4041A  of  ERISA;  and (d)  each  Plan of  Borrower  has  been
maintained and funded in all material  respects in accordance with its terms and
in all material  respects in accordance with all provisions of ERISA  applicable
thereto. Neither the Borrower nor any of its Subsidiaries participates in, or is
required  to make  contributions  to, any  Multi-employer  Plan (as that term is
defined in Section 3(37) of ERISA).

         6.13 Full Disclosure. No certificate or statement delivered herewith or
heretofore by it to the Banks in  connection  with  negotiations  of this Credit
Agreement,  contains any untrue  statement of a material  fact or omits to state
any material fact necessary to keep the statements  contained  herein or therein
from being misleading.

         6.14 No Default.  No event or condition  has occurred and is continuing
that constitutes an Event of Default.

         6.15 Significant Debt Agreements.  It is not in default in any material
respect under any Significant Debt Agreement.

         6.16  Compliance  with Law. It is in  substantial  compliance  with all
laws, rules,  regulations,  orders and decrees that are applicable to it, or its
properties, noncompliance with which would have a Material Adverse Effect.

         6.17  Subsidiaries.  Except for  Subsidiaries  listed on Schedule 6.17,
Company has no existing Subsidiary that conducts any business or operations.

         6.18 Year 2000 Compliance.  Company and its Subsidiaries  have reviewed
the areas within their operations and business which could be adversely affected
by, and have developed or are developing a program to address on a timely basis,
the Year 2000  Problem  and have made  related  appropriate  inquiry of material
suppliers  and  vendors,  and based on such  review and  program,  the Year 2000
Problem will not have a Material  Adverse  Effect upon its financial  condition,
operations  or  business  as  now  conducted.  "Year  2000  Problem"  means  the
possibility that any computer  applications or equipment used by Borrower may be
unable to recognize  and properly  perform  date-sensitive  functions  involving
certain dates prior to and any dates on or after December 31, 1999.

                                      -44-
<PAGE>
                                    ARTICLE 7

                              AFFIRMATIVE COVENANTS
                              ---------------------

         Until payment in full of the Notes and the complete  performance of the
Obligation,  and so  long as any  Bank  has any  Commitment  outstanding  to any
Borrower,  the Company and, to the extent  applicable,  each Co-Borrower  agrees
that:

         7.1  Financial  Statements,   Reports  and  Documents.  Borrower  shall
deliver, or cause to be delivered, to the Banks each of the following:

                  (a) Consolidated  Quarterly Statements of the Company. As soon
         as available,  and in any event within  forty-five  (45) days after the
         end of the first three (3) fiscal quarterly periods of each fiscal year
         of the Company, copies of the consolidated balance sheet of the Company
         as of the end of such fiscal quarter,  and  consolidated  statements of
         income of the Company  for that  fiscal  quarter and for the portion of
         the fiscal year ending with such fiscal  quarter,  in each case setting
         forth in comparative form the figures for the  corresponding  period of
         the preceding  fiscal year, all in reasonable  detail and fairly stated
         and prepared in accordance with GAAP.

                  (b) Consolidated  Annual Statements of the Company. As soon as
         available  and in any event within  ninety (90) days after the close of
         each  fiscal  year  of  the  Company,  audited  consolidated  financial
         statements of the Company,  including its consolidated balance sheet as
         of the close of such fiscal year and consolidated  statements of income
         of the Company  for such fiscal  year,  in each case  setting  forth in
         comparative  form the figures for the  preceding  fiscal  year,  all in
         reasonable detail and accompanied by an unqualified  opinion thereon of
         independent public accountants of recognized national standing selected
         by the Company  and  acceptable  to the Banks,  to the effect that such
         financial statements have been prepared in accordance with GAAP (except
         for changes in which such accountants  concur) and that the examination
         of such accounts in connection with such financial  statements has been
         made in accordance  with  generally  accepted  auditing  standards and,
         accordingly,  includes  such tests of the  accounting  records and such
         other  auditing   procedures  as  were  considered   necessary  in  the
         circumstances.

                  (c) Compliance  Certificate of the Company.  Within forty-five
         (45) days  after  the end of each  fiscal  quarter  of the  Company,  a
         certificate (the "Compliance Certificate") substantially in the form of
         Exhibit  "A"  attached  hereto  signed by an  Authorized  Officer,  (i)
         stating  that a review of the  activities  of the  Company  during such
         quarter or year has been made under  his/her  supervision,  that, as of
         such date,  the Company has observed,  performed and fulfilled each and
         every obligation and covenant  contained herein and no Event of Default
         exists under any of the

                                      -45-
<PAGE>
         same or, if any Event of Default shall have  occurred,  specifying  the
         nature and status  thereof,  and stating that all financial  statements
         delivered to the Banks during the respective period pursuant to Section
         7.1(a)  and  7.1(b)  hereof,  to such  officer's  knowledge  after  due
         inquiry, fairly present in all material respects the financial position
         of the Company and the results of its  operations  at the dates and for
         the periods indicated,  and have been prepared in accordance with GAAP,
         subject to year end audit and  adjustments,  and (ii) setting  forth in
         such  level  of  detail  as  the  Banks  shall  reasonably   require  a
         calculation  of the  Financial  Covenants  as of the end of that fiscal
         quarter.

                  (d)  Management  Letters.  With the  audited  fiscal  year-end
         statements submitted under Section 7.1(b) above, the management letter,
         if  any,  of the  Company's  certified  public  accountants  issued  in
         connection with such audit.

                  (e) SEC  Filings.  When filed,  copies of each filing with the
         SEC made by the Company,  including without  limitation its annual 10-K
         and quarterly 10-Q reports.

                  (f) Projections. No later than thirty-one (31) days before the
         end of each fiscal year,  financial  statements  of the Company for the
         following  fiscal year and each fiscal  quarter  thereof,  based on its
         current financial projections for such fiscal year.

                  (g) Other Information.  Such other information  concerning the
         business,  properties  or financial  condition of Borrower as the Banks
         shall reasonably request.

         7.2  Maintenance  of Existence.  Borrower  shall maintain its existence
with no material  amendments or changes in its organizational  documents without
the prior written approval of the Required Banks.

         7.3 Maintain Business. Borrower shall maintain in full force and effect
all agreements,  rights, trademarks, patents and licenses necessary to carry out
its business in its reasonable  business judgment,  shall keep all of its assets
and  properties in good  condition and repair,  ordinary wear and tear excepted,
and shall make all needed and proper repairs and  improvements to its properties
in order to properly conduct its business in its reasonable business judgment.

         7.4 Insurance.  To the extent  Borrower is not  self-insured,  Borrower
shall maintain in full force and effect at all times policies of fire, flood and
extended  coverage  insurance and policies of public liability  property damage,
workman's compensation insurance in scope and amount not less than, and not less
extensive  than,  the scope and  amount of  insurance  coverages  customary  for
companies of comparable size and financial  strength in the trades or businesses
in which  Borrower  is from time to time  engaged.  Upon  request  by the Banks,
Borrower shall deliver to the Banks certificates of, and copies of the originals
of, all such policies of insurance in effect

                                      -46-
<PAGE>
from time to time,  to be  retained by the Banks so long as the Banks shall have
any  commitment  to lend to  Borrower  and/or any  portion of the Loans shall be
outstanding or unsatisfied.

         7.5 Compliance with Credit Documents. Borrower will comply with any and
all covenants and provisions of this Credit  Agreement,  the Notes and all other
Credit Documents.

         7.6 Books and  Records;  Access.  Borrower  shall  maintain,  in a safe
place,  proper and accurate  books,  ledgers,  correspondence  and other records
relating to its operations and business affairs.  The Banks shall have the right
from time to time,  upon  reasonable  notice to  Borrower,  to examine and audit
(within a reasonable scope of audit) at Borrower's  expense (such expense not to
exceed  $5,000.00  per  annum) and to make  abstracts  from and  photocopies  of
Borrower's books, ledgers, correspondence and other records.

         7.7 Payment of Taxes and Other Indebtedness.  Borrower shall pay all of
its  current   obligations   before  they  become  delinquent  under  applicable
agreements or normal trade  practices,  including  all accounts  payable and all
federal, state and local taxes, assessments, levies and governmental charges and
all other payments  required under any federal state or local law. Borrower may,
however,  contest  in good  faith the  validity  or  amount  of any such  taxes,
assessments,  levies or other such governmental  charges provided that the Banks
may require  Borrower to provide  security with respect thereto in the form of a
bond,  insurance,  security deposit, cash reserve or other evidence satisfactory
to the Banks of Borrower's ability to pay and discharge such matter in the event
such contest is  unsuccessful  where the failure to provide such security  would
result in the occurrence of a Material Adverse Event.

         7.8 Notice of Default.  Borrower will furnish to the Banks  immediately
upon becoming  actually  aware of the  existence of any event or condition  that
constitutes  an Event of Default,  a written  notice  specifying  the nature and
period of  existence  thereof  and the action  which it is taking or proposes to
take with respect thereto.

         7.9 Other Notices.  Borrower will promptly  notify the Banks of (a) any
Material  Adverse  Effect,  (b)  any  waiver,   release  or  default  under  any
Significant  Debt Agreement,  (c) except as to any claim not covered as a result
of an insurance deductible provision, any claim not covered by insurance against
Borrower or any of Borrower's  properties,  and (d) the commencement of, and any
material determination in, any litigation with any third party or any proceeding
before any Governmental Authority affecting it, except litigation or proceedings
which, if adversely determined, would not have a Material Adverse Effect.

         7.10 ERISA Compliance. With respect to its Plans, Borrower shall (a) at
all times comply with the minimum funding  standards set forth in Section 302 of
ERISA and Section 412 of the Code or shall have duly obtained a formal waiver of
such compliance  from the proper  authority;  (b) at the Banks' request,  within
thirty (30) days after the filing  thereof,  furnish to the Banks copies of each
annual   report/return  (Form  5500  Series),  as  well  as  all  schedules  and
attachments  required  to be filed  with the  Department  of  Labor  and/or  the
Internal Revenue Service pursuant to ERISA, in connection with each of its Plans
for each year of the plan; (c) notify the

                                      -47-
<PAGE>
Banks within a reasonable time of any fact,  including,  but not limited to, any
Reportable Event arising in connection with any of its Plans,  which constitutes
grounds  for  termination  thereof  by the  PBGC or for the  appointment  by the
appropriate  United States  District Court of a trustee to administer such Plan,
together with a statement,  if requested by the Banks, as to the reason therefor
and the action,  if any,  proposed  to be taken with  respect  thereto;  and (d)
furnish to the Banks within a reasonable  time,  upon the Banks'  request,  such
additional  information  concerning  any of  its  Plans  as  may  be  reasonably
requested.

         7.11 Further  Assurances.  Borrower will make, execute or endorse,  and
acknowledge  and deliver or file or cause the same to be done, all such notices,
certifications and additional agreements,  undertakings or other assurances, and
take any and all such other action,  as the Banks may,  from time to time,  deem
reasonably necessary or proper to fully evidence the Loan.

         7.12 Compliance with Significant Debt Agreements.  Borrower will comply
in all material respects with all Significant Debt Agreements.

         7.13  Compliance  with Law.  Borrower  will comply with all  applicable
laws,  rules,   regulations,   and  all  final,   nonappealable  orders  of  any
Governmental  Authority  applicable  to it or  any  of  its  property,  business
operations or transactions, a breach of which could result in a Material Adverse
Effect.

         7.14 Authorizations and Approvals.  Borrower will promptly obtain, from
time to time at its own expense, all such governmental licenses, authorizations,
consents,  permits and  approvals as may be required to enable it to comply with
its  obligations  hereunder and under the other Credit  Documents and to operate
its businesses as presently or hereafter duly conducted.

         7.15 News  Releases.  Borrower shall forward to the Banks copies of all
news  releases  made  by  it to  the  news  media  as to  anything  of  material
significance with respect to its financial status or its business operations or,
in each case, that of its Subsidiaries.

         7.16 New  Subsidiaries.  Company shall promptly and diligently take all
actions  necessary to cause any existing  Subsidiary  which is not a Co-Borrower
and that  subsequently  undertakes  to conduct any  business or  operations  and
qualifies as a Controlled Subsidiary,  and any new Controlled Subsidiary (each a
"New  Subsidiary")  to become a  Co-Borrower.  Within  thirty (30) days of being
acquired,  or in the case of an existing  Subsidiary  within thirty (30) days of
the later of  undertaking to conduct any business or operations or qualifying as
a  Controlled  Subsidiary,  such New  Subsidiary  shall  deliver to the Banks an
executed  Assumption  Agreement in the form attached  hereto as Exhibit "D", and
such other documents as the Banks may reasonably request. The term "Co-Borrower"
shall mean that such Subsidiary shall be jointly liable,  and each severally and
unconditionally  liable,  for the full payment and satisfaction of the Loans and
all other obligations of Borrower under this Credit Agreement.

         7.17 Change in Control.  Should there be a Change in Control, the Loans
shall be immediately due and payable.

                                      -48-
<PAGE>
         7.18 Year 2000  Compliance.  Borrower shall perform all acts reasonably
necessary to ensure that (a) Borrower and any business in which Borrower holds a
substantial  interest,  and (b)  all  customers,  suppliers  and  vendors  whose
compliance  is likely to be material to  Borrower's  business,  become Year 2000
Compliant  in a timely  manner.  Such acts shall  include,  without  limitation,
performing a comprehensive  review and assessment of all Borrower's  systems and
adopting a detailed plan, with itemized budget, for the remediation,  monitoring
and testing of such systems.  As used in this  paragraph,  "Year 2000 Compliant"
shall mean,  in regard to any entity,  that all  software,  hardware,  firmware,
equipment,  goods or systems utilized by or material to the business  operations
or financial  condition of such entity,  will  properly  perform date  sensitive
functions before,  during and after the year 2000.  Borrower shall,  immediately
upon  request,  provide to the Banks such  certifications  or other  evidence of
Borrower's  compliance  with the terms of this  paragraph  as the Banks may from
time to time require.

         7.19  Treasury  Stock.  Upon  its  sale of any of its  treasury  stock,
Borrower  shall apply the net  proceeds  from such sale to the  repayment of the
RLCT.

                                      -49-
<PAGE>
                                    ARTICLE 8

                               NEGATIVE COVENANTS
                               ------------------

         Until  payment  in  full  of  the  Notes  and  the  performance  of the
Obligation,  and so  long as any  Bank  has any  Commitment  outstanding  to any
Borrower,  the Company and, to the extent  applicable,  each Co-Borrower  agrees
that:

         8.1 No Debt.  The Company shall not become or remain  obligated  either
directly or as a guarantor or surety for any Indebtedness for borrowed money, or
for  any  Indebtedness  incurred  in  connection  with  the  acquisition  of any
property,  real or personal,  tangible or intangible including,  but not limited
to, lease purchase agreements, except:

                  (a) Indebtedness to the Banks hereunder.

                  (b) Unsecured  trade,  utility or accounts  payable arising in
         the ordinary course of its business.

                  (c) Lease  purchase  agreements  and purchase  money  security
         interests not exceeding the sum of $3,000,000.00 in payments during any
         fiscal year.

                  (d)  Borrower's  line of credit up to $350,000  with  Barclays
         Bank PLC (U.K.) secured by U.K. receivables and inventory.

                  (e) Indebtedness  secured by liens permitted under Section 8.2
         hereof.

         8.2 Liens. On and after the date hereof, the Company will not create or
suffer to exist Liens upon its  property,  real or personal,  including  without
limitation its patents, copyrights and trademarks, except (i) Liens, if any, for
the benefit of the Banks, and (ii) Permitted Liens, including without limitation
those listed on Schedule 8.2 attached hereto.

         8.3 Loans. It will not make any loan,  advance,  or direct extension of
credit in excess of  $1,000,000.00,  or, except as permitted under Section 8.10,
any investment  (consisting of equity or debt convertible into equity) in excess
of  $3,000,000.00,  in aggregate on an annual basis to any person(s) or entities
other than in the ordinary course of business.

         8.4 Dividends. It will not declare or pay any cash dividend.

         8.5 Existence;  Sale or Transfer of Assets. It will not (i) dissolve or
liquidate,  or merge or consolidate  with or into any corporation or entity,  or
(ii) turn over the management or operation of its property, assets or businesses
to any other person,  firm or  corporation,  or (iii) sell,  lease,  transfer or
dispose of more than $500,000.00 of its assets in any calendar year. The Company
will not transfer more than  $100,000.00 in aggregate value per calendar year of
its assets that consist of accounts  receivable or existing fixed assets located
in the U.S. to locations

                                      -50-
<PAGE>
outside the U.S.  Notwithstanding  anything herein to the contrary,  the Company
may transfer to locations outside the U.S. equipment purchased by the Company in
the U.S. with the sole intent to transfer it to its non-U.S. Subsidiaries.

         8.6  Fiscal  Year.  It will not  change  the times of  commencement  or
termination  of its  fiscal  year or other  accounting  periods;  or change  its
methods of  accounting  other than to  conform to GAAP  applied on a  consistent
basis. After any such changes, its method of accounting shall conform to GAAP.

         8.7 Margin Stock.  Borrower shall not use any proceeds of the Loans, or
any proceeds of any other or future financial  accommodation  from the Banks for
the purpose,  whether  immediate,  incidental  or  ultimate,  of  purchasing  or
carrying any "margin stock" as that term is defined in Regulation U or to reduce
or retire any  indebtedness  undertaken for such purposes  within the meaning of
said Regulation U, and will not use such proceeds in a manner that would involve
Borrower in a violation of Regulation U or of any other  Regulation of the Board
of  Governors  of its Federal  Reserve  System,  nor use such  proceeds  for any
purpose not  permitted by Section 7 of the Exchange  Act, as amended,  or any of
the  rules or  regulations  respecting  the  extensions  of  credit  promulgated
thereunder.

         8.8 Amendments to Organizational Documents. Borrower will not amend its
organizational  documents if the result  thereof could result in the  occurrence
directly or indirectly of a Material Adverse Effect.

         8.9 Treasury Stock. It will not make purchases of its common stock that
exceed in the aggregate $10,000,000.00 after August 1, 1998.

         8.10 Investment in China. It will not make investments in land or other
real  property,  directly or indirectly  through a  Subsidiary,  in the People's
Republic of China that exceed at any time in the aggregate $12,000,000.00.

         8.11 Financial Covenants. It will not permit on a consolidated basis:

                  (a) Its  Tangible  Net Worth to be less than the  Tangible Net
         Worth Minimum at the end of any fiscal quarter.

                  (b) Its EBITDA Ratio to be more than 3.25 to 1.0 at the end of
         any fiscal quarter.

                  (c) Its Debt Coverage Ratio to be less than 1.75 to 1.0 at the
         end of any fiscal quarter.

                  (d) Its  Current  Ratio to be less than 1.50 to 1.0 at the end
         of any fiscal quarter.

                                      -51-
<PAGE>
                  (e) Its Net Income for any two consecutive  fiscal quarters or
         for any fiscal year to be less than zero (i.e. net loss).

                                      -52-
<PAGE>
                                    ARTICLE 9

                                EVENTS OF DEFAULT
                                -----------------

         9.1 Events of Default.  An "Event of Default" shall exist if any one or
more of the following  events (herein  collectively  called "Events of Default")
shall occur and be continuing:

                  (a) Failure to pay any  installment  of  principal or interest
         under the Loans  within five (5)  Banking  Days of when the same become
         due and  payable,  or the  failure  to pay any  other sum due under the
         Loans or this  Credit  Agreement  when the same  shall  become  due and
         payable and such  failure  continues  for five (5)  Banking  Days after
         notice thereof to Borrower;

                  (b) Any  failure or  neglect to perform or observe  any of the
         material  terms,  provisions,  or  covenants  of this Credit  Agreement
         (other than a failure or neglect  described in one or more of the other
         provisions of this Section 9.1) and such failure or neglect  either (i)
         cannot be remedied,  (ii) can be remedied  within  fifteen (15) days by
         prompt and diligent action, but it continues unremedied for a period of
         fifteen  (15) days after notice  thereof to  Borrower,  or (iii) can be
         remedied,  although  not  within  fifteen  (15) days even by prompt and
         diligent  action,  but such remedy is not commenced within fifteen (15)
         days after notice thereof to Borrower or is not  diligently  prosecuted
         to completion  within a total of forty-five  (45) days from the date of
         such notice;

                  (c) Any  warranty,  representation  or statement  contained in
         this  Agreement,  or made or  furnished to the Banks by or on behalf of
         the  Borrower,  that shall be or shall  prove to have been false in any
         material respect when made or furnished;

                  (d) The  occurrence  of any "event of default" or "default" by
         Borrower under any Credit  Document or any agreement,  now or hereafter
         existing  to which  any  Bank  and  Borrower  are a  party,  after  the
         expiration of any notice and cure period;

                  (e)  Borrower  shall  (i)  fail  to pay  any  Indebtedness  of
         Borrower  (other  than  the  Notes)  due  under  any  Significant  Debt
         Agreement,  or any  interest or premium  thereon,  when due (whether by
         scheduled  maturity,  required  prepayment,  acceleration,  demand,  or
         otherwise) or within any applicable grace period,  (ii) fail to perform
         or observe any term, covenant, or condition on its part to be performed
         or  observed  under  any  agreement  or  instrument  relating  to  such
         Indebtedness,  within any  applicable  grace period when required to be
         performed  or  observed,  if the  effect of such  failure to perform or
         observe is to accelerate the maturity of such Indebtedness, or any such
         Indebtedness shall be declared to be due and payable, or required to be
         prepaid (other than by a regularly scheduled prepayment), prior

                                      -53-
<PAGE>
         to the stated  maturity  thereof,  or (iii) allow the occurrence of any
         material event of default with respect to such Indebtedness;

                  (f) Any one or more of the  Credit  Documents  shall have been
         determined to be invalid or unenforceable  against  Borrower  executing
         the same in accordance with the respective  terms thereof,  or shall in
         any  way  be  terminated  or  become  or  be  declared  ineffective  or
         inoperative,   so  as  to  deny  the  Banks  the  substantial  benefits
         contemplated by such Credit Document or Credit Documents;

                  (g) Borrower shall (i) apply for or consent to the appointment
         of a receiver, trustee,  custodian,  intervenor or liquidator of itself
         or of all or a  substantial  part of its assets,  (ii) file a voluntary
         petition in bankruptcy or admit in writing that it is unable to pay its
         debts as they  become  due,  (iii)  make a general  assignment  for the
         benefit  of  creditors,   (iv)  file  a  petition  or  answer   seeking
         reorganization of an arrangement with creditors or to take advantage of
         any  bankruptcy or insolvency  laws,  (v) file an answer  admitting the
         material  allegations  of, or consent  to, or default in  answering,  a
         petition  filed  against  it  in  any  bankruptcy,   reorganization  or
         insolvency proceeding, or (vi) take corporate action for the purpose of
         effecting any of the foregoing;

                  (h) An  involuntary  petition  or  complaint  shall  be  filed
         against Borrower,  seeking bankruptcy or reorganization of Borrower, or
         the  appointment  of a  receiver,  custodian,  trustee,  intervenor  or
         liquidator of Borrower,  or all or substantially all of its assets, and
         such petition or complaint  shall not have been dismissed  within sixty
         (60)  days of the  filing  thereof;  or an  order,  order  for  relief,
         judgment  or  decree  shall  be  entered  by  any  court  of  competent
         jurisdiction  or other  competent  authority  approving  a petition  or
         complaint seeking  reorganization  of Borrower,  appointing a receiver,
         custodian,  trustee,  intervenor or  liquidator of Borrower,  or all or
         substantially  all of its assets,  and such  order,  judgment or decree
         shall continue unstayed and in effect for a period of sixty (60) days;

                  (i) Any final judgment(s)  (excluding those the enforcement of
         which is suspended  pending  appeal) for the payment of money in excess
         of the sum of  $250,000.00  in the  aggregate  (other than any judgment
         covered  by  insurance  where  coverage  has been  acknowledged  by the
         insurer)  shall be  rendered  against  Borrower,  and such  judgment or
         judgments  shall not be  satisfied,  settled,  bonded or  discharged at
         least ten (10) days prior to the date on which any of its assets  could
         be lawfully sold to satisfy such judgment;

                  (j)  Either (i)  proceedings  shall  have been  instituted  to
         terminate,  or a notice  of  termination  shall  have been  filed  with
         respect to, any Plans (other than a Multi-Employer Pension Plan as that
         term is defined in Section 4001(a)(3) of ERISA) by Borrower, any member
         of the Controlled Group, PBGC or any representative of any thereof,  or
         any such Plan shall be terminated, in each case

                                      -54-
<PAGE>
         under Section 4041 or 4042 of ERISA,  and such  termination  shall give
         rise to a liability of the Borrower or the Controlled Group to the PBGC
         or the Plan under ERISA  having an effect in excess of  $500,000.00  or
         (ii) a  Reportable  Event,  the  occurrence  of which  would  cause the
         imposition  of a lien in excess of  $500,000.00  under  Section 4062 of
         ERISA,  shall have  occurred  with  respect to any Plan  (other  than a
         Multi-Employer  Pension  Plan  as  that  term  is  defined  in  Section
         4001(a)(3) of ERISA) and be continuing for a period of sixty (60) days;

                  (k) Any of the  following  events  shall occur with respect to
         any Multi-  Employer  Pension  Plan (as that term is defined in Section
         4001(a)(3) of ERISA) to which  Borrower  contributes  or contributed on
         behalf of its employees and the Required Banks  determine in good faith
         that the aggregate  liability  likely to be incurred by Borrower,  as a
         result of any of the events  specified  in  Subsections  (i),  (ii) and
         (iii) below, will have an effect in excess of $500,000.00; (i) Borrower
         incurs a withdrawal  liability  under  Section 4201 of ERISA;  (ii) any
         such plan is "in  reorganization"  as that term is  defined  in Section
         4241 of ERISA; or (iii) any such Plan is terminated under Section 4041A
         of ERISA;

                  (l) The occurrence of a Change in Control  without the written
         consent of the Banks;

                  (m) The dissolution,  liquidation,  sale,  transfer,  lease or
         other disposal of all or substantially all of the assets or business of
         Borrower;

                  (n) Any  attachment,  garnishment,  levy or execution upon, or
         judicial  seizure of, any  property of Borrower  that has a fair market
         value in excess of  $500,000.00,  that is not bonded or released within
         thirty (30) days;

                  (o) The  institution  of any legal  action or  proceedings  to
         enforce a lien or security  interest in any  property of Borrower  that
         has a fair market value in excess of $500,000.00;

                  (p) The  failure  of  Borrower  to comply  with any  Financial
         Covenant at the end of any fiscal quarter; or

                  (q) The occurrence of a Material Adverse Event if the Banks in
         good faith shall believe that the prospect of payment or performance of
         the Loans is impaired.

         9.2 Remedies  Upon Event of Default.  If an Event of Default shall have
occurred and be continuing, then the Administrative Agent, at the request of the
Required  Banks  may,  at their  sole  option,  exercise  any one or more of the
following  rights and remedies,  and any other  remedies  provided in any of the
Credit Documents, as the Required Banks in their sole discretion

                                      -55-
<PAGE>
may deem  necessary  or  appropriate,  all of  which  remedies  shall be  deemed
cumulative, and not alternative:

                           (i) Cease making  Advances or extensions of financial
                  accommodations  in any form to or for the  benefit of Borrower
                  and declare the  principal  of, and all interest  then accrued
                  on,  the  Notes  and any  other  liabilities  hereunder  to be
                  forthwith  due and  payable,  whereupon  the same shall become
                  immediately  due  and  payable  without  presentment,  demand,
                  protest,  notice  of  default,  notice of  acceleration  or of
                  intention  to  accelerate  or other  notice of any kind all of
                  which Borrower hereby  expressly  waives,  anything  contained
                  herein or in the Notes to the contrary notwithstanding;

                           (ii) Reduce any claim to judgment;

                           (iii) Without notice of default or demand, pursue and
                  enforce  any of the  Banks'  and  the  Administrative  Agent's
                  rights and remedies under the Credit  Documents,  or otherwise
                  provided under or pursuant to any applicable law or agreement;

                           (iv)   Require  the  Borrower  to  deposit  with  the
                  Administrative   Agent   cash  in  an  amount   equal  to  the
                  Outstanding LC Balance;

provided, however, that if any Event of Default specified in Sections 9.1(g) and
9.1(h) shall occur,  the  principal of, and all interest on, the Notes and other
liabilities  hereunder  shall  thereupon  become  due and  payable  concurrently
therewith,  without  any further  action by the Banks and  without  presentment,
demand,  protest,  notice of default,  notice of acceleration or of intention to
accelerate or other notice of any kind, all of which Borrower  hereby  expressly
waives.

         Upon the occurrence and during the continuance of any Event of Default,
the Administrative  Agent on behalf of the Banks, at the request of the Required
Banks is hereby authorized at any time and from time to time,  without notice to
Borrower (any such notice being  expressly  waived by Borrower),  to set off and
apply any and all moneys,  securities  or other  property  of  Borrower  and the
proceeds  therefrom,  now or hereafter  held or received by or in transit to the
Banks or their  agents,  from or for the account of  Borrower,  whether for safe
keeping, custody, pledge,  transmission,  collection or otherwise, and also upon
any and all deposits  (general or special) and credits of Borrower,  and any and
all claims of Borrower  against the Banks at any time existing.  The Banks agree
to notify Borrower promptly after any such setoff and application, provided that
the failure to give such notice shall not affect the validity of such setoff and
application. The rights of the Banks under this Section are in addition to other
rights and  remedies  (including,  without  limitation,  other rights of setoff)
which the Banks may have.

                                      -56-
<PAGE>
         9.3  Performance  by the Banks.  Should  Borrower  fail to perform  any
covenant,  duty or  agreement  with  respect to the payment of taxes,  obtaining
licenses or permits, or any other requirement  contained herein or in any of the
Credit Documents  within the period provided  herein,  if any, for correction of
such failure, the Banks may, at their option, perform or attempt to perform such
covenant,  duty or  agreement  on behalf of  Borrower.  In such event,  Borrower
shall, at the request of the Required Banks, promptly pay any amount expended by
the Banks  and/or the  Administrative  Agent in such  performance  or  attempted
performance to the Administrative Agent at its office in Inglewood,  California,
together  with  interest  thereon  at the  Default  Rate,  from the date of such
expenditure  until  paid.   Notwithstanding  the  foregoing,   it  is  expressly
understood  that  neither  the Banks nor the  Administrative  Agent  assume  any
liability  or  responsibility  for the  performance  of any  duties of  Borrower
hereunder  or  under  any of the  Credit  Documents  or other  control  over the
management and affairs of Borrower.

                                      -57-
<PAGE>
                                   ARTICLE 9A

                              ADMINISTRATIVE AGENT
                              --------------------

         9A.1  Appointment  and  Authorization.  Each  Bank  hereby  irrevocably
appoints and authorizes the  Administrative  Agent to act on behalf of such Bank
to the extent  provided  herein or in any of the Credit  Documents  or any other
document or instrument  delivered  hereunder or in connection  herewith,  and to
take such other action as may be reasonably  incidental thereto as determined by
Administrative  Agent.  The Banks agree that Borrower  shall be entitled to rely
upon any communications to them by the Administrative  Agent with respect to any
request or notice from, decision or consent of, the Banks.

         9A.2 Exculpation.  Administrative  Agent shall be entitled to rely upon
advice of counsel concerning legal matters, and upon this Credit Agreement,  any
Credit Documents and any schedule,  certificate,  statement,  report,  notice or
other  writing  which it believes to be genuine or to have been  presented  by a
proper person. Neither Administrative Agent nor any of its directors,  officers,
employees, or agents shall (a) be responsible for any recitals,  representations
or  warranties  contained  in,  or for  the  execution,  validity,  genuineness,
effectiveness or enforceability of, this Credit Agreement,  any Credit Documents
or any  other  instrument  or  document  delivered  hereunder  or in  connection
herewith,  (b) be  under  any  duty to  inquire  into or  pass  upon  any of the
foregoing  matters,  or to make any inquiry  concerning  the  performance by the
Borrower or any other obligor of its obligations, or (c) in any event, be liable
as such for any action  taken or omitted by it or them,  except for its or their
own gross negligence or willful  misconduct.  The agency hereby created shall in
no way impair or affect any of the rights and powers of, or impose any duties or
obligations upon, Administrative Agent in its individual capacity.

         9A.3 Administrative Agent and Affiliates.  Administrative Agent has the
same rights and powers  hereunder  and under the Credit  Documents  as any other
Bank and may exercise the same as though it were not the  Administrative  Agent.
Administrative Agent and its Affiliates may accept deposits from, lend money to,
and  generally  engage  in any kind of  banking,  trust or other  business  with
Borrower and any  Affiliate of  Borrower,  as if it were not the  Administrative
Agent and  without  any duty to account  therefor  to the Banks.  Administrative
Agent  need not  account to any other  Bank for any  monies  received  by it for
reimbursement of its costs and expenses as  Administrative  Agent hereunder,  or
for any monies  received by it in its  capacity as a Bank  hereunder,  except as
otherwise provided herein.

         9A.4 Banks' Credit Decisions. Each Bank has made, and shall continue to
make,  its  own  independent  investigation  or  evaluation  of the  operations,
business,  property and condition,  financial and otherwise, of the Borrower, in
connection with the making of its respective  Commitment,  and each has made its
own  appraisal of the  creditworthiness  of the  Borrower.  Except as explicitly
provided herein, the Administrative Agent has no duty or responsibility,  either
initially or on a continuing basis, to provide any Bank with any credit or other
information with respect to such operations,  business,  property,  condition or
creditworthiness,  whether  such  information  comes into its  possession  on or
before an Event of Default or at any time thereafter.

                                      -58-
<PAGE>
Each  Bank  agrees  and  acknowledges   that   Administrative   Agent  makes  no
representations or warranties about the creditworthiness of the Borrower or with
respect to the legality, validity,  sufficiency or enforceability of this Credit
Agreement or any of the Credit Documents.

         9A.5 Indemnification.  Each Bank agrees to indemnify, hold harmless and
defend the Administrative  Agent (to the extent not reimbursed by the Borrower),
ratably  according  to its  Pro  Rata  Share,  from  and  against  any  and  all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs,  expenses or disbursements of any kind or nature  whatsoever which may be
imposed on, incurred by or asserted against the Administrative  Agent in any way
relating to or arising out of this Credit  Agreement or the Credit  Documents or
any  action  taken or  omitted  by the  Administrative  Agent  under the  Credit
Agreement or Credit  Documents;  provided,  that no Bank shall be liable for any
portion of such liabilities,  obligations,  losses, damages, penalties, actions,
judgments,   suits,  costs,   expenses  or  disbursements   resulting  from  the
Administrative   Agent's  gross  negligence  or  willful   misconduct.   Without
limitation of the  foregoing,  each Bank agrees to reimburse the  Administrative
Agent promptly upon demand for its Pro Rata Share of any out-of-pocket  expenses
(including,  without  limitation,  attorney's fees and expenses) incurred by the
Administrative  Agent in connection with the preparation,  execution,  delivery,
administration,   modification,   amendment  or  enforcement   (whether  through
negotiations,  legal proceedings or otherwise) of, or legal advice in respective
rights or responsibilities under, this Credit Agreement and the Credit Documents
to the extent that the Administrative  Agent is not reimbursed for such expenses
by the Borrower;  provided,  that no Bank shall be liable for any portion of any
such expenses  resulting  from the  Administrative  Agent's gross  negligence or
willful misconduct.

         9A.6 Administration.

                  (a) Administrative Agent shall administer and manage the Loans
         in the ordinary course of its business and in accordance with its usual
         practices  and  that  degree  of care it  would  use in  administering,
         managing, and servicing facilities of similar size and type for its own
         account. Each Bank expressly agrees that, except as expressly otherwise
         provided  herein,  Administrative  Agent shall, in accordance with such
         practices and degree of care,  make any and all decisions and is hereby
         authorized  to do or cause to be done  any and all acts  regarding  the
         administration  of the  facilities  in  accordance  with  its  sole and
         absolute discretion.

                  (b)  Unless in each case  consented  to in  writing by all the
         Banks, the Administrative Agent shall not (i) agree to the modification
         or waiver of any of the terms of any of the Credit  Documents,  or (ii)
         consent to any act or omission by the Borrower,  or (iii)  exercise any
         rights  which the  Administrative  Agent may have with  respect  to the
         Loans,  the Notes,  or any of the other Credit  Documents,  if any such
         agreement, consent or exercise would:

                           (i) change or modify the interest  rate and repayment
                  provisions set forth in the Credit Documents;

                                      -59-
<PAGE>
                           (ii) increase any Commitment;

                           (iii) extend the Maturity Date of any Loan;

                           (iv)  postpone  any date for  payment or forgive  the
                  payment  of  principal  of, or  interest  on, the Loans or the
                  payment of any other sum due under the Credit Documents;

                           (v) change or modify or waive any Financial Covenant;

                           (vi) waive any Event of Default;

                           (vii) allow any  assignment  by Borrower of any right
                  or interest in the Credit Documents; or

                           (viii) release any Collateral.

                  (c) Other  than  upon the  occurrence  of an Event of  Default
         hereunder,  any decision or consent  required  hereunder  shall be made
         jointly  by  the  Banks  and  the   Administrative   Agent   instructed
         accordingly.  Upon the occurrence of an Event of Default hereunder, the
         Banks shall consult with each other and determine whether,  and in what
         manner and to what extent,  any and all rights  hereunder and under the
         Credit  Documents  shall be  exercised.  The course of action so agreed
         upon shall set forth what  matters,  if any,  shall require the further
         consent of the Banks and shall be carried out by  Administrative  Agent
         in its name on behalf of the Banks.

                  (d) In the event that all or any portion of the  Collateral is
         acquired by the Administrative Agent on behalf of the Banks as a result
         of  the  exercise  of  any  remedies  following  an  Event  of  Default
         hereunder,  or otherwise,  title to any such  Collateral or any portion
         thereof  shall  be held in the  name of the  Administrative  Agent or a
         nominee  or  subsidiary  of the  Administrative  Agent,  in any case as
         Administrative  Agent,  for  the  ratable  benefit  of the  Banks.  The
         Administrative  Agent,  for the benefit of the Banks in accordance with
         the course of action  approved  by the Banks,  shall  manage,  operate,
         repair, administer, complete, construct, restore or otherwise deal with
         the  Collateral so acquired and administer  all  transactions  relating
         thereto,  including,  without  limitation,  the employing of a managing
         Administrative Agent and other Administrative  Agents,  contractors and
         employees,  including  Administrative  Agents  for  the  sale  of  such
         Collateral, or any portion thereof, and the collecting of any sums that
         may come due from such  Collateral,  and the paying of expenses of such
         Collateral.  The  Administrative  Agent  shall  render,  or cause to be
         rendered by the managing  Administrative  Agent, to the Banks, monthly,
         an income and expense  statement for such  Collateral.  Each Bank shall
         promptly contribute its Pro Rata Share of any operating loss for such

                                      -60-
<PAGE>
         Collateral,   and  such  other  expenses  and  operating   reserves  as
         Administrative Agent shall deem reasonably necessary in accordance with
         the course of action  approved by the Banks. To the extent there is net
         operating income from such Collateral,  the Administrative  Agent shall
         make quarterly  distributions to the Banks in accordance with their Pro
         Rata Share.

                  (e) As to any matters  which are subject to the consent of all
         of the  Banks,  the  Administrative  Agent  shall not be  permitted  or
         required to exercise any discretion or take any action except with such
         consent. The Administrative Agent shall be fully protected by the Banks
         severally and in accordance with their  respective Pro Rata Share in so
         acting  or in so  refraining  from  action,  but in no event  shall the
         Administrative  Agent be required to take any action which  exposes the
         Administrative  Agent to personal  liability  which is contrary to this
         Credit Agreement or the Credit Documents or applicable law.

                  (f) All communications  from the  Administrative  Agent to the
         Banks  requesting  the  Banks'  determination,   consent,  approval  or
         disapproval shall be given in the form of a written notice to each Bank
         containing (i) a reasonably detailed description of the matter or thing
         as to which such  determination,  approval,  consent or  disapproval is
         requested,  accompanied by such information in  Administrative  Agent's
         possession  which, in  Administrative  Agent's  opinion,  is reasonably
         relevant to such determination,  approval, consent or disapproval,  and
         (ii)  the  course  of  action  and  determination  recommended  by  the
         Administrative  Agent in respect thereof.  Each Bank shall reply within
         ten  (10)  Banking   Days  after  such  written   notice  is  given  by
         Administrative  Agent,  and,  if such  reply is not so given by a Bank,
         such  course of action  shall be deemed to have been  approved  by such
         Bank.

         9A.7  Default by a Bank.  In the event  that any Bank (the  "Defaulting
Bank") fails to make timely payment to Administrative Agent of any sum due under
this Credit Agreement,  including without limitation, such Bank's Pro Rata Share
of any Advance,  Disbursement  or  liabilities,  obligations,  losses,  damages,
penalties,  actions,  judgments, suits, costs and expenses or any other expenses
or amounts due Administrative  Agent, the non-defaulting Bank may, but shall not
be required  to,  advance such amount and recover such amount on demand from the
Defaulting  Bank,  together  with  interest  thereon at the  Federal  Funds Rate
commencing on the date such amount was made  available to  Administrative  Agent
and ending on the date Administrative Agent recovers such amount. Until the full
repayment is made to Administrative Agent of such amount funded on behalf of the
Defaulting  Bank together  with  interest  thereon from the date advanced to the
date repaid by the  Defaulting  Bank at the Federal Funds Rate, the right of the
Defaulting  Bank to  participate  in  decisions or consents  hereunder  shall be
suspended and the entire  interest in the Loans of the Defaulting  Bank shall be
subordinated  to the  interest of the  non-defaulting  Bank and all  payments or
recoveries  on the  Loans  received  by  Administrative  Agent  from any  source
whatsoever  that would  otherwise  be  credited by  Administrative  Agent to the
Defaulting Bank shall instead be credited to the non-defaulting  Bank until full
repayment is made

                                      -61-
<PAGE>
to the non-defaulting Bank. In addition,  Administrative Agent shall be entitled
to exercise any and all remedies available to it at law or in equity against the
Defaulting Bank.

         9A.8 Collections; Sharing of Payments.

                  (a)  Administrative   Agent,  upon  receipt,   shall  promptly
         distribute in like funds as received to each Bank its Pro Rata Share of
         all payments of principal, interest and fees received by Administrative
         Agent on or with respect to the Loans, whether collected from Borrower,
         or any security for the Loans, or otherwise,  after first deducting any
         costs,  fees or other  charges due  Administrative  Agent  hereunder or
         under the Credit  Documents,  with the  exception of (i) any charge for
         the administrative  expenses of the Issuing Bank in connection with the
         Letters of Credit paid by  Borrower  pursuant  to Section  2.12,  which
         amounts shall be paid to the Issuing Bank,  (ii) interest  based on the
         LIBOR Based Rate for purposes of  distributions to the Banks other than
         Imperial  shall  mean the rate per annum  equal to the sum of LIBOR and
         (A) as to an RLC Advance,  one hundred  seventy-five  basis points (175
         bp) and (B) as to an RLCT Advance, two hundred twenty-five basis points
         (225 bp), and (iii) as to the RLC Non-Use Fee and the RLCT Non-Use Fee,
         in each case 20 basis points (20 bp).

                  (b) If any Bank shall receive and retain any payment,  whether
         by set off,  application of deposit balance or security,  or otherwise,
         in respect of the  obligations of Borrower  hereunder in excess of such
         Bank's Pro Rata  Share,  then such Bank shall  purchase  from the other
         Bank  (for  cash  and  at  face  value  and  without   recourse)   such
         participation  in the Loans held by it as shall be  necessary  to cause
         such excess  payment to be shared  ratably as aforesaid  with the other
         Banks;  provided,  that if such  excess  payment  or  part  thereof  is
         thereafter  recovered from such purchasing Bank, the related  purchases
         from the other Bank shall be rescinded  ratably and the purchase  price
         restored as to the portion of such excess  payments so  recovered,  but
         without interest.

         9A.9  Successor  Administrative  Agent.  The  Administrative  Agent may
resign  at any time by  giving  written  notice  thereof  to the  Banks  and the
Borrower.  Borrower and the Banks agree to execute and deliver to such successor
Administrative   Agent  such   documents  and   agreements  as  such   successor
Administrative  Agent  may  require  to carry  out the  succession  contemplated
herein.

         9A.10 Issuing  Bank.  The Issuing Bank shall act on behalf of the Banks
with respect to any Letters of Credit Issued by it and the documents  associated
therewith until such time and except for so long as the Administrative Agent may
agree at the request of all the Banks to act for such  Issuing Bank with respect
thereto; provided, however, that the Issuing Bank shall have all of the benefits
and immunities (i) provided to the Administrative  Agent in this Article 9A with
respect  to any  acts  taken  or  omissions  suffered  by the  Issuing  Bank  in
connection  with  Letters of Credit  Issued by it or proposed to be Issued by it
and the application and agreements for letters

                                      -62-
<PAGE>
of  credit  pertaining  to the  Letters  of  Credit  as  fully  as if  the  term
"Administrative  Agent," as used in this  Article 9A,  included the Issuing Bank
with respect to such acts or  omissions,  and (ii) as  additionally  provided in
this Credit Agreement with respect to the Issuing Bank.

                                      -63-
<PAGE>
                                   ARTICLE 10

                                  MISCELLANEOUS
                                  -------------

         10.1 Modification. Except as otherwise required in Section 9A.6(b), all
modifications,  consents,  amendments  or waivers of any provision of any Credit
Document, or consent to any departure by Borrower therefrom,  shall be effective
only if the same shall be in writing and accepted by the Required Banks.

         10.2 Waiver. No failure to exercise, and no delay in exercising, on the
part of the Banks,  any right hereunder  shall operate as a waiver thereof,  nor
shall any single or partial exercise thereof preclude any other further exercise
thereof  or the  exercise  of any  other  right.  The  rights  of the  Banks and
Administrative  Agent  hereunder  and under  the  Credit  Documents  shall be in
addition to all other rights  provided by law. No  modification or waiver of any
provision  of this  Credit  Agreement,  the Notes or any Credit  Documents,  nor
consent to departure therefrom, shall be effective unless in writing and no such
consent or waiver shall extend beyond the particular case and purpose  involved.
No notice or demand given in any case shall  constitute a waiver of the right to
take other action in the same, similar or other instances without such notice or
demand.

         10.3 Payment of Expenses.  Borrower shall pay all costs and expenses of
the  Banks  and  the  Administrative   Agent  (including,   without  limitation,
reasonable   attorneys'   fees  and  costs)   incurred  by  the  Banks  and  the
Administrative  Agent in connection with the documentation of the Loans, and the
preservation and enforcement of rights of the Banks and the Administrative Agent
under this  Credit  Agreement,  the Notes,  and/or the other  Credit  Documents;
provided, however, that notwithstanding the aforesaid, with respect to any legal
action  between the parties  hereto that is pursued to judgment  the  prevailing
party only shall be  reimbursed  by the other  party for all costs and  expenses
(including,  without limitation,  reasonable attorneys' fees and costs) incurred
in connection  with the  preservation  and  enforcement of its rights under this
Credit Agreement, the Notes and/or other Credit Documents. In addition, Borrower
shall pay all costs and  expenses of the Banks and the  Administrative  Agent in
connection with the negotiation,  preparation, execution and delivery of any and
all amendments,  modifications  and supplements of or to this Credit  Agreement,
the Notes or any other Credit Document. In addition Borrower agrees to and shall
indemnify,  hold  harmless  and defend the Banks from any  liability,  claims or
losses  resulting from the  disbursement of the proceeds of the Loans except for
their own gross negligence or willful  misconduct.  This provision shall survive
repayment  of the Loans and shall  continue  in full force and effect so long as
the possibility of such liability, claims or losses exists.

         10.4 Notices.  Except for  telephonic  notices  permitted  herein,  any
notices or other communications required or permitted to be given by this Credit
Agreement or any other documents and instruments  referred to herein must be (i)
given in writing and  personally  delivered  or mailed by prepaid  certified  or
registered mail, or (ii) made by telefacsimile delivered or transmitted,  to the
party to whom such notice or communication  is directed,  to the address of such
party as follows:

                                      -64-
<PAGE>
         Company:                Three-Five Systems, Inc.
                                 1600 North Desert Drive
                                 Tempe, Arizona 85281-1212
                                 Attention:  Vice President - Administration
                                 Telecopier: (602) 389-8836

         Administrative Agent:   Imperial Bank Arizona
                                 One Arizona Center
                                 400 East Van Buren
                                 Suite 900
                                 Phoenix, Arizona  85004
                                 Attention:  Kevin Halloran
                                 Telecopier:  (602) 261-7881

         with a copy to:         Imperial Bank
                                 9920 South La Cienega Boulevard
                                 Suite 636
                                 Inglewood, California 90301
                                 Attention: General Counsel
                                 Telecopier: (310) 417-5695

         Banks:                  See Schedule 1.1.

Any notice to be personally  delivered may be delivered to the principal offices
(determined as of the date of such delivery) of the party to whom such notice is
directed.  Any such notice or other  communication  shall be deemed to have been
given (whether actually  received or not) on the day it is personally  delivered
as aforesaid;  or, if mailed,  on the third day after it is mailed as aforesaid;
or, if transmitted by telefacsimile,  on the day that such notice is transmitted
as aforesaid if sent before the end of the normal  business  hours of recipient.
Any party may change its address for purposes of this Credit Agreement by giving
notice of such change to the other parties pursuant to this Section.  Any notice
required to be delivered by the Borrower to the Banks under the Credit Documents
shall be deemed to be so delivered if  delivered  to the  Administrative  Agent.
Borrower agrees that any notice  required to be delivered by the  Administrative
Agent  and/or the Banks  under the Credit  Documents  to the  Borrower  shall be
deemed to be so delivered if delivered to the Company.

         10.5 Governing Law; Jurisdiction, Venue.

                  (a) The Credit Documents shall be governed by and construed in
         accordance with the substantive  laws (other than conflict laws) of the
         State of Arizona,  except to the extent the Banks has greater rights or
         remedies under Federal law, whether as a national bank or otherwise, in
         which case such  choice of  Arizona  law shall not be deemed to deprive
         the Banks of any such  rights and  remedies as may be  available  under
         Federal law. Each party consents to the

                                      -65-
<PAGE>
         personal jurisdiction and venue of the state courts located in Maricopa
         County,  State of Arizona in connection with any controversy related to
         this Credit Agreement, waives any argument that venue in any such forum
         is not convenient  and agrees that any  litigation  initiated by any of
         them in connection  with this Credit  Agreement  shall be venued in the
         Superior Court of Maricopa County, Arizona.

                  (b) Each Non-U.S.  Subsidiary  hereby  appoints the Company as
         its  agent for the  service  of all  process  in the  United  States of
         America.

         10.6 Invalid  Provisions.  If any  provision of any Credit  Document is
held to be illegal, invalid or unenforceable under present or future laws during
the term of this Credit Agreement, such provision shall be fully severable; such
Credit  Document shall be construed and enforced as if such illegal,  invalid or
unenforceable  provision had never comprised a part of such Credit Document; and
the remaining  provisions of such Credit Document shall remain in full force and
effect  and shall not be  affected  by the  illegal,  invalid  or  unenforceable
provision or by its severance from such Credit Document. Furthermore, in lieu of
each such illegal,  invalid or  unenforceable  provision there shall be added as
part of such Credit Document a provision  mutually agreeable to Borrower and the
Banks as similar in terms to such illegal, invalid or unenforceable provision as
may be possible and be legal, valid and enforceable.

         10.7 Binding  Effect.  The Credit  Documents  shall be binding upon and
inure to the benefit of  Borrower,  the Banks and the  Administrative  Agent and
their  respective  successors,  assigns  and  legal  representatives;  provided,
however,  that Borrower may not, without the prior written consent of the Banks,
assign any rights, powers, duties or obligations thereunder.

         10.8 Entirety. The Credit Documents embody the entire agreement between
the parties and  supersede  all prior  agreements  and  understandings,  if any,
relating to the subject matter hereof and thereof.

         10.9  Relationship  of the Banks and  Borrower.  The Banks and Borrower
each have  separate and  independent  rights and  obligations  under this Credit
Agreement.  Nothing contained herein shall be construed as creating,  forming or
constituting any partnership, joint venture, merger or consolidation of Borrower
and the Banks for any purpose or in any respect.

         10.10 Time of the  Essence.  Time is  expressly  made of the essence of
this Credit Agreement.

         10.11  Good  Faith  Standard.  Except  where  governed  by  a  specific
provision of this Credit Agreement for a specific purpose, whenever the approval
or consent of the Banks is  required  hereunder,  the Banks shall  consider  the
request for approval or consent on a timely basis, but the Banks shall have such
time as may be  reasonably  necessary to review and consider  such  request,  as
determined  in their sole  judgment,  and the Banks  shall have the right to not
give their  approval  or  consent or to impose  such  conditions  or  additional
requirements  with  respect to their  approval  or consent as the Banks in their
sole judgment shall determine. Approvals or consents by the

                                      -66-
<PAGE>
Banks  shall be  effective  only when given in writing,  except  when  otherwise
specifically  provided herein. The standard by which the Banks shall be governed
with respect to a request for approval or consent  shall be "good faith" as that
term is defined in the Arizona Uniform Commercial Code.

         10.12 Assignments and Participations; Transferees.

                  (a) This Credit  Agreement  shall be binding upon and inure to
         the benefit of the parties hereto and their  respective  successors and
         assigns,  except  that  the  Borrower  may not  assign  its  rights  or
         obligations  hereunder,  under  any  Note or  under  any  other  Credit
         Document without the prior written consent of all of the Banks.

                  (b)  Each  Bank may at any time  grant  participations  in any
         portion of the Loans and Credit  Documents  owned by it to an Affiliate
         of such Bank  without the consent of the other  Banks.  Otherwise  each
         Bank may sell, assign,  transfer or otherwise dispose of any portion of
         its interest therein (each such grant of a participation or interest so
         sold,  assigned,  transferred  or  disposed  of being  herein  called a
         "Transferred Interest") to other financial institutions ("Transferees")
         only with the consent of the other Banks.  In  addition,  each Bank may
         pledge any  portion of its Notes for  security  purposes to any Federal
         Reserve  Bank.  Without in any way limiting  the rights of  Transferees
         hereunder,  the Borrower agrees that each Transferee  shall be entitled
         to  the  benefits  of  the  Credit  Documents  to  the  extent  of  its
         Transferred  Interest as if it were the "Bank" in an  aggregate  amount
         equal to such  Transferred  Interest,  and  that  each  Transferee  may
         exercise any and all rights of banker's lien,  setoff and  counterclaim
         available  pursuant to law with respect to its Transferred  Interest as
         fully as if such  Transferee  were a  direct  lender  to the  Borrower.
         Borrower  shall not be obligated to deal with or  communicate  with any
         such participant.

                  (c) As to any such  assignment to a Transferee,  (i) each such
         assignment shall be of a constant, and not a varying, percentage of all
         the  assigning   Bank's  rights  and  obligations   under  this  Credit
         Agreement,  (ii) the amount of the  Commitment  of the  assigning  Bank
         subject  to  each  such  assignment  (determined  as of  the  date  the
         Assignment and Acceptance  with respect to such assignment is delivered
         to the  Administrative  Agent)  shall not be less  than  $1,000,000.00,
         (iii) the amount of the  Commitment  retained  by the  assigning  Bank,
         unless  the  Assignment  and  Acceptance  covers  all or the  remaining
         portion of the assigning Bank's interest,  rights and obligations under
         this Credit  Agreement,  after each such  assignment  shall not be less
         than  $1,000,000.00,  (iv) the  parties to each such  assignment  shall
         execute  and  deliver to the  Administrative  Agent an  Assignment  and
         Acceptance, together with the Note or Notes subject to such assignment,
         and (v) the Transferee, if it shall not be a Bank, shall deliver to the
         Administrative Agent an Administrative  Questionnaire.  Upon acceptance
         and recording pursuant to paragraph (f) of this Section, from and after
         the effective date specified in each

                                      -67-
<PAGE>
         Assignment and  Acceptance,  (A) the Transferee  thereunder  shall be a
         party hereto and shall become a "Bank" hereunder, and, to the extent of
         the interest  assigned by such Assignment and Acceptance,  have all the
         rights and  obligations  of a Bank under this Credit  Agreement and (B)
         the  assigning  Bank  thereunder  shall,  to the extent of the interest
         assigned  by such  Assignment  and  Acceptance,  be  released  from its
         obligations  under  this  Credit  Agreement  (and,  in the  case  of an
         Assignment and Acceptance  covering all or the remaining  portion of an
         assigning  Bank's rights and obligations  under this Credit  Agreement,
         such Bank shall cease to be a party  hereto  (but shall  continue to be
         entitled to the benefits of Sections 3.6, 3.7(b) and 10.3).

                  (d) By executing and delivering an Assignment and  Acceptance,
         the assigning Bank  thereunder and the Transferee  thereunder  shall be
         deemed to confirm  to and agree  with each other and the other  parties
         hereto as follows:  (i) such  assigning  Bank  warrants  that it is the
         legal and beneficial  owner of the interest being assigned thereby free
         and  clear  of any  adverse  claim  and  that  its  Commitment  and the
         outstanding balances of its Loans, without giving effect to assignments
         thereof  which  have not  become  effective,  are as set  forth in such
         Assignment and Acceptance,  (ii) except as set forth in (i) above, such
         assigning  Bank makes no  representation  or  warranty  and  assumes no
         responsibility   with  respect  to  any   statements,   warranties   or
         representations made in or in connection with this Credit Agreement, or
         the  execution,   legality,  validity,   enforceability,   genuineness,
         sufficiency  or  value  of this  Credit  Agreement,  any  other  Credit
         Document or any other instrument or document  furnished pursuant hereto
         or the  financial  condition  of the  Borrower  or the  performance  or
         observance by the Borrower of any of its obligations  under this Credit
         Agreement,  any  other  Credit  Document  or any  other  instrument  or
         document  furnished pursuant hereto;  (iii) such Transferee  represents
         and  warrants  that  it  is  legally  authorized  to  enter  into  such
         Assignment and Acceptance;  (iv) such  Transferee  confirms that it has
         received a copy of this Credit  Agreement,  together with copies of the
         most recent financial  statements delivered pursuant to Section 7.1 and
         such other  documents and  information as it has deemed  appropriate to
         make its own credit analysis and decision to enter into such Assignment
         and  Acceptance;  (v) such Transferee  will  independently  and without
         reliance upon the  Administrative  Agent,  such  assigning  Bank or any
         other Bank and based on such documents and information as it shall deem
         appropriate at the time,  continue to make its own credit  decisions in
         taking or not taking  action  under this  Credit  Agreement;  (vi) such
         Transferee  appoints and  authorizes the  Administrative  Agent to take
         such  action as agent on its behalf and to exercise  such powers  under
         this Credit Agreement as are delegated to the  Administrative  Agent by
         the  terms  hereof,   together  with  such  powers  as  are  reasonably
         incidental  thereto;  and (vii)  such  Transferee  agrees  that it will
         perform in accordance with their terms all the obligations which by the
         terms of this Credit  Agreement are required to be performed by it as a
         Bank.

                                      -68-
<PAGE>
                  (e) The  Administrative  Agent  shall  maintain  at one of its
         offices in Phoenix,  Arizona,  a copy of each Assignment and Acceptance
         delivered  to it and a register  for the  recordation  of the names and
         addresses of the Banks,  and the Commitment of, and principal amount of
         the Loans owing to, each Bank pursuant to the terms hereof from time to
         time (the "Register").  The entries in the Register shall be conclusive
         in the absence of manifest error and the Borrower,  the  Administrative
         Agent and the Banks may treat each Person whose name is recorded in the
         Register  pursuant  to the  terms  hereof as a Bank  hereunder  for all
         purposes of this Credit Agreement.  The Register shall be available for
         inspection  by the Borrower and any Bank,  at any  reasonable  time and
         from time to time upon reasonable prior notice.

                  (f)  Upon  its  receipt  of a duly  completed  Assignment  and
         Acceptance  executed by an assigning  Bank and an  Transferee  together
         with the Note or Notes subject to such  assignment,  an  Administrative
         Questionnaire  completed  in  respect  of the  Transferee  (unless  the
         Transferee shall already be a Bank hereunder), the Administrative Agent
         shall (i)  accept  such  Assignment  and  Acceptance,  (ii)  record the
         information  contained  therein in the Register,  and (iii) give prompt
         notice thereof to the Banks.  Within five Banking Days after receipt of
         notice, the Borrower,  as applicable,  shall execute and deliver to the
         Administrative  Agent, in exchange for the surrendered Note or Notes, a
         new Note or Notes to the order of such  assigning  Bank in a  principal
         amount equal to the applicable Commitment retained by it. Such new Note
         or  Notes  shall  be in an  aggregate  principal  amount  equal  to the
         aggregate  principal amount of such surrendered Note or Notes; such new
         Notes  shall be dated  the date of the  surrendered  Notes  which  they
         replace and shall otherwise be in substantially  the applicable form of
         Exhibit "C" hereto.

         10.13 Headings.  Section headings are for convenience of reference only
and shall in no way affect the interpretation of this Credit Agreement.

         10.14  Survival.  All  representations  and warranties made by Borrower
herein shall survive delivery of the Notes and the making of the Loans.

         10.15 No  Third  Party  Beneficiary.  The  parties  do not  intend  the
benefits of this Credit  Agreement to inure to any third  party,  nor shall this
Credit Agreement be construed to make or render the Banks and the Administrative
Agent liable to any materialman, supplier, contractor, subcontractor,  purchaser
or lessee of any property owned by Borrower,  or for debts or claims accruing to
any such persons against Borrower.  Notwithstanding anything contained herein or
in the  Notes,  or in any other  Credit  Document,  or any  conduct or course of
conduct by any or all of the parties hereto, before or after signing this Credit
Agreement or any of the other Credit  Documents,  neither this Credit  Agreement
nor any other Credit Document shall be construed as creating any right, claim or
cause of action against the Banks and the Administrative  Agent, or any of their
officers, directors, agents or employees, in favor of any materialman, supplier,

                                      -69-
<PAGE>
contractor,  subcontractor,  purchaser  or  lessee  of  any  property  owned  by
Borrower, nor to any other person or entity other than Borrower.

         10.16 Joint Liability.

                  (a) The Company and the Co-Borrowers each: (a) agrees that the
         liability hereunder of all parties hereto is joint and several; and (b)
         consents  that the Banks may extend  the time of  payment or  otherwise
         modify  the  terms  of  payment  of any  part or the  whole of the debt
         evidenced hereby, at the request of any other person liable hereon, and
         such consent  shall not alter nor diminish the  liability of any person
         hereon.

                  (b) In addition,  the Company and the Co-Borrowers each waives
         and agrees not to assert: (a) any right to require the Banks to proceed
         against the obligations, to proceed against or exhaust any security for
         the obligations,  to pursue any other remedy available to the Banks, or
         to pursue any remedy in any particular order or manner; (b) the benefit
         of any statute of limitations  affecting its liability hereunder or the
         enforcement hereof; (c) the benefits of any legal or equitable doctrine
         or principle of marshalling;  (d) notice of the existence,  creation or
         incurring of new or additional  indebtedness  of Borrower to the Banks;
         (e) the benefits of any statutory provision limiting the liability of a
         surety,   including  without  limitation  the  provisions  of  Sections
         12-1641,  et seq.,  of the Arizona  Revised  Statutes;  (f) any defense
         arising by reason of any  disability or other defense of Borrower or by
         reason of the cessation from any cause  whatsoever  (other than payment
         in full) of the  liability  of Borrower  for payment of any other party
         hereto;  and (g) the benefits of any statutory  provision  limiting the
         right of the Banks to recover a  deficiency  judgment,  or to otherwise
         proceed  against  any  person or entity  obligated  for  payment of the
         obligations,  after any  foreclosure  or trustee's sale of any security
         for the obligations, including without limitation the benefits, if any,
         to a surety of Arizona Revised Statutes  Section 33-814.  Until payment
         in full of the obligations and the Banks have no obligation to make any
         further advances of the proceeds hereof,  no party shall have any right
         of  subrogation  and each hereby waives any right to enforce any remedy
         which the Banks now have, or may hereafter  have,  against  Borrower or
         any  other  party,  and  waives  any  benefit  of,  and  any  right  to
         participate in, any security now or hereafter held by the Banks.

         10.17 Schedules and Exhibits  Incorporated.  All schedules and exhibits
attached  hereto are hereby  incorporated  into this  Credit  Agreement  by each
reference thereto as if fully set forth at each such reference.

         10.18  Waiver  of Jury  Trial.  EACH  PARTY  HERETO  HEREBY  KNOWINGLY,
VOLUNTARILY,  AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO REQUIRE A TRIAL
BY JURY IN ANY COURT ACTION PERTAINING TO OBLIGATIONS

                                      -70-
<PAGE>
SECURED OR THE CREDIT  DOCUMENTS  OR THE  COLLATERAL,  AND AGREES  THAT ANY SUCH
ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

         10.19  Counterparts.  This Credit Agreement may be executed in multiple
counterparts,  each of which, when so executed,  shall be deemed an original but
all such counterparts shall constitute but one and the same agreement.

         IN WITNESS WHEREOF, the undersigned have executed this Credit Agreement
as of the day and year first above written.

                                            THREE-FIVE SYSTEMS, INC., a Delaware
                                            corporation



                                            By: /s/ Jeffrey D. Buchanan
                                                --------------------------------
                                            Name: Jeffrey D. Buchanan
                                                 -------------------------------
                                            Title: Executive Vice President
                                                  ------------------------------

                                                                         COMPANY


                                            THREE-FIVE SYSTEMS (BEIJING),  LTD.,
                                            a wholly foreign owned enterprise
                                            organized under the laws of the
                                            People's Republic of China.



                                            By: /s/ Jeffrey D. Buchanan
                                                --------------------------------
                                            Name: Jeffrey D. Buchanan
                                                 -------------------------------
                                            Title: Authorized Agent
                                                  ------------------------------


                                            THREE-FIVE SYSTEMS PACIFIC, INC., a
                                            Philippine corporation



                                            By: /s/ Jeffrey D. Buchanan
                                                --------------------------------
                                            Name: Jeffrey D. Buchanan
                                                 -------------------------------
                                            Title: Authorized Agent
                                                  ------------------------------

                                      -71-
<PAGE>
                                            THREE-FIVE SYSTEMS, LIMITED, a
                                            corporation organized under the laws
                                            of the United Kingdom


                                            By: /s/ Jeffrey D. Buchanan
                                                --------------------------------
                                            Name: Jeffrey D. Buchanan
                                                 -------------------------------
                                            Title: Authorized Agent
                                                  ------------------------------

                                                                    CO-BORROWERS


                                            IMPERIAL BANK ARIZONA, an Arizona
                                            banking corporation



                                            By: /s/ Kevin C. Halloran
                                                --------------------------------
                                            Name: Kevin C. Halloran
                                                 -------------------------------
                                            Title: Senior Vice President
                                                  ------------------------------

                                                                  AGENT AND BANK


                                            NATIONAL BANK OF CANADA



                                            By: /s/ R. A. McKerroll
                                                --------------------------------
                                            Name: R. A. McKerrol
                                                 -------------------------------
                                            Title: Vice President
                                                  ------------------------------


                                            By: /s/ John Curry
                                                --------------------------------
                                            Name: John Curry
                                                 -------------------------------
                                            Title: Vice President
                                                  ------------------------------

                                                                            BANK

                                      -72-
<PAGE>
                                   EXHIBIT "C"

                                  FORM OF NOTES
                                  -------------
<PAGE>
                                  EXHIBIT "C-1"

                            REVOLVING PROMISSORY NOTE
                                      (RLC)

$_______________                                                Phoenix, Arizona
                                                            ______________, 1998


         FOR VALUE  RECEIVED,  the  undersigned  (hereinafter  called  "Maker"),
promises  to pay to the order of  ______________________________________________
(the "Payee";  Payee and each subsequent  transferee  and/or owner of this Note,
whether  taking by  endorsement  or otherwise,  are herein  successively  called
"Holder"), at Imperial Bank, 9920 South La Cienega Boulevard,  Lending Services,
Inglewood,  California  90301, or at such other place as Holder may from time to
time   designate  in  writing,   the  principal   sum  of   ____________________
___________________________  AND  NO/100  DOLLARS  ($_____________)  or so  much
thereof as Holder  may  advance  to or for the  benefit  of Maker plus  interest
calculated  on a daily basis  (based on a 360-day  year) from the date hereof on
the principal  balance from time to time  outstanding as  hereinafter  provided,
principal,  interest and all other sums  payable  hereunder to be paid in lawful
money of the United States of America as follows:

                  1 Interest shall accrue:

                           1.1 On the unpaid  principal of an RLC Advance at the
                  Variable Rate,  except to the extent that an RLC Advance bears
                  interest at the LIBOR Based Rate.

                           1.2 On the unpaid  principal of an RLC Advance at the
                  LIBOR Based Rate,  to the extent  Borrower  shall elect and to
                  the extent not otherwise provided in the Credit Agreement.

                  2 All  accrued  interest  shall  be due  and  payable  on each
         Payment Date.

                  3 The entire unpaid principal balance,  all accrued and unpaid
         interest,  and all other  amounts  payable  hereunder  shall be due and
         payable in full on the RLC Maturity Date.

         The  "Variable  Rate"  means the rate per annum equal to the Prime Rate
per annum as in effect from time to time; the Variable Rate shall change on each
day that the "Prime Rate" changes. The LIBOR Based Rate means the rate per annum
equal (A) to the sum of LIBOR and one  hundred  seventy-five  basis  points (175
bp),  divided by (B) a percentage  equal to one hundred percent (100%) minus the
Eurodollar Rate Reserve Percentage with respect to the applicable LIBOR Interest
Period. The "RLC Maturity Date" means May 22, 2000.
<PAGE>
         The principal balance of this Note represents a revolving credit all or
any part of which may be advanced to Maker,  repaid by Maker, and re-advanced to
Maker from time to time,  subject to the other terms hereof and the  conditions,
if any,  contained  in the Credit  Agreement,  and provided  that the  principal
balance outstanding at any one time shall not exceed the face amount hereof.

         Maker agrees to an effective  rate of interest  that is the rate stated
above plus any additional  rate of interest  resulting from any other charges in
the  nature of  interest  paid or to be paid by or on  behalf  of Maker,  or any
benefit received or to be received by Holder, in connection with this Note.

         This Note is  issued  pursuant  to that  Credit  Agreement  dated as of
November 5, 1998 (the "Credit Agreement") between Maker, the Banks named therein
and  Imperial  Bank  Arizona,  an Arizona  banking  corporation  as Agent and is
secured by the  Security  Documents.  Capitalized  terms used and not  otherwise
defined  herein  shall have the  meanings  assigned  to such terms in the Credit
Agreement.

         Time is of the essence of this Note.

         Maker shall pay all costs and expenses, including reasonable attorneys'
fees and court costs,  incurred in the  collection or  enforcement of all or any
part of this Note.  All such costs and expenses shall be secured by the Security
Documents.

         Failure of Holder to exercise any option hereunder shall not constitute
a waiver  of the  right to  exercise  the  same in the  event of any  subsequent
default or in the event of continuance of any existing  default after demand for
strict performance hereof.

         Maker and all sureties,  guarantors  and/or endorsers hereof (or of any
obligation   hereunder)  and   accommodation   parties  hereon  (severally  each
hereinafter  called a "Surety")  each:  (a) agree that the liability  under this
Note of all parties hereto is joint and several; (b) severally waive any and all
formalities  in connection  with this Note to the maximum extent allowed by law,
including  (but not limited  to) demand,  diligence,  presentment  for  payment,
protest and  demand,  and notice of  extension,  dishonor,  protest,  demand and
nonpayment  of this Note;  and (c)  consent  that  Holder may extend the time of
payment or otherwise modify the terms of payment of any part or the whole of the
debt  evidenced by this Note, at the request of any other person liable  hereon,
and such  consent  shall not alter nor  diminish  the  liability  of any  person
hereon.

         This Note shall be binding  upon Maker and its  successors  and assigns
and shall  inure to the  benefit of Payee,  and any  subsequent  holders of this
Note, and their successors and assigns.

         All notices required or permitted in connection with this Note shall be
given at the place and in the manner  provided in the Credit  Agreement  for the
giving of notices.

                                       -2-
<PAGE>
         If any  payment of interest  and/or  principal  is not  received by the
Holder  hereof  when such  payment  is due,  then in  addition  to the  remedies
conferred upon the Holder hereof and the other loan documents,  a late charge of
five percent (5%) of the amount of the  installment due and unpaid will be added
to the  delinquent  amount to  compensate  the Holder  hereof for the expense of
handling  the  delinquency  for any payment past due in excess of ten (10) days,
regardless of any notice and cure period.

         In any action brought under or arising out of this Note,  each obligor,
including  successor(s)  or assign(s),  hereby  consents to the  application  of
Arizona law,  with the  exception  of  provisions  on conflicts of laws,  to the
jurisdiction of any competent court within the State of Arizona,  and to service
of process by any means authorized by Arizona law.

         This Note may be executed in multiple counterparts, each of which, when
so  executed,  shall be  deemed  an  original  but all such  counterparts  shall
constitute but one and the same instrument.

         IN WITNESS  WHEREOF,  these  presents are executed as of the date first
written above.

                                            THREE-FIVE SYSTEMS, INC., a Delaware
                                            corporation



                                            By:
                                                --------------------------------
                                            Name:
                                                 -------------------------------
                                            Its:
                                                  ------------------------------


                                            THREE-FIVE SYSTEMS (BEIJING),  LTD.,
                                            a wholly foreign owned enterprise
                                            organized under the laws of the
                                            People's Republic of China.



                                            By:
                                                --------------------------------
                                            Name:
                                                 -------------------------------
                                            Its:
                                                  ------------------------------

                                       -3-
<PAGE>
                                            THREE-FIVE SYSTEMS PACIFIC, INC., a
                                            Philippine corporation



                                            By:
                                                --------------------------------
                                            Name:
                                                 -------------------------------
                                            Its:
                                                  ------------------------------


                                            THREE-FIVE SYSTEMS, LIMITED, a
                                            corporation organized under the laws
                                            of the United Kingdom



                                            By:
                                                --------------------------------
                                            Name:
                                                 -------------------------------
                                            Its:
                                                  ------------------------------
                                                                           MAKER

                                       -4-
<PAGE>
                                  EXHIBIT "C-2"

                            REVOLVING PROMISSORY NOTE
                                     (RLCT)

$_____________                                                  Phoenix, Arizona
                                                            ______________, 1998


         FOR VALUE  RECEIVED,  the  undersigned  (hereinafter  called  "Maker"),
promises  to pay to the order of  ______________________________________________
(the "Payee";  Payee and each subsequent  transferee  and/or owner of this Note,
whether  taking by  endorsement  or otherwise,  are herein  successively  called
"Holder"), at Imperial Bank, 9920 South La Cienega Boulevard,  Lending Services,
Inglewood,  California  90301, or at such other place as Holder may from time to
time  designate  in writing,  the  principal  sum of  __________________________
_____________________________  AND  NO/100  DOLLARS  ($__________)  or  so  much
thereof as Holder  may  advance  to or for the  benefit  of Maker plus  interest
calculated  on a daily basis  (based on a 360-day  year) from the date hereof on
the principal  balance from time to time  outstanding as  hereinafter  provided,
principal,  interest and all other sums  payable  hereunder to be paid in lawful
money of the United States of America as follows:

                  4 Interest shall accrue:

                           4.1 On the unpaid principal of an RLCT Advance at the
                  Variable Rate, except to the extent that an RLCT Advance bears
                  interest at the LIBOR Based Rate.

                           4.2 On the unpaid principal of an RLCT Advance at the
                  LIBOR Based Rate,  to the extent  Borrower  shall elect and to
                  the extent not otherwise provided in the Credit Agreement.

                  5 All  accrued  interest  shall  be due  and  payable  on each
         Payment Date.

                  6  Principal  hereunder  shall be due and payable on each RLCT
         Principal Date,  beginning with the first RLCT Principal Date after the
         RLCT  Termination  Date, in an amount  sufficient to fully amortize the
         principal  balance of the RLCT on the RLCT Termination Date over twenty
         equal payments of such principal.  The entire unpaid principal balance,
         all  accrued  and  unpaid  interest,  and  all  other  amounts  payable
         hereunder shall be due and payable in full on the RLCT Maturity Date.

         The  "Variable  Rate"  means the rate per annum equal to the Prime Rate
per annum as in effect from time to time; the Variable Rate shall change on each
day that the "Prime Rate" changes. The LIBOR Based Rate means the rate per annum
equal (A) to the sum of LIBOR and
<PAGE>
two hundred  thirty-seven and one-half basis points (237.5 bp), divided by (B) a
percentage equal to one hundred percent (100%) minus the Eurodollar Rate Reserve
Percentage  with respect to the  applicable  LIBOR  Interest  Period.  The "RLCT
Maturity Date" means August 5, 2004.

         The principal balance of this Note represents a revolving credit all or
any part of which may be advanced to Maker,  repaid by Maker, and re-advanced to
Maker from time to time,  subject to the other terms hereof and the  conditions,
if any,  contained  in the Credit  Agreement,  and provided  that the  principal
balance outstanding at any one time shall not exceed the face amount hereof.

         Maker agrees to an effective  rate of interest  that is the rate stated
above plus any additional  rate of interest  resulting from any other charges in
the  nature of  interest  paid or to be paid by or on  behalf  of Maker,  or any
benefit received or to be received by Holder, in connection with this Note.

         This Note is  issued  pursuant  to that  Credit  Agreement  dated as of
November 5, 1998 (the "Credit Agreement") between Maker, the Banks named therein
and  Imperial  Bank  Arizona,  an Arizona  banking  corporation  as Agent and is
secured by the  Security  Documents.  Capitalized  terms used and not  otherwise
defined  herein  shall have the  meanings  assigned  to such terms in the Credit
Agreement.

         Time is of the essence of this Note.

         Maker shall pay all costs and expenses, including reasonable attorneys'
fees and court costs,  incurred in the  collection or  enforcement of all or any
part of this Note.  All such costs and expenses shall be secured by the Security
Documents.

         Failure of Holder to exercise any option hereunder shall not constitute
a waiver  of the  right to  exercise  the  same in the  event of any  subsequent
default or in the event of continuance of any existing  default after demand for
strict performance hereof.

         Maker and all sureties,  guarantors  and/or endorsers hereof (or of any
obligation   hereunder)  and   accommodation   parties  hereon  (severally  each
hereinafter  called a "Surety")  each:  (a) agree that the liability  under this
Note of all parties hereto is joint and several; (b) severally waive any and all
formalities  in connection  with this Note to the maximum extent allowed by law,
including  (but not limited  to) demand,  diligence,  presentment  for  payment,
protest and  demand,  and notice of  extension,  dishonor,  protest,  demand and
nonpayment  of this Note;  and (c)  consent  that  Holder may extend the time of
payment or otherwise modify the terms of payment of any part or the whole of the
debt  evidenced by this Note, at the request of any other person liable  hereon,
and such  consent  shall not alter nor  diminish  the  liability  of any  person
hereon.

         This Note shall be binding  upon Maker and its  successors  and assigns
and shall  inure to the  benefit of Payee,  and any  subsequent  holders of this
Note, and their successors and assigns.

                                       -2-
<PAGE>
         All notices required or permitted in connection with this Note shall be
given at the place and in the manner  provided in the Credit  Agreement  for the
giving of notices.

         If any  payment of interest  and/or  principal  is not  received by the
Holder  hereof  when such  payment  is due,  then in  addition  to the  remedies
conferred upon the Holder hereof and the other loan documents,  a late charge of
five percent (5%) of the amount of the  installment due and unpaid will be added
to the  delinquent  amount to  compensate  the Holder  hereof for the expense of
handling  the  delinquency  for any payment past due in excess of ten (10) days,
regardless of any notice and cure period.

         In any action brought under or arising out of this Note,  each obligor,
including  successor(s)  or assign(s),  hereby  consents to the  application  of
Arizona law,  with the  exception  of  provisions  on conflicts of laws,  to the
jurisdiction of any competent court within the State of Arizona,  and to service
of process by any means authorized by Arizona law.

         This Note may be executed in multiple counterparts, each of which, when
so  executed,  shall be  deemed  an  original  but all such  counterparts  shall
constitute but one and the same instrument.

         IN WITNESS  WHEREOF,  these  presents are executed as of the date first
written above.

                                            THREE-FIVE SYSTEMS, INC., a Delaware
                                            corporation



                                            By:
                                                --------------------------------
                                            Name:
                                                 -------------------------------
                                            Its:
                                                  ------------------------------


                                            THREE-FIVE SYSTEMS (BEIJING),  LTD.,
                                            a wholly foreign owned enterprise
                                            organized under the laws of the
                                            People's Republic of China


                                            By:
                                                --------------------------------
                                            Name:
                                                 -------------------------------
                                            Its:
                                                  ------------------------------
                                       -3-
<PAGE>
                                            THREE-FIVE SYSTEMS PACIFIC, INC., a
                                            Philippine corporation



                                            By:
                                                --------------------------------
                                            Name:
                                                 -------------------------------
                                            Its:
                                                  ------------------------------


                                            THREE-FIVE SYSTEMS, LIMITED, a
                                            corporation organized under the laws
                                            of the United Kingdom

                                            By:
                                                --------------------------------
                                            Name:
                                                 -------------------------------
                                            Its:
                                                  ------------------------------
                                                                           MAKER
                                       -4-