UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-KSB
(Mark One)
   [ X ]   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
                    SECURITIES EXCHANGE ACT OF 1934
           For the fiscal year ended   September 30, 1997

   [   ]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
                    SECURITIES EXCHANGE ACT OF 1934
           For the transition period from                  to

                         Commission file number 1-14072

                             PEN INTERCONNECT, INC.
        (Exact name of small business issuer as specified in its charter)

            UTAH                             87-0430260
(State or other jurisdiction of    (I.R.S. Employer Identification No)
 incorporation or organization) 

                 2351 South 2300 West, Salt Lake City, UT 84119
               (Address of Principal Executive Offices) (Zip Code)

                                 (801) 973-6090
                           (Issuer's telephone number)

         Securities registered under Section 12(b) of the Exchange Act:
                     Common Stock, par value $0.01 per share
                              Common Stock Warrants

           Check  whether the issuer (1) filed all reports  required to be filed
by  Section  13 or 15(d) of the  Exchange  Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),  and
(2) has been subject to such filing requirements for the past 90 days.

                                    Yes X No

           Check if there is no disclosure  of delinquent  filers in response to
Item 405 of  Regulation  S-B contained in this form,  and no disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information  statements  incorporated  by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB. X check

           State issuer's revenues for its most recent fiscal year.  $18,238,460


           As of January 8, 1998,  there were  4,147,863  shares of the Issuer's
common stock,  par value $0.01,  issued and  outstanding.  The aggregate  market
value of the  Issuer's  voting  stock held by  non-affiliated  of the Issuer was
approximately  $8,868,000  computed at the closing  quotation  for the  Issuer's
common stock of $2.91 as of January 8, 1998.

                       DOCUMENTS INCORPORATED BY REFERENCE
           Definitive  Proxy Statement for the Annual Meeting of Shareholders to
be held March 18, 1998.  Certain  information  therein is incorporated into Part
III hereof.





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                                   FORM 10-KSB

                             PEN INTERCONNECT, INC.

                                Table of Contents


                                                                      age

PART I

1.   Description of Business                                           3

2.   Description of Property                                           9

3.   Legal Proceedings                                                 10

4.   Submission of Matters to a Vote of Security Holders               10

PART II

5.   Market for Common Equity and Related Stockholder Matters          10

6.   Management's Discussion and Analysis or Plan of Operation         12

7.   Financial Statements                                              15

8.   Changes in and Disagreements With Accountants on
         Accounting and Financial Disclosure                           15

PART III

9.   Directors, Executive Officers, Promoters and Control Persons;
         Compliance With Section 16(a) of the Exchange Act             15

10.   Executive Compensation                                           15

11.   Security Ownership of Certain Beneficial Owners and Management   16

12.   Certain Relationships and Related Transactions                   16

13.  Exhibits and Reports on Form 8-K                                  16

Signatures                                                             19


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                                     PART I


                         ITEM 1. DESCRIPTION OF BUSINESS



(a)   BUSINESS DEVELOPMENT

 General

         Pen   Interconnect,   Inc.   (the   "Company"  or  "Pen")  is  a  total
interconnection  solution  provider  offering internal and external custom cable
and harness  interconnections,  mobile  satellite  equipment,  EMSI  (Electronic
Manufacturing  Service  Industry)  manufacturing  (circuit  board  assembly) and
custom  design  and  manufacturing  of  battery  chargers,  power  supplies  and
Uninterruptible  Power  Supply UPS systems for original  equipment  manufactures
("OEMs")   in   the   computer,    computer   peripheral,    telecommunications,
instrumentation,  medical and testing  equipment  industries  (See  "Business of
Issuer").  The Company was  incorporated  under the laws of the State of Utah on
September 30, 1985. The Company  maintains  divisions located in Salt Lake City,
and Orem, Utah and Tustin, California.  During fiscal year 1996 and a portion of
fiscal year 1997 the Company operated a division located in San Jose, California
(the "San Jose  Division").  The San Jose  Division  was sold by the  Company on
November 12, 1996 (See Note P of Notes to Financial  Statements).  The executive
offices of the Company are located at 2351 South 2300 West, Salt Lake City, Utah
84119.


 Summary of Current Year Events

         Effective  November 1, 1996, the Company sold  substantially all of the
net assets used by the San Jose Division to Touche Electronics, Inc., ("Touche")
a subsidiary of TMCI Electronics, Inc.("TMCI").

         The  sales  price  for the net  assets  of the San  Jose  Division  was
$3,300,000,  consisting of $2,000,000 in cash, $900,000 in promissory notes, and
53,669  shares of TMCI  common  stock with an agreed  upon  guaranteed  value of
$400,000.  The Company originally purchased the San Jose Division in March 1995,
for approximately $2,100,000.  As part of the transaction,  Touche and TMCI also
assumed certain liabilities  associated with the operations of the Division.  In
February 1997,  TMCI filed a notice of demand for rescission of the purchase and
sale of the Division. The Company filed a counterclaim against TMCI in May 1997,
alleging that TMCI had defaulted in its obligations  under the promissory notes.
The disputes were  submitted to  arbitration.  In December 1997, the Company and
TMCI  entered  into  a  Settlement  and  Release   Agreement  (the   "Settlement
Agreement"),  releasing each other of any and all respective  claims the parties
may have had against each other.  The Settlement  Agreement  provided,  in part,
that TMCI  issue to the  Company  137,390  shares of TMCI's  common  stock  (the
"Settlement  Stock"). The Settlement Stock is guaranteed to have a minimum value
of $7.4532  per share.  In the event the  Settlement  Stock is sold at less than
such amount,  TMCI is obligated to pay to the Company the difference between the
sales price and the guaranteed  value. The conclusion of the disputes will allow
the Company and TMCI to continue  their joint sales and marketing  arrangements.
(See Notes B and O of Notes to Financial Statements)

     From February  1997,  through May 1997,  the Company  issued  $1,000,000 in
promissory


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notes and received  $1,000,000 in cash. These notes bear interest at the rate of
8% per annum and are payable in six months.  In  addition to the  interest,  the
note holders  received a warrant to purchase one share of the  Company's  common
stock for $2.00 for each dollar of principal amount of the notes. These warrants
expire ten years from the date of issuance. At September 30, 1997, all the notes
plus accrued  interest had been repaid except for $100,000 plus accrued interest
of $4,000 which was due and paid November 1997.

         Effective April 1, 1997, the Company purchased substantially all of the
assets, and assumed certain liabilities of PowerSteam Technology, Inc., a custom
design and  development  company for battery  chargers,  power  supplies and UPS
systems located in Orem, Utah. The Company issued 150,000 shares of common stock
(at a value of $1.50  per  share)  for the net  assets.  (See Note B of Notes to
Financial Statements).

     On September 4, 1997, the Company  entered into a new four year  $6,300,000
financing  agreement with a bank.  This credit  facility  replaced the Company's
existing  line  of  credit.  The  credit  facility  consists  of 3  loans:  1) a
$5,000,000 revolving credit loan accruing interest at prime plus 1.75% per annum
; 2) a term loan of  $800,000  accruing  interest  at a fixed rate of 10.16% per
annum;  and 3) a term loan of  $500,000  accruing  interest  at a fixed  rate of
10.32% per annum.  These loans are secured by substantially all of the assets of
the Company. (See Note H of Notes to Financial Statements)


 (b)  BUSINESS OF ISSUER

 FORWARD-LOOKING STATEMENTS. This annual report contains certain forward-looking
statements  within the meaning of section 27A of the  Securities  Act of 1933 as
amended,  and section 21E of the  Securities  Exchange Act of 1934,  as amended,
that involve risks and uncertainties.  In addition, the Company may from time to
time make oral forward-looking statements.  Actual results are uncertain and may
be  impacted  by  the  following  factors.  In  particular,  certain  risks  and
uncertainties  that may impact the  accuracy of the  forward-looking  statements
with  respect to  revenues,  expenses  and  operating  results  include  without
limitation,   cycles  of  customer  orders,  general  economic  and  competitive
conditions and changing consumer trends,  technological  advances and the number
and timing of new product  introductions,  shipments of products and  components
from foreign  suppliers,  and the timing of operating  and changes in the mix of
products  ordered  by  customers.  As a result,  the actual  results  may differ
materially from those projected in the forward- looking statements.

 Because of these and other  factors  that may affect  the  Company's  operating
results,  past  financial  performance  should not be considered an indicator of
future performance, and investors should not use historical trends to anticipate
results or trends in future periods.

 Products

         Headquartered  in Salt Lake City with  divisions in Tustin  California,
and Orem,  Utah,  the  Company  is a total  interconnection  solution  provider,
offering internal and external custom cable and harness interconnections, custom
power supply and battery charger  design,  mobile  satellite  equipment and EMSI
(Electronic  Manufacturing  Service  Industry)  manufacturing  for  OEMs  in the
computer, computer peripheral,  telecommunication,  instrumentation, medical and
testing  equipment   industries.   The  Company's  products  connect  electronic
equipment  (such  as  computers)  to  various  external  devices  (such as video
screens,  printers,  external disk drives, modems,  telephone jacks,  peripheral
interfaces and networks) and connect devices within the equipment (such as power
supplies, computer hard drives and PC cards).

         A  portion   of  the   Company's   sales   consist   of  custom   cable
interconnections developed in close


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collaboration  with its  customers.  The  Company's  customers  include  OEMs of
computers including mainframes,  desktops,  portables, laptops, notebooks, pens,
and palmtops as well as OEMs of computer  peripheral  equipment  such as modems,
memory cards, LAN adapters, cellular phones, faxes and printers. Other customers
include  OEMs  of  telecommunications,   medical,  instrumentation  and  testing
equipment.  The  Company's  InCirT  Division is engaged in the EMSI and provides
sophisticated  ISO  9002-certified  assembly  and testing  services  for complex
printed circuit boards and subsystems  through advanced surface mount technology
(SMT) manufacturing as well as traditional through-hole assembly. These products
are used primarily in computer  instrumentation,  testing  equipment and medical
equipment.

         Many OEMs in the industries that the Company serves  increasingly  rely
upon  outsourcing  of  their  manufacturing.  Outsourcing  allows  OEMs  to take
advantage of the expertise and capital  investments  of contract  manufacturers,
enabling  companies to concentrate on their core activities.  Using its in-house
technical  capabilities and multiple molding  machines,  the Company assists its
OEM customers by quickly developing and prototyping  customized  interconnection
assemblies  in  conjunction  with  the  customers'   design  staffs,   and  then
efficiently  producing  the  customized  interconnections  in  time  frames  and
specialized quantities to meet its customers' needs in rapidly changing markets.
With its U.S.  domestic  facilities  and in-house  technical  capabilities,  the
Company  concentrates on higher margin  products,  which require  customization,
rapid production turnaround and constant,  real-time client  communication.  The
Company also has entered into an agreement with lower cost foreign manufacturers
in order to competitively  service the customers'  needs for lower margin,  high
volume standardized products.


 Distribution of Products

         The Company  markets its  products to its  customers  through  in-house
salesmen  and  sales  representatives.   The  Companies  customers  are  located
throughout the continental U.S. and Canada and certain foreign countries.


 New Products

         The  acquisition  of  PowerSteam by the Company has enabled it to enter
the engineered  products market,  providing the Company with the ability to sell
its own products rather than to merely service and  manufacture  other company's
products.  This means that the  Company  has the  ability to better  control its
margins and increase its profits.  PowerStream  designs  custom power  supplies,
battery  chargers and UPS systems for OEMs and has been able to produce  several
of those designs for sale to other companies.  It is expected that a major share
of the Company's future business will come from this division and market.

         The InCirT Division is adding additional  services to its circuit board
assembly  business by offering  repair and return  functions  and also  complete
system assembly at its plant in Tustin.

         The Cable  Division  located in Salt Lake City,  Utah is expanding  its
capabilities  to include cable  harnessing and packaging.  It is also increasing
its  off-shore  manufacturing  capability  through its  strategic  manufacturing
alliance with a company in China to handle its high volume customers.

 Competition

         The Company competes  directly with numerous other cable  manufacturers
in its custom standard cable assembly business. Many of these manufacturers tend
to be  relatively  small and  fragmented  and many exist in the Far East,  which
historically  have been lower costs.  The Company also competes  with  computer,
cabling and connector manufacturers that produce custom cable


                                        5


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assemblies  for  their  own  use,  thereby  reducing  potential  sales  to  such
manufacturers and to third parties by the Company.  The InCirT Division competes
directly with several EMSI companies, some of which are very large. However, the
vast majority are smaller  firms  similar in size to InCirT,  so it is important
that  the  Company  meet  its  schedules  with  quality  products  and  on  time
deliveries.

         Across all product lines, computer, cabling and connector manufacturers
are generally substantially larger and have greater resources than the Company.

         High technology  companies often use outside contract  manufacturers to
produce  components or assemblies more  inexpensively  and more efficiently than
they could  themselves.  Contract  manufacturers  typically produce a relatively
large  volume of such  products  and can more  readily  amortize  the  requisite
capital  equipment  and  personnel  costs.  The Company  competes  against other
contract  manufacturers on the basis of product quality,  technical support, and
rapid  design,  engineering  and delivery of prototype  connections.  Successful
competition requires rapid response and quick solutions to customer requests for
highly customized work.

 Several of the Company's  contract  manufacturing  competitors  seek to develop
price advantages  using offshore  companies with lower labor costs. As new cable
interconnection  products become  standardized and produced in large quantities,
these overseas producers can generally offer lower prices than the Company.  The
Company  has now  started  to focus its  marketing  efforts  on this part of the
market and has  developed a strategic  manufacturing  alliance with a company in
China to sell its products at competitively prices while controlling the quality
of its products.

 Product Components

         The Company  generally  purchases  cable,  connectors,  and  electronic
components  from a large  number  of  unaffiliated  United  States  and  foreign
distribution  companies to manufacture the products that meet the specifications
of the OEM customers.  Certain components are custom designed and purchased from
a specific  supplier.  Most of the other components  utilized by the Company are
available  from a number of  manufacturers,  and the  Company's  decisions  with
respect to its suppliers are based on availability  of the necessary  component,
the reliability of the supplier in meeting its commitments, and pricing.

 Customers

         Sales by the Company have  historically  been concentrated with several
large customers. In the current fiscal year, sales were dominated by three large
customers.  These  three  customers  accounted  for  approximately  41%  of  the
Company's total revenue (15%, 14%, and 12% respectively). The loss of any one of
these large customers could significantly affect the future profitability of the
Company in the short term.  This was evidenced in the fourth quarter when one of
these  customers  significantly  decreased  its  orders,  which  resulted  in  a
reduction of revenues and an operating loss in the fourth quarter of 1997.

 Patents

         The Company acquired, through PowerStream, several patent applications.
The Company is currently  investigating  economical  feasibility of these patent
applications,  and have not,  as of yet,  determined  to actively  pursue  these
applications.

 Regulatory Matters

     Computer  cables and board  assemblies  must  satisfy  electrical  magnetic
interference  (EMI)  standards  which are imposed by the Federal  Communications
Commission.  The Company relies on the  manufacturer of its cable and components
for compliance with these requirements. The


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Company is not aware of any  development to suggest that the computer cables and
board assemblies do not comply with EMI standards.

 Environmental Laws

         The  Company  has not  incurred,  and  does  not  presently  anticipate
incurring,   any  material  costs  in  complying  with  all  federal  and  state
environmental laws.


 Employees

         As of September 30, 1997, the Company employed  approximately  195 full
and  part-time  employees.  Six  employees  were  executive  personnel,  16 were
technical and engineering  personnel, 9 were in marketing and sales, 140 were in
manufacturing, and 24 were administrative,  accounting, information systems, and
clerical  personnel.  The number of employees at September  30, 1997  represents
approximately  a 46%  reduction  from  September  30, 1996.  This  reduction was
primarily due to the sale of the San Jose Division. The Company has also reduced
the number of its  employees  through  increased  efficiency  and as a result of
lower sales, a reduction in requirements.

 Research and development

         During fiscal year 1997, the Company incurred approximately $198,000 in
research  and  development  costs for new product  development.  In addition the
Company  incurred  additional  development  costs to modify  existing  products,
create new products and make significant improvements to existing products.


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<PAGE>

                         ITEM 2. DESCRIPTION OF PROPERTY



 FACILITIES

         The Company maintains  manufacturing and  administrative  facilities in
Salt Lake  City,  Utah under a lease  which  expires  September  30,  1998,  and
provides for $160,000 in annual rental  payments.  The building  contains 40,500
square feet of space,  in which 3,000  square  feet are  utilized  for sales and
administration  and 37,500 square feet are dedicated to manufacturing,  material
control, quality control and the machine shop for prototype development.


         The InCirT  division's  manufacturing  and  administration  facility is
located in Tustin,  California.  The annual rental is approximately $126,700 per
year. The premises consist of approximately  120,300 square feet of which InCirT
subleases  approximately  24,500 square feet.  Within this facility 2,000 square
feet are  utilized  for sales and  administration  and  22,500  square  feet are
dedicated to manufacturing  and engineering.  InCirT occupies its space pursuant
to a sublease which has a expiration  date of December 31, 2001 but which allows
the sublessor to terminate  the sublease on six months prior  written  notice to
the Company.  In September  1997, the Company  received notice that its sublease
would be terminated effective March 31, 1998. The Company is seeking to relocate
this division to another facility.

         The PowerSteam division's sales and engineering  facilities are located
in Orem,  Utah,  under a lease which expires in February 1998,  which management
intends to extend.  The  premises  contains  approximately  2,600 square feet of
space,  all of which is utilized  for sales,  research,  development,  prototype
production and administration. The annual rental is approximately $18,000.


         Management  believes that the above  properties  and their contents are
adequately covered by insurance.


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<PAGE>

                            ITEM 3. LEGAL PROCEEDINGS



         No proceedings are pending against the Company or any of its properties
which,  if determined  adversely to the Company,  would have a material  adverse
effect on the Company's financial condition or results of operations.

         The Company was  involved  in a dispute  regarding  the sale of the San
Jose  Division to TMCI.  This  dispute was resolved  subsequent  to year end and
resulted in a restructuring of the consideration payable by TMCI to the Company.
(See "Business  Development-Summary  of Current Year Events" and Note O of Notes
to Financial Statements)



           ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



         On August 8, 1997, the Company filed an Information  Statement with the
Securities and Exchange  Commission in connection with  shareholder  approval by
written  consent  ratifying  the  actions of the Board of  Directors  in issuing
warrants to acquire  1,000,000 shares of Common Stock to certain  lenders.  (See
Note N to Notes of Financial Statements)


                                     PART II

                      ITEM 5. MARKET FOR COMMON EQUITY AND
                          RELATED STOCKHOLDERS MATTERS

         The common stock and warrants of the Company are listed on the National
Association of Securities Dealers Automated  Quotation system ("NASDAQ"),  under
the symbol "PENC" for the common stock and "PENCW" for the warrants.  The common
stock and warrants were first publicly traded on November 17, 1995.

         The  following  table sets forth the range of high and low bids for the
common stock of the Company since the Company's  common stock and warrants began
active trading on the NASDAQ.

    Common Stock Schedule
    Fiscal Year 1997 Quarter Ended             High Bid         Low Bid
    ------------------------------             --------         -------
    September 30, 1997                          $2.50            $ 1.13
    June 30, 1997                                 1.88              1.38
    March 31, 1997                                2.75              0.88
    December 31, 1996                             3.38              1.94

    Fiscal Year 1996 Quarter Ended             High Bid         Low Bid
    ------------------------------             --------         -------
    September 30, 1996                          $6.25           $ 2.75
    June 30, 1996                                 7.63             4.50
    March 31, 1996                                6.13             5.13
    December 31, 1995                             6.50             5.25


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<PAGE>

         On January 8,  1998,  the  closing  quotation  for the common  stock on
NASDAQ was $ 2.91 per share. As of January 8, 1998,  there were 4,147,863 shares
of common stock issued and outstanding,  held by approximately  900 shareholders
of record, including several holders who are nominees for an undetermined number
of beneficial owners.


         The  following  table sets forth the range of high and low bids for the
warrants  of the  Company  during  the  periods  indicated  since the  Company's
warrants began trading on the NASDAQ.

     Warrants Schedule

     Fiscal Year 1997 Quarter Ended            High Bid         Low Bid
     ------------------------------            --------         -------
     September 30, 1997                        $ 0.56           $ 0.22
     June 30, 1997                                0.69             0.38
     March 31, 1997                               0.81             0.44
     December 31, 1996                            1.00             0.44


     Fiscal Year 1996 Quarter Ended            High Bid         Low Bid
     ------------------------------            --------         -------
     September 30, 1996                        $ 1.94           $ 0.63
     June 30, 1996                                2.75             0.94
     March 31, 1996                               2.19             1.00
     December 31, 1995                            2.13             1.00

         On January 8, 1998,  the closing  quotation  for the warrants on NASDAQ
was $0.61 per  warrant.  As of January 8, 1998,  there were  4,040,000  warrants
issued and outstanding.

         The trading  volume of the common  stock and warrants of the Company is
limited,  creating  significant changes in the trading price of the common stock
and warrants as a result of  relatively  minor changes in the supply and demand.
Consequently,  potential  investors should be aware that the price of the common
stock and  warrants in the  trading  market can change  dramatically  over short
periods as a result of factors unrelated to the earnings and business activities
of the Company.

         The Company has not paid any dividends with respect to its common stock
and does not anticipate  paying any dividends in the near future.  The Company's
credit  facility with its bank  prohibits  the payment of dividends  without the
consent of the bank.

                  ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
                              OR PLAN OF OPERATION

     The following  discussion and analysis  provides certain  information which
the Company's management believes is relevant to an assessment and understanding
of the Company's  results of operations  and financial  condition for the fiscal
years ended September 30, 1997 and 1996. This


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discussion  and  analysis  should  be read in  conjunction  with  the  Company's
financial statements and related footnotes.

 Results of Operations

         The  acquisition  of the net  assets of  PowerStream  Technology,  Inc.
("PowerStream"),  which was effective as of April 1, 1997 has been accounted for
as a  purchase.  The  statement  of  operations  data for the fiscal  year ended
September 30, 1997 includes the results of operations of PowerStream since April
1, 1997.

         The acquisition of the net assets of InCirT Technology (InCirT),  which
was  effective  as of April 1, 1996 has been  accounted  for as a purchase.  The
statement of operations  data for the fiscal years ended  September 30, 1997 and
1996 include the results of operations of InCirT since April 1, 1996.

         The  acquisition  of the net assets of Overland  Communications,  Inc.,
doing business as MOTOSAT ("MOTO-SAT") which was effective as of January 1, 1996
has been accounted for as a purchase.  The statement of operations  data for the
fiscal years ended September 30, 1997 and 1996 include the results of operations
of MOTO-SAT since January 1, 1996.

         The San Jose  Division was acquired on March 24, 1995 and was accounted
for as a purchase.  The division was  subsequently  sold  effective  November 1,
1996. The statement of operations  data for the fiscal years ended September 30,
1997 and 1996  includes the results of  operations  of the San Jose Division for
one month and twelve months, respectively.


Net sales. Net sales for the Company  decreased  approximately  $6,900,000 (27%)
from  $25,106,734  for fiscal year 1996 ("1996") to  $18,238,460  for the fiscal
year ended September 30, 1997 ("1997").  The decrease is primarily the result of
the sale of the San Jose  Division  (sales in fiscal year 1996 of  approximately
$6,900,000) and the loss of a major customer in the Cable Division in the fourth
quarter.  This major customer  represented  approximately 12% of overall Company
sales in fiscal  year 1997 and 16% in fiscal  year  1996.  Efforts  were made to
retain this customer by reducing the sales price and transferring  production to
an  offshore  facility.   However,  the  Company  was  not  able  to  achieve  a
satisfactory  margin with this  customer who then placed its future  orders with
another  vendor.  There have been no material  increases in the prices of any of
the Company's products between the two periods,  but due to competitive pressure
and the emergence of Far East  competitors the Company has reduced its prices to
its large  volume  customers.  The Company  anticipates  that prices will remain
subject to competitive  pressures in the foreseeable future which may prohibit a
significant price increase.

 Cost of sales.  Cost of sales as a percentage of net sales has  increased  from
approximately  90% in fiscal year 1996 to 99% in fiscal year 1997. This increase
in costs  resulted  primarily in the Cable Division as a result of the following
factors:  1) a reduced  profit margin  resulting  from efforts to retain a major
customer by offering  reduced prices  through-out  the third quarter;  2) excess
capacity (as sales had historically  been higher)  supported by some fixed costs
that could not be reduced in the short term 3) a continued low unemployment rate
in the Salt Lake City area  requiring  unusually  high costs for  unskilled  and
partially skilled workers; 4) increases in reserves for obsolete and slow moving
inventory 5) the Company  changed to a 4-day work week during the fourth quarter
in a effort to reduce some support  costs and maintain its skilled  workforce in
anticipation  of a rebound  in  sales.  In  addition,  other  Company  divisions
experienced  decreased  margins  during the last two quarters of the fiscal year
1997 due to higher than  anticipated  material  costs.  These  higher  materials
costs,  caused by a cash flow  problem,  in turn  caused  vendors to delay their
shipments and to charge higher prices.



                                       11


<PAGE>



 Operating expenses.  Operating expenses increased by approximately $18,000 from
$3,125,189  in 1996 to  $3,143,227  in 1997.  This  increase  resulted  from the
following  areas:  1) an increase of $150,000  in  amortization  resulting  from
acquisitions in the current and prior years; 2) an increase in the investment of
approximately  $198,000 in research  and  development  of new  products  for the
satellite and power supply/charger divisions. The Company anticipates initiating
sales of these new  products  in the  upcoming  year;  3) the  abandonment  of a
long-term  building  lease in San Jose  which was not  assumed by TMCI when they
purchased the San Jose Division from the Company.  These increases in costs were
offset in part by cost  reductions  in sales and  marketing  ; and  general  and
administrative  expenses.  The Company  continues to look for ways to streamline
its operations and reduce operating costs.

 Other income and expenses.  The Company experienced  increased interest expense
costs during the year due to the need to obtain  additional funds to replace the
expected  payments  from  the  promissory  notes  from  the sale of the San Jose
division.  This increase was more than offset by the gain on the sale of the San
Jose Division and other income and expense amounts.

 Net loss and loss per share. The Company  recorded a loss of $1,735,483  ($0.54
per share)  for fiscal  year 1997,  compared  to a loss of  $709,010  ($0.26 per
share) for  fiscal  year 1996.  This  increased  loss  resulted  primarily  from
increased  material costs required by vendors due to the Company's  inability to
pay per  terms,  increases  of  obsolete  and  slow-moving  inventory  reserves,
expenditures  of research and  development  for new products  with future higher
margins, the loss due to the abandonment of a building lease associated with the
operations of the San Jose Division that was sold during the fiscal year.

 Liquidity and Capital Resources

         The Company has historically  financed its operations through operating
cash flow and lines of credit.  However,  on  November  17,  1995,  the  Company
completed an initial  public  offering  (IPO) which produced net proceeds to the
Company of approximately $4,700,000.

         Working  capital  decreased to  $1,065,778  on September  30, 1997 from
$3,189,817  on September  30, 1996.  The  decrease is  principally  due to early
cashflow issues incurred during the year. These issues were resolved  subsequent
to  year  end  as a  result  of the  cash  received  from  the  issuance  of the
subordinated debenture and the $500,000 term loan under the new credit facility.

         On September 5, 1997, the Company obtained a new financing package with
a bank that is anticipated to significantly improve the Company's cashflow. This
agreement  includes a line of credit secured by trade  receivables and inventory
of up to $5,000,000.  In addition the Company obtained a term loan for $800,000,
that is  secured by the  Company's  property  and  equipment.  Also the  Company
obtained an additional term loan of $500,000 in the first quarter of fiscal year
1998.

         Subsequent to year end the Company  issued  $1,100,000  in  convertible
debentures.  This  resulted  in net  proceeds  to the  Company of  approximately
$1,000,000 which improved the Company's cashflow.

         Management believes that existing cash balances,  borrowings  available
under the line of credit,  the subsequent cash from the  convertible  debentures
and the additional  term loan together with cash generated from  operations will
be adequate to meet the Company's  anticipated cash requirements during the next
twelve months.  However,  in the event the Company experiences adverse operating
performance or above anticipated  capital expenditure  requirements,  additional
financing  may be  required.  There can be no  assurance  that  such  additional
financing, if required, would be available on favorable terms.



                                       12


<PAGE>



 Inflation and Seasonality

         The  Company  does not  believe  that it is  significantly  impacted by
inflation.  Historically,  the  industry  sales  tend to  decline  in  December,
January,  July and August when activity in the personal  computer  industry as a
whole is reduced.

                          ITEM 7. FINANCIAL STATEMENTS

         The financial  statements and supplementary data are included beginning
at page 18. See page 19 for the index to the financial statements.

            ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                       ACCOUNTING AND FINANCIAL DISCLOSURE

         None.

                                    PART III

          ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
                            PERSONS; COMPLIANCE WITH
                        SECTION 16(a) OF THE EXCHANGE ACT

         The information  required is set forth under the captions  "Election of
Directors, Directors and Executive Officer; Compliance with Section 16(a) of the
Securities Exchange Act of 1934" in the Company's  definitive Proxy Statement to
be filed pursuant to Regulation 14A and is incorporated herein by reference.

                         ITEM 10. EXECUTIVE COMPENSATION

         The information  required is set forth under the caption  "Compensation
of Executive  Officers" in the Company's  definitive Proxy Statement to be filed
pursuant to Regulation 14A and is incorporated herein by reference.




                                       13


<PAGE>

          ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                                   MANAGEMENT

         The  information  required  is set forth  under the  caption  "Security
Ownership  of  Certain  Beneficial  Owners  and  Management"  in  the  Company's
definitive  Proxy  Statement  to be  filed  pursuant  to  Regulation  14A and is
incorporated herein by reference.

             ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The  information  required  is set forth  under the  caption  "Election  of
Directors - Certain  Relationships  and Related  Transactions"  in the Company's
definitive  Proxy  Statement  to be  filed  pursuant  to  Regulation  14A and is
incorporated herein by reference.

                    ITEM 13. EXHIBITS AND REPORTS OF FORM 8-K

 REPORTS ON FORM 8-K

 No reports on Form 8-K were filed by the Company  during the three months ended
September 30, 1997.

 INDEX OF EXHIBITS

Exhibit No.           Description

         1     Form  of  Underwriter's   Warrant  Agreement  including  Form  of
               Underwriter's Warrant, incorporated by reference to the Company's
               Registration Statement filed on Form SB-2, SEC File No. 33-96444.

         3.    Articles of incorporation and By-laws,  incorporated by reference
               to the Company's  Registration  Statement filed on Form SB-2, SEC
               File No. 33-96444.

         10.1  Asset  Purchase  Agreement for the purchase of InCirT  Technology
               from the Cerplex Group, Inc. See Exhibit to Report on Form 10-QSB
               dated June 30, 1996.

         10.2  Employment  Agreement between James S. Pendleton and the Company.
               See Exhibit to Report on Form 10-QSB dated June 30, 1996.


                                       14


<PAGE>

 INDEX OF EXHIBITS -CONTINUED

Exhibit No.           Description

         10.3  Employment Agreement between Wayne R. Wright and the Company. See
               Exhibit to Report on Form 10-QSB dated June 30, 1996.

         10.4  Employment  Agreement  between  Robert D.  Deforest  Sr.  and the
               Company.  See  Exhibit  to Report on Form  10-QSB  dated June 30,
               1996.

         10.5  Employment   Agreement  between  Lewis  Carl  Rasmussen  and  the
               Company.  See  Exhibit  to Report on Form  10-QSB  dated June 30,
               1996.

         10.6  Employment  Agreement between Alan L. Weaver and the Company. See
               Exhibit to Report on Form 10-QSB dated June 30, 1996.

         10.7  Loan and  Security  Agreement  dated  February  29, 1996  between
               National Bank of Canada and the Company. See Exhibit to Report on
               Form 10-KSB dated September 30, 1996.

         10.8  Form of Warrant Agreement  between  Registrant and American Stock
               Transfer & Trust Company.  See  Registration  Statement  filed on
               Form SB-2, SEC File No. 33-96444.

         10.9  Asset Purchase Agreement dated March 22, 1995 between Registrant,
               Insulectro,  Quality Interconnect  Systems,  Quintec Interconnect
               Systems, Quintec Industries and QIS Electronics. See Registration
               Statement filed on Form SB-2, SEC File No. 33- 96444.

         10.10 Real Estate Lease dated June 2, 1993 between  Registrant  and The
               Equitable  Life Insurance  Society.  See  Registration  Statement
               filed on Form SB-2, SEC File No. 33-96444.

         10.11 Form of 1995 Stock Option Plan. See Registration  Statement filed
               on Form SB-2, SEC File No. 33-96444

         10.12 Asset Purchase  Agreement dated November 12, 1996 for the sale of
               the  San  Jose  Division  between  Touche  Electronics,   Inc.  a
               subsidiary of TMCI Electronics, Inc. and the Company. See Exhibit
               to Report on Form 10-QSB dated December 31, 1996.

         10.13 Loan and Security Agreement between FINOVA and the Company.  This
               filing page 51.

         10.14 Employment  Agreement  between  Stephen J. Fryer and the Company.
               This filing page 43.

         10.15 Employment  Agreement between Daniele Reni and the Company.  This
               filing page 47.

         10.16 Agreement and Plan of  Reorganization  through  Acquisition dated
               April  1,  1997  between  PowerStream  Technology,  Inc.  and the
               Company. This filing page 51.


                                       15


<PAGE>



 INDEX OF EXHIBITS -CONTINUED

Exhibit No.           Description

          11   Statement re: computation of per share earnings. This filing page
               62.

          23.1. Consent of Grant Thornton LLP. This filing page 63.

          27.  Financial Data Schedule.

          99.  Information Statement. This filing page 64.


                                       16


<PAGE>


                                   SIGNATURES

         In accordance  with Section 13 or 15(d) the  Registrant has duly caused
this  report to be  signed  on its  behalf  by the  undersigned  thereunto  duly
authorized.


                                          PEN INTERCONNECT, INC.

 Date:  January 13, 1998                   By:  /s/ James S. Pendleton
                                               -----------------------
                                                    James S. Pendleton,
                                                    CEO and  Director

 In  accordance  with the Exchange Act, this report has been signed below by the
following  persons on behalf of the  registrant and in the capacities and on the
dates indicated.

 Date: January 13, 1998          By:  /s/ James S. Pendleton
                                     -----------------------
                                          James S. Pendleton,
                                          CEO and  Director


 Date:  January 13, 1998        By: /s/ Wayne R. Wright
                                   --------------------
                                 Wayne R. Wright,
                                 CFO, Principal Accounting
                                 Officer and Director


 Date:  January 13, 1998        By: /s/ James E. Harward
                                   ---------------------
                                James E. Harward
                                Director



 Date:  January 13, 1998        By: /s/ Stephen Fryer
                                Stephen Fryer,
                                Vice President, Director



 Date:  January 13, 1998         By: /s/ C. Reed Brown
                                     ------------------
                                 C. Reed Brown
                                 Director


                                       17


<PAGE>

                             PEN INTERCONNECT, INC.


                          INDEX TO FINANCIAL STATEMENTS

                                                                    Page


Report of Independent Certified Public Accountants                     19

Financial Statements

    Balance Sheets as of September 30, 1997 and 1996                   20

    Statements of Operations for the Years Ended
        September 30, 1997 and 1996                                    22

    Statement of Stockholders' Equity for the Years Ended
        September 30, 1997 and 1996                                    23

    Statements of Cash Flows for the Years Ended
        September 30, 1997 and 1996                                    24

    Notes to Financial Statements                                      29



                                       18


<PAGE>

                              REPORT OF INDEPENDENT
                          CERTIFIED PUBLIC ACCOUNTANTS



Board of Directors and Stockholders
Pen Interconnect, Inc.


We have audited the  accompanying  balance sheets of Pen  Interconnect,  Inc. (a
Utah Corporation), as of September 30, 1997 and 1996, and the related statements
of operations,  stockholders'  equity,  and cash flows for the years then ended.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Pen Interconnect,  Inc., as of
September 30, 1997 and 1996 and the results of its operations and its cash flows
for the years then ended,  in  conformity  with  generally  accepted  accounting
principles.



                                                         Grant Thornton LLP

Salt Lake City, Utah
December  12 , 1997



                                       19


<PAGE>
                             Pen Interconnect, Inc.

                                 BALANCE SHEETS

                                  September 30,


                                     ASSETS

<TABLE>
<CAPTION>
                                                                                      1997              1996
                                                                               -------------        --------------
CURRENT ASSETS
<S>                                                                              <C>                  <C>         
    Cash and cash equivalents                                                    $   272,148          $    169,445
    Receivables (Notes C and H)
        Trade accounts, less allowance for doubtful
            accounts of $137,058 in 1997 and $273,852
            in 1996                                                                2,093,056             4,259,298
        Current maturities of notes receivable
            (Notes D, B, and O)                                                      357,006                37,494
    Income taxes receivable                                                                -               228,241
    Inventories (Notes E and H)                                                    3,355,871             6,198,392
    Investments (Note B)                                                             400,000                     -
    Prepaid expenses and other current assets                                        289,991               386,494
    Deferred income taxes (Note K)                                                   141,324               525,800

                    Total current assets                                           6,909,396             11,805,164


PROPERTY AND EQUIPMENT, AT COST
    (Notes H, I and J)
        Production equipment                                                       2,418,368             3,010,575
        Furniture and fixtures                                                       834,971               717,821
        Transportation equipment                                                      69,217                49,373
        Leasehold improvements                                                       368,137               354,150
                                                                                 -----------        --------------

                                                                                   3,690,693              4,131,919
        Less accumulated depreciation                                              1,303,063             1,065,205
                                                                                 -----------        --------------

                                                                                   2,387,630              3,066,714
OTHER ASSETS
    Notes receivable, less current maturities
        (Notes B, D, and O)                                                          607,524                19,630
    Deferred income taxes (Note K )                                                1,392,658                    -
    Goodwill and other intangibles (Note B)                                        2,287,146             1,589,313

    Other                                                                            322,630               176,097
                                                                                ------------        --------------

                                                                                   4,609,958              1,785,040
                                                                                 -----------         --------------

                                                                                 $13,906,984            $16,656,918
                                                                                 ===========            ===========
</TABLE>

    The accompanying notes are an integral part of these statements.



                                       20


<PAGE>

                             Pen Interconnect, Inc.

                           BALANCE SHEETS - CONTINUED

                                  September 30,


                      LIABILITIES AND STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                                      1997              1996
                                                                               -------------        --------------
CURRENT LIABILITIES
<S>                                                                            <C>                  <C>  
    Notes payable (Note F)                                                     $     641,505        $           -
    Bridge loan (Note  G)                                                            100,000                    -
    Line of credit (Note H)                                                        2,237,690             4,969,864
    Current maturities of long-term obligations
        (Notes H and  I)                                                             263,255                19,265
    Current maturities of capital leases (Note J)                                     66,464                59,878
    Accounts payable                                                               2,053,348             2,954,601
    Accrued liabilities                                                              481,356               611,739
                                                                              --------------          ------------

                    Total current liabilities                                      5,843,618             8,615,347

LONG-TERM OBLIGATIONS, less current
    maturities (Notes H and  I)                                                      681,722                96,758

CAPITAL LEASE OBLIGATIONS, less current
    maturities (Note J)                                                               70,889               150,382

DEFERRED INCOME TAXES (Note K)                                                       165,755               225,800
                                                                                ------------           -----------

                    Total liabilities                                              6,761,984             9,088,287

COMMITMENTS AND CONTINGENCIES (Notes  J, L,
        and M)                                                                            -                     -

STOCKHOLDERS' EQUITY (Notes B, H, L, N, and O)
    Preferred stock, $0.01 par value, authorized
        5,000,000 shares, none issued                                                     -                     -
    Common stock, $0.01 par value, authorized
        50,000,000 shares, issued and outstanding
        4,072,863 shares in 1997 and 3,033,407 shares
        in 1996                                                                       40,729                30,334
    Additional paid-in capital                                                     8,733,126             7,431,669
    Retained earnings (accumulated deficit)                                       (1,628,855)              106,628
                                                                               --------------          -----------

                    Total stockholders' equity                                     7,145,000             7,568,631
                                                                               -------------           -----------

                                                                               $  13,906,984           $ 16,656,918
                                                                               =============           ============
</TABLE>

        The accompanying notes are an integral part of these statements.


                                       21


<PAGE>
                             Pen Interconnect, Inc.

                            STATEMENTS OF OPERATIONS

                            Year ended September 30,


<TABLE>
<CAPTION>
                                                                                   1997                  1996
                                                                              --------------        --------------

<S>                                                                           <C>                   <C>           
Net sales (Note C)                                                            $   18,238,460        $   25,106,734
Cost of sales                                                                     18,009,478            22,582,187
                                                                              --------------        --------------

            Gross profit                                                             228,982             2,524,547

Operating expenses
    Sales and marketing                                                              918,172             1,156,657
    Research and development                                                         197,804                    -
    General and administrative                                                     1,361,139             1,663,684
    Abandoned lease fee (Note B)                                                     211,226                    -
    Depreciation and amortization                                                    454,886               304,848
                                                                             ---------------        --------------

            Total operating expenses                                               3,143,227             3,125,189
                                                                             ---------------         -------------

            Operating loss                                                        (2,914,245)             (600,642)

Other income (expense)
    Interest expense                                                                (612,143)             (513,956)
    Gain on sale of division (Note B )                                               611,912                    -
    Other income (expense) net                                                        69,393               (35,026)
                                                                           -----------------       ----------------

                                                                                      69,162               (548,982)
                                                                           -----------------       ----------------

             Loss before income taxes                                             (2,845,083)            (1,149,624)

Income tax benefit  (Note K)                                                      (1,109,600)             (440,614)
                                                                           ------------------      ----------------

            NET LOSS                                                       $      (1,735,483)      $      (709,010)
                                                                           ==================      ================

Loss per common share                                                      $           (0.54)      $         (0.26)
                                                                           =================       ================

Weighted average common
    shares outstanding                                                             3,213,089             2,700,028
                                                                           =================       ===============
</TABLE>


        The accompanying notes are an integral part of these statements.



                                       22


<PAGE>

                             Pen Interconnect, Inc.

                        STATEMENT OF STOCKHOLDERS' EQUITY

                     Years ended September 30, 1997 and 1996

<TABLE>
<CAPTION>
                                                                                         Retained
                                                     Common stock         Additional      earnings
                                               Number                        paid-in   (accumulated
                                              of shares       Amount         capital      deficit)          Total
                                           --------------  ----------    ------------  -------------    ------------
<S>                                        <C>             <C>           <C>           <C>              <C>      
Balance at October 1, 1995                   1,700,000     $   17,000     $  963,935      $ 815,638     $ 1,796,573

Common stock sold in IPO
    (Note N)                                 1,000,000         10,000      4,671,068             -        4,681,068

Common stock issued in acquisition
    (Note B)                                   333,407          3,334      1,796,666             -        1,800,000

Net loss                                            -              -                -      (709,010)       (709,010)
                                           --------------  ----------    ------------  -------------    ------------

Balance at September 30, 1996                3,033,407         30,334      7,431,669        106,628       7,568,631


Common stock issued in acquisition
    (Note B )                                  150,000          1,500        223,500             -          225,000

Contingent common stock issued
    in acquisition (Note B)                     55,568            556         82,796             -           83,352

Common stock issued in payment
    of notes (Note N )                          88,888            889        103,111             -          104,000

Common stock issued upon exercise of
    warrants (Note N )                         745,000          7,450        892,050             -          899,500

Net loss                                            -              -                -    (1,735,483)     (1,735,483)
                                           --------------  ----------    ------------  -------------    ------------

Balance at September 30, 1997                4,072,863      $  40,729    $ 8,733,126    $(1,628,855)     $7,145,000
                                           ==============  ==========    ============  =============    ============
</TABLE>

         The accompanying notes are an integral part of this statement.


                                       23


<PAGE>

                             Pen Interconnect, Inc.

                            STATEMENTS OF CASH FLOWS

                            Year ended September 30,



<TABLE>
<CAPTION>
                                                                                   1997                  1996
                                                                             ---------------        ---------------
Increase (decrease) in cash and cash equivalents
    Cash flows from operating activities
<S>                                                                         <C>                     <C>            
        Net loss                                                            $     (1,735,483)       $     (709,010)
        Adjustments to reconcile net loss to net
            cash used in operating activities
               Depreciation and amortization                                         454,886               304,849
               Bad debts                                                            (118,339)               23,551
               Deferred income taxes                                              (1,068,227)             (176,900)
               Gain on sale of division                                             (611,912)                   -
               Changes in assets and liabilities
                    Trade accounts receivable                                      1,624,593             1,362,345
                    Inventories                                                    1,204,085                781,724
                    Prepaid expenses and other current assets                         62,929              (239,471)
                    Other assets                                                    (240,362)              (95,530)
                    Deferred offering costs                                               -                294,158
                    Accounts payable                                                (793,139)           (2,308,412)
                    Accrued liabilities                                             (722,971)               199,016
                    Income taxes                                                     228,341              (800,341)
                                                                             ---------------        ---------------

                        Total adjustments                                             19,884              (655,011)
                                                                             ---------------        ---------------

                        Net cash used in operating activities                    (1,715,599))           (1,364,021)
                                                                             ---------------        --------------

    Cash flows from investing activities
        Purchase of property and equipment                                          (243,097)             (760,817)
        Acquisition of businesses                                                         -             (3,500,000)
        Issuance of notes receivable                                                 (49,730)              (76,362)
        Collections on notes receivable                                                5,616               119,887
                                                                              --------------        --------------

                        Net cash used in investing
                            activities                                              (287,211)           (4,217,292)
                                                                              --------------          ------------
</TABLE>



                                   (Continued)


                                       24


<PAGE>

                             Pen Interconnect, Inc.

                      STATEMENTS OF CASH FLOWS - CONTINUED

                            Year ended September 30,



<TABLE>
<CAPTION>
                                                                                   1997                  1996
                                                                             ---------------        ---------------
    Cash flows from financing activities
<S>                                                                          <C>                    <C>
        Proceeds from notes payable                                                  902,469                    -
        Principal payments on notes payable                                         (248,244)           (1,600,000)
        Net change in line of credit                                              (2,732,174)            2,886,967
        Proceeds from long-term obligations                                        1,000,000                    -
        Principal payments on long-term obligations                                 (128,390)             (593,765)
        Proceeds from sale of division                                             2,000,000                    -
        Proceeds from sale of common stock                                         1,311,852             4,681,068
                                                                            ----------------      ----------------

                        Net cash provided by
                            financing activities                                   2,105,513              5,374,270
                                                                             ---------------          -------------

                        Net increase (decrease) in cash
                            and cash equivalents                                     102,703              (207,043)

Cash and cash equivalents at beginning of year                                       169,445               376,488
                                                                            ----------------       ---------------

Cash and cash equivalents at end of year                                     $       272,148          $    169,445
                                                                             ===============          ============


Supplemental disclosures of cash flow information

    Cash paid during the year for
        Interest                                                            $        627,522           $   492,170
        Income taxes                                                                     800               428,538
</TABLE>





                                   (Continued)


                                       25


<PAGE>

                             Pen Interconnect, Inc.

                      STATEMENTS OF CASH FLOWS - CONTINUED

                            Year ended September 30,

Noncash investing and financing activities

Acquisition of businesses

PowerSteam  Technology,  Inc.  Effective  April 1, 1997,  the  Company  acquired
substantially  all of the assets and assumed certain  liabilities of PowerStream
Technology,  Inc., in exchange for 150,000 shares of the Company's common stock,
valued at $1.50 per share (Note B). Assets acquired and  liabilities  assumed in
conjunction with this acquisition were as follows:
<TABLE>
<CAPTION>

<S>                                                                                       <C>       
       Accounts receivable (net)                                                          $     20,432
       Inventories     (net)                                                                     5,900
       Prepaid expenses and other current assets                                                   603
       Furniture and equipment                                                                  53,325
       Accounts payable                                                                       (169,315)
       Accrued liabilities                                                                    (402,861)
       Long-term obligations                                                                   (32,198)
                                                                                          -------------
       Liabilities assumed (net)                                                              (524,114)
       Plus stock issued (150,000 shares @ $1.50 per share)                                    225,000
                                                                                          ------------
       Excess purchase price over net assets acquired allocated
       to goodwill                                                                         $   749,114
                                                                                          ============
</TABLE>

InCirT  Technology  Effective April 1, 1996, the Company acquired  substantially
all of the assets,  and assumed  certain  liabilities  of InCirT  Technology,  a
division of the Cerplex Group,  Inc. for $3.5 million in cash and 333,407 shares
of stock valued at $5.3988 per share (Note B). Assets  acquired and  liabilities
assumed in conjunction with this acquisition were as follows:

<TABLE>
<CAPTION>

<S>                                                                                        <C>        
       Accounts receivable (net)                                                          $  3,307,387
       Inventories                                                                           3,311,416
       Prepaid expenses                                                                          5,436
       Property and equipment                                                                  705,899
       Other assets                                                                             30,424
       Accounts payable                                                                     (3,563,436)
       Accrued liabilities                                                                     (33,906)
                                                                                          ------------
       Assets acquired (net)                                                                 3,763,220
       Excess purchase price over net assets acquired allocated
           to goodwill                                                                       1,536,780
                                                                                          ------------
       Purchase price                                                                        5,300,000
       Less stock issued                                                                     1,800,000
                                                                                         -------------
       Total cash paid                                                                    $  3,500,000
                                                                                          ============
</TABLE>

                                   (Continued)


                                       26


<PAGE>

                             Pen Interconnect, Inc.

                      STATEMENTS OF CASH FLOWS - CONTINUED

                            Year ended September 30,

Overland  Communications  (MOTO-SAT)  Effective  January  1, 1996,  the  Company
acquired selected net assets of Overland Communications (MOTO-SAT) (Note B). The
assets acquired and  liabilities  assumed in conjunction  with this  acquisition
were as follows:

<TABLE>
<CAPTION>

<S>                                                                                        <C>        
       Accounts receivable (net)                                                           $   145,439
       Inventories                                                                             306,306
       Prepaid expenses and other current assets                                                 5,798
       Furniture and equipment                                                                  43,755
       Accounts payable                                                                       (256,182)
       Accrued liabilities                                                                     (46,209)
       Long-term obligations                                                                  (306,698)
                                                                                           ------------
       Liabilities assumed (net)                                                           $  (107,791)
                                                                                           ============
</TABLE>

       Excess purchase price over net liabilities assumed resulted
           in recognition of goodwill of $107,791



Sale of division

On  November  1, 1996,  the  Company  sold  substantially  all of the assets and
liabilities of its San Jose Division (Note B). Assets and liabilities  sold were
as follows:

<TABLE>
<CAPTION>

<S>                                                                         <C>           <C>         
       Accounts receivable                                                                $    680,420
       Inventories                                                                           1,644,336
       Prepaid expenses                                                                         34,177
       Other assets                                                                             26,099
       Property and equipment                                                                  638,373
       Accounts payable                                                                       (277,429)
       Accrued liabilities                                                                     (35,373)
       Capital leases                                                                          (22,515)
                                                                                               --------
       Assets sold (net)                                                                     2,688,088
       Less non cash consideration received
               Notes                                                        $ 900,000
               Stock                                                          400,000
                                                                              -------
                                                                                             1,300,000
       Cash received                                                                       $ 2,000,000
                                                                                           -----------
       Gain on sale of division                                                           $    611,912
                                                                                          ============
</TABLE>

                                   (Continued)


                                       27


<PAGE>

                             Pen Interconnect, Inc.

                      STATEMENTS OF CASH FLOWS - CONTINUED

                            Year ended September 30,



Pro forma data. The following unaudited pro forma summary represents the results
of operations as if the disposition of the San Jose Division and the purchase of
the InCirt Division had occurred at the beginning of the periods presented,  and
do not purport to be indicative of what would have occurred had the transactions
actually occurred on that date, or of results which may occur in the future. The
pro forma weighted  shares is reported as if outstanding at the beginning of the
period.

                                           Fiscal year ended September 30,
                                               (amounts in thousands)
                                               1997          1996
                                            ---------     ----------
Net sales                                  $ 17,955         $ 25,313
Operating income (loss)                      (2,931)             726
Net loss                                     (2,347)            (830)
Loss per share                                (0.73)           (0.31)
Weighted shares outstanding                   3,213            2,700





        The accompanying notes are an integral part of these statements.



                                       28


<PAGE>

                             Pen Interconnect, Inc.

                          NOTES TO FINANCIAL STATEMENTS


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       A  summary  of  the  significant   accounting  policies  applied  in  the
       preparation of the accompanying financial statements follows.

       1.   Business activity

       Pen  Interconnect,  Inc. (the Company) was  incorporated on September 30,
       1985,  in the  State  of Utah.  The  Company  is a total  interconnection
       solution provider offering internal and external custom cable and harness
       interconnections, mobile satellite equipment, EMSI manufacturing (circuit
       board assembly) and custom design and  manufacturing of battery chargers,
       power  supplies  and UPS systems  for  original  equipment  manufacturers
       ("OEMs")  in  the  computer,  computer  peripheral,   telecommunications,
       instrumentation,  medical and testing equipment industries. The Company's
       products  connect  electronic  equipment,  such as computers,  to various
       external devices (such as video screens, printers,  external disk drives,
       modems,  telephone jacks, peripheral interfaces and networks) and connect
       devices to one  another  within the  equipment  (such as power  supplies,
       computer hard drives and PC cards).  Most of the Company's  sales consist
       of custom cable  interconnections  developed in close  collaboration with
       its customers and printed circuit boards. The Company's customers include
       OEMs of computers including  mainframes,  desktops,  portables,  laptops,
       notebooks,  pens and  palmtops,  as well as, OEMs of computer  peripheral
       equipment such as modems,  memory cards,  LAN adapters,  cellular phones,
       faxes and printers.  Other customers include OEMs of  telecommunications,
       instrumentation and testing equipment.

       2.   Inventories

       Inventories  consist primarily of cable,  components,  and boards and are
       valued at the lower of cost or market (first-in,  first-out basis). Costs
       include materials, labor, and overhead.


                                   (Continued)





                                       29


<PAGE>

                             Pen Interconnect, Inc.

                          NOTES TO FINANCIAL STATEMENTS

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

       3.   Property and equipment

       Property and equipment are recorded at cost.  Expenditures  for additions
       and major  improvements  are  capitalized.  Expenditures  for repairs and
       maintenance  and minor  improvements  are charged to expense as incurred.
       When  property or  equipment  is retired or  otherwise  disposed  of, the
       related cost and accumulated  depreciation are removed from the accounts.
       Gains or losses from  retirements  and  disposals  are  recorded as other
       income or expense.

       Property and equipment are depreciated over their estimated useful lives.
       Leasehold  improvements  and assets  financed  under  capital  leases are
       amortized over their estimated useful lives or the lease term,  whichever
       is  shorter.   Depreciation   and   amortization   are  calculated  using
       straight-line and accelerated methods over the following estimated useful
       lives:
                                                               Years
                 Production equipment                             5-10
                 Furniture and fixtures                              7
                 Transportation equipment                         5-10
                 Leasehold improvements                           7-10

       4.   Goodwill.

       The Company  capitalized as goodwill,  the excess  acquisition costs over
       the fair  value of net  assets  acquired,  in  connection  with  business
       acquisitions,  which costs are being amortized on a straight-line  method
       over 15 years.  The carrying  value of goodwill is reviewed  periodically
       based on the  undiscounted  cash flows of the entities  acquired over the
       remaining  amortization period. Should this review indicate that goodwill
       is impaired,  the Company's  carrying value of the goodwill is reduced by
       the estimated shortfall of undiscounted cash flows.

       5.   Income taxes

       The Company utilizes the liability method of accounting for income taxes.
       Under the liability  method,  deferred  income taxes and  liabilities are
       provided





                                   (Continued)



                                       30


<PAGE>

                             Pen Interconnect, Inc.

                          NOTES TO FINANCIAL STATEMENTS


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

       5.   Income taxes - Continued

       based on the difference between the financial  statement and tax bases of
       assets and liabilities as measured by the currently  enacted tax rates in
       effect for the years in which these differences are expected to reverse.

       6.   Revenue recognition

       Revenue is recognized upon shipment of products.

       7.   Cash and cash equivalents

       For financial statement purposes, the Company considers all highly liquid
       investments  with an  original  maturity  of three  months  or less  when
       purchased to be cash equivalents.


       8.   Warranties

       The Company's standard warranty is one year on parts and labor.  Warranty
       costs are accrued and expensed when revenue is recognized  based upon the
       Company's  experience with such costs. Returns have been insignificant to
       date.


       9.   Research and development

       All research expenditures are charged against operations as incurred.

       10.  Loss per share

       Loss per common  and common  equivalent  share is  computed  based on the
       weighted average number of common and dilutive common  equivalent  shares
       outstanding.  Outstanding common stock warrants and options were excluded
       from the weighted  average number of shares of common stock as they would
       decrease loss per share.

                                   (Continued)




                                       31


<PAGE>

                             Pen Interconnect, Inc.

                          NOTES TO FINANCIAL STATEMENTS

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

       11.  Estimates

       The  preparation  of financial  statements in conformity  with  generally
       accepted accounting  principles requires management to make estimates and
       assumptions  that  affect the  reported  amounts of assets,  liabilities,
       revenues and expenses during the reporting period.  Estimates also affect
       the  disclosure of contingent  assets and  liabilities at the date of the
       financial  statements.  Actual results could differ from these estimates.
       Such estimates of significant  accounting  sensitivity  are allowance for
       doubtful accounts and reserves for obsolete inventory.

       12.   Stock Options

       The Company has elected to follow Accounting Principles Board Opinion No.
       25,  "Accounting  for Stock  Issued to  Employees"  (APB 25) and  related
       interpretations  in accounting for its employee stock options rather than
       adopting  the  alternative  fair  value  accounting  provided  for  under
       Financial  Accounting  Standards  Boards ("FASB") FASB Statement No. 123,
       Accounting for Stock Based Compensation (SFAS 123).

       13.   Recently Issued Accounting Pronouncements Not Yet Adopted

       Earnings per share

       In February  1997,  the FASB issued  Statement  of  Financial  Accounting
       Standards No. 128 (SFAS 128),  "Earnings Per Share." SFAS 128  eliminates
       the  presentation  of primary  earnings  per share (EPS) and requires the
       presentation of basic EPS, which includes no common stock equivalents and
       thus no dilution.  The statement also  eliminates  the modified  treasury
       stock method of computing  potential  common  shares.  This  statement is
       effective  for  financial  statements  issued for  periods  ending  after
       December 15, 1997.





                                   (Continued)






                                       32


<PAGE>

                             Pen Interconnect, Inc.

                          NOTES TO FINANCIAL STATEMENTS

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

       13.   Recently Issued Accounting Pronouncements Not Yet Adopted-Continued

       Capital structure

       Also in February 1997, the FASB issued Statement of Financial  Accounting
       Standards No. 129 (SFAS 129),  "Disclosure of  Information  about Capital
       Structure." SFAS 129 consolidates in one statement  disclosures about the
       rights of  outstanding  securities  and  changes  in the number of equity
       securities during the period,  disclosures about liquidation  preferences
       and preferred  stock, and disclosures  about  redemption  requirements of
       certain  redeemable  stock.  Disclosures were previously  included in APB
       Opinion 10, APB Opinion 15 and SFAS 47. The statement does not change the
       required  disclosures  about  capital  structure  for entities  currently
       subject to the  requirements  of APB  Opinion 10 and 15 and SFAS 47. SFAS
       129 is effective for financial  statements for interim and annual periods
       ending after December 15, 1997.

       Comprehensive income

       In September  1997,  the FASB issued  Statement  of Financial  Accounting
       Standards No. 130 (SFAS 130), "Reporting  Comprehensive Income." SFAS 130
       requires  entities  presenting a complete set of financial  statements to
       include  details of  comprehensive  income  that  arise in the  reporting
       period.  Comprehensive  income  consists of net  earnings or loss for the
       current period and other comprehensive income, which consists of revenue,
       expenses,  gains, and losses, that bypass the statement of operations and
       are  reported  directly  in  a  separate   component  of  equity.   Other
       comprehensive  income  includes,  for  example  foreign  currency  items,
       minimum pension liability adjustments, and unrealized gains and losses of
       certain  investment  securities.  SFAS 130 requires  that  components  of
       comprehensive  income  be  reported  in a  financial  statement  that  is
       displayed with the same  prominence as other financial  statements.  This
       statement is effective for fiscal years beginning after December 15, 1997
       and requires  restatement of prior period financial  statements presented
       for comparative purposes.

       Disclosure of segments

       Also in September 1997, the FASB issued Statement of Financial Accounting
       Standards  No.  131  (SFAS  131),  "Disclosures  about  Segments  of  the
       Enterprise and Related Information." This statement requires an entity to
       report

                                   (Continued)







                                       33


<PAGE>

                             Pen Interconnect, Inc.

                          NOTES TO FINANCIAL STATEMENTS

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

       13.   Recently Issued Accounting Pronouncements Not Yet Adopted-Continued

       Disclosure of segments - Continued

       financial and descriptive  information  about their reportable  operating
       segments.  An  operating  segment is a  component  of an entity for which
       financial  information  is developed and evaluated by the entity's  chief
       operating  decision  maker to assess  performance  and to make  decisions
       about resource allocation. Entities are required to report segment profit
       or loss,  certain  specific  revenue and expense items and segment assets
       based on financial information used internally for evaluating performance
       and  allocating  resources.  This statement is effective for fiscal years
       beginning  after  December  15, 1997 and  requires  restatement  of prior
       period financial statements presented for comparative purposes.

       Management does not believe that the adoption of SFAS 128, SFAS 129, SFAS
       130 and SFAS 131 will have a material  effect on the Company's  financial
       statements.




                                       34


<PAGE>

                             Pen Interconnect, Inc.

                          NOTES TO FINANCIAL STATEMENTS


NOTE B - ACQUISITIONS/DISPOSITIONS

       PowerStream Technology

       Effective April 1, 1997, the Company  acquired  substantially  all of the
       assets,   and  assumed  certain   liabilities  and  the  operations,   of
       PowerStream Technology, Inc. ("PowerStream") by issuing 150,000 shares of
       common  stock  valued at $1.50 per share.  PowerStream  is a research and
       development  company  specializing in power recharging  devices and power
       supply products. In addition the Company entered into a 5 year Employment
       Agreement with Danielli Reni, the President of  PowerStream.  The Company
       believes  that Mr.  Reni is an  expert  in the  area of power  recharging
       devices and power supply  products.  This  transaction  was accounted for
       using the purchase method of accounting. Accordingly the purchased assets
       and  liabilities  have been  recorded  at their fair value at the date of
       acquisition and the excess purchase price over fair value of net tangible
       assets acquired of $749,114 is being amortized over 15 years. The results
       of  operations  of  the  acquired  business  have  been  included  in the
       financial statements since the effective date of acquisition.

       InCirT Technology

       Effective April 1, 1996, the Company  acquired  substantially  all of the
       assets,  and assume  certain  liabilities  and the  operations  of InCirt
       Technology,  a division  of the  Cerplex  Group,  Inc.  for $5.3  million
       comprised  of $3.5  million in cash and  333,407  shares of common  stock
       valued at $5.3988 per share.  In  addition,  during  fiscal year 1997 the
       Company issued 55,568 shares of common stock to the Cerplex  Group,  Inc.
       for  collections  of past due over 90 days accounts  receivable of InCirT
       collected by the Company  during the first 180 days after the date of the
       acquisition. This transaction was accounted for using the purchase method
       of  accounting  and the  excess  purchase  price  over fair  value of net
       tangible  assets acquired of $1,536,780 is being amortized over 15 years.
       The results of operations of the acquired  business have been included in
       the financial statements since the effective date of acquisition.


                                   (Continued)


                                       35


<PAGE>

                             Pen Interconnect, Inc.

                          NOTES TO FINANCIAL STATEMENTS

NOTE B - ACQUISITIONS/DISPOSALS - CONTINUED

       MOTO-SAT

       Effective  January 1, 1996 the Company  acquired  selected net assets and
       the operations of Overland  Communication,  Inc. dba MOTO-SAT by assuming
       that  company's  net  debt of  $107,791  and  offering  additional  stock
       contingent upon achievement of performance milestones.  As of fiscal year
       end 1997 no additional shares were required to be issued.  MOTO- SAT is a
       manufacturer of satellite receiver systems for recreational  vehicles and
       boats.  This  transaction  was accounted for using the purchase method of
       accounting.  Accordingly the purchased  assets and liabilities  have been
       recorded  at their  fair  value at the date of  acquisition.  The  excess
       purchase price over fair value of net liabilities  assumed of $107,791 is
       being amortized over 15 years.  The results of operations of the acquired
       business  have  been  included  in the  financial  statements  since  the
       effective date of acquisition.


       SALE OF SAN JOSE DIVISION


     Effective November 1, 1996, the Company sold  substantially  all of the net
       assets used by the San Jose Division  ("Division") to Touche Electronics,
       Inc.  ("Touche"),  a subsidiary of TMCI Electronics,  Inc. ("TMCI").  The
       sales price for the net assets of the Division was $3,300,000; consisting
       of $2,000,000 in cash, $900,000 in promissory notes, and 53,669 shares of
       TMCI common stock with an agreed upon  guaranteed  value of $400,000.  In
       addition,  the  Company had the right to receive  $700,000 in  contingent
       earnouts  for a  potential  total sale price of  $4,000,000.  The Company
       originally  purchased  the  Division  in  March  1995  for  approximately
       $2,100,000.  As part of the  transaction,  Touche  and TMCI also  assumed
       certain liabilities associated with the operations of the Division.

     InFebruary  1997,  TMCI  filed a notice of  demand  for  rescission  of the
       purchase  and sale of the  Division.  The  Company  filed a  counterclaim
       against  TMCI in May,  1997,  alleging  that  TMCI had  defaulted  in its
       obligations  under the promissory  notes. The disputes were  subsequently
       submitted to arbitration in

                                   (Continued)


                                       36


<PAGE>
                             Pen Interconnect, Inc.

                          NOTES TO FINANCIAL STATEMENTS

NOTE B - ACQUISITIONS/DISPOSALS - CONTINUED

     August,  1997.  In  December,  1997,  the Company and TMCI  entered  into a
     Settlement and Release  Agreement (the "Settlement  Agreement"),  releasing
     each  other  of any and all  respective  claims  the  parties  may have had
     against each other. The Settlement  Agreement provided,  in part, that TMCI
     issue  to  the  Company,   137,390  shares  of  TMCI's  common  stock  (the
     "Settlement  Stock").  The Settlement Stock is guaranteed to have a minimum
     value of $7.4532 per share.  In the event the  Settlement  Stock is sold at
     less  than  that  amount,  TMCI  is  obligated  to pay to the  Company  the
     difference between the sales price and the guaranteed value. The conclusion
     of the  disputes,  will allow the Company and TMCI to continue  their joint
     sales and marketing arrangements.

     In addition the Company  entered into a long-term  building lease agreement
     several  months  prior  to the  sale  of the San  Jose  Division  with  the
     intention of relocating the operations.  This lease was not sold as part of
     the above sale and required a fee of $211,226 for abandonment of the lease.
     Such fee was recognized during fiscal year 1997.

       NOTE C - MAJOR CUSTOMERS AND CREDIT CONCENTRATION

       Financial  instruments,  which potentially  subject the Company to credit
       risk, consist primarily of trade accounts  receivable.  The Company sells
       to customers in the computer,  computer  peripheral,  telecommunications,
       instrumentation,   medical  and  testing  equipment   industries  located
       throughout the United States.  Sales have  historically been concentrated
       with several large original equipment  manufacturers  (OEMs) on a turnkey
       basis.  To  reduce  credit  risk  the  Company  performs  ongoing  credit
       evaluations of its customers'  financial condition and generally does not
       require collateral.  The majority of its trade receivables are unsecured.
       Allowances  are maintained  for potential  credit  losses.  The resulting
       losses have been insignificant to date and have been within  management's
       expectations.

       Revenue from  shipments in fiscal 1997 and 1996 to the largest  customers
       (representing over 10% of sales) are as follows:

                                           1997         1996
                                           ----         ----
            Customer A                      15%          13%
            Customer B                      14%           5%
            Customer C                      12%          16%

       At September 30, 1997, the Company had accounts receivable due from these
       three  largest  OEMs   representing   about  50%  of  trade   receivables
       ($1,123,810)  of which  less than  $150,000  was over 90 days.  Remaining
       trade accounts  receivable at September 30, 1997, were due from a variety
       of other customers under normal credit terms.



                                       37


<PAGE>

                             Pen Interconnect, Inc.

                          NOTES TO FINANCIAL STATEMENTS

NOTE D - NOTES RECEIVABLE
<TABLE>
<CAPTION>
                                                                                      1997                 1996
                                                                                  -----------           ----------
       Notes receivable consist of the following:
<S>                                                                               <C>                   <C> 

       10%  note  receivable from a company,  due in monthly  payments of $1,500
            including   interest,    collateralized   by   inventory,   accounts
            receivable, machinery, and
            equipment                                                               $35,775               $37,630

       10%  note receivable from a company,  due in monthly  payments of $ 1,297
            including   interest,    collateralized   by   inventory,   accounts
            receivable, machinery, and
            equipment                                                                 8,124                13,612

       12% notes receivable from two companies,
            due in monthly payments aggregating
            $1,000 including interest                                                 5,882                 5,882

       Note    receivable from a company at prime plus .5% ( 9% at September 30,
               1997),  due in monthly  payments of $10,417  including  interest,
               with a balloon  payment on October 31, 1999,  secured by security
               agreement  and the personal  guaranty of the owner and  principal
               stockholder of the
               company (See Notes B and O )                                         500,000                    -

       Note    receivable from a company at prime plus .5% ( 9% at September 30,
               1997),  due in monthly  payments of $16,667  including  interest,
               secured by security  agreement  and the personal  guaranty of the
               owner and principal stockholder of the
               company (See Note B and O )                                          400,000                    -

       10% note receivable from an officer/stock-
            holder due in monthly payments of
            $1,500 including interest                                                14,749                    -
                                                                              -------------         ------------


                                                                                    964,530                57,124
       Less current maturities                                                      357,006                37,494
                                                                              -------------         -------------

                                                                              $     607,524          $     19,630
                                                                              =============          ============
</TABLE>





                                       38


<PAGE>

                             Pen Interconnect, Inc.

                          NOTES TO FINANCIAL STATEMENTS

NOTE E - INVENTORIES

       Inventories consist of the following:
<TABLE>
<CAPTION>
                                                               1997                  1996
                                                          ---------------      --------------
<S>                                                         <C>                   <C>        
            Raw materials (net of allowance)                $ 2,531,235           $ 3,780,800
            Work-in-process                                     736,928             1,830,891
            Finished goods                                       87,708               586,701
                                                           ------------         -------------

                                                             $3,355,871            $6,198,392
                                                             ==========            ==========
</TABLE>


NOTE F - NOTES PAYABLE

       Notes  payable  consist of trade  payables to vendors  converted to notes
       totaling  $641,505,  payable in  semi-monthly  amounts  of  approximately
       $147,000,  with interest at 9.5% per annum,  due on or before January 31,
       1998.

NOTE G - BRIDGE LOAN

       At September 30, 1997,  the Company had one note payable to an individual
       for $100,000 with interest at 8% per annum due, which was due and paid in
       November 1997.

NOTE H - CREDIT FACILITY

       On  September  4, 1997,  the  Company  completed  a new 4 year  financing
       agreement  with a bank for a  $6,300,000.  The  agreement  consists  of a
       $5,000,000  revolving  credit line and two term loans for $800,000 ("Loan
       A") and $500,000 ("Loan B") respectively. The revolving credit loan is at
       prime plus 1.75% (10.25% at September 30, 1997) and is  collateralized by
       accounts  receivable and  inventory.  Loan A is at a fixed rate of 10.16%
       and is  collateralized  by machinery and equipment.  Loan B is at a fixed
       rate of 10.32% and is collateralized by other assets of the Company. Loan
       B was funded  subsequent  to year end. This  agreement  requires that the
       Company maintain certain financial ratios,  meet specified minimum levels
       of  earnings  and  net  worth;   restricts  employee  advances,   capital
       expenditures,  compensation,  and additional indebtedness;  and restricts
       the payment of dividends.  This new line of credit  replaced the previous
       $6,000,000

                                   (Continued)




                                       39


<PAGE>

                             Pen Interconnect, Inc.

                          NOTES TO FINANCIAL STATEMENTS

NOTE H - CREDIT FACILITY - CONTINUED

       revolving line of credit.  The Company has borrowed  $2,237,690 under the
       new  line of  credit  at  September  30,  1997  (the  Company  still  has
       $2,762,310  available under the line). The Company was in compliance with
       the financial covenants as of September 30, 1997.

       At September  30, 1996,  the Company had a $6,000,000  revolving  line of
       credit  with a bank with  interest  at 2.5%  percent  over the prime rate
       (10.75% at September  30, 1996) payable  monthly.  The line of credit was
       collateralized by accounts receivable, inventory, property and equipment.
       This  agreement  required  that the Company  maintain  certain  financial
       ratios and meet specified  minimum  levels of total assets,  earnings and
       restrictions  on the  payments of  dividends.  The  Company had  borrowed
       $4,969,864  under the line of credit at September 30, 1996.  This line of
       credit,  which was  collateralized by accounts  receivable,  inventories,
       property and equipment was paid in full during fiscal year 1997.



                                       40


<PAGE>

                             Pen Interconnect, Inc.

                          NOTES TO FINANCIAL STATEMENTS

NOTE I - LONG-TERM OBLIGATIONS

       Long-term obligations consist of the following:

<TABLE>
<CAPTION>
                                                                                     1997               1996
                                                                                  ---------          ------------
<S>                                                                               <C>                <C>
            Note to an individual with interest imputed
               at 10% per annum, payable in monthly
               payments of $2,500.                                                $ 100,604          $    116,023

            10.16%  note  to a  financial  institution  payable  in  48  monthly
               installments  of $16,667  plus  interest,  maturing  on August 1,
               2001, collateralized by substantially all of the
               Company's property and equipment                                     800,000                    -

            11.25%  note  to  a   financial   institution   payable  in  monthly
               installments  of  $375,  including  interest,  collateralized  by
               personal residence
               of the president of the PowerSteam Division                           31,653                     -

            Non interest bearing note
               to a parts vendor, payable
               in monthly installments of
               $1,000, maturing on July 1, 1998,                                     12,720                     -
                                                                                 ----------          ------------

                                                                                    944,977               116,023
               Less current maturities                                              263,255                19,265
                                                                                  ---------             ---------

                                                                                  $ 681,722              $ 96,758
                                                                                  =========              ========
</TABLE>



                                   (Continued)


                                       41


<PAGE>

                             Pen Interconnect, Inc.

                          NOTES TO FINANCIAL STATEMENTS

NOTE I - LONG-TERM OBLIGATIONS - CONTINUED

            Maturities of long-term obligations are as follows:

               Year ending
               September 30,
               1998                                     $ 263,255
               1999                                       223,515
               2000                                       225,976
               2001                                       225,997
               2002                                         6,234
               thereafter                                      -
                                                    ------------

                                                         $944,977
NOTE J - LEASES

       1.   Operating leases

       The Company  conducts a portion of its  operations  in leased  facilities
       under noncancelable  operating leases expiring through 2001. In addition,
       the  Company  leases  equipment  under  noncancelable   operating  leases
       expiring  through  2000.  The minimum  future  rental  commitments  under
       operating leases are as follows:

<TABLE>
<CAPTION>
                 Year ending
                    September 30,           Facilities      Equipment            Total

<S>                   <C>                      <C>              <C>                <C>     
                      1998                     $659,622         $196,232           $855,854
                      1999                      522,030          180,143            702,173
                      2000                      510,124            3,749            513,873
                      2001                      138,144               -             138,144
                   Thereafter                        -                -                 -
                                          -------------      -----------     ------------

                                             $1,829,920         $380,124         $2,210,044
                                             ==========         ========         ==========
</TABLE>

       The  leases  generally   provide  that  property  taxes,   insurance  and
       maintenance  expenses are obligations of the Company. It is expected that
       in the normal  course of business,  operating  leases that expire will be
       renewed or replaced by leases on other properties. Rental expense for all
       operating  leases  was $  570,486  and $  402,873  for  the  years  ended
       September 30, 1997 and 1996, respectively.

                                   (Continued)





                                       42


<PAGE>
                             Pen Interconnect, Inc.

                          NOTES TO FINANCIAL STATEMENTS

NOTE J - LEASES - CONTINUED

       2.   Capital leases

       Maturities of capital lease obligations are as follows:

                       Year ending
                      September 30,
                      1998                                   $ 78,115
                      1999                                     55,982
                      2000                                     20,125
                  Thereafter                                       -

                 Total minimum lease payments                 154,222
                 Less amount representing interest             16,869

                 Present value of net minimum lease
                    payments                                  137,353
                 Less current portion                          66,464
                                                             $ 70,889

       Included in property and equipment is $307,657 of equipment under capital
       leases at September 30, 1997.  The related  accumulated  amortization  is
       $88,128.

NOTE K - INCOME TAXES (BENEFIT)

       Income tax expense (benefit) consists of the following:

                                             1997                   1996
                                         -------------          ------------
       Current
               Federal                      $  (36,067)           $ (226,000)
               State                            (5,306)              (37,714)
                                           ------------            ----------

                                               (41,373)             (263,714)
                                            -----------             ---------
       Deferred
               Federal                        (931,233)             (152,100)
               State                          (136,994)              (24,800)
                                         --------------            ----------

                                            (1,068,227)             (176,900)
                                       ----------------           -----------

            Income tax (benefit)          $ (1,109,600)            $(440,614)
                                          =============            ==========

                                   (Continued)


                                       43


<PAGE>

                             Pen Interconnect, Inc.

                          NOTES TO FINANCIAL STATEMENTS


NOTE K - INCOME TAXES (BENEFIT) - CONTINUED


       Reconciliation  of  income  taxes  (benefit)   computed  at  the  federal
statutory rate of 34% is as follows:

<TABLE>
<CAPTION>
                                                                                  1997                   1996
                                                                              -------------          ------------
<S>                                                                              <C>                 <C>        
            Federal income taxes at statutory rate                            $    (967,300)         $   (402,370)

            State income taxes, net of federal tax benefit                         (142,300)              (38,244)
                                                                               ------------          -------------

                                                                               $ (1,109,600)         $   (440,614)
                                                                               =============         =============

       Deferred tax assets and liabilities consist of the following:

                                                                                        1997              1996
                                                                                  -------------     -------------
            Deferred tax assets (liabilities)
                 Accumulated depreciation                                            $(165,755)         $(225,800)
                 Net operating loss                                                  1,392,658            284,100
                 Reserve for inventory obsolescence                                     71,576             92,100
                 Allowance for doubtful accounts                                        53,453            108,900
                 Reserve for warranties                                                 10,182             14,200
                 Reserve for vacation                                                    6,113             26,500
                                                                                   -----------        -----------

            Net deferred tax asset (liability)                                     $ 1,368,227         $  300,000
                                                                                   ===========         ==========
</TABLE>


NOTE L - STOCK OPTION PLAN

The  Company  has a Stock  Option Plan (the  Plan).  The Plan  provides  for the
granting of both Incentive Stock Options (ISOs) or Non-Qualified  Options (NQOs)
to  purchase  shares of common  stock.  ISOs are granted at not less than market
value on the date of grant  whereas  NQOs may be granted at not less than 85% of
market value on the date of the grant.  Options may be granted under the Plan to
all officers,  directors, and employees of the Company. In addition, NQOs may be
granted to other parties who perform services for the Company.

The Company also issues warrants in conjunction with various  transactions  with
third parties.


                                   (Continued)



                                       44


<PAGE>


                             Pen Interconnect, Inc.

                          NOTES TO FINANCIAL STATEMENTS

NOTE L - STOCK OPTION PLAN- CONTINUED

The  Company  has  adopted  only the  disclosure  provisions  of FASB  No.  123,
"Accounting for Stock- Based Compensation" (FAS 123). It applies APB Opinion No.
25 "Accounting  for Stock Issued to Employees,"  and related  Interpretation  in
accounting  for its plans and does not  recognize  compensation  expense for its
stock-based  compensation  plans other than for restricted stock. If the Company
had elected to recognize  compensation  expense based upon the fair value at the
grant  date for  awards  under  these  plans  consistent  with  the  methodology
prescribed  by FAS 123, the Company's net income and earnings per share would be
reduced to the pro forma amounts indicated below:

                                         Fiscal Year Ended
                                             September 30,

                                             1997              1996
                                        ------------     ------------
Net Loss
         As reported                   $(1,735,483)      $   (709,010)
         Pro forma                      (3,185,595)        (2,224,315)

Loss per common share
         As reported                   $     (0.54)      $      (0.26)
         Pro forma                     $     (0.99)             (0.82)

The fair value of these  options and warrants was estimated at the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions for 1997 and 1996,  respectively:  expected  volatility of 90.06 and
68.08  percent;  risk-free  interest rate of 6.33 and 6.35 percent;  an expected
life equal to the actual life for both periods. The weighted-average  fair value
of options and warrants granted was $0.83 for both 1997 and 1996.

The  following  is a summary of the  activity  relating to options and  warrants
through September 30, 1997:



                                   (Continued)


                                       45


<PAGE>

                             Pen Interconnect, Inc.

                          NOTES TO FINANCIAL STATEMENTS

NOTE L - STOCK OPTION PLAN- CONTINUED

<TABLE>
<CAPTION>
                                                                                         Weighted
                                            Warrants and               Exercise            average
                                            Stock Options              price            exercise price
                                           --------------          --------------      ---------------
<S>                                        <C>                     <C>                 <C>
Outstanding at October 1, 1995                         -                       -                     -
         Granted                               3,110,000           $ 6.00 - 6.50       $          6.46
         Canceled                                  5,000                    6.00                  6.00
         Exercised                                     -                       -                     -
                                            ------------

Outstanding at
September 30, 1996                             3,105,000             6.00 - 6.50                  6.46
         Granted                               3,498,000             1.38 - 3.00                  1.87
         Canceled                                154,000                    6.00                  6.00
         Exercised                               550,000             1.75 - 2.00                  1.88
                                            ------------

Outstanding at
         September 30, 1997                    5,899,000             1.38 - 6.50                  4.18
                                            ============

Exercisable at
         September 30, 1997                    5,530,700            $1.38 - 6.50       $          4.46
                                            ============
</TABLE>

The following table summarizes  information concerning currently outstanding and
exercisable options and warrants:

                        Options and Warrants Outstanding

<TABLE>
<CAPTION>
                                                Weighted-Average
                                                Remaining
Range of                   Number               Contractual Life        Weighted-Average
Exercise Prices            Outstanding         (Years)                  Exercise Price
---------------            -----------         ------------------       --------------
<S>                        <C>                          <C>             <C>  
$1.38                        960,500                    8.2             $         1.38
  2.00 - 2.75              1,950,000                    7.5                       2.11
  3.00                        37,500                    4.7                       3.00
  6.00 - 6.50              2,951,000                    3.2                       6.48
                           ---------
                           5,899,000
</TABLE>

                                   (Continued)



                                       46


<PAGE>

                             Pen Interconnect, Inc.

                          NOTES TO FINANCIAL STATEMENTS

NOTE L - STOCK OPTION PLAN- CONTINUED

                        Options and Warrants Exercisable

<TABLE>
<CAPTION>
                                                Weighted-Average
                                                Remaining
Range of                     Number             Contractual Life             Weighted-Average
Exercise Prices            Outstanding          (Years)                      Exercise Price
---------------            -----------          ------------------           --------------
<S>                        <C>                           <C>                 <C>  
$1.38                        725,500                     9.4                 $         1.38
  2.00 - 2.75              1,935,000                     7.6                           2.11
  3.00                     -                               -                              -
  6.00 - 6.50              2,870,200                     3.2                           6.50
                           ---------
                           5,530,700
</TABLE>


NOTE M - COMMITMENTS AND CONTINGENCIES

       1.   Employment agreements

       The Company has entered  into  agreements  with seven key  employees  and
       officers  which  provide  for  annual  salaries  and  incentive  bonuses.
       Incentive  bonuses are calculated as a percentage of gross profits and/or
       sales of the Company.

       Annual salaries under these employment agreements,  in the aggregate, are
as follows:

                 Year ending
                    September 30,

                      1998                    $ 704,600
                      1999                      651,850
                      2000                      578,000
                      2001                      367,200
                      2002                       37,400
                      Thereafter                     -
                                       ---------------

                                             $2,339,050




                                   (Continued)



                                       47


<PAGE>

                             Pen Interconnect, Inc.

                          NOTES TO FINANCIAL STATEMENTS

NOTE M - COMMITMENTS AND CONTINGENCIES - CONTINUED

       2.   Litigation

       From time to time the Company is engaged in various  lawsuits or disputes
       as plaintiff or defendant  arising in the normal  course of business.  In
       the opinion of  management,  based upon advice of counsel,  the  ultimate
       outcome of these matters will not have a material impact on the Company's
       financial position or results of operations.

NOTE N - STOCK TRANSACTIONS

       1.   Preferred stock

       The Company is  authorized to issue  5,000,000  shares of $0.01 par value
       preferred  stock. The Board of Directors is authorized to provide for the
       issuance  of the  preferred  stock in one or more  series  and to fix the
       designations,  powers,  preferences,  and rights of any such  series.  No
       shares have been designated or issued.

       2.   Initial public offering

       On November  17,  1995,  the Company  successfully  completed  an initial
       public  offering  of  1,000,000  shares  of common  stock  and  1,000,000
       redeemable common stock purchase warrants for $6,100,000 ($6.00 per share
       and $.10 per warrant) less underwriting commissions and other expenses of
       $1,418,932.  Each warrant was  immediately  exercisable  and entitled the
       registered  holder to  purchase  one share of common  stock at a price of
       $6.50. The warrants expire on November 17, 2000. The outstanding warrants
       may be redeemed by the Company upon 30 days' written  notice at $0.05 per
       warrant,  provided  that the closing bid  quotations  of the common stock
       have  averaged  at least  $9.00 per share for a period of any 20  trading
       days ending on the third day prior to the day on which the Company  gives
       notice.

       In connection with the offering, the Company granted the underwriters the
       right to  purchase  up to  100,000  shares  of common  stock and  100,000
       warrants.  The underwriter was also granted an  over-allotment  option of
       150,000 shares of common stock and/or  warrants to purchase an additional
       150,000  shares of common  stock.  In  December  1995,  the  underwriters
       exercised the option on the 150,000 warrants.  The option to purchase the
       150,000  shares of common  stock has  expired.  The  Company  has granted
       registration rights to certain stockholders of the Company and has agreed
       to bear the cost associated therewith within certain limits.

                                   (Continued)


                                       48


<PAGE>


                             Pen Interconnect, Inc.

                          NOTES TO FINANCIAL STATEMENTS

NOTE N - STOCK TRANSACTIONS - CONTINUED

3.     Stock issued in payment of notes

       In August  1997,  the Company  issued  88,888  shares of common  stock in
       payment of notes payable in the amount of $104,000.

4.     Stock issued for exercised warrants

       In September  1997,  the Company  issued  745,000  shares of common stock
       associated with the exercise of certain warrants.

NOTE O - SUBSEQUENT EVENTS

       1.   Issuance of Debentures

       On October 22, 1997,  the Board of Directors of the Company  approved the
       issuance  of  up  to  $1,500,000  of  3%  convertible   debentures   (the
       "Debentures")  with a maximum  term of 24  months.  The  Debentures  will
       mature,  unless earlier  converted by the holders,  into shares of common
       stock of the  Company.  The  Company  has  agreed to file a  registration
       statement with the United States Securities and Exchange  Commission with
       respect to the Debentures.

       The Debentures are  convertible by the holders thereof into the number of
       shares of common stock equal to the face amount of the  Debentures  being
       converted  divided  by the  lesser  of (i)  eighty  percent  (80%) of the
       closing bid price of the Company's common stock as reported on the NASDAQ
       Small Cap market on the day of conversion,  or (ii) $2.75. The Debentures
       may be converted in three equal installments  beginning on the earlier of
       (i) the 75th day of their issuance,  and continuing through the 135th day
       of their  issuance,  or (ii) the day following the effective  date of the
       Registration Statement, through the 60th day following the effective date
       of the Registration Statement. The Company may cause the Debentures to be
       converted  into shares of common stock after the 110th day  following the
       effective  date of the  Registration  Statement,  if the common stock has
       traded at or above $5.50 per share for twenty consecutive days.

       2.   Restructure of notes receivable

       On November 1, 1996, the Company sold substantially all of the net assets
       used by the San Jose Division  (the  "Division")  to Touche  Electronics,
       Inc. ("Touche"),  a subsidiary of TMCI Electronics,  Inc., ("TMCI").  The
       sales price for the net assets of the Division was $3,300,000, consisting
       of $2,000,000 in cash,  $900,000 in promissory notes and 53,669 shares of
       TMCI's common stock, with an agreed upon guaranteed value of $400,000. In
       addition,  the  Company had the right to receive  $700,000 in  contingent
       earnouts  for a  potential  (but not  guaranteed)  total  sales  price of
       $4,000,000.  The Company originally purchased the Division in March 1995,
       for approximately $2,100,000. As part of the transaction, Touche and TMCI
       also agreed to assume certain liabilities  associated with the operations
       of the Division.

       In February  1997,  TMCI filed a notice of demand for  rescission  of the
       purchase  and sale of the  Division.  The  Company  filed a  counterclaim
       against  TMCI in May  1997,  alleging  that  TMCI  had  defaulted  in its
       obligations  under the promissory  notes. The disputes were  subsequently
       submitted to arbitration in August 1997.

                                   (continued)


                                       49


<PAGE>

                             Pen Interconnect, Inc.

                          NOTES TO FINANCIAL STATEMENTS



NOTE O - SUBSEQUENT EVENTS - CONTINUED

       2.   Restructure of notes receivable - continued


       In December  1997,  the Company and TMCI entered  into a  Settlement  and
       Release Agreement (the "Settlement  Agreement"),  releasing each other of
       any and all  respective  claims the  parties  may have had  against  each
       other. The Settlement Agreement provided, in part, that TMCI issue to the
       Company, 137,390 shares of TMCI's common stock to replace the $900,000 of
       promissory  notes and  related  accrued  interest  payable by TMCI to the
       Company.  The  Settlement  Stock is guaranteed to have a minimum value of
       $7.4532  per  share.  In the  event the  Settlement  Stock is sold by the
       Company at less than that  amount,  TMCI is  obligated to pay the Company
       the  difference  between the sales price and the  guaranteed  value.  The
       conclusion of the  disputes,  will allow the Company and TMCI to continue
       their joint sales and marketing arrangements.

       3.   Additional Loan from Credit Facility

       On December 8, 1997,  the  Company  obtained  the second term loan in the
       principal  amount of  $500,000,  which bears  interest at a fixed rate of
       10.32% per annum (Note H). The loan is payable in 36 monthly installments
       of $10,417, including interest, with payments to begin in September 1998.


                                       50


<PAGE>

                                                                 Exhibit 10.13





                           LOAN AND SECURITY AGREEMENT





                             PEN INTERCONNECT, INC.

                                    Borrower

                              2351 South 2300 West
                           Salt Lake City, Utah 84119
                                     Address
                                                        87-0430260

                             Borrower Fed ID Tax No.


                                                        $6,300,000

                                  Credit Limit

                                September 4, 1997












                                CORPORATE FINANCE



file=cfla0597
Revised May 1997




                                       51


<PAGE>


THIS  LOAN  AND  SECURITY  AGREEMENT  (collectively  with the  Schedule  to Loan
Agreement (the "Schedule")  attached hereto, the "Agreement") dated the date set
forth on the cover page,  is entered into by and between the  borrower  named on
the cover page (jointly and  severally,  the  "Borrower"),  whose address is set
forth on the cover page and FINOVA Capital Corporation ("FINOVA"), whose address
is 355 South Grand Avenue, Los Angeles, California 90071.




<PAGE>


1.       DEFINITIONS.

         1.1 Defined Terms. As used in this Agreement,  the following terms have
the definitions set forth below:

         "ADA" has the meaning set forth in Section 4.1(aa) hereof.

         "Additional Sums" has the meaning set forth in Section 2.9(a) hereof.

         "Affiliate" means any Person controlling, controlled by or under common
control with  Borrower.  For purposes of this  definition,  "control"  means the
possession, directly or indirectly, of the power to direct or cause direction of
the management and policies of any Person,  whether through  ownership of common
or preferred stock or other equity interests, by contract or otherwise.  Without
limiting the  generality of the  foregoing,  each of the  following  shall be an
Affiliate:  any  officer,  director,  employee or other agent of  Borrower,  any
shareholder, member or subsidiary of Borrower, and any other Person with whom or
which Borrower has common shareholders, officers or directors.

         "Agreement" has the meaning set forth in the preamble.

          "Applicable Usury Law" has the meaning set forth in Section 2.9(b)
hereof.

         "Assignment of Life Insurance" has the meaning set forth in Section
4.1(u) hereof.

         "Blocked Account" has the meaning set forth in Section 2.10(c) hereof.

         "Business  Day"  means  any day on which  commercial  banks in both Los
Angeles, California and Phoenix, Arizona are open for business.

         "Capital  Expenditures"  means all  expenditures  made and  liabilities
incurred for the  acquisition  of any fixed asset or  improvement,  replacement,
substitution  or addition  thereto which has a useful life of more than one year
and  including,  without  limitation,  those arising in connection  with Capital
Leases.

         "Capital  Lease"  means any lease of  property  by  Borrower  that,  in
accordance with GAAP, should be capitalized for financial reporting purposes and
reflected as a liability on the balance sheet of Borrower.

         "Closing Fee" has the meaning set forth in the Schedule.

         "Closing  Date"  means the date of the initial  advance  made by FINOVA
pursuant to this Agreement.

         "Code"  means the Uniform  Commercial  Code as adopted and in effect in
the State of Arizona from time to time.

         "Collateral" has the meaning set forth in Section 3.1 hereof.

         "Collateral Monitoring Fee" has the meaning set forth in the Schedule.

         "Current  Assets"  at any date  means the  amount at which the  current
assets of  Borrower  would be shown on a balance  sheet of  Borrower  as at such
date,  prepared  in  accordance  with  GAAP,  provided  that  amounts  due  from
Affiliates and investments in Affiliates shall be excluded therefrom.

         "Current Liabilities" at any date means the amount at which the current
liabilities of Borrower would be shown on a balance sheet of Borrower as at such
date, prepared in accordance with GAAP.

         "Deposit Accounts" has the meaning set forth in Section 9105 of the
Code.

         "Dominion Account" has the meaning set forth in Section 2.10(c) hereof.



<PAGE>

         "Earnings Before Interest,  Taxes,  Depreciation and  Amortization" for
any fiscal  period of Borrower  means the net income of Borrower for such fiscal
period,  plus interest expense,  depreciation and amortization and provision for
income  taxes for such  fiscal  period,  and minus  non-recurring  miscellaneous
income and expenses, all calculated in accordance with GAAP.

         "Eligible  Inventory"  means Inventory  which FINOVA,  in its Permitted
Discretion, deems Eligible Inventory, based on such considerations as FINOVA may
from time to time deem  appropriate.  Without  limiting  the  generality  of the
foregoing,  no  Inventory  shall  be  Eligible  Inventory  unless,  in  FINOVA's
Permitted Discretion,  such Inventory (i) consists of raw materials and finished
goods,   in  good,  new  and  salable   condition  which  are  not  obsolete  or
unmerchantable, and are not comprised of work in process, packaging materials or
supplies;  (ii)  meets  all  standards  imposed  by any  governmental  agency or
authority;  (iii) conforms in all respects to the warranties and representations
set forth herein; (iv) is at all times subject to FINOVA's duly perfected, first
priority security interest;  and (v) is situated at Borrower's  facility at Salt
Lake City, Utah or Borrower's facility at Tustin, California.

         "Eligible Receivables" means Receivables arising in the ordinary course
of Borrower's  business  from the sale of goods or rendition of services,  which
FINOVA,  in  its  Permitted  Discretion,  shall  deem  eligible  based  on  such
considerations  as  FINOVA  may  from  time to time  deem  appropriate.  Without
limiting  the  foregoing,  a  Receivable  shall not be deemed to be an  Eligible
Receivable if (i) the account debtor has failed to pay the  Receivable  within a
period of ninety  (90) days  after  invoice  date,  to the  extent of any amount
remaining  unpaid after such period;  (ii) the account  debtor has failed to pay
more  than 25% of all  outstanding  Receivables  owed by it to  Borrower  within
ninety (90) days after invoice date; (iii) the account debtor is an Affiliate of
Borrower; (iv) the goods relating thereto are placed on consignment,  guaranteed
sale,  "bill and hold,"  "COD" or other terms  pursuant to which  payment by the
account debtor may be conditional;  (v) the account debtor is not located in the
United States, unless the Receivable is supported by a letter of credit or other
form of guaranty or security, in each case in form and substance satisfactory to
FINOVA;  (vi) the account debtor is the United States or any department,  agency
or  instrumentality  thereof or any State,  city or  municipality  of the United
States;  (vii)  Borrower is or may become liable to the account debtor for goods
sold or services rendered by the account debtor to Borrower;  (viii) the account
debtor's total  obligations to Borrower  exceed 15% of all Eligible  Receivables
(or, in the case of Triconex  Corp.,  30% of all Eligible  Receivables),  to the
extent of such excess;  (ix) the account debtor disputes  liability or makes any
claim with respect thereto (up to the amount of such liability or claim),  or is
subject to any insolvency or bankruptcy proceeding, or becomes insolvent,  fails
or goes out of a  material  portion  of its  business;  (x) the  amount  thereof
consists of late charges or finance charges; (xi) the amount thereof consists of
a credit  balance  more than  ninety  (90) days past due;  (xii) the face amount
thereof exceeds $25,000, unless accompanied by evidence of shipment of the goods
relating thereto satisfactory to FINOVA in its Permitted Discretion;  (xiii) the
invoice  constitutes a progress  billing on a project not yet completed,  except
that the  final  billing  at such  time as the  matter  has been  completed  and
delivered  to the customer  may be deemed an Eligible  Receivable;  or (xiv) the
amount  thereof is not yet  represented by an invoice or bill issued in the name
of the applicable account debtor.

         "Equipment"  means all of  Borrower's  present and  hereafter  acquired
machinery,  molds, machine tools,  motors,  furniture,  equipment,  furnishings,
fixtures,  trade fixtures,  motor vehicles,  tools, parts, dyes, jigs, goods and
other  tangible  personal  property  (other  than  Inventory)  of every kind and
description used in Borrower's operations or owned by Borrower and any


<PAGE>

interest in any of the foregoing, and all attachments,  accessories, accessions,
replacements,  substitutions, additions or improvements to any of the foregoing,
wherever located.

          "ERISA" means the Employment  Retirement  Income Security Act of 1974,
as amended, and the regulations thereunder.

         "ERISA  Affiliate"  means  each  trade  or  business  (whether  or  not
incorporated  and whether or not  foreign)  which is or may  hereafter  become a
member of a group of which Borrower is a member and which is treated as a single
employer under ERISA Section 4001(b)(1), or IRC Section 414.

         "Event of Default" means any of the events set forth in Section 7.1 of
this Agreement.

         "Examination Fee" has the meaning set forth in the Schedule.

         "Excess  Availability" means, as of the date of determination  thereof,
the amount by which the average daily total  principal  balance of the Revolving
Credit Loans facility which Borrower would be permitted to have outstanding over
the prior 30 days, based on the formulas and reserves set forth in the Schedule,
exceeds the sum of the  Receivable  Loans and the Inventory  Loans (if any) then
actually  outstanding,  such excess then being reduced by an amount necessary to
provide for the payment of all accounts  payable of Borrower which are more than
30 days past due date and all book overdrafts.

        "Excess Cash Flow" means Operating Cash Flow/Permitted less each of  the
following (to the extent permitted hereunder):  Total Contractual Debt
Service.

         "Facility Fee" has the meaning set forth in the Schedule.

         "FINOVA Affiliate" has the meaning set forth in Section 9.22 hereof.

         "GAAP" means  generally  accepted  accounting  principles in the United
States of  America as in effect  from time to time as set forth in the  opinions
and pronouncements of the Accounting Principles Board and the American Institute
of Certified  Public  Accountants and the statements and  pronouncements  of the
Financial  Accounting Standards Boards which are applicable to the circumstances
as of the date of  determination  consistently  applied,  except  that,  for the
financial covenants set forth in this Agreement, GAAP shall be determined on the
basis of such  principles in effect on the date hereof and consistent with those
used in the preparation of the audited financial  statements delivered to Lender
prior to the date hereof.

         "General  Intangibles"  means  all  general  intangibles  of  Borrower,
whether  now owned or  hereafter  created or acquired  by  Borrower,  including,
without limitation,  all choses in action, causes of action,  corporate or other
business records, Deposit Accounts,  inventions,  designs, drawings, blueprints,
Trademarks,  Licenses and Patents, names, trade secrets,  goodwill,  copyrights,
registrations,   licenses,  franchises,   customer  lists,  security  and  other
deposits,  rights in all litigation presently or hereafter pending for any cause
or claim  (whether in contract,  tort or  otherwise),  and all  judgments now or
hereafter arising  therefrom,  all claims of Borrower against FINOVA,  rights to
purchase or sell real or personal property,  rights as a licensor or licensee of
any  kind,  royalties,  telephone  numbers,  proprietary  information,  purchase
orders,  and all insurance  policies and claims  (including  without  limitation
credit,  liability,  property  and other  insurance)  tax  refunds  and  claims,
computer  programs,  discs,  tapes  and tape  files,  claims  under  guaranties,
security  interests or other  security  held by or granted to Borrower to secure
payment  of  any  of  the  Receivables  by an  account  debtor,  all  rights  to
indemnification  and all other  intangible  property  of every  kind and  nature
(other than Receivables).

<PAGE>

         "Guarantor(s)" has the meaning set forth in the Schedule.

          "Indebtedness" means all of Borrower's present and future obligations,
liabilities,  debts,  claims and indebtedness,  contingent,  fixed or otherwise,
however evidenced,  created, incurred, acquired, owing or arising, whether under
written or oral agreement,  operation of law or otherwise, and includes, without
limiting the foregoing (i) the Obligations,  (ii) obligations and liabilities of
any Person  secured by a lien,  claim,  encumbrance  or security  interest  upon
property  owned by  Borrower,  even  though  Borrower  has not assumed or become
liable therefor,  (iii) obligations and liabilities created or arising under any
lease  (including  Capital Leases) or conditional  sales contract or other title
retention agreement with respect to property used or acquired by Borrower,  even
though the rights and  remedies of the  lessor,  seller or lender are limited to
repossession, (iv) all unfunded pension fund obligations and liabilities and (v)
deferred taxes.

         "Initial Term" has the meaning set forth on the Schedule.

         "Insurance Collateral" has the meaning set forth in Section 4.1(u)
hereof.

         "Inventory"  means all of Borrower's  now owned and hereafter  acquired
goods, merchandise or other personal property, wherever located, to be furnished
under any contract of service or held for sale or lease, all raw materials, work
in process,  finished  goods and materials  and supplies of any kind,  nature or
description  which are or might be used or  consumed in  Borrower's  business or
used in connection with the manufacture, packing, shipping, advertising, selling
or finishing of such goods,  merchandise  or other  personal  property,  and all
documents of title or other documents representing them.

         "Inventory Loans" has the meaning set forth in the Schedule.

         "IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.

          "Life Insurance Policy" has the meaning set forth in Section 4.1(u)
hereof.

         "Loans" has the meaning set forth in Section 2.2 hereof.

         "Loan Documents" means, collectively, this Agreement, any note or notes
executed by  Borrower  and  payable to FINOVA,  and any other  present or future
agreement  entered into in  connection  with this  Agreement,  together with all
alterations,  amendments,  changes,  extensions,  modifications,   refinancings,
refundings, renewals,  replacements,  restatements, or supplements, of or to any
of the foregoing.

         "Loan  Party"  means  Borrower,  each  Guarantor,   each  Subordinating
Creditor and each other party (other than FINOVA) to any Loan Document.

         "Loan Reserves" means, as of any date of determination, such amounts as
FINOVA may from time to time  establish  and revise in good faith  reducing  the
amount of Revolving  Credit Loans and Letters of Credit which would otherwise be
available to Borrower under the lending formula(s) provided in the Schedule: (a)
to reflect events,  conditions,  contingencies  or risks which, as determined by
FINOVA in good faith,  do or may affect  either (i) the  Collateral or any other
property which is security for the  Obligations  or its value,  (ii) the assets,
business  or  prospects  of  Borrower  or any  Guarantor  or (iii) the  security
interests  and  other  rights  of  FINOVA  in  the  Collateral   (including  the
enforceability, perfection and priority thereof) or (b) to reflect FINOVA's good
faith belief that any collateral report or financial information furnished by or
on behalf of Borrower or any Guarantor to FINOVA is or may have been incomplete,
inaccurate or misleading in any material


<PAGE>

respect or (c) in respect of any state of facts which FINOVA  determines in good
faith  constitutes an Event of Default or may, with notice or passage of time or
both, constitute an Event of Default."

         "Loan Year" means each twelve  month period  commencing  on the Closing
Date.

         "Maximum Interest Rate" has the meaning set forth in Section 2.9(c)
hereof.

         "Minimum Interest Charge" has the meaning set forth in the Schedule.

         "Multiemployer  Plan" means a "multiemployer  plan" as defined in ERISA
Sections  3(37) or  4001(a)(3) or IRC Section  414(f) which covers  employees of
Borrower or any ERISA Affiliate.

         "Net Worth" at any date means the Borrower's net worth as determined in
accordance with GAAP.

         "Obligations"  means all present  and future  loans,  advances,  debts,
liabilities,  obligations,  covenants, duties and indebtedness at any time owing
by Borrower to FINOVA,  whether  evidenced by this Agreement,  any note or other
instrument or document,  whether arising from an extension of credit, opening of
a letter of credit,  banker's  acceptance,  loan,  guaranty,  indemnification or
otherwise,  whether direct or indirect  (including,  without  limitation,  those
acquired by assignment and any participation by FINOVA in Borrower's debts owing
to others),  absolute or contingent,  due or to become due,  including,  without
limitation,  all interest,  charges,  expenses,  fees,  attorney's fees,  expert
witness fees, Examination Fee, letter of credit fees, Collateral Monitoring Fee,
Closing Fee,  Facility Fee,  Termination  Fee,  Minimum  Interest Charge and any
other sums  chargeable to Borrower  hereunder or under any other  agreement with
FINOVA.

         "Operating  Cash  Flow/Actual"  means,  for any period,  Borrower's net
income or loss  (excluding  the effect of any  extraordinary  gains or  losses),
determined in accordance with GAAP,  plus or minus each of the following  items,
to the  extent  deducted  from or  added  to the  revenues  of  Borrower  in the
calculation of net income or loss: (i) depreciation; (ii) amortization and other
non-cash charges; (iii) interest expense paid or accrued; (iv) total federal and
state  income tax expense  determined  as the accrued  liability  of Borrower in
respect of such period,  regardless of what portion of such expense has actually
been paid by Borrower  during such period,  and after  deduction for each of (a)
federal and state income taxes,  to the extent actually paid during such period;
(b) any non-cash  income;  and (c) all actual Capital  Expenditures  made during
such period and not financed.

         "Operating Cash Flow/Permitted"  means, for any period,  Borrower's net
income or loss  (excluding  the effect of any  extraordinary  gains or  losses),
determined in accordance with GAAP,  plus or minus each of the following  items,
to the  extent  deducted  from or  added  to the  revenues  of  Borrower  in the
calculation of net income or loss: (i) depreciation; (ii) amortization and other
non-cash charges; (iii) interest expense paid or accrued; (iv) total federal and
state  income tax expense  determined  as the accrued  liability  of Borrower in
respect of such period,  regardless of what portion of such expense has actually
been paid by  Borrower  during  such  period;  after  deduction  for each of (a)
federal and state income taxes,  to the extent actually paid during such period;
(b) any non-cash income;  and (c) all permitted  Capital  Expenditures  (without
regard to any waiver  given by FINOVA  with  respect to any  limitation  on such
Capital Expenditures) actually made during such period and not financed.

         "Overadvance" has the meaning set forth in Section 2.3.

         "Overline" has the meaning set forth in Section 2.3.

<PAGE>

         "PBGC" means the Pension Benefit Guarantee Corporation.

         "Permitted  Discretion" means FINOVA's judgment exercised in good faith
based upon its  consideration of any factor which FINOVA believes in good faith:
(i)  will  or  could  adversely   affect  the  value  of  any  Collateral,   the
enforceability  or priority of FINOVA's liens thereon or the amount which FINOVA
would be likely to receive (after giving  consideration to delays in payment and
costs of enforcement) in the liquidation of such Collateral;  (ii) suggests that
any collateral report or financial information delivered to FINOVA by any Person
on behalf  of the  Borrower  is  incomplete,  inaccurate  or  misleading  in any
material  respect;  (iii)  materially  increases the likelihood of a bankruptcy,
reorganization or other insolvency  proceeding involving the Borrower,  any Loan
Party or any of the Collateral,  or (iv) creates or reasonably could be expected
to create an Event of Default. In exercising such judgment,  FINOVA may consider
such  factors  already  included  in or tested  by the  definition  of  Eligible
Receivables  or Eligible  Inventory,  as well as any of the  following:  (i) the
financial  and  business   climate  of  the  Borrower's   industry  and  general
macroeconomic  conditions,  (ii) changes in collection history and dilution with
respect  to the  Receivables,  (iii)  changes in demand  for,  and  pricing  of,
Inventory, (iv) changes in any concentration of risk with respect to Receivables
and/or  Inventory,  and (v) any other  factors  that  change the credit  risk of
lending to the Borrower on the security of the  Receivables  and Inventory.  The
burden of establishing lack of good faith hereunder shall be on the Borrower.

         "Permitted  Encumbrance"  means each of the liens,  mortgages and other
security interests set forth on the Schedule.

         "Person" means any individual, sole proprietorship,  partnership, joint
venture, trust, unincorporated organization,  association,  corporation, limited
liability company,  government,  or any agency or political division thereof, or
any other entity.

         "Plan" means any plan  described in ERISA Section 3(2)  maintained  for
employees of Borrower or any ERISA Affiliate, other than a Multiemployer Plan.

         "Prepared  Financials"  means the balance  sheets of Borrower as of the
date set forth in the Schedule in the section entitled 'Reporting  Requirements'
, and as of each  subsequent  date on which audited balance sheets are delivered
to FINOVA from time to time hereunder, and the related statements of operations,
changes in  stockholder's  equity and changes in cash flow for the periods ended
on such dates.

         "Prime Rate" has the meaning set forth in the Schedule.

         "Prohibited Transaction" means any transaction described in Section 406
of ERISA  which is not  exempt  by  reason  of  Section  408 of  ERISA,  and any
transaction  described  in  Section  4975(c)  of the IRC which is not  exempt by
reason of Section 4975(c)(2) of the IRC.

           "Receivable Loans" has the meaning set forth on the Schedule.

         "Receivables"  means all of Borrower's now owned and hereafter acquired
accounts  (whether  or not earned by  performance),  proceeds  of any letters of
credit  naming  Borrower  as  beneficiary,   contract  rights,   chattel  paper,
instruments,  documents and all other forms of  obligations at any time owing to
Borrower,  all  guaranties  and other  security  therefor,  whether  secured  or
unsecured,  all  merchandise  returned to or  repossessed  by Borrower,  and all
rights of  stoppage  in transit  and all other  rights or  remedies of an unpaid
vendor, lienor or secured party.

         "Renewal Term" has the meaning set forth on the Schedule.


<PAGE>

         "Reportable  Event" means a reportable  event described in Section 4043
of ERISA or the  regulations  thereunder,  a withdrawal from a Plan described in
Section 4063 of ERISA, or a cessation of operations described in Section 4068(f)
of ERISA.

         "Revolving Credit Loans" has the meaning set forth in the Schedule.

         "Revolving Credit Limit" has the meaning set forth in the Schedule.

         "Revolving Interest Rate" has the meaning set forth in the Schedule.

         "Schedule" has the meaning set forth in the preamble.

         "Senior  Contractual  Debt Service" means,  for any period,  the sum of
payments  made or  required  to be made by  Borrower  during such period for (i)
interest  and  scheduled  principal  payments  due on any Term Loans  (excluding
voluntary  prepayment  and payments  made from  Borrower's  Excess Cash Flow, as
required  pursuant to the Schedule),  and (ii) interest only payments due on the
Revolving Credit Loans facility plus the Collateral Monitoring Fee, the Facility
Fee and the Unused Line Fee (if any).

         "Start Date" has the meaning set forth in the Schedule.

         "Subordinated  Debt" means  liabilities  of Borrower  the  repayment of
which is  subordinated,  to the  payment  and  performance  of the  Obligations,
pursuant  to  a  subordination  agreement  acceptable  to  FINOVA  in  its  sole
discretion.

         "Subordinating Creditor" has the meaning set forth in the Schedule.

         "Term Loans" has the meaning set forth in the Schedule.

         "Termination Fee" has the meaning set forth in Section 9.2(d) hereof.

         "Total  Contractual  Debt Service"  means,  for any period,  the sum of
payments  made (or, as to clause (i) of this  sentence,  required to be made) by
Borrower  during  such  period for (i) Senior  Contractual  Debt  Service,  (ii)
interest and scheduled  principal payments due on any and all other Indebtedness
of Borrower, including without limitation the Subordinated Debt.

         "Total Facility" has the meaning set forth in Section 2.1 hereof.

         "Trademarks,  Copyrights, Licenses and Patents" means all of Borrower's
right,  title and interest in and to,  whether now owned or hereafter  acquired:
(i) trademarks, trademark registrations,  trade names, trade name registrations,
and trademark or trade name  applications,  including without limitation such as
are listed on the Schedule  attached hereto and made a part hereof,  as the same
may be amended  from time to time,  and (a)  renewals  thereof,  (b) all income,
royalties,  damages and  payments  now and  hereafter  due and/or  payable  with
respect thereto, including without limitation,  damages and payments for past or
future infringements  thereof, (c) the right to sue for past, present and future
infringements  thereof,  (d) all rights  corresponding  thereto  throughout  the
world, and (e) the goodwill of the business operated by Borrower  connected with
and  symbolized by any  trademarks or trade names;  (ii)  copyrights,  copyright
registrations and copyright  applications,  including without limitation such as
are listed on the Schedule  attached hereto and made a part hereof,  as the same
may be amended  from time to time,  and (a)  renewals  thereof,  (b) all income,
royalties,  damages and  payments  now and  hereafter  due and/or  payable  with
respect thereto, including without limitation,  damages and payments for past or
future infringements  thereof, (c) the right to sue for past, present and future
infringements  thereof, and (d) all rights corresponding  thereto throughout the
world; (iii) license agreements, including without limitation such as are listed
on the Schedule attached hereto and made a part hereof, and the right to prepare
for sale, sell and advertise for sale any Inventory now or hereafter owned by


<PAGE>

Borrower and now or  hereafter  covered by such  licenses;  and (iv) patents and
patent applications, registered or pending, including without limitation such as
are listed on the Schedule attached hereto, together with all income, royalties,
shop rights,  damages and payments  thereto,  the right to sue for infringements
thereof,  and  all  rights  thereto  throughout  the  world  and  all  reissues,
divisions,  continuations,   renewals,  extensions  and  continuations-  in-part
thereof.

         "Unused Line Fee" has the meaning set forth in the Schedule.

1.2 Other Terms. All accounting  terms used in this Agreement,  unless otherwise
indicated,  shall have the meanings given to such terms in accordance with GAAP.
All other terms contained in this Agreement,  unless otherwise indicated,  shall
have the  meanings  provided  by the Code,  to the extent such terms are defined
therein.

2.  LOANS; INTEREST RATE AND OTHER CHARGES.

         2.1 Total Facility.  Upon the terms and conditions set forth herein and
provided  that no Event of Default or event which,  with the giving of notice or
the passage of time, or both, would  constitute an Event of Default,  shall have
occurred and be continuing, FINOVA shall, upon Borrower's request, make advances
to Borrower from time to time in an aggregate  outstanding  principal amount not
to exceed the Total  Facility  amount  (the "Total  Facility")  set forth on the
Schedule hereto,  subject to deduction of reserves for accrued interest and such
other reserves as FINOVA deems proper from time to time, and less amounts FINOVA
may be obligated to pay in the future on behalf of Borrower.  The Schedule is an
integral part of this Agreement and all  references to "herein",  "herewith" and
words of  similar  import  shall  for all  purposes  be deemed  to  include  the
Schedule.

         2.2 Loans. Advances under the Total Facility ("Loans" and individually,
a "Loan") shall be comprised of the amounts shown on the Schedule.

         2.3  Overlines;  Overadvances.  If at any  time or for any  reason  the
outstanding  amount of advances  (including  all Letters of Credit)  extended or
issued  pursuant  hereto exceeds any of the dollar  limitations  ("Overline") or
percentage  limitations  ("Overadvance")  in the Schedule,  then Borrower shall,
upon FINOVA's  demand,  immediately  pay to FINOVA,  in cash, the full amount of
such Overline or Overadvance which, at FINOVA's option, may be applied to reduce
the outstanding  principal balance of the Loans and/or cash collateralize all or
any part of any  outstanding  Letters of  Credit.  Without  limiting  Borrower's
obligation  to  repay  to  FINOVA  on  demand  the  amount  of any  Overline  or
Overadvance, Borrower agrees to pay FINOVA interest on the outstanding principal
amount of any Overline or Overadvance,  on demand,  at the rate set forth on the
Schedule and applicable to the Revolving Credit Loans.

         2.4    Letters of Credit  [Not applicable]

         2.5 Loan  Account.  All  advances  made  hereunder  (including  without
limitation all advances made by FINOVA under or in connection with any Letter of
Credit) shall be added to and deemed part of the Obligations  when made.  FINOVA
may from time to time charge all  Obligations  of Borrower  to  Borrower's  loan
account with FINOVA.

         2.6 Interest;  Fees.  Borrower  shall pay FINOVA  interest on the daily
outstanding  balance of the  Obligations  at the per annum rate set forth on the
Schedule. Borrower shall also pay FINOVA the fees set forth on the Schedule.

         2.7  Default   Interest  Rate.  Upon  the  occurrence  and  during  the
continuation  of an Event of Default,  Borrower shall pay FINOVA interest on the
daily outstanding balance of the Obligations and any L/C Fee at a rate per annum
which is two  percent  (2%) in  excess  of the rate  which  would  otherwise  be
applicable thereto pursuant to the Schedule.

         2.8 Examination  Fee.  Borrower agrees to pay to FINOVA the Examination
Fee in the amount set forth on the  Schedule  in  connection  with each audit or
examination  of Borrower  performed by FINOVA prior to or after the date hereof.
Without  limiting the generality of the foregoing,  Borrower shall pay to FINOVA
an  initial  Examination  Fee in an amount  equal to the amount set forth on the
Schedule.  Such initial Examination Fee shall be deemed fully earned at the time
of payment and due and payable upon the closing of this transaction, and


<PAGE>

shall be deducted  from any good faith  deposit paid by Borrower to FINOVA prior
to the date of this Agreement.

         2.9    Excess Interest.

         (a) The  contracted  for  rate of  interest  of the  loan  contemplated
hereby,  without  limitation,  shall consist of the following:  (i) the interest
rate set forth on the Schedule,  calculated and applied to the principal balance
of the  Obligations in accordance  with the provisions of this  Agreement;  (ii)
interest after an Event of Default,  calculated and applied to the amount of the
Obligations in accordance with the provisions  hereof;  and (iii) all Additional
Sums (as herein defined), if any. Borrower agrees to pay an effective contracted
for rate of  interest  which is the sum of the  above-referenced  elements.  The
Examination  Fee,  attorneys fees,  expert witness fees,  letter of credit fees,
collateral  monitoring  fees,  closing fees,  facility fees,  Termination  Fees,
Minimum Interest Charges,  other charges,  goods,  things in action or any other
sums or  things  of  value  paid  or  payable  by  Borrower  (collectively,  the
"Additional Sums"), whether pursuant to this Agreement or any other documents or
instruments in any way pertaining to this lending transaction, or otherwise with
respect to this lending transaction, that under any applicable law may be deemed
to be interest with respect to this lending transaction,  for the purpose of any
applicable  law that may limit the maximum amount of interest to be charged with
respect to this lending transaction,  shall be payable by Borrower as, and shall
be deemed to be, additional interest and for such purposes only, the agreed upon
and  "contracted  for rate of  interest" of this  lending  transaction  shall be
deemed to be increased by the rate of interest  resulting  from the inclusion of
the Additional Sums.

         (b) It is the intent of the  parties  to comply  with the usury laws of
the State of Arizona (the  "Applicable  Usury Law").  Accordingly,  it is agreed
that notwithstanding any provisions to the contrary in this Agreement, or in any
of the documents  securing payment hereof or otherwise  relating  hereto,  in no
event shall this Agreement or such  documents  require the payment or permit the
collection of interest in excess of the maximum  contract rate  permitted by the
Applicable Usury Law (the "Maximum  Interest  Rate").  In the event (a) any such
excess of interest  otherwise would be contracted for,  charged or received from
Borrower or otherwise in connection with the loan evidenced  hereby,  or (b) the
maturity of the  Obligations  is  accelerated in whole or in part, or (c) all or
part  of  the  Obligations  shall  be  prepaid,   so  that  under  any  of  such
circumstances  the amount of  interest  contracted  for,  shared or  received in
connection  with the loan evidenced  hereby,  would exceed the Maximum  Interest
Rate,  then in any such event (1) the provisions of this paragraph  shall govern
and control,  (2) neither  Borrower nor any other Person now or hereafter liable
for the payment of the Obligations  shall be obligated to pay the amount of such
interest to the extent that it is in excess of the Maximum  Interest  Rate,  (3)
any such  excess  which may have been  collected  shall be either  applied  as a
credit against the then unpaid  principal  amount of the Obligations or refunded
to Borrower, at FINOVA's option, and (4) the effective rate of interest shall be
automatically  reduced to the  Maximum  Interest  Rate.  It is  further  agreed,
without  limiting the generality of the foregoing,  that to the extent permitted
by the Applicable Usury Law; (x) all calculations of interest which are made for
the purpose of determining  whether such rate would exceed the Maximum  Interest
Rate shall be made by amortizing, prorating, allocating and spreading during the
period of the full stated term of the loan evidenced hereby, all interest at any
time  contracted  for,  charged  or  received  from  Borrower  or  otherwise  in
connection  with such  loan;  and (y) in the event  that the  effective  rate of
interest on the loan should at any time exceed the Maximum  Interest Rate,  such
excess  interest  that would  otherwise  have been  collected  had there been no
ceiling imposed by the Applicable Usury Law shall be paid to FINOVA from time to
time, if and when the effective  interest rate on the loan otherwise falls below
the  Maximum  Interest  Rate,  to the extent that  interest  paid to the date of
calculation  does not exceed the Maximum  Interest Rate, until the entire amount
of interest which would  otherwise have been collected had there been no ceiling
imposed  by the  Applicable  Usury Law has been paid in full.  Borrower  further
agrees that should the Maximum  Interest Rate be increased at any time hereafter
because  of a  change  in the  Applicable  Usury  Law,  then to the  extent  not
prohibited  by the  Applicable  Usury Law,  such  increases  shall  apply to all
indebtedness  evidenced  hereby  regardless of when incurred;  but, again to the
extent not prohibited by the Applicable  Usury Law, should the Maximum  Interest
Rate be  decreased  because  of a  change  in the  Applicable  Usury  Law,  such
decreases shall not


<PAGE>

apply to the indebtedness evidenced hereby regardless of when incurred.

         2.10   Principal Payments; Proceeds of  Collateral.

         (a)  Principal  Payments.  Except  where  evidenced  by  notes or other
instruments issued or made by Borrower to FINOVA specifically containing payment
provisions  which are in  conflict  with this  Section  2.10 (in which event the
conflicting  provisions  of said  notes or other  instruments  shall  govern and
control),  that portion of the  Obligations  consisting of principal  payable on
account of Loans  shall be payable by Borrower  to FINOVA  immediately  upon the
earliest of (i) the receipt by FINOVA or Borrower of any  proceeds of any of the
Collateral,  to the extent of said proceeds,  (ii) the occurrence of an Event of
Default in  consequence  of which FINOVA elects to  accelerate  the maturity and
payment of such loans,  or (iii) any  termination of this Agreement  pursuant to
Section 9.2 hereof; provided, however, that any Overadvance or Overline shall be
payable on demand pursuant to the provisions of Section 2.3 hereof.

         (b)  Collections.  Until  FINOVA  notifies  Borrower  to the  contrary,
Borrower may make collection of all Receivables for FINOVA and shall receive all
such  payments  or sums as trustee of FINOVA and  immediately  deliver  all such
payments or sums to FINOVA in their  original  form,  duly  endorsed in blank or
cause the same to be  deposited  into a Blocked  Account  or  Dominion  Account.
FINOVA  or its  designee  may,  at any time,  notify  account  debtors  that the
Receivables  have been  assigned  to FINOVA and of  FINOVA's  security  interest
therein,  and may collect the  Receivables  directly  and charge the  collection
costs and  expenses  to  Borrower's  loan  account.  Borrower  agrees  that,  in
computing the charges under this Agreement, all items of payment shall be deemed
applied by FINOVA on account of the  Obligations  three (3) Business  Days after
receipt by FINOVA of good funds  which have been  finally  credited  to FINOVA's
account,  whether such funds are  received  directly  from  Borrower or from the
Blocked Account bank or the Dominion  Account bank,  pursuant to Section 2.10(c)
hereof,  and  this  provision  shall  apply  regardless  of  the  amount  of the
Obligations  outstanding or whether any Obligations are  outstanding;  provided,
that if any such good funds are  received  after  12:00 p.m.  noon (Los  Angeles
time) on any Business Day or at any time on any day not  constituting a Business
Day, such funds shall be deemed received on the immediately  following  Business
Day.  FINOVA is not,  however,  required  to credit  Borrower's  account for the
amount of any item of payment which is unsatisfactory to FINOVA in its Permitted
Discretion and FINOVA may charge  Borrower's  loan account for the amount of any
item of payment which is returned to FINOVA unpaid.

         (c)  Establishment  of a Lockbox  Account or Dominion  Account.  Unless
Borrower shall be otherwise directed by FINOVA in writing,  Borrower shall cause
all proceeds of Collateral to be deposited into a lockbox account, or such other
"blocked account" as FINOVA may require (each, a "Blocked  Account") pursuant to
an  arrangement  with such bank as may be selected by Borrower and be acceptable
to FINOVA which proceeds,  unless otherwise provided herein, shall be applied in
payment  of the  Obligations  in such  order as  FINOVA  determines  in its sole
discretion.  Borrower  shall  issue to any such  bank an  irrevocable  letter of
instruction  directing  said bank to transfer such funds so deposited to FINOVA,
either to any account  maintained  by FINOVA at said bank or by wire transfer to
appropriate account(s) of FINOVA. All funds deposited in a Blocked Account shall
immediately  become the sole  property of FINOVA and  Borrower  shall obtain the
agreement  by such  bank to  waive  any  offset  rights  against  the  funds  so
deposited. FINOVA assumes no responsibility for any Blocked Account arrangement,
including  without  limitation,  any claim of accord and satisfaction or release
with respect to deposits accepted by any bank thereunder.  Alternatively, FINOVA
may establish  depository  accounts in the name of FINOVA at a bank or banks for
the  deposit of such funds  (each,  a "Dominion  Account")  and  Borrower  shall
deposit  all  proceeds  of  Receivables  and all  cash  proceeds  of any sale of
Inventory  or, to the extent  permitted  herein,  Equipment  or cause same to be
deposited,  in kind, in such  Dominion  Accounts of FINOVA in lieu of depositing
same to Blocked Accounts,  and, unless otherwise provided herein, all such funds
shall be applied by FINOVA to the Obligations in such order as FINOVA determines
in its sole discretion.

         (d)  Payments  Without   Deductions.   Borrower  shall  pay  principal,
interest,  and all other  amounts  payable  hereunder,  or under any other  Loan
Document,  without any deduction whatsoever,  including, but not limited to, any
deduction for any setoff or counterclaim.


<PAGE>

         (e) Collection  Days Upon  Repayment.  In the event Borrower repays the
Obligations  in full at any  time  hereafter,  such  payment  in full  shall  be
credited  (conditioned  upon final  collection) to Borrower's loan account three
(3) Business Days after FINOVA's receipt thereof.

         (f) Monthly Accountings.  FINOVA shall provide Borrower monthly with an
account of  advances,  charges,  expenses  and  payments  made  pursuant to this
Agreement.  Such  account  shall be deemed  correct,  accurate  and  binding  on
Borrower  and an account  stated  (except for  reverses  and  reapplications  of
payments made and corrections of errors  discovered by FINOVA),  unless Borrower
notifies  FINOVA in writing to the contrary  within  thirty (30) days after each
account is rendered, describing the nature of any alleged errors or admissions.

         2.11  Application of Collateral.  Except as otherwise  provided herein,
FINOVA shall have the  continuing  and  exclusive  right to apply or reverse and
re-apply  any and all payments to any portion of the  Obligations  in such order
and manner as FINOVA shall determine in its sole discretion.  To the extent that
Borrower  makes a payment or FINOVA  receives  any  payment or  proceeds  of the
Collateral for Borrower's benefit which is subsequently invalidated, declared to
be fraudulent or preferential,  set aside or required to be repaid to a trustee,
debtor in  possession,  receiver or any other party  under any  bankruptcy  law,
common  law or  equitable  cause,  or  otherwise,  then,  to  such  extent,  the
Obligations  or part  thereof  intended  to be  satisfied  shall be revived  and
continue as if such payment or proceeds had not been received by FINOVA.

         2.12  Application  of  Payments.  The amount of all payments or amounts
received  by FINOVA  with  respect  to the Loan  shall be  applied to the extent
applicable under this Agreement: (i) first, to accrued interest through the date
of such payment,  including any Default  Interest;  (ii) then, to any late fees,
overdue risk  assessments,  Examination  Fee and expenses,  collection  fees and
expenses  and any other fees and  expenses  due to FINOVA  hereunder;  and (iii)
last,  the remaining  balance,  if any, to the unpaid  principal  balance of the
Loan;  provided however,  while an Event of Default exists under this Agreement,
or under any other Loan Document,  each payment  hereunder  shall be (x) held as
cash collateral to secure Obligations relating to any Letters of Credit or other
contingent  obligations  arising under the Loan Documents  and/or (y) applied to
amounts  owed to  FINOVA  by  Borrower  as  FINOVA  in its sole  discretion  may
determine. In calculating interest and applying payments as set forth above: (a)
interest  shall be  calculated  and  collected  through  the date a  payment  is
actually  applied by FINOVA under the terms of this  Agreement;  (b) interest on
the  outstanding  balance  shall be charged  during any grace  period  permitted
hereunder;  (c) at the end of each month,  all accrued and unpaid  interest  and
other charges provided for hereunder shall be added to the principal  balance of
the Loan; and (d) to the extent that Borrower makes a payment or FINOVA receives
any  payment or  proceeds  of the  Collateral  for  Borrower's  benefit  that is
subsequently  invalidated,  set  aside or  required  to be  repaid  to any other
Person,  then, to such extent, the Obligations intended to be satisfied shall be
revived and  continue as if such  payment or proceeds  had not been  received by
FINOVA  and  FINOVA  may  adjust  the  Loan  balances  as  FINOVA,  in its  sole
discretion, deems appropriate under the circumstances.

         2.13  Notification  of Closing.  Borrower  shall provide FINOVA with at
least forty-eight (48) hours prior written notice of the Closing Date, to enable
FINOVA to arrange for the  availability  of funds. In the event the closing does
not take place on the date specified in Borrower's notice to FINOVA,  other than
through the fault of FINOVA,  Borrower  agrees to reimburse  FINOVA for FINOVA's
costs to maintain the necessary  funds  available  for the closing,  at the Term
Interest Rate with respect to the amount  specified in the Schedule,  and at the
Revolving  Interest Rate with respect to an amount equal to the initial  advance
under the  Revolving  Credit Loans  facility  which is to be made on the Closing
Date*,  for the  number of days  which  elapse  between  the date  specified  in
Borrower's  notice and the date upon which the closing  actually  occurs  (which
number of days shall not include the date  specified in Borrower's  notice,  but
shall include the Closing Date).

         *as set forth in the Schedule

3.       SECURITY.

         3.1  Security  Interest  in the  Collateral.  To secure the payment and
performance  of the  Obligations  when due,  Borrower  hereby grants to FINOVA a
first priority security interest


<PAGE>

(subject  only to  Permitted  Encumbrances)  in all of  Borrower's  now owned or
hereafter acquired or arising Inventory, Equipment,  Receivables, life insurance
policies and the proceeds thereof, Trademarks, Copyrights, Licenses and Patents,
Investment  Property  (as  defined  in  Section  9-115 of the Code) and  General
Intangibles,  including, without limitation, all of Borrower's Deposit Accounts,
money, any and all property now or at any time hereafter in FINOVA's  possession
(including claims and credit balances),  and all proceeds (including proceeds of
any insurance policies,  proceeds of proceeds and claims against third parties),
all products  and all books and records and computer  data related to any of the
foregoing  (all of the  foregoing,  together  with all other  property  in which
FINOVA  may be  granted a lien or  security  interest,  is  referred  to herein,
collectively, as the "Collateral").

         3.2 Perfection and Protection of Security Interest.  Borrower shall, at
its  expense,  take all  actions  requested  by FINOVA  at any time to  perfect,
maintain,  protect and enforce  FINOVA's  first priority  security  interest and
other  rights in the  Collateral  and the  priority  thereof  from time to time,
including,   without   limitation,   (i)  executing  and  filing   financing  or
continuation statements and amendments thereof and executing and delivering such
documents and titles in connection  with motor vehicles as FINOVA shall require,
all in form and substance  satisfactory to FINOVA,  (ii) maintaining a perpetual
inventory and complete and accurate  stock records,  (iii)  delivering to FINOVA
warehouse  receipts covering any portion of the Collateral located in warehouses
and for which  warehouse  receipts  are issued,  and  transferring  Inventory to
warehouses  designated by FINOVA,  (iv) placing notations on Borrower's books of
account to disclose  FINOVA's  security  interest  therein and (v) delivering to
FINOVA all letters of credit on which Borrower is named beneficiary.  FINOVA may
file, without Borrower's signature,  one or more financing statements disclosing
FINOVA's security interest under this Agreement.  Borrower agrees that a carbon,
photographic,  photostatic  or  other  reproduction  of this  Agreement  or of a
financing statement is sufficient as a financing statement. If any Collateral is
at any time in the possession or control of any  warehouseman,  bailee or any of
Borrower's  agents or processors,  Borrower shall notify such Person of FINOVA's
security interest in such Collateral and, upon FINOVA's  request,  instruct them
to  hold  all  such   Collateral  for  FINOVA's   account  subject  to  FINOVA's
instructions.  From time to time, Borrower shall, upon FINOVA's request, execute
and deliver  confirmatory written instruments pledging the Collateral to FINOVA,
but  Borrower's  failure  to do so shall not affect or limit  FINOVA's  security
interest or other rights in and to the Collateral.  Until the  Obligations  have
been fully satisfied and FINOVA's  obligation to make further advances hereunder
has terminated,  FINOVA's  security interest in the Collateral shall continue in
full force and effect.

         3.3   Preservation   of  Collateral.   FINOVA  may,  in  its  Permitted
Discretion,  at any time  discharge any lien or encumbrance on the Collateral or
bond the same,  pay any  insurance,  maintain  guards,  pay any service  bureau,
obtain any record or take any other action to preserve the Collateral and charge
the cost thereof to Borrower's loan account as an Obligation.

         3.4 Insurance. Borrower will maintain and deliver evidence to FINOVA of
such insurance as is required by FINOVA,  written by insurers,  in amounts,  and
with  lender's  loss  payee,   additional   insured,   and  other  endorsements,
satisfactory  to FINOVA.  All premiums with respect to such  insurance  shall be
paid by Borrower as and when due.  Accurate and certified copies of the policies
shall be delivered by Borrower to FINOVA.  If Borrower fails to comply with this
Section,  FINOVA may (but shall not be required to) procure such  insurance  and
endorsements  at  Borrower's  expense and charge the cost thereof to  Borrower's
loan account as an Obligation.

         3.5    Collateral Reporting; Inventory.

         (a) Invoices.  Borrower  shall not re-date any invoice or sale from the
original date thereof or make sales on extended terms beyond those  customary in
Borrower's  industry,  or otherwise extend or modify the term of any Receivable.
If Borrower  becomes  aware of any matter  affecting any  Receivable,  including
information  affecting the credit of the account debtor thereon,  Borrower shall
promptly notify FINOVA in writing.

         (b) Instruments. In the event any Receivable is or becomes evidenced by
a promissory  note,  trade acceptance or any other instrument for the payment of
money, Borrower shall

<PAGE>

immediately deliver such instrument to FINOVA  appropriately  endorsed to FINOVA
and,  regardless  of the form of any  presentment,  demand,  notice of dishonor,
protest and notice of protest with respect thereto, Borrower shall remain liable
thereon until such instrument is paid in full.

         (c) Physical Inventory.  Borrower shall conduct a physical count of the
Inventory at such intervals as FINOVA requests and promptly supply FINOVA with a
copy of such accounts  accompanied  by a report of the value  (calculated at the
lower of cost or market value on a first in,  first out basis) of the  Inventory
and such  additional  information  with  respect to the  Inventory as FINOVA may
request from time to time.

         (d)  Returns.  For so long as no Event of Default has  occurred  and is
continuing  and  subject to the  provisions  of Section  3.6(b),  if any account
debtor returns any Inventory to Borrower in the ordinary course of its business,
Borrower shall promptly  determine the reason for such return and promptly issue
a credit  memorandum  to the  account  debtor  (sending a copy to FINOVA) in the
appropriate  amount.  In  the  event  any  attempted  return  occurs  after  the
occurrence  of any  Event of  Default,  Borrower  shall  (i)  hold the  returned
Inventory in trust for FINOVA, (ii) segregate all returned Inventory from all of
Borrower's other property,  (iii)  conspicuously label the returned Inventory as
FINOVA's  property,  and (iv)  immediately  notify  FINOVA of the  return of any
Inventory,  specifying the reason for such return, the location and condition of
the returned Inventory,  and on FINOVA's request deliver such returned Inventory
to FINOVA.

         (e) Borrower shall not consign any Inventory.

         3.6    Receivables.

(a)  Eligibility.  (i) Borrower  represents  and warrants  that each  Receivable
covers and shall cover a bona fide sale or lease and  delivery by it of goods or
the  rendition by it of services in the  ordinary  course of its  business,  and
shall be for a liquidated  amount and FINOVA's  security  interest  shall not be
subject  to  any   offset,   deduction,   counterclaim,   rights  of  return  or
cancellation,  lien or other condition. If any representation or warranty herein
is  breached as to any  Receivable  or any  Receivable  ceases to be an Eligible
Receivable  for any reason  other than  payment  thereof,  then  FINOVA  may, in
addition to its other rights hereunder,  designate any and all Receivables owing
by that account debtor as not Eligible Receivables;  provided, that FINOVA shall
in any such event retain its security  interest in all  Receivables,  whether or
not Eligible  Receivables,  until the Obligations  have been fully satisfied and
FINOVA's obligation to provide loans hereunder has terminated.

         (ii) FINOVA at any time shall be entitled to (i) establish and increase
or decrease reserves against Eligible  Receivables and Eligible Inventory,  (ii)
reduce the advance  rates in the Schedule or restore  such advance  rates to any
level  equal to or below the  advance  rates set forth in the  Schedule or (iii)
impose  additional  restrictions  (or  eliminate  the same) to the  standards of
eligibility set forth in the definitions of "Eligible Receivables" and "Eligible
Inventory,"  in the exercise of its Permitted  Discretion.  FINOVA may but shall
not be required to rely on the schedules  an/or  reports  delivered to FINOVA in
connection  herewith in determining  the then  eligibility  of  Receivables  and
Inventory.  Reliance  thereon by FINOVA from time to time shall not be deemed to
limit the right of FINOVA to revise advance rates or standards of eligibility as
provided above.

         (b) Disputes.  Borrower shall notify FINOVA promptly of all disputes or
claims and settle or adjust such disputes or claims at no expense to FINOVA, but
no discount,  credit or allowance  shall be granted to any account debtor and no
returns of merchandise  shall be accepted by Borrower without FINOVA's  consent,
except for  discounts,  credits  and  allowances  made or given in the  ordinary
course of Borrower's  business.  FINOVA may, at any time after the occurrence of
an Event of Default,  settle or adjust  disputes or claims directly with account
debtors  for  amounts and upon terms which  FINOVA  considers  advisable  in its
reasonable  credit  judgment and, in all cases,  FINOVA shall credit  Borrower's
loan  account  with only the net  amounts  received  by FINOVA in payment of any
Receivables.

         3.7  Equipment.  Borrower shall keep and maintain the Equipment in good
operating  condition and repair and make all necessary  replacements  thereto to
maintain and preserve the value and  operating  efficiency  thereof at all times
consistent with Borrower's past practice,


<PAGE>

ordinary wear and tear excepted. Borrower shall not permit any item of Equipment
to become a fixture  (other than a trade fixture) to real estate or an accession
to other property.

         3.8 Other Liens;  No Disposition of  Collateral.  Borrower  represents,
warrants and covenants  that except for FINOVA's  security  interest,  Permitted
Encumbrances,  and such other liens, claims and encumbrances as may be permitted
by  FINOVA  in its  sole  discretion  from  time  to time  in  writing,  (a) all
Collateral is and shall  continue to be owned by it free and clear of all liens,
claims and encumbrances  whatsoever and (b) Borrower shall not, without FINOVA's
prior  written  approval,  sell,  encumber  or  dispose  of or permit  the sale,
encumbrance or disposal of any Collateral or all or any substantial  part of any
of its other assets (or any interest of Borrower  therein),  except for the sale
of Inventory in the ordinary course of Borrower's business.  In the event FINOVA
gives  any  such  prior  written  approval  with  respect  to any  such  sale of
Collateral,  the same may be  conditioned  on the sale price  being equal to, or
greater than, an amount acceptable to FINOVA.  The proceeds of any such sales of
Collateral   shall  be  remitted  to  FINOVA  pursuant  to  this  Agreement  for
application to the Obligations.

         3.9 Collateral  Security.  The  Obligations  shall  constitute one loan
secured by the  Collateral.  FINOVA may, in its sole  discretion,  (i) exchange,
enforce,  waive or release  any of the  Collateral,  (ii) apply  Collateral  and
direct  the order or  manner  of sale  thereof  as it may  determine,  and (iii)
settle, compromise,  collect or otherwise liquidate any Collateral in any manner
without  affecting  its right to take any other action with respect to any other
Collateral.

4.       CONDITIONS OF CLOSING.

         4.1  Initial  Advance.  The  obligation  of FINOVA to make the  initial
advance  hereunder or to issue or arrange for the issuance of the initial Letter
of Credit hereunder is subject to the fulfillment, to the satisfaction of FINOVA
and its counsel, of each of the following conditions on or prior to the date set
forth on the Schedule:

         (a) Loan  Documents.  FINOVA shall have  received each of the following
Loan Documents:  (i) the Agreement fully and properly executed by Borrower; (ii)
promissory  notes in such  amounts  and on such terms and  conditions  as FINOVA
shall specify,  executed by Borrower;  (iii) Guaranties  executed by each of the
Guarantors  and/or  Validity and Support  Agreements  executed by the applicable
parties;  (iv) such  security  agreements,  intellectual  property  assignments,
pledge  agreements,  mortgages  and deeds of trust as FINOVA  may  require  with
respect to this  Agreement and any  Guaranties,  executed by each of the parties
thereto and, if  applicable,  duly  acknowledged  for recording or filing in the
appropriate  governmental  offices;  (v)  Subordination  Agreements  in form and
substance acceptable to FINOVA, executed by each of the Subordinating Creditors,
together  with  copies  of all  instruments  subject  thereto  showing  a legend
indicating such  subordination;  (vi) such Blocked  Account or Dominion  Account
agreements as it shall determine;  and (vii) such other  documents,  instruments
and  agreements  in  connection  herewith  as FINOVA  shall  require,  executed,
certified and/or acknowledged by such parties as FINOVA shall designate;

         (b)   Minimum   Excess   Availability.   Borrower   shall  have  Excess
Availability  under the  Revolving  Credit  Loans  facility of not less than the
amount  specified in the Schedule,  after giving  effect to the initial  advance
hereunder  and after  giving  effect to any  applicable  Loan  Reserves  against
borrowing availability under the Revolving Credit Loans.


         (c)  Terminations  by  Existing  Lender.  *  shall  have  executed  and
delivered UCC  termination  statements  and other  documentation  evidencing the
termination  of its liens and security  interests in the assets of Borrower or a
subordination agreement in form and substance satisfactory to FINOVA in its sole
discretion;


         *National Bank of Canada

     (d) Charter  Documents.  FINOVA shall have  received  copies of  Borrower's
By-laws and Articles or Certificate of Incorporation,  as amended,  modified, or
supplemented to the Closing Date, certified by the Secretary of Borrower;

         (e)  Good  Standing.  FINOVA  shall  have  received  a  certificate  of
corporate  status with  respect to  Borrower,  dated within ten (10) days of the
Closing Date, by the Secretary of

<PAGE>

State  of the  state of  incorporation  of  Borrower,  which  certificate  shall
indicate that Borrower is in good standing in such state;

         (f) Foreign  Qualification.  FINOVA shall have received certificates of
corporate status with respect to Borrower and each other Loan Party,  each dated
within ten (10) days of the Closing  Date,  issued by the  Secretary of State of
each state in which such party's  failure to be duly qualified or licensed would
have a material adverse effect on its financial condition or assets,  indicating
that such party is in good standing;

         (g) Authorizing Resolutions and Incumbency.  FINOVA shall have received
a certificate  from the  Secretary of Borrower  attesting to (i) the adoption of
resolutions of Borrower's  Board of Directors,  and  shareholders  or members if
necessary,  authorizing  the  borrowing of money from FINOVA and  execution  and
delivery of this  Agreement and the other Loan  Documents to which Borrower is a
party, and authorizing  specific  officers of Borrower to execute same, and (ii)
the authenticity of original specimen signatures of such officers;

         (h)  Insurance.  FINOVA shall have received the insurance  certificates
and  certified  copies of policies  required by Section 3.4 hereof,  in form and
substance  satisfactory  to FINOVA and its counsel,  together with an additional
insured  endorsement  in favor of FINOVA with respect to all liability  policies
and a lender's loss payable  endorsement  in favor of FINOVA with respect to all
casualty  and  business  interruption  policies,  each  in  form  and  substance
acceptable to FINOVA and its counsel;

         (i) Title Insurance.  FINOVA shall have received binding commitments to
issue such title insurance with respect to Collateral or security for Guaranties
which is comprised of real property as it shall determine;

         (j)  Searches;  Certificates  of  Title.  FINOVA  shall  have  received
searches  reflecting the filing of its financing  statements and fixture filings
in  such   jurisdictions  as  it  shall  determine,   and  shall  have  received
certificates of title with respect to the Collateral  which shall have been duly
executed in a manner sufficient to perfect all of the security interests granted
to FINOVA;

         (k) Landlord,  Bailee and Mortgagee Waivers. FINOVA shall have received
landlord,  bailee  and/or  mortgagee  waivers from the lessors,  bailees  and/or
mortgagees of all locations where any Collateral is located;

         (l)  Fees.  Borrower  shall  have  paid all fees  payable  by it on the
Closing Date pursuant to this Agreement;

         (m)  Opinion  of  Counsel.  FINOVA  shall have  received  an opinion of
Borrower's  counsel  covering such matters as FINOVA shall determine in its sole
discretion;

         (n) Officer  Certificate.  FINOVA shall have received a certificate  of
the President and the Chief Financial  Officer or similar  official of Borrower,
attesting  to the  accuracy of each of the  representations  and  warranties  of
Borrower  set forth in this  Agreement  and the  fulfillment  of all  conditions
precedent to the initial advance hereunder;

         (o) Solvency  Certificate.  If requested,  FINOVA shall have received a
signed  certificate  of the  Borrower's  duly elected  Chief  Financial  Officer
concerning  the  solvency  and  financial  condition  of  Borrower,  on FINOVA's
standard form;

         (p) Blocked Account. The Blocked Account referred to in Section 2.10(c)
hereof shall have been  established  to the  satisfaction  of FINOVA in its sole
discretion;

         (q)  Environmental  Assessment.  If required by FINOVA,  Borrower shall
have caused a Phase I  Environmental  Assessment to be conducted on the property
or properties  owned or occupied by Borrower,  all at Borrower's own expense and
the  results  of such  assessment(s)  shall  have  been in  form  and  substance
satisfactory to FINOVA in its sole  discretion.  Such  assessment(s)  shall have
included, in FINOVA's discretion,  core samplings, and shall have been conducted
by an environmental engineer acceptable to FINOVA;

     (r) Environmental Certificate.  FINOVA shall have received an Environmental
Certificate from Borrower,  in form and substance  satisfactory to FINOVA in its
discretion, with respect to all locations of Collateral;

<PAGE>

         (s) Search and References.  FINOVA shall have received and approved the
results  of  UCC,  tax  lien,  litigation,  judgment,  and  bankruptcy  searches
regarding Borrower,  and shall have received satisfactory  customer,  vendor and
credit reference checks on Borrower.

         (t)      [Intentionally Omitted]

         (u) Life Insurance.  FINOVA shall require that Borrower maintain a life
insurance  policy on the life of the  persons  specified  in the  Schedule in an
amount  specified  in the  Schedule  (the  "Life  Insurance  Policy").  The Life
Insurance  Policy  shall be  collaterally  assigned  to FINOVA  (pursuant  to an
assignment  in form  satisfactory  to  FINOVA,  hereinafter  referred  to as the
"Assignment of Life  Insurance") and be accepted and  acknowledged in writing by
the applicable insurer or its authorized representative.  Borrower hereby grants
to FINOVA a security  interest in the Life Insurance  Policy,  all  replacements
thereof,  any  supplementary  contract issued in connection  therewith,  and all
proceeds of the  foregoing  (including  without  limitation,  the  beneficiary's
interest  therein,  collectively  referred to as the "Insurance  Collateral") to
secure  Borrower's  payment and performance of all the Obligations.  The insurer
under  the Life  Insurance  Policy  and the  terms  and  conditions  of the Life
Insurance  Policy are  subject to the  approval of FINOVA.  The  original of the
policy evidencing the Life Insurance Policy,  signed by an authorized  insurance
company  representative,  shall be delivered to FINOVA * at the closing together
with a duly  executed  Collateral  Assignment of Life  Insurance  which has been
accepted and acknowledged in writing by the applicable insurer or its authorized
representative.  The Life Insurance  Policy shall require the insurer to provide
FINOVA with thirty (30) days advance written notice of any  cancellation  and/or
any material change in coverage. Borrower warrants and represents that it is and
will be  (throughout  the entire term of the Loan) the owner and  beneficiary of
the Life Insurance Policy. Notwithstanding anything herein to the contrary, upon
the maturity of the Life  Insurance  Policy or upon the death of the  individual
insured,  the proceeds of the Life  Insurance  Policy shall be paid  directly to
FINOVA,  shall (at the option of FINOVA) be  treated  as a  prepayment  and,  if
treated as a prepayment, shall be applied in order against (a) all of Borrower's
Obligations,  other  than as set  forth  in the  remaining  subsections  of this
paragraph,  (b) all  costs  and  expenses  of  FINOVA  in  connection  with such
prepayment,  (c) accrued  interest,  and (d) the unpaid principal balance of the
Loans in such manner as FINOVA shall elect. No prepayment premium or Termination
Fee shall be due and owing in  connection  with such  prepayment.  To the extent
that the proceeds of said Life Insurance  Policy exceed the amount of Borrower's
Obligations,  any such  excess  shall be paid by FINOVA  directly  to  Borrower.
Notwithstanding  anything to the contrary herein, the obligations,  undertakings
and  representations  of Borrower  under this Section  4.1(u) shall  survive the
Closing  Date and shall be a  continuing  obligation  and  agreement of Borrower
hereunder.

         *within 60 days after the closing

         (v) No Material Adverse Changes. Prior to the Closing Date, there shall
have occurred no material adverse change in the financial condition of Borrower,
or in the condition of the assets of Borrower.  At the closing,  Borrower  shall
deliver to FINOVA an officer's certification confirming that Borrower is unaware
of the existence of any such  material  adverse  change in Borrower's  financial
condition.

          (w)  Material  Agreements.  FINOVA shall have  received,  reviewed and
approved all material agreements to which Borrower shall be a party.

         (x)  Projections.  Borrower shall submit cash flow  projections and pro
forma  balance  sheet with  adjusting  entries  (i)  showing  that the  proposed
financing will provide  sufficient  funds for the Borrower's  projected  working
capital  needs,  and (ii) showing:  (1) that the Borrower  will have  reasonably
sufficient  capital  for the  conduct  of its  business  following  the  initial
funding,  and (2) that the  Borrower  will not incur debts beyond its ability to
pay such debts as they mature.

         (y)  Opinions.  To the extent any Person other than  Borrower  shall be
parties to the Loan Documents, FINOVA reserves the right to require satisfactory
opinions of counsel for each such Person  concerning the proper  organization of
such  Person and the due  authorization,  execution,  delivery,  enforceability,
validity  and  binding  effect of the Loan  Documents  to which such Person is a
party.  Each such  opinion of counsel  shall  confirm,  to the  satisfaction  of
FINOVA, that the opinion is being delivered to FINOVA at the instruction of


<PAGE>

the party  represented by such counsel,  that FINOVA is entitled to rely on such
opinion  and that for  purposes  of such  reliance,  FINOVA  is  deemed to be in
privity with the opining counsel.

         (z) ADA  Compliance.  If necessary,  as of the Closing  Date,  Borrower
shall be in compliance with the Americans with Disabilities Act of 1990 ("ADA"),
or, if any renovations of Borrower's  facilities or  modifications of Borrower's
employment  practices  shall be required to bring them into  compliance with the
ADA, review and approval by FINOVA of Borrower's proposed plan to come into such
compliance.  Borrower  shall deliver  representations  and  warranties to FINOVA
concerning  Borrower's  compliance with the ADA, and no evidence shall have come
to the attention of FINOVA  indicating  that Borrower is not in compliance  with
the ADA (except to the extent that FINOVA has reviewed  and approved  Borrower's
plan to come into compliance).

     (aa)   Subordination   and  Intercreditor   Agreements.   FINOVA  and  each
Subordinating  Creditor shall have entered into a  Subordination  Agreement,  in
form and substance satisfactory to FINOVA.

         (bb)   [Intentionally Omitted]

         (cc)   [Intentionally Omitted]

         (dd)   [Intentionally Omitted.]

         (ee) Asset  Appraisal.  Borrower  shall  have  provided  to FINOVA,  at
Borrower's  sole cost and expense,  an asset  appraisal of all Borrower's  fixed
assets upon which  FINOVA  shall be granted a first  priority  lien and security
interest, which appraisal must be acceptable to FINOVA in all respects.

         (ff)  Transaction  Costs.  Borrower shall provide to FINOVA a complete,
itemized  summary of all  transaction  costs paid or  incurred  by any Person in
connection with the making of the Loan and the  consummation of the Acquisition,
which  transaction  costs shall not exceed the amount set forth in the Schedule,
as well as  appropriate  documentation  evidencing  such  costs and the  payment
thereof.  All such  information  must be acceptable to FINOVA,  in FINOVA's sole
discretion, exercised in good faith.

     (gg) Schedule Conditions.  Borrower shall have complied with all additional
conditions precedent as set forth in the Schedule attached hereto.

         (hh) Other Matters. All other documents and legal matters in connection
with the transactions  contemplated by this Agreement shall have been delivered,
executed and recorded and shall be in form and substance  satisfactory to FINOVA
and its counsel including,  without limitation,  each of the items listed on the
Closing Checklist attached as Exhibit 4.1 hereto.

         4.2 Subsequent  Advances.  The obligation of FINOVA to make any advance
or issue or cause any  Letter of Credit to be issued  hereunder  (including  the
initial advance or Letter of Credit) shall be subject to the further  conditions
precedent  that,  on and as of the date of such  advance  or  Letter  of  Credit
issuance:  (a) the  representations and warranties of Borrower set forth in this
Agreement  shall be accurate,  before and after giving effect to such advance or
issuance and to the application of any proceeds thereof; (b) no Event of Default
and no event which,  with notice or passage of time or both, would constitute an
Event of Default  has  occurred  and is  continuing,  or would  result from such
advance or issuance or from the  application  of any  proceeds  thereof;  (c) no
material  adverse  change has occurred in the Borrower's  business,  operations,
financial  condition,  in the  condition  of the  Collateral  or other assets of
Borrower or in the  prospect of  repayment  of the  Obligations;  and (d) FINOVA
shall have received such other approvals,  opinions or documents as FINOVA shall
reasonably request.

5.  REPRESENTATIONS AND WARRANTIES.

         Borrower represents and warrants that:

         5.1 Due  Organization.  It is a  corporation  duly  organized,  validly
existing  and in good  standing  under  the laws of the  State  set forth on the
Schedule,  is qualified and authorized to do business and is in good standing in
all states in which such qualification


<PAGE>

and good  standing are necessary in order for it to conduct its business and own
its property,  and has all requisite power and authority to conduct its business
as presently  conducted,  to own its property and to execute and deliver each of
the Loan  Documents  to which it is a party and perform  all of its  Obligations
thereunder,  and has not taken  any  steps to  wind-up,  dissolve  or  otherwise
liquidate its assets;

         5.2 Other Names. Borrower has not, during the preceding five (5) years,
been known by or used any other corporate or fictitious name except as set forth
on the Schedule,  nor has Borrower been the surviving corporation of a merger or
consolidation or acquired all or  substantially  all of the assets of any Person
during such time;

         5.3 Due  Authorization.  The  execution,  delivery and  performance  by
Borrower of the Loan  Documents to which it is a party have been  authorized  by
all necessary  corporate  action and do not and shall not constitute a violation
of any applicable law or of Borrower's  Articles or Certificate of Incorporation
or By-Laws or any other document, agreement or instrument to which Borrower is a
party or by which Borrower or its assets are bound;

     5.4 Binding  Obligation.  Each of the Loan Documents to which Borrower is a
party is the legal, valid and binding obligation of Borrower enforceable against
Borrower in accordance with its terms;

         5.5 Intangible Property.  Borrower possesses adequate assets, licenses,
patents, patent applications, copyrights, trademarks, trademark applications and
trade names for the present and planned future  conduct of its business  without
any known  conflict  with the rights of  others,  and each is valid and has been
duly registered or filed with the appropriate governmental authorities;  each of
Borrower's patents,  patent applications,  copyrights,  trademarks and trademark
applications which have been registered or filed with any governmental authority
(including the U.S. Patent and Trademark Office and the Library of Congress) are
listed by name, date and filing number on the Schedule;

         5.6 Capital. * Borrower has capital sufficient to conduct its business,
is able to pay its debts as they mature, and owns property having a fair salable
value  greater  than the  amount  required  to pay all of its  debts  (including
contingent debts);

         *Taking into account the Loans to be made hereunder,

         5.7 Material Litigation.  Borrower has no pending or overtly threatened
litigation,  actions or proceedings  which would materially and adversely affect
its  business,  assets,  operations,   prospects  or  condition,   financial  or
otherwise, or the Collateral or any of FINOVA's interests therein;

         5.8  Title;   Security   Interests   of  FINOVA.   Borrower  has  good,
indefeasible  and  merchantable  title to the Collateral and, upon the execution
and delivery of the Loan Documents,  the filing of UCC-1  Financing  Statements,
delivery of the certificate(s) evidencing any pledged securities,  the filing of
any  collateral   assignments  or  security   agreements   regarding   Borrower,
Trademarks,  Copyrights,  Licenses and/or Patents,  if any, with the appropriate
governmental  offices and the  recording of any mortgages or deeds of trust with
respect  to  real  property,  in  each  case in the  appropriate  offices,  this
Agreement and such  documents  shall create valid and perfected  first  priority
liens in the Collateral, subject only to Permitted Encumbrances;

         5.9 Restrictive Agreements; Labor Contracts. Borrower is not a party or
subject  to any  contract  or  subject  to any  charge,  corporate  restriction,
judgment,  decree or order  materially  and  adversely  affecting  its business,
assets,  operations,  prospects or condition,  financial or otherwise,  or which
restricts its right or ability to incur Indebtedness, and it is not party to any
labor dispute. In addition,  no labor contract is scheduled to expire during the
Initial Term of this  Agreement,  except as disclosed to FINOVA in writing prior
to the date hereof;

         5.10 Laws.  Borrower is not in  violation  of any  applicable  statute,
regulation,  ordinance  or any  order of any  court,  tribunal  or  governmental
agency, in any respect materially and adversely  affecting the Collateral or its
business, assets, operations, prospects or condition, financial or otherwise;


<PAGE>

         5.11 Consents. Borrower has obtained or caused to be obtained or issued
any required consent of a governmental agency or other Person in connection with
the financing contemplated hereby;

         5.12  Defaults.  Borrower is not in default  with  respect to any note,
indenture, loan agreement,  mortgage, lease, deed or other agreement to which it
is a party or by which it or its assets are  bound,  nor has any event  occurred
which, with the giving of notice or the lapse of time, or both, would cause such
a default;

         5.13  Financial  Condition.  The  Prepared  Financials  fairly  present
Borrower's financial condition and results of operations and those of such other
Persons  described therein as of the date thereof in accordance with GAAP; there
are no  material  omissions  from the  Prepared  Financials  or  other  facts or
circumstances  not reflected in the Prepared  Financials;  and there has been no
material and adverse change in such financial  condition or operations since the
date of the initial Prepared Financials delivered to FINOVA hereunder;

         5.14 ERISA.  None of Borrower,  any ERISA Affiliate,  or any Plan is or
has  been  in  violation  of  any  of  the  provisions  of  ERISA,  any  of  the
qualification  requirements  of IRC  Section  401(a)  or  any  of the  published
interpretations thereunder, nor has Borrower or any ERISA Affiliate received any
notice to such  effect.  No notice of intent to  terminate a Plan has been filed
under Section 4041 of ERISA,  nor has any Plan been terminated  under ERISA. The
PBGC has not  instituted  proceedings  to  terminate,  or appointed a trustee to
administer,  a Plan. No lien upon the assets of Borrower has arisen with respect
to a Plan.  No  prohibited  transaction  or  Reportable  Event has occurred with
respect to a Plan.  Neither  Borrower nor any ERISA  Affiliate  has incurred any
withdrawal  liability with respect to any Multiemployer  Plan. Borrower and each
ERISA Affiliate have made all  contributions  required to be made by them to any
Plan or Multiemployer Plan when due. There is no accumulated  funding deficiency
in any Plan, whether or not waived;

         5.15 Taxes.  Borrower has filed all tax returns and such other  reports
as it is required by law to file and has paid or made adequate provision for the
payment on or prior to the date when due of all taxes,  assessments  and similar
charges that are due and payable;

         5.16 Locations;  Federal Tax ID No.  Borrower's  chief executive office
and the  offices  and  locations  where  it keeps  the  Collateral  (except  for
Inventory in transit) are at the locations set forth on the Schedule,  except to
the extent that such  locations  may have been changed after notice to FINOVA in
accordance with Section 6.4 hereof; Borrower's federal tax identification number
is as shown on the Schedule;

         5.17  Business  Relationships.  There  exists no  actual or  threatened
termination,  cancellation  or limitation of, or any  modification or change in,
the  business  relationship  between  Borrower  and any customer or any group of
customers whose  purchases  individually or in the aggregate are material to the
business of Borrower, or with any material supplier, and there exists no present
condition  or state  of  facts  or  circumstances  which  would  materially  and
adversely  affect  Borrower or prevent  Borrower from  conducting  such business
after the  consummation  of the  transactions  contemplated by this Agreement in
substantially the same manner in which it has heretofore been conducted; and

         5.18 Reaffirmations.  Each request for a loan made by Borrower pursuant
to this Agreement shall constitute (i) an automatic  representation and warranty
by  Borrower  to FINOVA  that there does not then exist any Event of Default and
(ii)  a   reaffirmation   as  of  the  date  of  said  request  of  all  of  the
representations  and warranties of Borrower  contained in this Agreement and the
other Loan Documents.

6.       COVENANTS.

         6.1  Affirmative  Covenants.  Borrower  covenants  that, so long as any
Obligation remains outstanding and this Agreement is in effect, it shall:

     6.1.1 Taxes.  File all tax returns and pay or make  adequate  provision for
the payment of all taxes,  assessments and other charges on or prior to the date
when due;

     6.1.2  Notice of  Litigation.  Promptly  notify  FINOVA in  writing  of any
litigation, suit or administrative proceeding which may materially and adversely
affect the


<PAGE>

Collateral or Borrower's business, assets,  operations,  prospects or condition,
financial or otherwise, whether or not the claim is covered by insurance;

             6.1.3  ERISA.  Notify  FINOVA  in  writing  (i)  promptly  upon the
occurrence  of any event  described  in  Paragraph  4043 of ERISA,  other than a
termination,  partial  termination or merger of a Plan or a transfer of a Plan's
assets and (ii) prior to any  termination,  partial  termination  or merger of a
Plan or a transfer of a Plan's assets;

             6.1.4 Change in Location.  Notify FINOVA in writing forty-five (45)
days prior to any change in the location of Borrower's chief executive office or
the location of any  Collateral,  or Borrower's  opening or closing of any other
place of business;

             6.1.5 Corporate Existence. Maintain its corporate existence and its
qualification  to do business and good standing in all states  necessary for the
conduct of its business and the ownership of its property and maintain  adequate
assets,  licenses,  patents,  copyrights,  trademarks  and  trade  names for the
conduct of its business;

     6.1.6  Labor  Disputes.  Promptly  notify  FINOVA in  writing  of any labor
dispute to which  Borrower is or may become  subject and the  expiration  of any
labor contract to which Borrower is a party or bound;

             6.1.7  Violations of Law.  Promptly notify FINOVA in writing of any
violation of any law,  statute,  regulation  or  ordinance  of any  governmental
entity,  or of any agency  thereof,  applicable to Borrower which may materially
and adversely affect the Collateral or Borrower's business,  assets,  prospects,
operations or condition, financial or otherwise;

             6.1.8  Defaults.  Notify FINOVA in writing within five (5) Business
Days of Borrower's default under any note, indenture, loan agreement,  mortgage,
lease or other  agreement to which  Borrower is a party or by which  Borrower is
bound, or of any other default under any Indebtedness of Borrower;

             6.1.9 Capital  Expenditures.  Promptly  notify FINOVA in writing of
the making of any Capital Expenditure  materially affecting Borrower's business,
assets, prospects,  operations or condition,  financial or otherwise,  except to
the extent permitted in the Schedule;

             6.1.10  Books  and  Records.  Keep  adequate  records  and books of
account with respect to its business activities in which proper entries are made
in accordance with GAAP, reflecting all of its financial transactions;

             6.1.11 Leases; Warehouse Agreements. Provide FINOVA with (i) copies
of all  agreements  between  Borrower and any landlord,  warehouseman  or bailee
which owns any  premises  at which any  Collateral  may,  from time to time,  be
located  (whether  for  processing,  storage  or  otherwise),  and (ii)  without
limiting the landlord,  bailee and/or mortgagee  waivers to be provided pursuant
to Section 4.1(j) hereof,  additional landlord,  bailee and/or mortgagee waivers
in form  acceptable to FINOVA with respect to all locations where any Collateral
is hereafter located;

             6.1.12 Additional Documents. At FINOVA's request,  promptly execute
or  cause  to be  executed  and  delivered  to  FINOVA  any and  all  documents,
instruments  or  agreements   deemed  necessary  by  FINOVA  to  facilitate  the
collection of the  Obligations  or the Collateral or otherwise to give effect to
or carry  out the terms or intent  of this  Agreement  or any of the other  Loan
Documents.  Without  limiting the  generality  of the  foregoing,  if any of the
Receivables  with a face value in excess of $1,000 arises out of a contract with
the  United  States  of  America  or  any  department,  agency,  subdivision  or
instrumentality  thereof,  Borrower shall promptly notify FINOVA of such fact in
writing and shall execute any  instruments and take any other action required or
requested by FINOVA to comply with the  provisions of the Federal  Assignment of
Claims Act; and

     6.1.13 Financial  Covenants.  Comply with the financial covenants set forth
on the Schedule.

     6.2 Negative  Covenants.  Without  FINOVA's  prior written  consent,  which
consent  FINOVA may withhold in its sole  discretion,  so long as any Obligation
remains outstanding and this


<PAGE>

Agreement is in effect, Borrower shall not:

             6.2.1  Mergers.  Merge or  consolidate  with or  acquire  any other
Person,  or make any other  material  change in its capital  structure or in its
business  or  operations  which  might  adversely  affect the  repayment  of the
Obligations;

             6.2.2 Loans.  Make  advances,  loans or extensions of credit to, or
invest in, any Person,  except for loans or cash advances to employees which are
permitted in the Schedule;

     6.2.3  Dividends.  Declare or pay cash  dividends  upon any of its stock or
distribute any of its property or redeem,  retire,  purchase or acquire directly
or indirectly any of its stock;

     6.2.4 Adverse Transactions. Enter into any transaction which materially and
adversely affects the Collateral or its ability to repay the Obligations in full
as and when due;

             6.2.5  Indebtedness  of Others.  Guarantee  or become  directly  or
contingently liable for the Indebtedness of any Person, except by endorsement of
instruments for deposit and except for the existing  guarantees made by Borrower
prior to the date hereof, if any, which are set forth in the Schedule;

             6.2.6  Repurchase.  Make a sale to any customer on a bill-and-hold,
guaranteed sale, sale and return,  sale on approval,  consignment,  or any other
repurchase or return basis;

             6.2.7 Name.  Use any  corporate or  fictitious  name other than its
corporate name as set forth in its Articles or Certificate of  Incorporation  on
the date hereof or as set forth on the Schedule;

     6.2.8  Prepayment.  Prepay any  Indebtedness  other than trade payables and
other than the Obligations*;

             *(except in the  ordinary  course of  business);  provided  that no
prepayments  may be made with  respect  to the Bridge  Loans (as  defined in the
Schedule),  except as set forth in the Schedule,  and no prepayments may be made
with  respect  to  other   Subordinated  Debt  except  in  accordance  with  the
subordination agreement to which FINOVA is a party

     6.2.9 Capital Expenditure.  Make or incur any Capital Expenditure if, after
giving effect  thereto,  the  aggregate  amount of all Capital  Expenditures  by
Borrower in any fiscal year would exceed the amount set forth on the Schedule;

             6.2.10  Compensation.  Pay total compensation,  including salaries,
withdrawals,  fees, bonuses,  commissions,  drawing accounts and other payments,
whether directly or indirectly, in money or otherwise, during any fiscal year to
all of Borrower's  executives,  officers and directors (or any relative thereof)
in an amount in excess of the amount set forth on the Schedule;

             6.2.11 Indebtedness.  Create,  incur, assume or permit to exist any
Indebtedness  (including  Indebtedness  in  connection  with Capital  Leases) in
excess of the amount set forth on the Schedule,  other than (i) the Obligations,
(ii) trade payables and other contractual obligations to suppliers and customers
incurred  in the  ordinary  course of  business,  and (iii)  other  Indebtedness
existing on the date of this Agreement and reflected in the Prepared  Financials
(except  Indebtedness  paid on the date of this  Agreement  from proceeds of the
initial advances hereunder), and (iv) Subordinated Debt;

             6.2.12  Affiliate  Transactions.  Except as set forth below,  sell,
transfer, distribute or pay any money or property to any Affiliate, or invest in
(by capital  contribution  or otherwise) or purchase or repurchase  any stock or
Indebtedness,  or any  property,  of any  Affiliate,  or  become  liable  on any
guaranty of the  indebtedness,  dividends or other obligations of any Affiliate.
Notwithstanding  the  foregoing,  Borrower  may pay  compensation  permitted  by
Section 6.23 to  employees  who are  Affiliates  and, if no Event of Default has
occurred,  Borrower may (i) engage in transactions with Affiliates in the normal
course of  business,  in amounts  and upon terms  which are fully  disclosed  to
FINOVA and which


<PAGE>

are no less favorable to Borrower than would be obtainable in a comparable arm's
length transaction with a Person who is not an Affiliate, and (ii) make payments
to a  Subordinating  Creditor that is an  Affiliate,  subject to and only to the
extent  expressly   permitted  in  the  Subordination   Agreement  between  such
Subordinating Creditor and FINOVA;

     6.2.13 Nature of Business. Enter into any new business or make any material
change in any of Borrower's business objectives, purposes or operations;

             6.2.14 FINOVA's Name. Use the name of FINOVA in connection with any
of  Borrower's  business  or  activities,  except in  connection  with  internal
business  matters or as required  in dealings  with  governmental  agencies  and
financial  institutions or with trade  creditors of Borrower,  solely for credit
reference purposes; or

             6.2.15 Margin Security. Borrower will not (and has not in the past)
engaged principally,  or as one of its important activities,  in the business of
extending  credit for the purpose of purchasing or carrying margin stock (within
the meaning of  Regulation G or Regulation U issued by the Board of Governors of
the Federal Reserve  System),  and no proceeds of any Loan or other advance will
be used to purchase or carry any margin stock or to extend  credit to others for
the purpose of purchasing  or carrying any margin stock,  or in any manner which
might cause such Loan or other  advance or the  application  of such proceeds to
violate (or require any  regulatory  filing under)  Regulation G,  Regulation T,
Regulation U, Regulation X or any other  regulation of the Board of Governors of
the Federal  Reserve  System,  in each case as in effect on the date or dates of
such Loan or other advance and such use of proceeds. Further, no proceeds of any
Loan or other  advance  will be used to acquire any security of a class which is
registered pursuant to Section 12 of the Securities Exchange Act of 1934.

             6.2.16 Real Property. Purchase or acquire any real property without
FINOVA's  prior  written  consent,  a condition of which  consent  shall include
delivery  of  appropriate  environmental  reports  and  analysis,  in  form  and
substance satisfactory to FINOVA and its counsel.

7.       DEFAULT AND REMEDIES.

         7.1 Events of Default.  Any one or more of the  following  events shall
constitute an Event of Default under this Agreement:

         (a)  Borrower  fails to pay when due and  payable  any  portion  of the
Obligations at stated maturity, upon acceleration or otherwise;

         (b)  Borrower  or any other Loan Party  fails or  neglects  to perform,
keep,  or  observe  any  Obligation  including,  but not  limited  to, any term,
provision,  condition,  covenant or agreement  contained in any Loan Document to
which Borrower or such other Loan Party is a party;

         (c) Any material adverse change occurs in Borrower's business,  assets,
operations, prospects or condition, financial or otherwise;

         (d) The prospect of repayment of any portion of the  Obligations or the
value or priority of FINOVA's  security interest in the Collateral is materially
impaired;

         (e) Any portion of Borrower's assets is seized, attached,  subjected to
a writ or distress  warrant,  is levied upon or comes into the possession of any
judicial officer;

         (f) Borrower  shall  generally  not pay its debts as they become due or
shall enter into any agreement (whether written or oral), or offer to enter into
any agreement,  with all or a significant number of its creditors  regarding any
moratorium or other indulgence with respect to its debts or the participation of
such  creditors  or their  representatives  in the  supervision,  management  or
control of the business of Borrower;

         (g) Any  bankruptcy  or other  insolvency  proceeding  is  commenced by
Borrower,  or any such  proceeding  is  commenced  against  Borrower and remains
undischarged or unstayed for forty-five (45) days;

         (h) Any  notice of lien,  levy or  assessment  is filed of record  with
respect to any of Borrower's assets;



<PAGE>

         (i) Any judgments are entered against  Borrower in an aggregate  amount
exceeding $25,000 in any fiscal year*;

     *unless  the same is paid or fully  bonded  within  ten days after the date
such judgment is entered

         (j) Any default  shall occur under (i) any material  agreement  between
Borrower and any third party including,  without  limitation,  any default which
would  result in a right by such third party to  accelerate  the maturity of any
Indebtedness of Borrower to such third party*, or (ii) any Subordinated Debt;

         *in excess of $25,000

         (k)  Any  representation  or  warranty  made  or  deemed  to be made by
Borrower,  any  Affiliate  or any other Loan Party in any Loan  Document  or any
other  statement,  document or report made or delivered to FINOVA in  connection
therewith shall prove to have been misleading in any material respect;

         (l) Any  Guarantor  terminates or attempts to terminate its Guaranty or
any security  therefor or becomes subject to any bankruptcy or other  insolvency
proceeding;

         (m) Any  Prohibited  Transaction  or Reportable  Event shall occur with
respect to a Plan which could have a material  adverse  effect on the  financial
condition of Borrower;  any lien upon the assets of Borrower in connection  with
any Plan shall arise; Borrower or any of its ERISA Affiliates shall fail to make
full  payment  when  due of  all  amounts  which  Borrower  or any of its  ERISA
Affiliates may be required to pay to any Plan or any  Multiemployer  Plan as one
or more contributions  thereto;  Borrower or any of its ERISA Affiliates creates
or permits the creation of any accumulated  funding  deficiency,  whether or not
waived; or

         (n) Any  transfer  of more than ten  percent  (10%) of the  issued  and
outstanding shares of common stock or other evidence of ownership of Borrower*.

     *(other than as a result of the exercise of presently outstanding warrants)

NOTWITSTANDING  ANYTHING TO THE CONTRARY  HEREIN,  FINOVA  RESERVES THE RIGHT TO
CEASE MAKING ANY LOANS DURING ANY CURE PERIOD STATED ABOVE, AND THEREAFTER IF AN
EVENT OF DEFAULT HAS OCCURRED.

         7.2 Remedies.  Upon the occurrence of an Event of Default,  FINOVA may,
at its option and in its sole  discretion  and in  addition  to all of its other
rights under the Loan  Documents,  cease making Loans,  terminate this Agreement
and/or  declare  all of the  Obligations  to be  immediately  payable  in  full.
Borrower agrees that FINOVA shall also have all of its rights and remedies under
applicable law, including,  without limitation,  the default rights and remedies
of a  secured  party  under  the Code,  and upon the  occurrence  of an Event of
Default  Borrower  hereby consents to the appointment of a receiver by FINOVA in
any  action   initiated  by  FINOVA  pursuant  to  this  Agreement  and  to  the
jurisdiction  and venue set forth in Section  9.25 hereof,  and Borrower  waives
notice and posting of a bond in connection  therewith.  Further,  FINOVA may, at
any time, take possession of the Collateral and keep it on Borrower's  premises,
at no cost to FINOVA,  or remove any part of it to such other place(s) as FINOVA
may desire,  or Borrower shall,  upon FINOVA's demand,  at Borrower's sole cost,
assemble the  Collateral  and make it available to FINOVA at a place  reasonably
convenient  to FINOVA.  FINOVA may sell and deliver any  Collateral at public or
private sales, for cash, upon credit or otherwise,  at such prices and upon such
terms as FINOVA  deems  advisable,  at FINOVA's  discretion,  and may, if FINOVA
deems it  reasonable,  postpone  or  adjourn  any sale of the  Collateral  by an
announcement  at the time and place of sale or of such  postponed  or  adjourned
sale  without  giving a new notice of sale.  Borrower  agrees that FINOVA has no
obligation to preserve  rights to the  Collateral or marshall any Collateral for
the benefit of any Person.  FINOVA is hereby granted a license or other right to
use,  without  charge,  Borrower's  labels,  patents,  copyrights,  name,  trade
secrets,  trade  names,  trademarks  and  advertising  matter,  or  any  similar
property,  in completing  production,  advertising or selling any Collateral and
Borrower's rights under all licenses and all franchise agreements shall inure to
FINOVA's  benefit.  Any  requirement  of reasonable  notice shall be met if such
notice is mailed  postage  prepaid to  Borrower  at its address set forth in the
heading  to this  Agreement  at  least  five  (5)  days  before  sale  or  other
disposition. The proceeds of sale

<PAGE>

shall be applied,  first,  to all attorneys fees and other expenses of sale, and
second,  to the  Obligations  in such order as FINOVA shall  elect,  in its sole
discretion. FINOVA shall return any excess to Borrower and Borrower shall remain
liable for any deficiency to the fullest extent permitted by law.

         7.3 Standards for Determining Commercial  Reasonableness.  Borrower and
FINOVA  agree  that  the  following  conduct  by  FINOVA  with  respect  to  any
disposition of Collateral shall conclusively be deemed  commercially  reasonable
(but other conduct by FINOVA, including, but not limited to, FINOVA's use in its
sole discretion of other or different times,  places and manners of noticing and
conducting any disposition of Collateral shall not be deemed unreasonable):  Any
public or private  disposition:  (i) as to which on no later than the * calendar
day prior thereto  written notice  thereof is mailed or personally  delivered to
Borrower and, with respect to any public disposition, on no later than the fifth
calendar day prior thereto  notice  thereof  describing in general  non-specific
terms,  the  Collateral  to be disposed of is  published  once in a newspaper of
general  circulation  in the county where the sale is to be conducted  (provided
that no  notice  of any  public  or  private  disposition  need be  given to the
Borrower or published if the  Collateral  is  perishable or threatens to decline
speedily in value or is of a type customarily sold on a recognized market); (ii)
which is  conducted  at any place  designated  by FINOVA,  with or  without  the
Collateral  being  present;  and (iii) which  commences at any time between 8:00
a.m. and 5:00 p.m.  Without  limiting the generality of the foregoing,  Borrower
expressly agrees that, with respect to any disposition of accounts,  instruments
and  general  intangibles,  it shall be  commercially  reasonable  for FINOVA to
direct any prospective purchaser thereof to ascertain directly from Borrower any
and all  information  concerning  the same,  including,  but not limited to, the
terms of payment, aging and delinquency,  if any, the financial condition of any
obligor or account  debtor  thereon or  guarantor  thereof,  and any  collateral
therefor.

         *tenth

8.       EXPENSES AND INDEMNITIES

         8.1  Expenses.  Borrower  covenants  that,  so long  as any  Obligation
remains  outstanding  and this  Agreement  remains in effect,  it shall promptly
reimburse  FINOVA  for all * costs,  fees and  expenses  incurred  by  FINOVA in
connection   with   the   negotiation,    preparation,    execution,   delivery,
administration and enforcement of each of the Loan Documents, including, but not
limited to, the attorneys' and paralegals' fees of in-house and outside counsel,
expert witness fees, lien, title search and insurance fees,  appraisal fees, all
charges and  expenses  incurred  in  connection  with any and all  environmental
reports and environmental remediation activities, and all other costs, expenses,
taxes and filing or recording fees payable in connection  with the  transactions
contemplated by this  Agreement,  including  without  limitation all such costs,
fees and  expenses  as FINOVA  shall  incur or for  which  FINOVA  shall  become
obligated  in  connection  with  (i)  any  inspection  or  verification  of  the
Collateral,   (ii)  any  proceeding  relating  to  the  Loan  Documents  or  the
Collateral,  (iii)  actions  taken with respect to the  Collateral  and FINOVA's
security  interest  therein,  including,  without  limitation,  the  defense  or
prosecution of any action involving FINOVA and Borrower or any third party, (iv)
enforcement  of  any  of  FINOVA's  rights  and  remedies  with  respect  to the
Obligations  or Collateral  and (v)  consultation  with  FINOVA's  attorneys and
participation in any workout, bankruptcy or other insolvency or other proceeding
involving any Loan Party or any  Affiliate,  whether or not suit is filed or the
issues are peculiar to federal  bankruptcy or state  insolvency  laws.  Borrower
shall  also pay all  FINOVA  charges  in  connection  with bank wire  transfers,
forwarding  of loan  proceeds,  deposits  of checks and other  items of payment,
returned  checks,  establishment  and maintenance of lockboxes and other Blocked
Accounts,  and all other bank and  administrative  matters,  in accordance  with
FINOVA's  schedule  of bank and  administrative  fees and charges in effect from
time to time.

         *reasonable

         8.2 Environmental  Matters.  The Environmental  Certificate dated on or
about the date of this Agreement is  incorporated  herein for all purposes as if
fully stated in this Agreement.

9.       MISCELLANEOUS.



<PAGE>


         9.1    Examination of Records; Financial Reporting.

         (a) Examinations. FINOVA shall at all reasonable times have full access
to and the right to examine,  audit,  make abstracts and copies from and inspect
Borrower's records, files, books of account and all other documents, instruments
and  agreements  relating  to the  Collateral  and the right to check,  test and
appraise  the  Collateral.  Borrower  shall  deliver  to FINOVA  any  instrument
necessary  for FINOVA to obtain  records  from any  service  bureau  maintaining
records for Borrower.  All  instruments  and  certificates  prepared by Borrower
showing the value of any of the Collateral  shall be accompanied,  upon FINOVA's
request,  by copies of related purchase orders and invoices.  FINOVA may, at any
time  after  the  occurrence  of an Event of  Default,  remove  from  Borrower's
premises Borrower's books and records (or copies thereof) or require Borrower to
deliver such books and records or copies to FINOVA.  FINOVA may, without expense
to FINOVA,  use such of  Borrower's  personnel,  supplies and premises as may be
reasonably necessary for maintaining or enforcing FINOVA's security interest.

         (b)  Reporting  Requirements.   Borrower  shall  furnish  FINOVA,  upon
request,  such  information  and statements as FINOVA shall request from time to
time regarding Borrower's business affairs,  financial condition and the results
of its operations.  Without  limiting the generality of the foregoing,  Borrower
shall  provide  FINOVA with:  (i) FINOVA's  standard  form  collateral  and loan
report, daily, and upon FINOVA's request, copies of sales journals, cash receipt
journals,  and  deposit  slips;  (ii)  upon  FINOVA's  request,  copies of sales
invoices,  customer  statements and credit memoranda issued,  remittance advices
and reports; (iii) copies of shipping and delivery documents, upon request; (iv)
on or prior to the date set forth on the  Schedule,  monthly  agings  (aged from
invoice date) and  reconciliations of Receivables (with listings of concentrated
accounts),  payables reports,  inventory  reports,  compliance  certificates and
unaudited  financial  statements  with respect to the prior month  prepared on a
basis consistent with such statements  prepared in prior months and otherwise in
accordance  with  GAAP;  (v)  audited  annual   consolidated  and  consolidating
financial  statements,  prepared  in  accordance  with GAAP  applied  on a basis
consistent  with the most  recent  Prepared  Financials  provided  to  FINOVA by
Borrower, including balance sheets, income and cash flow statements, accompanied
by the unqualified  report thereon of independent  certified public  accountants
acceptable to FINOVA, as soon as available, and in any event, within ninety (90)
days  after  the  end  of  each  of  Borrower's  fiscal  years;  and  (vi)  such
certificates relating to the foregoing as FINOVA may request, including, without
limitation,  a monthly  certificate  from the president and the chief  financial
officer of Borrower  showing  Borrower's  compliance  with each of the financial
covenants set forth in this Agreement,  and stating whether any Event of Default
has  occurred or event which,  with giving of notice or the passage of time,  or
both, would constitute an Event of Default,  and if so, the steps being taken to
prevent or cure such Event of  Default.  All  reports  or  financial  statements
submitted by Borrower  shall be in  reasonable  detail and shall be certified by
the principal financial officer of Borrower as being complete and correct.

         (c) Guarantor's  Financial  Statements and Tax Returns.  Borrower shall
cause  each of the  Guarantors  to  deliver to FINOVA  such  Guarantor's  annual
financial  statement  (in  form  acceptable  to  FINOVA)  and  a  copy  of  such
Guarantor's federal income tax return with respect to the corresponding year, in
each case on the date when such tax  return is due or, if  earlier,  on the date
when available.

         9.2    Term; Termination.

         (a) Term.  The Initial Term of the Revolving  Credit Loans facility and
the  obligation of FINOVA to made  advances  with respect  thereto in accordance
with this  Agreement  shall be as set forth on the  Schedule,  and the Revolving
Credit Loans facility and this Agreement shall be automatically  renewed for one
or more Renewal Term(s) as set forth in the Schedule,  unless earlier terminated
as provided herein.

         (b) Prior  Notice.  Each party shall have the right to  terminate  this
Agreement  effective at the end of the Initial Term or at the end of any Renewal
Term by giving  the other  party  written  notice  not less than sixty (60) days
prior to the  effective  date of such  termination,  by  registered or certified
mail.

     (c)  Payment  in  Full.  Upon  the  effective  date  of  termination,   the
Obligations shall



<PAGE>


become immediately due and payable in full in cash.

         (d) Early  Termination;  Termination  Fee. In addition to the procedure
set forth in Section  9.2(b),  Borrower may terminate this Agreement at any time
but only upon sixty (60)  days'  prior  written  notice  and  prepayment  of the
Obligations.  Upon any such early  termination by Borrower or any termination of
this Agreement by FINOVA upon the  occurrence of an Event of Default,  then, and
in any such event,  Borrower shall pay to FINOVA upon the effective date of such
termination a fee (the "Termination Fee") in an amount equal to the amount shown
on the Schedule.

         9.3 Recourse to Security;  Certain  Waivers.  All Obligations  shall be
payable by Borrower as provided for herein and, in full, at the  termination  of
this Agreement; recourse to security shall not be required at any time. Borrower
waives  presentment and protest of any instrument and notice thereof,  notice of
default and, to the extent  permitted by  applicable  law, all other  notices to
which Borrower might otherwise be entitled.

         9.4 No Waiver by  FINOVA.  Neither  FINOVA's  failure to  exercise  any
right, remedy or option under this Agreement, any supplement, the Loan Documents
or other  agreement  between  FINOVA  and  Borrower  nor any  delay by FINOVA in
exercising  the same  shall  operate as a waiver.  No waiver by FINOVA  shall be
effective  unless in writing  and then only to the extent  stated.  No waiver by
FINOVA shall affect its right to require strict performance of this Agreement.
FINOVA's rights and remedies shall be cumulative and not exclusive.

         9.5 Binding on Successor and Assigns. All terms, conditions,  promises,
covenants,  provisions  and  warranties  shall  inure to the benefit of and bind
FINOVA's and Borrower's respective representatives, successors and assigns.

         9.6  Severability.   If  any  provision  of  this  Agreement  shall  be
prohibited or invalid under applicable law, it shall be ineffective only to such
extent, without invalidating the remainder of this Agreement.

         9.7  Amendments;  Assignments.  This  Agreement  may  not be  modified,
altered or amended,  except by an  agreement  in writing  signed by Borrower and
FINOVA. Borrower may not sell, assign or transfer any interest in this Agreement
or  any  other  Loan  Document,  or  any  portion  thereof,  including,  without
limitation,  any of Borrower's rights, title,  interests,  remedies,  powers and
duties   hereunder  or  thereunder.   Borrower   hereby   consents  to  FINOVA's
participation,  sale, assignment,  transfer or other disposition, at any time or
times  hereafter,  of this Agreement and any of the other Loan Documents,  or of
any portion hereof or thereof, including,  without limitation,  FINOVA's rights,
title,  interests,  remedies,  powers and duties  hereunder  or  thereunder.  In
connection  therewith,  FINOVA may disclose all documents and information  which
FINOVA now or hereafter may have relating to Borrower or Borrower's business. To
the extent that FINOVA assigns its rights and  obligations  hereunder to a third
party,  FINOVA shall  thereafter be released from such assigned  obligations  to
Borrower and such assignment  shall effect a novation  between Borrower and such
third party.

         9.8 Integration. This Agreement, together with the Schedule (which is a
part hereof) and the other Loan Documents,  reflect the entire  understanding of
the parties with respect to the transactions contemplated hereby.

         9.9 Survival.  All of the  representations  and  warranties of Borrower
contained in this Agreement shall survive the execution, delivery and acceptance
of this  Agreement by the parties.  No  termination  of this Agreement or of any
guaranty of the  Obligations  shall  affect or impair the  powers,  obligations,
duties, rights, representations, warranties or liabilities of the parties hereto
and all shall survive such termination.

         9.10  Evidence  of  Obligations.   Each  Obligation  may,  in  FINOVA's
discretion,  be  evidenced  by  notes  or other  instruments  issued  or made by
Borrower to FINOVA.  If not so  evidenced,  such  Obligation  shall be evidenced
solely by entries upon FINOVA's books and records.

         9.11 Loan  Requests.  Each oral or  written  request  for a loan by any
Person who purports to be any employee,  officer or authorized agent of Borrower
shall be made to FINOVA on or prior to 11:00 a.m., Pacific time, on the Business
Day on which the proceeds thereof are requested to be paid to Borrower and shall
be conclusively presumed to be made by a


<PAGE>


Person authorized by Borrower to do so and the crediting of a loan to Borrower's
operating account shall conclusively  establish  Borrower's  obligation to repay
such loan. Unless and until Borrower  otherwise  directs FINOVA in writing,  all
loans shall be wired to Borrower's operating account set forth on the Schedule.

         9.12 Notices.  Any notice  required  hereunder  shall be in writing and
addressed  to the  Borrower  and  FINOVA  at their  addresses  set  forth at the
beginning of this Agreement.  Notices  hereunder shall be deemed received on the
earlier of receipt, whether by mail, personal delivery, facsimile, or otherwise,
or upon deposit in the United States mail, postage prepaid.

         9.13 Brokerage Fees.  Borrower  represents and warrants to FINOVA that,
with respect to the  financing  transaction  herein  contemplated,  no Person is
entitled  to any  brokerage  fee or other  commission  and  Borrower  agrees  to
indemnify and hold FINOVA harmless against any and all such claims.

         9.14 Disclosure. No representation or warranty made by Borrower in this
Agreement,  or in any  financial  statement,  report,  certificate  or any other
document  furnished in connection  herewith  contains any untrue  statement of a
material  fact or  omits  to  state  any  material  fact  necessary  to make the
statements herein or therein not misleading.  There is no fact known to Borrower
or which reasonably should be known to Borrower which Borrower has not disclosed
to FINOVA in writing  with  respect  to the  transactions  contemplated  by this
Agreement  which  materially  and  adversely   affects  the  business,   assets,
operations, prospects or condition (financial or otherwise), of Borrower.

         9.15 Publicity.  FINOVA is hereby authorized to issue appropriate press
releases and to cause a tombstone to be published announcing the consummation of
this transaction and the aggregate amount thereof.

         9.16  Captions.  The Section  titles  contained in this  Agreement  are
without substantive meaning and are not part of this Agreement.

         9.17 Injunctive Relief. Borrower recognizes that, in the event Borrower
fails to  perform,  observe  or  discharge  any of its  Obligations  under  this
Agreement,  any  remedy at law may  prove to be  inadequate  relief  to  FINOVA.
Therefore,  FINOVA,  if it so  requests,  shall be  entitled  to  temporary  and
permanent  injunctive  relief in any such case without the  necessity of proving
actual damages.

         9.18 Counterparts;  Facsimile Execution. This Agreement may be executed
in one or more  counterparts,  each of which taken together shall constitute one
and the same  instrument,  admissible  into  evidence.  Delivery  of an executed
counterpart of this Agreement by telefacsimile  shall be equally as effective as
delivery  of a  manually  executed  counterpart  of this  Agreement.  Any  party
delivering an executed counterpart of this Agreement by telefacsimile shall also
deliver a manually  executed  counterpart of this Agreement,  but the failure to
deliver  a  manually  executed   counterpart  shall  not  affect  the  validity,
enforceability, and binding effect of this Agreement.

         9.19  Construction.  The  parties  acknowledge  that each party and its
counsel have reviewed this Agreement and that the normal rule of construction to
the effect that any  ambiguities  are to be resolved  against the drafting party
shall not be employed in the  interpretation of this Agreement or any amendments
or exhibits hereto.

         9.20 Time of Essence.  Time is of the essence  for the  performance  by
Borrower of the Obligations set forth in this Agreement.

         9.21 Limitation of Actions.  Borrower agrees that any claim or cause of
action by  Borrower  against  FINOVA,  or any of FINOVA's  directors,  officers,
employees,  agents,  accountants  or  attorneys,  based upon,  arising  from, or
relating to this  Agreement,  or any other present or future  agreement,  or any
other transaction  contemplated hereby or thereby or relating hereto or thereto,
or any other matter,  cause or thing whatsoever,  whether or not relating hereto
or thereto,  occurred,  done,  omitted or  suffered to be done by FINOVA,  or by
FINOVA's  directors,  officers,  employees,  agents,  accountants  or attorneys,
whether  sounding in contract or in tort or  otherwise,  shall be barred  unless
asserted by Borrower by the  commencement  of an action or proceeding in a court
of competent jurisdiction by the filing


<PAGE>

of a complaint within one year after the first act,  occurrence or omission upon
which such claim or cause of action,  or any part thereof,  is based and service
of a  summons  and  complaint  on an  officer  of  FINOVA  or any  other  Person
authorized  to accept  service of  process  on behalf of FINOVA,  within 30 days
thereafter.  Borrower  agrees that such one-year  period of time is a reasonable
and sufficient  time for Borrower to investigate  and act upon any such claim or
cause of  action.  The  one-year  period  provided  herein  shall not be waived,
tolled,  or extended  except by a specific  written  agreement  of FINOVA.  This
provision  shall  survive any  termination  of this Loan  Agreement or any other
agreement.

         9.22 Liability. Neither FINOVA nor any FINOVA Affiliate shall be liable
for any indirect,  special,  incidental or  consequential  damages in connection
with any breach of contract,  tort or other wrong  relating to this Agreement or
the  Obligations  or the  establishment,  administration  or collection  thereof
(including   without   limitation   damages  for  loss  of   profits,   business
interruption,   or  the  like),   whether  such  damages  are   foreseeable   or
unforeseeable,  even if  FINOVA  has been  advised  of the  possibility  of such
damages.  Neither  FINOVA,  nor any  FINOVA  Affiliate  shall be liable  for any
claims,  demands,  losses or damages,  of any kind  whatsoever,  made,  claimed,
incurred or suffered by the Borrower through the ordinary  negligence of FINOVA,
or any FINOVA  Affiliate.  "FINOVA  Affiliate"  shall mean  FINOVA's  directors,
officers,  employees, agents, attorneys or any other Person or entity affiliated
with or representing FINOVA.

         9.23 Notice of Breach by FINOVA. Borrower agrees to give FINOVA written
notice of (i) any  action or  inaction  by FINOVA or any  attorney  of FINOVA in
connection with any Loan Documents that may be actionable  against FINOVA or any
attorney of FINOVA or (ii) any defense to the payment of the Obligations for any
reason,  including, but not limited to, commission of a tort or violation of any
contractual duty or duty implied by law. Borrower agrees that unless such notice
is fully  given as promptly as  possible  (and in any event  within  thirty (30)
days) after Borrower has knowledge, or with the exercise of reasonable diligence
should have had  knowledge,  of any such action,  inaction or defense,  Borrower
shall not assert,  and  Borrower  shall be deemed to have  waived,  any claim or
defense arising therefrom.

         9.24  Application  of  Insurance  Proceeds.  The  net  proceeds  of any
casualty  insurance  insuring  the  Collateral,  after  deducting  all costs and
expenses  (including  attorneys'  fees)  of  collection,  shall be  applied,  at
FINOVA's  option,  either  toward  replacing or restoring the  Collateral,  in a
manner  and  on  terms   satisfactory  to  FINOVA,  or  toward  payment  of  the
Obligations. Any proceeds applied to the payment of Obligations shall be applied
in such manner as FINOVA may elect. In no event shall such  application  relieve
Borrower  from payment in full of all  installments  of  principal  and interest
which thereafter become due in the order of maturity thereof.

         9.25 Power of Attorney.  Borrower  appoints FINOVA and its designees as
Borrower's  attorney,  with the power to endorse  Borrower's name on any checks,
notes, acceptances, money orders or other forms of payment or security that come
into  FINOVA's  possession;  to sign  Borrower's  name on any invoice or bill of
lading relating to any Receivable,  on drafts against customers,  on assignments
of Receivables, on notices of assignment,  financing statements and other public
records,  on  verifications  of accounts  and on notices to customers or account
debtors;  to send  requests  for  verification  of  Receivables  to customers or
account  debtors;  after the  occurrence of any Event of Default,  to notify the
post office authorities to change the address for delivery of Borrower's mail to
an address designated by FINOVA and to open and dispose of all mail addressed to
Borrower;  and to do all other  things  FINOVA  deems  necessary or desirable to
carry out the terms of this Agreement. Borrower hereby ratifies and approves all
acts of such attorney.  Neither FINOVA nor any of its designees  shall be liable
for any acts or  omissions  nor for any error of  judgment or mistake of fact or
law while  acting as  Borrower's  attorney.  This power,  being  coupled with an
interest,  is irrevocable  until the  Obligations  have been fully satisfied and
FINOVA's obligation to provide loans hereunder shall have terminated

         9.26  Governing  Law;  Waivers.   THIS  AGREEMENT,   INCLUDING  WITHOUT
LIMITATION  ENFORCEMENT OF THE  OBLIGATIONS,  SHALL BE INTERPRETED IN ACCORDANCE
WITH THE  INTERNAL  LAWS (AND NOT THE  CONFLICT  OF LAWS  RULES) OF THE STATE OF
ARIZONA GOVERNING CONTRACTS TO BE PERFORMED ENTIRELY WITHIN SUCH STATE. BORROWER
HEREBY  CONSENTS TO THE  EXCLUSIVE  JURISDICTION  OF ANY STATE OR FEDERAL  COURT
LOCATED WITHIN THE COUNTY OF MARICOPA IN THE STATE OF ARIZONA OR, AT THE SOLE


<PAGE>


OPTION OF FINOVA,  IN ANY OTHER COURT IN WHICH  FINOVA SHALL  INITIATE  LEGAL OR
EQUITABLE  PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER
IN CONTROVERSY. BORROWER WAIVES ANY OBJECTION OF FORUM NON CONVENIENS AND VENUE.
BORROWER  FURTHER  WAIVES  PERSONAL  SERVICE OF ANY AND ALL PROCESS UPON IT, AND
CONSENTS  THAT ALL SUCH  SERVICE  OF  PROCESS BE MADE IN THE MANNER SET FORTH IN
SECTION 9.12 HEREOF FOR THE GIVING OF NOTICE.  BORROWER FURTHER WAIVES ANY RIGHT
IT MAY OTHERWISE HAVE TO COLLATERALLY ATTACK ANY JUDGMENT ENTERED AGAINST IT.


<PAGE>


         9.27 MUTUAL  WAIVER OF RIGHT TO JURY TRIAL.  FINOVA AND  BORROWER  EACH
HEREBY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON,
ARISING OUT OF, OR IN ANY WAY  RELATING TO: (i) THIS  AGREEMENT;  (ii) ANY OTHER
PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN FINOVA AND BORROWER;  OR (iii)
ANY CONDUCT,  ACTS OR OMISSIONS OF FINOVA OR BORROWER OR ANY OF THEIR DIRECTORS,
OFFICERS,  EMPLOYEES,  AGENTS,  ATTORNEYS OR ANY OTHER PERSONS  AFFILIATED  WITH
FINOVA OR BORROWER; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT
OR TORT OR OTHERWISE.



         BORROWER:

         PEN INTERCONNECT, INC.

         Fed. Tax ID #87-0430260



         By__/s/ James S. Pendleton_______

                President or Vice President



         FINOVA:

         FINOVA CAPITAL CORPORATION



         By_/s/ Mike McCauley__________

         Title__Underwriter___________________________



                               Amended Schedule to
                           Loan and Security Agreement

Borrower:         Pen Interconnect, Inc.

Date:             September 5, 1997

This Amended Schedule forms an integral part of the Loan and Security  Agreement
between the above Borrower and FINOVA Capital  Corporation dated the above date,
and all  references  herein and therein to "this  Agreement"  shall be deemed to
refer to said Agreement and to this Schedule.  This Amended  Schedule amends and
restates in its  entirety  the  Schedule to Loan and  Security  Agreement  dated
September 4, 1997. DEFIN ITIONS (SECTION 1):

         "Guarantor(s)" means:   James S. Pendleton, Wayne R. Wright and
          ------------
                                 Stephen J. Fryer (with respect to Term Loan B
                                 referred to below, and with liability limited
                                 to $300,000 principal amount of Term Loan B,
                                 plus interest thereon, plus reasonable costs
                                 in connection therewith, as provided in the
                                 Continuing Guarantees of even date)

         "Subordinating Creditor" means the persons listed on Exhibit A
hereto.

TOTAL FACILITY (SECTION 2.1):

                $6,300,000
LOANS
(SECTION 2.2):

                              Revolving Credit Loans: A revolving line of credit
                              consisting  of loans against  Borrower's  Eligible
                              Receivables   ("Receivable   Loans")  and  against
                              Borrower's Eligible Inventory  ("Inventory Loans")
                              (the  Receivable  Loans  and the  Inventory  Loans
                              shall   be   collectively   referred   to  as  the
                              "Revolving   Credit   Loans")   in  an   aggregate
                              outstanding  principal  amount  not to exceed  the
                              lesser of (a) or (b) below:


<PAGE>

              (a) Five Million Dollars ($5,000,000) (the "Revolving
                                    Credit Limit"), less any Loan Reserves, or

                                    (b)  the sum of

                 (i) an amount equal to 85% of the net amount of
                           Eligible Receivables; plus

                   (ii) an amount not to exceed the lesser of:

                                            (A)  40% of the value of  Borrower's
                                                 Eligible Inventory,  calculated
                                                 at the  lower of cost or market
                                                 value  and   determined   on  a
                                                 first-in, first-out basis, or

                                            (B)      $1,500,000;   less

                                       (iii)  any Loan Reserves.



                              Term  Loans:  Term  loans  against  the  value  of
                              Borrower's machinery, equipment and/or real estate
                              ("Term   Loans")  in  an   aggregate   outstanding
                              principal   amount   not  to  exceed   $1,300,000,
                              consisting   of  Term  Loan  A  in  the   original
                              principal  amount of  $800,000  and Term Loan B in
                              the   original   principal   amount  of  $500,000;
                              provided, that the Term Loans, if any, shall be in
                              such amounts and on such terms as are set forth on
                              separate promissory notes of Borrower from time to
                              time,  each in form and substance  satisfactory to
                              FINOVA in its sole  discretion.  Term Loan A shall
                              be disbursed  concurrently  herewith.  Provided no
                              Event of Default and no event  which,  with notice
                              or passage of time or both,  would  constitute  an
                              Event of Default has occurred  and is  continuing,
                              Term Loan B shall be disbursed at such time as the
                              Borrower  has  received  net cash  proceeds  of an
                              offering of equity  securities  of the Borrower in
                              an   amount   not  less   than   $1,000,000   (the
                              "Additional  Equity Proceeds")  ($400,000 of which
                              Borrower   represents   and   warrants   has  been
                              received)  and executed and  delivered to FINOVA a
                              promissory  note  evidencing  the same in form and
                              substance  satisfactory  to  FINOVA  in  its  sole
                              discretion.   Borrower  covenants  to  obtain  the
                              Additional  Equity Proceeds in full within 90 days
                              after the date hereof,  and in the event,  for any
                              reason,  the  Borrower  fails to comply  with this
                              covenant,  without limiting  FINOVA's other rights
                              and remedies, the interest rate on all Obligations
                              shall  be  increased  by  2.25%  per  annum  until
                              Borrower  has  obtained  the   Additional   Equity
                              Proceeds  in full;  provided  that such  increased
                              interest  rate shall not go into effect so long as
                              Borrower maintains Excess Availability of not less
                              than $300,000.

INTEREST AND FEES (SECTION 2.6):

                              Revolving Interest Rate. Borrower shall pay FINOVA
                              interest  on  the  daily  outstanding  balance  of
                              Borrower's  Revolving  Credit Loans at a per annum
                              rate of 1.75% in  excess  of the rate of  interest
                              announced  publicly  by  Citibank,  N.A.,  (or any
                              successor  thereto),  from  time  to  time  as its
                              "prime  rate" (the "Prime  Rate") which may not be
                              such institution's  lowest rate. The interest rate
                              chargeable  hereunder in respect of the  Revolving
                              Credit  Loans  (herein,  the  "Revolving  Interest
                              Rate")  shall be increased  or  decreased,  as the
                              case may be, without notice or demand of any kind,
                              upon the  announcement  of any change in the Prime
                              Rate. Each


<PAGE>

                              change  in  the  Prime  Rate  shall  be  effective
                              hereunder   on  the   first  day   following   the
                              announcement of such change.  Interest charges and
                              all  other  fees  and  charges   herein  shall  be
                              computed  on the  basis  of a year of 360 days and
                              actual days elapsed and shall be payable to FINOVA
                              in arrears on the first day of each month.



                              Reduction  in   Revolving   Interest   Rate.   The
                              Revolving Interest Rate shall be reduced to a rate
                              equal to the Prime Rate plus 1% per annum,  in the
                              event  after  the  first  anniversary  of the date
                              hereof,  Borrower meets its quarterly  projections
                              dated  March  17,  1997 for the  consecutive  four
                              fiscal quarters ending  September 30, 1998 and has
                              Earnings Before Interest,  Taxes, Depreciation and
                              Amortization  for the fiscal year ending September
                              30,  1998 of at least  $5,124,000.  The  foregoing
                              interest rate reduction  shall go into effect when
                              FINOVA receives financial  statements showing that
                              Borrower  is  entitled  to  such   interest   rate
                              reduction. In the event the Borrower fails to meet
                              its  projections  for any quarterly  period ending
                              after  September 30, 1998, the Revolving  Interest
                              Rate  shall  return  to a rate  equal to the Prime
                              Rate plus 1.75% per annum



                              Term  Interest  Rate:  Borrower  shall pay  FINOVA
                              interest on the daily outstanding  balance of Term
                              Loan A at a per annum rate of 10.16%, and interest
                              on the daily outstanding balance of Term Loan B at
                              a per annum  rate  equal to the rate  offered on a
                              U.S.  Treasury  Note of like  term in effect as of
                              five   Business   Days   prior   to  the  date  of
                              disbursement thereof plus 4.5% per annum.



                              Minimum  Interest  Charge.  With  respect  to each
                              calendar month or portion  thereof during the term
                              of this Agreement (excluding the calendar month in
                              which this Agreement is executed),  Borrower shall
                              also  pay  FINOVA,  on the  first  day of the next
                              month,  as a minimum  charge,  the amount by which
                              accrued interest on the Revolving Credit Loans for
                              such month or portion thereof is less than $10,000
                              (the "Minimum Interest  Charge").  Notwithstanding
                              the  occurrence of any Event of Default  hereunder
                              or  termination  of this  Agreement by FINOVA as a
                              result thereof,  the Minimum Interest Charge shall
                              be paid by Borrower for the  unexpired  portion of
                              the  Initial  Term  or any  Renewal  Term  of this
                              Agreement.



                              Collateral  Monitoring Fee. At the closing of this
                              transaction  and on the first day of each calendar
                              month  thereafter,  Borrower  shall  pay  FINOVA a
                              collateral  monitoring  fee of  $1,500  per  month
                              ("Collateral  Monitoring Fee");  provided however,
                              that Borrower  agrees and  acknowledges  that each
                              Loan Year a full year's fee shall be deemed earned
                              at the beginning of the  respective  Loan Year. At
                              such time as Borrower's  Collateral  reporting has
                              been improved to standards acceptable to FINOVA in
                              its sole discretion, the Collateral Monitoring Fee
                              shall be reduced to $500 per month  (provided that
                              a full  year's  fee  shall  continue  to be deemed
                              earned at the beginning of the


<PAGE>

                              respective Loan Year as provided above).



                              Closing  Fee. At the closing of this  transaction,
                              Borrower  shall pay to FINOVA a closing  fee in an
                              amount  equal to  $69,500  of the  Total  Facility
                              ("Closing  Fee"),  which  shall  be  deemed  fully
                              earned on the date  such  payment  is due.  FINOVA
                              acknowledges  that  $35,000 of the Closing Fee has
                              been received by FINOVA.



                              Annual  Renewal Fee. On the first  anniversary  of
                              the date of this Agreement, and on each subsequent
                              anniversary  of said date, if this Agreement is in
                              effect, Borrower shall pay FINOVA a renewal fee in
                              the amount of  $12,600,  ("Annual  Renewal  Fee"),
                              which shall be deemed fully earned on the date due
                              and shall be non-refundable.



                              Unused Line Fee.  With  respect to each month,  or
                              portion thereof during the term of this Agreement,
                              Borrower shall unconditionally pay to FINOVA a fee
                              equal to 0.25% per annum of the difference between
                              the  Revolving  Credit Limit and the average daily
                              outstanding  balance of the Revolving Credit Loans
                              during such  month,  or portion  thereof  ("Unused
                              Line  Fee"),  which  fee shall be  calculated  and
                              payable monthly, in arrears,  and shall be due and
                              payable,  commencing on the first  Business Day of
                              the first month  following  the  Closing  Date and
                              continuing on the first Business Day of each month
                              thereafter.

                              Examination Fee.  Borrower agrees to pay to FINOVA
                              an  examination  fee in the  amount  of  $600  per
                              person  per day in  connection  with each audit or
                              examination of Borrower  performed by FINOVA prior
                              to or after  the date  hereof,  plus all costs and
                              expenses  incurred in  connection  therewith  (the
                              "Examination    Fee").    Without   limiting   the
                              generality of the foregoing, Borrower shall pay to
                              FINOVA  an  initial  Examination  Fee in an amount
                              equal to $600 per person  per day,  plus all costs
                              and  expenses  incurred in  connection  therewith.
                              Such initial Examination Fee shall be deemed fully
                              earned at the time of payment  and due and payable
                              upon the closing of this transaction, and shall be
                              deducted  from  any  good  faith  deposit  paid by
                              Borrower  to  FINOVA  prior  to the  date  of this
                              Agreement.

NOTIF
ICATION OF CLOSING (SECTION 2.13):

                              The amount for  purposes of Section  2.13 shall be
                              $______________ at the interest rate applicable to
                              Term  Loan A,  $__________  at the  interest  rate
                              applicable  to Term Loan B, and  $____________  at
                              the Revolving Interest Rate.

CONDI
TIONS OF CLOSING (SECTION 4.1):

                              The  obligation  of  FINOVA  to make  the  initial
                              advance  hereunder  or to issue or arrange for the
                              issuance of the initial Letter of Credit hereunder
                              is subject to the fulfillment, to the satisfaction
                              of  FINOVA  and  its  counsel,   of  each  of  the
                              following   conditions,   in   addition   to   the
                              conditions  set  forth  in  Sections  4.1  and 4.2
                              above:


<PAGE>

                    (a) Minimum Excess Availability  (Section 4.1(b)).  Not less
                    than $300,000. Accounts payable outstanding: 30 days or more
                    from their due date.

                    (b) Life Insurance (Section 4.1(u)). Life insurance policies
                    shall be  maintained  on the  following  individuals  in the
                    amount of at least $500,000 each: James S. Pendleton , Wayne
                    R. Wright , and Stephen J. Fryer

                    (c) No Material Adverse Change (Section 4.1(v)). Further, no
                    material  adverse  change  has  occurred  in the  Borrower's
                    business,  operations,  financial condition, or assets or in
                    the prospect of repayment of the Obligations  since June 30,
                    1997.

                    (d) Validity and Support  Agreements.  James S.  Pendleton ,
                    Wayne R.  Wright , and  Stephen  J.  Fryer  shall  each have
                    delivered  a  Validity  and  Support  Agreement  in favor of
                    FINOVA, and in form and substance satisfactory to FINOVA.

                    (e)   Warrants.   Borrower   shall  have  issued  to  FINOVA
                    seven-year  warrants  to purchase  375,000  shares of common
                    stock of  Borrower  at $2.00 per  share,  on terms  mutually
                    agreed,  and in connection  therewith Borrower shall execute
                    and  deliver  an  anti-dilution   and  registration   rights
                    agreement with FINOVA on terms mutually agreed.

                    Borrower shall cause the  conditions  precedent set forth in
                    Section  4.1 of this  Agreement  and set forth above in this
                    Schedule  to be  satisfied,  and shall  provide  evidence to
                    FINOVA  that  all  such   conditions   precedent  have  been
                    satisfied, on or before September 5, 1997.


                                    BORROWER INFORMATION:

         Borrower's State of Incorporation (Section 5.1):          Utah

         Borrower's copyrights, patents, trademarks, and licenses (Section 5.5):


                                                     None. In the event Borrower
                                    hereafter acquires any copyrights,  patents,
                                    trademarks,  and  licenses,  Borrower  shall
                                    promptly  notify  FINOVA  of  the  same  and
                                    execute and deliver  all such  documents  as
                                    FINOVA  shall   specify  (on  FINOVA's  then
                                    standard  form)  for  filing  in the  United
                                    States  Patent and  Trademark  Office or the
                                    United   States    Copyright    Office   (as
                                    applicable)  in  order  to  grant  FINOVA  a
                                    first-priority,  perfected security interest
                                    therein.

         Fictitious Names/Prior Corporate Names  (Section 5.2):

              Prior Corporate Names:              Pen National, Inc.

              Fictitious Names:          InCirt Technology, Inc., Moto-
         Sat, Powerstream Technology Corporation, Pen Technology, Inc.



         Borrower Locations (Section 5.16)

            Chief Executive Office:  2351 South 2300 West, Salt Lake City, Utah
                                    84119


<PAGE>


            Other Location(s):       1382 Bell Ave., Tustin, California  92780
                             140 Mtn Rd., Orem, Utah

         Borrower's Federal Tax Identification Number (Section 5.16): 87-0430260

         Permitted                  Encumbrances  (Section  1.1):  Leases of and
                                    purchase   money   security   interests   in
                                    specific  items  of  Equipment  shown on the
                                    California and Utah UCC Searches dated as of
                                    August   15,   1997  and   August  8,  1997,
                                    respectively,  and purchase  money  security
                                    interests  in  specific  items of  Equipment
                                    created  substantially  simultaneously  with
                                    the  acquisition  of such  Equipment for the
                                    purpose  of  financing   such   acquisition,
                                    provided that such security  interest  shall
                                    attach only to the Equipment acquired.


FINANCIAL COVENANTS  (SECTION 6.1.13):

                                    Borrower   shall  comply  with  all  of  the
                                    following  covenants.  Compliance  shall  be
                                    determined  as of the end of each  month  or
                                    quarter (as determined by FINOVA in its sole
                                    discretion),     except     as     otherwise
                                    specifically provided below:

         Total Debt Service
          Coverage Ratio: Borrower shall maintain a Total Debt Service Coverage
                          Ratio of in the following amounts during the following
                          periods:

                    (i)  for the period from  September  1, 1997 to February 28,
                         1998: 1.0 to 1.0.

                    (ii) for the  period  from  September  1,  1997 to March 31,
                         1998,  and for the  period  from  September  1, 1997 to
                         April 30, 1998: 1.20 to 1.0.

                    (iii)for the period from  September  1, 1997 to May 31, 1998
                         and  to  the  end  of  each  month  thereafter,  to and
                         including August 31, 1998: 1.30 to 1.0.

                    (iv) for the  twelve-month  period ending September 30, 1998
                         and   for   each   consecutive    cumulative    rolling
                         twelve-month   period   ending   on  the  end  of  each
                         subsequent calendar quarter throughout the term of this
                         Agreement: 1.30 to 1.0.

         Senior Debt Service
         Coverage Ratio:  Borrower shall maintain a Senior Debt Service Coverage
                          Ratio of in the following amounts during the following
                          periods:

                    (i)  for the period from  September  1, 1997 to December 31,
                         1997 : 1.2 to 1.0.

                    (ii) for the period  from  September  1, 1997 to January 31,
                         1998: 1.30 to 1.0.

                    (iii)for the period from  September  1, 1997 to February 28,
                         1998: 1.40 to 1.0.

                    (iv) for the period from September 1, 1997 to March 31, 1998
                         and  to  the  end  of  each  month  thereafter,  to and
                         including August 31, 1998: 1.50 to 1.0.

                    (v)  for the  twelve-month  period ending September 30, 1998
                         and   for   each   consecutive    cumulative    rolling
                         twelve-month   period   ending   on  the  end  of  each
                         subsequent calendar quarter throughout the term of this
                         Agreement: 1.50 to 1.0.

                    EBITDA:  Borrower  shall  maintain  EBITDA in the  following
                             amounts during the following periods:

4 months ending 12/31/97                        $     414,000
5 months ending 1/31/98                               636,000
6 months ending 2/28/98                               941,000
7 months ending 3/31/98                             1,327,000
8 months ending 4/30/98                             1,733,000
9 months ending 5/31/98                             2,195,000


<PAGE>







10 months ending 6/30/98                                     2,713,000
11 months ending 7/31/98                                     3,256,000
12 months ending 8/31/98                                     3,851,000
12 months ending 9/30/98                                     4,416,000
12 months ending 12/31/98                                    4,416,000
12 months ending  3/31/99                                    4,416,000
12 months ending  6/30/99 and ending at the end of each      4,416,000
subsequent calendar quarter throughout the term of this
Agreement
--------------------------------------------------------------------------

                    Tangible Net Worth:  Borrower  shall  maintain  Tangible Net
                         Worth in the  following  amounts  during the  following
                         periods:

4 months ending 12/31/97                                    $     7,000,000
5 months ending 1/31/98                                           7,000,000
6 months ending 2/28/98                                           7,000,000
7 months ending 3/31/98                                           7,000,000
8 months ending 4/30/98                                           7,000,000
9 months ending 5/31/98                                           7,000,000
10 months ending 6/30/98                                          7,000,000
11 months ending 7/31/98                                          7,000,000
12 months ending 8/31/98                                          7,000,000
12 months ending 9/30/98                                          7,500,000
12 months ending 12/31/98                                         7,500,000
12 months ending  3/31/99                                         7,500,000
12 months ending  6/30/99                                         7,500,000
12 months ending  9/30/99 and ending at the end of each           8,000,000
subsequent calendar quarter throughout the term of this
Agreement
----------------------------------------------------------

 Additional Definitions.  For purposes of the foregoing financial covenants, the
                          following terms have the following meanings:

                    "EBITDA"  means the  Borrower's  earnings  before  interest,
                    taxes, depreciation and other non-cash amortization expenses
                    and other  non-cash  expenses  of  Borrower,  determined  in
                    accordance with generally  accepted  accounting  principles,
                    consistently applied.

                    "Operating  Cash Flow" shall mean  Borrower's  net income or
                    loss,  determined  in  accordance  with  generally  accepted
                    accounting  principles,  plus the  following  (to the extent
                    they were deducted from revenues in the  calculation  of net
                    income): (i) depreciation; (ii) amortization; (iii) interest
                    expense  incurred;  (iv) income  taxes paid or accrued;  (v)
                    accrued (but not yet paid) severance costs; minus all actual
                    unfinanced  capital  expenditures,  and  federal  and  state
                    income  taxes,  to the  extent  actually  paid  during  such
                    period.

                    "Senior  Debt  Service  Coverage  Ratio"  means the ratio of
                    Borrower's Operating Cash Flow to Senior Debt Service.

                    "Senior Debt Service" means principal and interest  payments
                    on the Term Loans, interest payments on the Revolving Loans,
                    and   principal   and   interest   payments   on  all  other
                    Obligations.

                    "Total  Debt  Service  Coverage  Ratio"  means  the ratio of
                    Borrower's Operating Cash Flow to Total Debt Service.

                    "Total Debt  Service"  means  Senior Debt  Service  plus all
                    permitted  payments of  principal  and interest on all other
                    Indebtedness  (not including the Bridge Loans, but including
                    all payables converted to notes).

<PAGE>

                                        "Tangible Net Worth" means the excess of
                                        total  assets  over  total  liabilities,
                                        determined in accordance  with generally
                                        accepted     accounting      principles,
                                        excluding however all assets which would
                                        be classified as intangible assets under
                                        generally      accepted       accounting
                                        principles, including without limitation
                                        goodwill, licenses, patents, trademarks,
                                        trade  names,  copyrights,   capitalized
                                        software   and   organizational   costs,
                                        licences and franchises. For purposes of
                                        determining   Tangible  Net  Worth,  the
                                        Bridge  Loans  and  other   indebtedness
                                        which  has  been   subordinated  to  the
                                        Obligations  pursuant to a subordination
                                        agreement on FINOVA's then standard form
                                        or which is otherwise  subordinated in a
                                        manner  and  on  terms  and   conditions
                                        acceptable   to  FINOVA   shall  not  be
                                        counted as a liability.

NEGA
TIVE COVENANTS (SECTION 6.2):

                Employee   Advances:  Borrower  shall  not  make  any  loans  or
                           advances to Employees  except in the ordinary  course
                           of business  and  consistent  with past  practices of
                           Borrower in an aggregate  amount not exceeding at any
                           time  $15,000  (not  counting  advances on bonuses or
                           other compensation).
                Existing Guaranties:        None.

                    Capital  Expenditures:  Borrower shall not make or incur any
                    Capital  Expenditure  if, after giving effect  thereto,  the
                    aggregate amount of all Capital  Expenditures by Borrower in
                    any  fiscal  year  (beginning  with the fiscal  year  ending
                    September 30, 1998) would exceed $500,000.

                    Compensation:  Borrower  shall not pay  total  compensation,
                    including salaries, withdrawals, fees, bonuses, commissions,
                    drawing  accounts and other  payments,  whether  directly or
                    indirectly, in money or otherwise, during any fiscal year to
                    the following  persons (or their  replacements) in excess of
                    $1,450,000 in the  aggregate:  Jim  Pendleton,  Alan Weaver,
                    Wayne Wright, R. duke Deforest, Steve Fryer, Carl Rasmussen,
                    Daniele Reni.

                    Indebtedness:  Borrower shall not create,  incur,  assume or
                    permit to exist any Indebtedness  (including Indebtedness in
                    connection  with Capital Leases) in excess of $150,000 other
                    than (i) the  Obligations,  (ii)  trade  payables  and other
                    contractual  obligations to suppliers and customers incurred
                    in the ordinary  course of business,  (iii) the Bridge Loans
                    referred to below, and (iv) other  Indebtedness  existing on
                    the date of this  Agreement  and  reflected  in the Prepared
                    Financials (other than Indebtedness paid on the date of this
                    Agreement from proceeds of the initial advances hereunder).

REPO
RTING REQUIREMENTS (SECTION 9.1):

                           1.  Borrower shall provide FINOVA with monthly agings
                               aged  by  invoice  date  and  reconciliations  of
                               Receivables within ten (10) days after the end of
                               each month.

                           2.  Borrower   shall  provide   FINOVA  with  monthly
                               accounts  payable  agings  aged by invoice  date,
                               outstanding or held check registers and inventory
                               certificates  within  ten (10) days after the end
                               of each month.

                           3.  Borrower   shall  provide   FINOVA  with  monthly
                               perpetual  inventory  reports  for the  Inventory
                               valued  on a  first-in,  first-out  basis  at the
                               lower of cost or market (in accordance with GAAP)
                               or such other inventory reports as are reasonably
                               requested  by  FINOVA,  all  within ten (10) days
                               after the end of each month.

                           4.  Borrower   shall  provide   FINOVA  with  monthly
                               unaudited financial statements within thirty (30)
                               days after the end of each month.

                           5.  Borrower   shall  provide   FINOVA  with  audited
                               consolidated and  consolidating  fiscal financial
                               statements  within one hundred  twenty (120) days
                               after  the  end of  each  fiscal  year,  as  more
                               specifically  described in Section 9.1(b) hereof,
                               and with an opinion issued by a Certified  Public
                               Accountant which is acceptable to FINOVA.

                    6.   Borrower  shall  provide  FINOVA with annual  operating
                         budgets (including income


<PAGE>

                               statements,   balance   sheets   and  cash   flow
                               statements,  by month)  for the  upcoming  fiscal
                               year of Borrower within thirty (30) days prior to
                               the end of each fiscal year of Borrower.

                           7.  Borrower's  balance  sheets for  purposes  of the
                               definition of Prepared  Financials shall be as of
                               September 30, 1996.


TERM (SECTION 9.2):


                              The initial term of this  Agreement  shall be four
                              year(s) from the date hereof (the "Initial  Term")
                              and shall be automatically  renewed for successive
                              periods  of one (1) year each  (each,  a  "Renewal
                              Term"),  unless earlier  terminated as provided in
                              Section  7 or  9.2  above  or  elsewhere  in  this
                              Agreement.

TERMINATION FEE (SECTION 9.2):

                              (A)   Revolving   Credit   Loans   Facility.   The
                              Termination Fee applicable to the Revolving Credit
                              Loans  facility  provided  for in  Section  9.2(d)
                              shall  be  an  amount   equal  to  the   following
                              percentage  of  the  average   daily   outstanding
                              balance of the  Obligations for the 180-day period
                              (or lesser  period if  applicable)  preceding  the
                              date of termination: :

                              (i) five percent (5%),  if such early  termination
                              occurs on or prior to the first anniversary of the
                              date of this Agreement;

                              (ii) two percent (2%),  if such early  termination
                              occurs after the first  anniversary of the date of
                              this  Agreement,  but on or  prior  to  the  first
                              anniversary of the date of this Agreement.

                              (iii) one percent (1%), if such early  termination
                              occurs after the second anniversary of the date of
                              this Agreement.



                              (B) Term Loans.  The Termination Fee applicable to
                              the Term  Loans  provided  for in  Section  9.2(d)
                              shall be equal to :

                              (i) five  percent  (5%) of the  amount  prepaid if
                              such  prepayment  is made  during  the  Loan  Year
                              beginning on the Closing Date;

                              (ii) two  percent  (2%) of the  amount  prepaid if
                              such  prepayment  is made  during  the  Loan  Year
                              beginning on the first  anniversary of the Closing
                              Date; and

                              (iii) one  percent  (1%) of the amount  prepaid if
                              such  prepayment  is made on or after  the  second
                              anniversary of the Closing Date.



                              (C) Make Whole  Premium.  Any  prepayment  of Term
                              Loans  using  a  fixed  interest  rate  and  not a
                              floating  interest  rate,  other than a prepayment
                              made pursuant to the Excess Cash Flow  Prepayments
                              described  below  under  "Additional  Provisions,"
                              shall also be  accompanied  by a payment  equal to
                              the Make Whole Premium. The following  definitions
                              shall apply:

             1. "Make Whole Premium" means the positive difference,
              if any, between (i) the Discounted Value immediately


<PAGE>


               prior to any prepayment of that portion of the Term Loan which is
               being  prepaid  and (ii) the  principal  balance of the Term Loan
               being prepaid as of the date of any such prepayment.

                    2.   "Discounted  Value"  means  the  amount  determined  by
                         discounting  the Remaining  Scheduled  Payment  Amounts
                         from  their  respective  due  dates  to the date of the
                         prepayment of the Term Loan, at a discount factor equal
                         to the Reinvestment Yield.

                    3.   "Remaining  Scheduled  Payment Amount" means the amount
                         of each scheduled  payment of principal of and interest
                         on a Term Loan  that  would be due on or after the date
                         of a prepayment  of such Term Loan if no payment of the
                         Term Loan were made prior to its scheduled due date.

                    4.   "Reinvestment  Yield"  means the rates  shown under the
                         ------------------  column heading "Ask YLD" for "Govt.
                         Bonds & Notes" in the "Treasury  Bonds,  Notes & Bills"
                         section of the Wall Street  Journal,  Eastern  Edition,
                         published  on the Business Day prior to the date of any
                         proposed  prepayment of a Term Loan for the  government
                         bond or note with a maturity  date  having the  closest
                         matching  maturity  to the  Weighted  Average  Life  to
                         Maturity, or, if there is more than one government bond
                         or  note  with  a  maturity  date  having  the  closest
                         matching  maturity  to the  Weighted  Average  Life  to
                         Maturity,  the  highest of the rates  shown in the "Ask
                         YLD" column for any such bond or note,  plus 4.00% with
                         respect to Term Loan A and 4.50%  with  respect to Term
                         Loan B.

                    5.   "Weighted  Average Life to  Maturity"  means the number
                         ---------------------------------  of years (calculated
                         to the nearest  one-twelfth  year) obtained by dividing
                         (i) the sum of the  products  obtained  by  multiplying
                         each remaining scheduled payment of principal under the
                         Term  Loans by the number of years  (calculated  to the
                         nearest  one-  twelfth)  which will elapse  between the
                         date  of  a  prepayment  of  the  Term  Loans  and  the
                         scheduled   due  date  of  such   remaining   scheduled
                         principal payments,  by (ii) the outstanding  principal
                         balance of the Term Loans on such prepayment date.




DISBURSEMENT (SECTION 9.11):

                              Unless and until Borrower otherwise directs FINOVA
                              in writing, all loans shall be wired to Borrower's
                              following operating account:

                                            Account No. 007-13181-6
                                            Zions First National Bank
                                            Salt Lake City, Utah
                                            ABA No. 124000054



ADDITIONAL PROVISIONS:

               1. Excess Cash Flow Prepayments. Within sixty (60) days following
               receipt  by  FINOVA  of  Borrower's   annual  audited   financial
               statements, commencing with such financial


<PAGE>

                              statements  for  Borrower's   fiscal  year  ending
                              September 30, 1998, FINOVA may deliver a notice to
                              Borrower  requiring  Borrower  to prepay  the Term
                              Loans in an  amount up to fifty  percent  (50%) of
                              Borrower's  Excess  Cash Flow for such  year.  Any
                              prepayments   required   under  this  section  are
                              strictly  at the sole  option of  FINOVA,  and are
                              payable within thirty (30) days following the date
                              of demand by FINOVA.  All amounts paid pursuant to
                              this section shall be applied as follows: First to
                              the  unpaid  principal  balance of Term Loan B and
                              then to the unpaid principal  balance of Term Loan
                              A. No Termination  Fee or other form of prepayment
                              premium  shall be  applied  to any  payments  made
                              under this section.

                              2. Bridge Loan  Payments.  Borrower  presently has
                              outstanding  indebtedness  in the total  principal
                              amount  listed on  Exhibit A hereto  (the  "Bridge
                              Loans").  Borrower  shall not make any payments of
                              principal or interest on the Bridge Loans ("Bridge
                              Loan Payments"), except as follows:

              (a) Within 60 days after the date hereof Borrower may
               make Bridge Loan Payments, if, after giving effect
              thereto, Borrower has Excess Availability of not less
                                 than $400,000.

            (b) After 60 days after the date hereof Borrower may make
             Bridge Loan Payments, if, after giving effect thereto,
                Borrower has Excess Availability of not less than
             $400,000, and Borrower has Total Debt Service Coverage
             Ratio of at least 1.2 to 1 for the period from July 1,
             1997 to September 30, 1997 and for the period from July
            1, 1997 to the end of the most recent month preceding the
                                    month in which the Bridge Loan Payment is to
                                    be made and for which financial reports have
                                    been received.

             (c) Notwithstanding (a) or (b) above, Borrower may make
            Bridge Loan Payments, if such payments are made with the
            identifiable cash proceeds of the issuance by Borrower of
               equity or subordinated debt securities (other than
            "Additional Equity Proceeds", as defined above, referred
                                    to above relating to Term Loan B), within 30
                                    days after the receipt of such proceeds.

            (d) Notwithstanding (a), (b) or (c) above, no Bridge Loan
             Payments may be made if, at the time of the payment and
              after giving effect thereto, any Event of Default or
              event which, with notice or passage of time or both,
            would constitute an Event of Default, has occurred and is
                                   continuing.

                              3. Inactive Subsidiaries.  Borrower represents and
                              warrants  that (i) it has  only  two  wholly-owned
                              subsidiaries,  Pen  Technology,  Inc.  and  InCirt
                              Technology,  Inc.,  both of which are inactive and
                              have no assets, and (ii) it has no partially-owned
                              subsidiaries.  Without  limiting  any of the other
                              terms of the Loan  Agreement,  Borrower  shall not
                              transfer any assets to either of said wholly-owned
                              subsidiaries   or  any   other   subsidiaries   or
                              Affiliates,   without   FINOVA's   prior   written
                              consent.


<PAGE>

                        4.  Adjustments to Definition of "Eligible Receivables".

                                    (a)   Clause  (v)  in  the   definition   of
                              "Eligible  Receivables" in Section 1.1 of the Loan
                              Agreement is amended to read as follows:  "(v) the
                              account  debtor  is  not  located  in  the  United
                              States,  unless the  Receivable  is supported by a
                              letter  of  credit or other  form of  guaranty  or
                              security,  in  each  case in  form  and  substance
                              satisfactory  to  FINOVA,   or,  in  the  case  of
                              Receivables  owing  from   Xircom-Malaysia  in  an
                              aggregate  amount not to exceed  $150,000,  unless
                              such Receivables are supported by credit insurance
                              in form and substance satisfactory to FINOVA".

                                    (b)  Clause  (viii)  in  the  definition  of
                              "Eligible  Receivables" in Section 1.1 of the Loan
                              Agreement  is amended to read as follows:  "(viii)
                              the account debtor's total obligations to Borrower
                              exceed 15% of all Eligible Receivables (or, in the
                              case  of  Triconex  Corp.,  30%  of  all  Eligible
                              Receivables, or, in the case of Alaris Medical and
                              Xircom, Inc., 25% of all Eligible Receivables), to
                              the extent of such excess".

                              5.  Litigation.  In  connection  with  Section 5.7
                              above, FINOVA acknowledges that certain litigation
                              has been  disclosed in the legal opinion  provided
                              to FINOVA by Borrower's counsel.

                              6. Change in Stock Ownership.  Borrower and FINOVA
                              agree  to  modify   Section  7.1(n)  of  the  Loan
                              Agreement by changing "ten percent  (10%)" therein
                              to "twenty percent (20%)".

                              7. Landlord Waivers.  Borrower has provided FINOVA
                              with fax copies of signed  Landlord  Waivers,  and
                              Borrower agrees to provide  original copies of the
                              same to  FINOVA  within  10 days  after  the  date
                              hereof.

                              8. Personal  Financial  Statements of  Guarantors.
                              Borrower shall cause  Guarantors to provide FINOVA
                              with   updated   financial   statements   of   the
                              Guarantors in form acceptable to FINOVA,  prior to
                              the funding of Term Loan B.



Borrower:                                     FINOVA:

PEN INTERCONNECT, INC.                        FINOVA CAPITAL
                                              CORPORATION

By__/s/_James S. Pendelton__________          By__/s/ Mike McCauley____________
         President or Vice President          Title____________________________


04/97
-7

<PAGE>
                                                               Exhibit 10.14

      THIS EMPLOYMENT  AGREEMENT  dated the 15th day of October 1996,  between ,
Pen Interconnect, Inc. a Utah Corporation, hereinafter called the "Company", and
STEPHEN J FRYER , hereafter called the Employee.


 WITNESSETH:  WHEREAS, Company desires to obtain the Employee's experience
and abilities in the business of the Company; and
     WHEREAS,  the Employee desires to accept such engagement upon the terms and
conditions  herein after set forth,  NOW,  THEREFORE,  in  consideration  of the
premises and the mutual covenants herein contained, it is agreed as follows:

1.  EMPLOYMENT-  Company  hereby  engages the Employee  and the Employee  hereby
accepts employment upon the terms and conditions hereinafter set forth.
                                 2.  TERM - Subject to the provisions for
termination as hereafter  provided,  the term of this  Agreement  shall be for a
minimum period of FIVE YEARS,  beginning on the fifteenth of October,  1996. The
term of this Agreement may be extended for ONE additional  year, upon the mutual
agreement of the parties.
      3.  COMPENSATION - As compensation  for all services  rendered by Employee
      under  this  agreement,  Company  shall  pay  Employee  an  annual  salary
      determined as follows:  (A) Employee  shall receive an initial base salary
      of $ 75,000 per year,  payable at least monthly in equal  installments  in
      accordance with the company's regular payroll schedule. Such amount may be
      adjusted as approved by the Board of Directors of the Company.
                     (B)  Employee shall also receive additional commission and
bonuses,  as are  approved  and awarded by the Board of Directors of the Company
per exhibit A attached.  4. FRINGE  BENEFITS - (A) Company shall provide a three
weeks paid vacation each year to Employee.  Unused vacation time will accrue and
may be carried over to one  succeeding  year.  (A) The Company shall provide the
Employee with a car  allowance of a minimum of $550.00 per month,  for his / her
use in connection with his/her  employment.  The Company agrees to pay all minor
operating  costs  (gas,oil,wash  and  minor  repairs).   The  employee  will  be
responsible for (insurance, tires, taxes and registration and all major repairs)
associated with the use of the automobile.
                                (B) The Employee
shall continue to participate as a member of the Company's major group insurance
plan with the employee paying $ 40.00 of the monthly premium.
                           (C)  The Company shall provide and pay for the
Life Insurance covering the life of the Employee as described on Exhibit B.

             (D) The Company  shall  provide  Deferred  Compensation  and Salary
Continuation Plans to the employee as described on Exhibit C attached.
           5. DUTIES - The  Employee  is engaged  for the purpose of  performing
services for the company with specific work in the  management of the company as
described in Exhibit D.

           6.  TERMINATION  - (a)  The  Company  may  terminate  the  Employee's
employment  under this  Agreement  for cause at any time during the term of this
agreement. As used in this paragraph 6, the term "cause" shall be defined as the
Employee's  (i) wilful  misconduct,  (ii) fraud,  (iii)  misappropriation,  (iv)
embezzlement,  (v)  failure  to abide by any  codes of  conduct  adopted  by the
Employer,  (vi) failure to follow the Employer's  lawful orders and  directives,
(vii) failure to meet performance  standards or conduct generally  applicable to
similarly  situated  employees of the employer,  (viii)  conviction of a felony,
(ix)  breach or  threatened  breach of any  confidentiality  or  non-competition
agreement  between the Employee and the  Company,or (x) conduct which impairs or
damages,  or tends to impair or damage,  the  reputation of the company.  In the
event of any  termination  pursuant  6(a), the Company shall be obligated to pay
the Employee  only such  compensation  as shall be accrued to the Employee up to
and including the date upon which such termination becomes effective.  No notice
period shall be required to terminate the Employee  under the provisions of this
paragraph  6(a).  (b) The Employee may terminate  this agreement with cause upon
ten (10) days  written  notice to the Company,  unless  during such ten (10) day
period the cause for such termination shall be cured by the Company.  As used in
this  paragraph  6(b),  the term  "cause"  shall  be  defined  as the  Company's
inability  or  refusal  to comply  with or perform  its  obligations  and duties
hereunder ,  including  specifically,  the payment of any  compensation  due the
Employee  hereunder  and any illegal act or willful mis conduct by the employer.
In the event of any  termination  pursuant to the terms of this paragraph  6(b),
the Company shall be obligated to pay the Employee the compensation  which shall
have  accrued  to the  Employee  up to and  including  the date upon  which such
termination  becomes  effective.  (c) The Employee and the Company may terminate
this agreement at any time upon their mutual agreement.
        7. STOCK  OPTIONS--  Stock  options may be granted by the company to the
employee as approved by the Board of Directors.  8. NON  COMPETITION--  Employee
acknowledges  and agrees that he is being  employed in a  confidential  position
and, as a consequence  will have  complete  access to and knowledge of Company's
marketing techniques, customers, potential customers, and the Company's strategy
concerning new markets,  and inasmuch as Employee recognizes and agrees that the
development of said customers,  potential  customers,  and markets is an will be
mainly the result of the Company's efforts the Employee  covenants and agrees to
with  the  Company,  its  successors  or  assigns,  that  for  the  term of this
Agreement, and for a period of 18 months from the date of termination hereof, he
will not engage in or  participate  in,  either  directly or  indirectly,  or be
employed by or in any connection with, or furnish any information concerning the
Company's business to any similar business that Pen is engaged in at the time of
termination for a period of (18) months from the date of termination  hereof. If
the  termination of employee is because of an illegal act or willful  misconduct
by the employer or  termination  because of a merger or buy out then the waiting
period will be waived.
            9.   CONFIDENTIALITY-    Employee   understands,    recognizes   and
acknowledges  that, as a consequence of the performance of his duties hereunder,
he may  receive  notice or  knowledge  of,  or have  disclosed  to him,  certain
Confidential   Information  ,  as  defined  below,  of  the  Company.   Employee
understands,  acknowledges  and  agrees  that the  Confidential  Information  is
proprietary and secret and agrees to respect the  confidentiality and secrecy of
the  same.   Employee  also  understands,   agrees  and  acknowledges  that  all
Confidential  Information  is the  property of the  Company.  Except as lawfully
authorized or as may be expressly and  specifically  required in the performance
of Employees's responsibilities to the Company hereunder, Employee agrees not to
directly or indirectly disclose,  reveal,  report,publish or transfer possession
of, or access to any Confidential  Information to any person or entity. Employee
further  agrees to disclose  promptly  and fully to the company any  information
which qualifies as Confidential hereunder,  and agrees to turn over or return to
the Company any and all Confidential Information in the Employee's possession or
control  upon  the  request  of the  Company  or  upon  the  termination  of the
Employee's and the Company  employment  relationship.  As used herein,  the term
"Confidential   Information"   shall  include  all   intellectual   property  or
information  which is  proprietary  to the  Company  or which  is  submitted  or
disclosed  to the  Company  by a third  party  under  obligations  of secrecy or
confidentiality  or  which  is not  exempted  by  amendment  to this  Agreement.
Confidential Information (whether or not


<PAGE>

reduced to writing and in any and all stages of development) shall include,  but
shall not be limited to,  discoveries,  ideas,  inventions,  designs,  concepts,
drawings,  specifications,  techniques,  models, data, software,  documentation,
diagrams, flow charts, research,  development,  processes,  procedures, works of
authorship,   formulas,   improvements,   trade  secrets,  know-how,   marketing
techniques,  marketing and development plans, product plans,  customer names and
addresses,  names  and  financial  information,   information  relating  to  the
Company's customers or their financial position or marketing plans,  strategies,
forecasts,  pricing,  policies,  and any tangible  article  which  embodies such
Confidential Information.
          10.  INTELLECTUAL  PROPERTY- As to any inventions,  ideas  discoveries
improvements,   ideas,  devices,  writings  or  other  intellectual  property  (
hereafter  collectively referred to as "INVENTIONS") made by the Employee during
the term of his employment, solely of jointly with others,
 which are made  with the  Employer's  equipment,  supplies,  facilities,  trade
secrets,   or  time,  which  relate  to  Employer,   or  the  Employer's  actual
demonstrably  anticipated  research or  development  or the  Employee  actual or
demonstrably  anticipated research or development,  or any other device directly
related to the Employee's  business,  or which result from any work performed by
the Employee for the Employer, the Employee agrees that such Inventions shall be
the sole and  exclusive  property of the Employer and he promises to assign such
Inventions to the Employer and to cooperate  with the Employer to obtain patents
or copyrights on such  Inventions  for the Employer in the United States and all
foreign  countries.  The Employee  also agrees that the Employer  shall have the
right to keep such Inventions as trade secrets, if the Employer so chooses.

       10a.  WAIVER OF  BREACH-  The  waiver of either  party of a breach of any
provision of this Agreement by either party shall not operate or be construed as
a waiver of any subsequent breach by said party.
       11.  ASSIGNMENT-  The rights and  obligations  of the Company  under this
agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of Company.

       12.  INDEMNIFICATION-  The Company  agrees to indemnify and hold harmless
the Employee for any contractual liability,  including any personal guarantee to
a  financial  institution  as part  of any  loan to the  Company,  or any  other
liability  incurred by Employee as a result of his  employment by or association
with the Company.  The Company shall pay all legal costs and expenses  necessary
to defend any contractual obligations,  personal guarantees or other liabilities
associated with the Employee's employment by or association with the Company.
            13. GOVERNING LAW- This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Utah.
            14.  INJUNCTIVE  RELIEF-  Upon a  breach  or  threatened  breach  by
Employee of any of the provisions of Paragraphs 8 and 9 of this  Agreement,  the
Company  shall be  entitled to an  injunctions  restraining  Employee  from such
breach.  Nothing  herein  shall be  construed  as  prohibiting  the Company from
pursuing any other  remedies  for such breach or  threatened  breach,  including
recovery of damages from Employee

             15.  SEVERABILITY-  It is the desire and intent of the parties that
the provisions of this  Agreement be enforced to the fullest extent  permissible
under  the  laws and  public  policies  applied  in each  jurisdiction  in which
enforcement is sought.  Accordingly,  if any particular  provision or portion of
this  Agreem  ent shall be  adjudicated  to be invalid  or  unenforceable,  this
Agreement  shall  be  deemed  amended  to  delete  therefrom  the  portion  thus
adjudicated  to be invalid or  unenforceable,  such  deletion to apply only with
respect to the


<PAGE>

operation  of  this  Section  in  the  particular  jurisdiction  in  which  such
adjudication is made .
              16.  ASSIGNMENT- The Company may assign its rights and obligations
under this  Agreement  to any  affiliate  of the  Company  or to any  acquire of
substantially  all of the  business  of  the  Company,  and  all  covenants  and
agreements  hereunder  shall  inure to the benefit of and be  enforceable  by or
against  any such  assignee.  Neither  this  agreement  nor any rights or duties
hereunder may be signed by or delegated by employee.
          17. ENTIRE  AGREEMENT- This Agreement sets forth the entire  agreement
and  understanding  of the  parties  and  supersedes  all prior  understandings,
agreements  or  representations  by or between the parties,  whether  written or
oral, which relate in any way to the subject matter hereof.
                   18.  AMENDMENT-  No  provision  of this  Agreement  shall  be
altered,  amended,  revoked, or waived except by an instrument in writing signed
by the party sought to be charged with such amendment, revocation or waiver.

                    19.  BINDING  EFFECT- Except as otherwise  provided  herein,
this  Agreement  shall be  binding  upon and shall  inure to the  benefit of the
parties hereunto and their respective legal representatives,  heirs,  successors
and assigns.

           IN WITNESS  WHEREOF,  the parties have executed this  agreement as of
date first written.

PEN INTERCONNECT,INC.


______________________       ___/s/ James S. Pendleton________      
JAMES S PENDLETON
 CHAIRMAN AND CEO                           EMPLOYEE



<PAGE>

                                                                  Exhibit 10.15

EMPLOYMENT AGREEMENT

      THIS  EMPLOYMENT  AGREEMENT  dated  the 1st  day of  April  1997,  between
,POWERSTREAM TECHNOLOGY, CO. A wholly owned Subsidiary of Pen Interconnect, Inc.
a Utah Corporation, hereinafter called the "Company", and Daniele Reni
       , hereafter called the Employee.


                           WITNESSETH:
WHEREAS, Company desires to obtain the Employee's experience and abilities in
the business of the Company; and
     WHEREAS,  the Employee desires to accept such engagement upon the terms and
conditions  herein after set forth,  NOW,  THEREFORE,  in  consideration  of the
premises and the mutual covenants herein contained,  it is agreed as follows: 1.
EMPLOYMENT-  Company hereby engages the Employee and the Employee hereby accepts
employment upon the terms and conditions hereinafter set forth.

         2.  TERM - Subject  to the  provisions  for  termination  as  hereafter
provided,  the term of this Agreement  shall be for a minimum period of Five (5)
YEARS, beginning on the first day of APRIL, 1997. The term of this Agreement may
be extended for ONE additional  year, upon the mutual  agreement of the parties.
3.  COMPENSATION - As compensation  for all services  rendered by Employee under
this  agreement,  Company  shall pay  Employee an annual  salary  determined  as
follows:
                    (A)  Employee  shall  receive  an initial  base  salary of $
    70,000  per  year,  payable  at  least  monthly  in  equal  installments  in
    accordance
with the company's regular payroll schedule.   Such amount may be adjusted as
approved by the Board of Directors.
                     (B)  Employee shall also receive additional commission and
bonuses,  as are  approved  and awarded by the Board of Directors of the Company
per exhibit A attached.  4. FRINGE  BENEFITS - (A) Company shall provide a three
weeks paid vacation each year to Employee.  Unused vacation time will accrue and
may be carried over to one  succeeding  year.  (A) The Company shall provide the
Employee with a car  allowance of a minimum of $400.00 per month,  for his / her
use in connection with his/her  employment.  The Company agrees to pay all minor
operating  costs  (gas,oil,wash  and  minor  repairs).   The  employee  will  be
responsible for (insurance, tires, taxes and registration and all major repairs)
associated with the use of the automobile.
                                (B) The Employee
shall continue to participate as a member of the Company's major group insurance
plan with the employee paying $ 40.00 of the monthly premium.
                           (C)  The Company shall provide and pay for the
Life Insurance covering the life of the Employee as described on   Exhibit B.
             (D)  The Company shall provide Deferred Compensation and Salary
Continuation Plans to the employee as described on Exhibit C attached.
           5.  DUTIES -  The Employee is engaged for the purpose of
performing  services for the company with specific work in the management of the
company as described in Exhibit D.

          6.  TERMINATION  -  (a)  The  Company  may  terminate  the  Employee's
employment  under this  Agreement  for cause at any time during the term of this
agreement. As used in this paragraph 6, the term "cause" shall be defined as the
Employee's  (i) wilful  misconduct,  (ii) fraud,  (iii)  misappropriation,  (iv)
embezzlement,  (v)  failure  to abide by any  codes of  conduct  adopted  by the
Employer, (vi) failure to follow the Employer's lawful orders and


<PAGE>


directives,  (vii) failure to meet  performance  standards or conduct  generally
applicable to similarly situated employees of the employer, (viii) conviction of
a  felony,   (ix)  breach  or  threatened  breach  of  any   confidentiality  or
non-competition  agreement  between the Employee and the  Company,or (x) conduct
which impairs or damages,  or tends to impair or damage,  the  reputation of the
company.  In the event of any  termination  pursuant  6(a), the Company shall be
obligated to pay the Employee only such  compensation as shall be accrued to the
Employee  up to and  including  the date upon  which  such  termination  becomes
effective.  No notice period shall be required to terminate  the Employee  under
the  provisions of this  paragraph  6(a).  (b) The Employee may  terminate  this
agreement  with cause upon ten (10) days written  notice to the Company,  unless
during such ten (10) day period the cause for such termination shall be cured by
the Company.  As used in this paragraph  6(b), the term "cause" shall be defined
as the Company's  inability or refusal to comply with or perform its obligations
and duties hereunder , including  specifically,  the payment of any compensation
due the  Employee  hereunder  and any  illegal act or willful mis conduct by the
employer.  In the  event  of any  termination  pursuant  to the  terms  of  this
paragraph  6(b),  the  Company  shall  be  obligated  to pay  the  Employee  the
compensation  which shall have accrued to the Employee up to and  including  the
date upon which such  termination  becomes  effective.  (c) The Employee and the
Company may terminate this agreement at any time upon their mutual agreement.
        7. STOCK  OPTIONS--  Stock  options may be granted by the company to the
employee as approved by the Board of Directors.  8. NON  COMPETITION--  Employee
acknowledges  and agrees that he is being  employed in a  confidential  position
and, as a consequence  will have  complete  access to and knowledge of Company's
marketing techniques, customers, potential customers, and the Company's strategy
concerning new markets,  and inasmuch as Employee recognizes and agrees that the
development of said customers,  potential  customers,  and markets is an will be
mainly the result of the Company's efforts the Employee  covenants and agrees to
with  the  Company,  its  successors  or  assigns,  that  for  the  term of this
Agreement, and for a period of 18 months from the date of termination hereof, he
will not engage in or  participate  in,  either  directly or  indirectly,  or be
employed by or in any connection with, or furnish any information concerning the
Company's business to any similar business that Pen is engaged in at the time of
termination for a period of (18) months from the date of termination  hereof. If
the  termination of employee is because of an illegal act or willful  misconduct
or mismanagement  by the employer or termination  because of a merger,buy out or
insolvency then the waiting period will be waived.

      9.  CONFIDENTIALITY-  Employee  understands,  recognizes and  acknowledges
that,  as a  consequence  of the  performance  of his duties  hereunder,  he may
receive notice or knowledge of, or have disclosed to him,  certain  Confidential
Information  ,  as  defined  below,  of  the  Company.   Employee   understands,
acknowledges  and agrees that the  Confidential  Information is proprietary  and
secret  and  agrees to  respect  the  confidentiality  and  secrecy of the same.
Employee  also  understands,  agrees  and  acknowledges  that  all  Confidential
Information is the property of the Company.  Except as lawfully authorized or as
may be expressly and  specifically  required in the  performance  of Employees's
responsibilities  to the Company  hereunder,  Employee agrees not to directly or
indirectly disclose, reveal, report,publish or transfer possession of, or access
to any Confidential Information to any person or entity. Employee further agrees
to disclose promptly and fully to the company any information which qualifies as
Confidential hereunder, and agrees to turn over or return to the Company any and
all  Confidential  Information in the Employee's  possession or control upon the
request of the Company or upon the termination of the Employee's and the Company
employment  relationship.  As used herein, the term  "Confidential  Information"
shall include all


<PAGE>


intellectual  property or  information  which is  proprietary  to the Company or
which  is  submitted  or  disclosed  to  the  Company  by a  third  party  under
obligations of secrecy or  confidentiality or which is not exempted by amendment
to this Agreement.  Confidential  Information (whether or not reduced to writing
and in any and all  stages  of  development)  shall  include,  but  shall not be
limited  to,  discoveries,   ideas,  inventions,  designs,  concepts,  drawings,
specifications,  techniques,  models, data, software,  documentation,  diagrams,
flow charts, research, development,  processes, procedures, works of authorship,
formulas, improvements, trade secrets, know-how, marketing techniques, marketing
and development plans,  product plans,  customer names and addresses,  names and
financial information,  information relating to the Company's customers or their
financial position or marketing plans, strategies, forecasts, pricing, policies,
and any tangible article which embodies such Confidential Information.
          10.  INTELLECTUAL  PROPERTY- As to any inventions,  ideas  discoveries
improvements,   ideas,  devices,  writings  or  other  intellectual  property  (
hereafter  collectively referred to as "INVENTIONS") made by the Employee during
the term of his employment,  solely of jointly with others,  which are made with
the Employer's equipment, supplies, facilities, trade secrets, or time, or which
relate to that of the Employer, or the Employer's actual page 4
                            demonstrably anticipated
research or development, or the Employee
actual or demonstrably anticipated research or development,  or any other device
directly  related to the  Employee's  business,  or which  result  from any work
performed  by the  Employee  for the  Employer,  the  Employee  agrees that such
Inventions  shall be the sole and  exclusive  property  of the  Employer  and he
promises to assign such  Inventions  to the Employer  and to cooperate  with the
Employer to obtain patents or copyrights on such  Inventions for the Employer in
the United States and all foreign  countries.  The Employee also agrees that the
Employer shall have the right to keep such  Inventions as trade secrets,  if the
Employer so chooses.

       10a.  WAIVER OF  BREACH-  The  waiver of either  party of a breach of any
provision of this Agreement by either party shall not operate or be construed as
a waiver of any subsequent breach by said party.
       11.  ASSIGNMENT-  The rights and  obligations  of the Company  under this
agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of Company.

        12.  INDEMNIFICATION-  The Company agrees to indemnify and hold harmless
the Employee for any contractual liability,  including any personal guarantee to
a  financial  institution  as part  of any  loan to the  Company,  or any  other
liability  incurred by Employee as a result of his  employment by or association
with the Company.  The Company shall pay all legal costs and expenses  necessary
to defend any contractual obligations,  personal guarantees or other liabilities
associated with the Employee's employment by or association with the Company.
             13.  GOVERNING  LAW-  This  Agreement  shall  be  governed  by  and
construed and enforced in accordance with the laws of the State of Utah.
             14.  INJUNCTIVE  RELIEF-  Upon a breach  or  threatened  breach  by
Employee of any of the provisions of Paragraphs 8 and 9 of this  Agreement,  the
Company  shall be  entitled to an  injunctions  restraining  Employee  from such
breach.  Nothing  herein  shall be  construed  as  prohibiting  the Company from
pursuing any other  remedies  for such breach or  threatened  breach,  including
recovery of damages from Employee

             15.  SEVERABILITY-  It is the desire and intent of the parties that
the provisions of this Agreement be enforced to the fullest extent


<PAGE>


permissible  under the laws and public policies applied in each  jurisdiction in
which enforcement is sought. Accordingly, if any particular provision or portion
of this  Agreement  shall be adjudicated  to be invalid or  unenforceable,  this
Agreement  shall  be  deemed  amended  to  delete  therefrom  the  portion  thus
adjudicated  to be invalid or  unenforceable,  such  deletion to apply only with
respect to the operation of this Section in the particular jurisdiction in which
such adjudication is made.
         16. ASSIGNMENT- The Company may assign its rights and obligations under
this   Agreement  to  any  affiliate  of  the  Company  or  to  any  acquire  of
substantially  all  of  the  business  of he  Company,  and  all  covenants  and
agreements  hereunder  shall  inure to the benefit of and be  enforceable  by or
against  any such  assignee.  Neither  this  agreement  nor any rights or duties
hereunder may be signed by or delegated by employee.
          17. ENTIRE  AGREEMENT- This Agreement sets forth the entire  agreement
and  understanding  of the  parties  and  supersedes  all prior  understandings,
agreements  or  representations  by or between the parties,  whether  written or
oral, which relate in any way to the subject matter hereof.
                   18.  AMENDMENT-  No  provision  of this  Agreement  shall  be
altered,  amended,  revoked, or waived except by an instrument in writing signed
by the party sought to be charged with such amendment, revocation or waiver.

                    19.  BINDING  EFFECT- Except as otherwise  provided  herein,
this  Agreement  shall be  binding  upon and shall  inure to the  benefit of the
parties hereunto and their respective legal representatives,  heirs,  successors
and assigns.



           IN WITNESS  WHEREOF,  the parties have executed this  agreement as of
date first written.

 PEN INTERCONNECT,INC.


______________________       _____/s/ James S. Pendelton______      
JAMES S PENDLETON
PRESIDENT AND CEO                          EMPLOYEE



<PAGE>

                                                                  Exhibit 10.16

                              AGREEMENT AND PLAN OF
                       REORGANIZATION THROUGH ACQUISITION


         THIS  AGREEMENT AND PLAN OF  REORGANIZATION  THROUGH  ACQUISITION  (the
"Agreement")  is entered as of the 1st day of April,  1997,  by and  between Pen
Interconnect, Inc., a Utah corporation (the "Parent"), PEN TECHNOLOGIES, INC., a
Utah  corporation and wholly-owned  subsidiary of the Parent (the  "Purchaser"),
PowerStream  Technology,  Inc., a Utah  corporation  (the  "Seller") and for the
limited purposes of Sections 5 and 13 hereof, Daniele Reni, the sole shareholder
of the Seller  ("Reni").  The  Parent,  the  Purchaser,  the Seller and Reni are
referred to collectively herein as the "Parties".

         WHEREAS,  the Seller  desires to transfer  its  business and all of its
assets to the  Purchaser in exchange for One Hundred  Fifty  Thousand  (150,000)
voting shares of the common stock,  par value $.01 per share, of the Parent (the
"Shares"),  and the  assumption  by the  Purchaser  of certain  liabilities  and
obligations  of the Seller in a  transaction  intended  to qualify as a tax free
reorganization  within  the  meaning  of Section  368(a)(1)(C)  of the  Internal
Revenue Code of 1986, as amended (the "Code"); and

         WHEREAS,  the  Purchaser  desires  to  acquire  all of the  assets  and
business of the Seller in exchange for the Shares and the  assumption of certain
of the liabilities and obligations of the Seller; and

         WHEREAS,  the Boards of Directors of the Parent,  the  Purchaser and of
the Seller, respectively,  and the shareholders of the Seller, have approved the
transactions contemplated by this Agreement;

         NOW,  THEREFORE,  in consideration of the mutual promises and covenants
set forth  herein,  together  with other good and  valuable  consideration,  the
receipt and  sufficiency  of which hereby are  acknowledged,  the Parties hereto
agree as follows:

                          SECTION 1. TRANSFER BY SELLER

         1.1 Transfer of Seller's Assets. At the Closing,  as defined in Section
3 hereof,  the Seller  shall  transfer and deliver to the  Purchaser  all of its
properties  and assets,  tangible or intangible  and wherever  situated,  all as
listed on Exhibit "A" attached  hereto and made a part hereof by this reference,
and including without  limitation,  all right, title, and interest in and to (a)
tangible personal property, including inventories or raw materials, supplies and
finished goods, equipment, manufactured and purchased parts, machinery, goods in
process,  and  furniture,  (b)  agreements,   contracts,  instruments,  security
interests,  guaranties,  and other similar arrangements,  and rights thereunder,
(c) approvals, permits, licenses,  certificates and similar rights obtained from
governmental   agencies,   (d)   intellectual   property,   including  the  name
"PowerStream  Technology," research and development and plans thereof,  patents,
patents pending, patent applications, trademarks, goodwill associated therewith,
licenses and sublicenses  granted and obtained with respect thereto,  and rights
thereunder,  remedies against infringements thereof, and rights to protection of
interests  therein  under  the laws of all  jurisdictions,  (e)  leaseholds  and
subleaseholds  therein, (f) prepayments,  prepaid expenses,  and deferred items,
claims, deposits,  refunds and causes of action, (h) accounts,  notes, and other
receivables,  (i)  securities,  and  (j)  cash,  (collectively,  the  "Assets");
provided however,  that the Assets shall not include (1) the Seller's  corporate
charter,


<PAGE>

qualifications to conduct business as a foreign  corporation,  arrangements with
registered  agents  relating  to  foreign  qualifications,  taxpayer,  and other
identification  numbers,  seals, minute books, stock transfer books, blank stock
certificates, and other documents relating to the organization, maintenance, and
existence of the Seller as a corporation, or (2) any of the rights of the Seller
under this Agreement.

         1.2 Documents of Transfer. The conveyance,  transfer,  assignment,  and
delivery of the Assets to the Purchaser,  as herein provided,  shall be effected
by  bills  of  sale,  endorsements,   assignments,  drafts,  checks,  and  other
instruments  of transfer  and  conveyance  in such form as the  Purchaser  shall
reasonably request.

         1.3 Further Acts.  The Seller agrees that it will, at any time and from
time to time after the  Closing,  upon  request  of the  Purchaser  and  without
payment of further consideration,  do all such further acts, assignments, powers
of attorney,  and assurances as may be required for the better  transferring and
confirming to the Purchaser,  or its  successors and assigns,  any or all of the
Assets.

                       SECTION 2. PAYMENT BY THE PURCHASER

         2.1 Transfer of the Purchaser's  Shares. At the Closing,  the Purchaser
shall  deliver to the Seller a  certificate  or  certificates  representing  the
Shares.

         2.2 Assumption of Seller's Liabilities. At Closing, the Purchaser shall
assume,  and  hereby  agrees  to  pay,  discharge  and  perform  when  due,  the
obligations  and liabilities of the Seller listed on Exhibit "B" attached hereto
and made a part hereof by this  reference.  Except as  otherwise  provided,  the
Purchaser will not assume or have any  responsibility  with respect to any other
obligation, contract or liability of the Seller not included within Exhibit "B".

         2.3 Costs Resulting From This Agreement.  Except as provided in Section
13.2, the Purchaser  hereby agrees to pay any and all legal fees and other costs
which directly result from the consummation of the transactions  contemplated by
this  Agreement.  For  purposes of this  subsection,  legal fees and other costs
which  arise  directly  as a  result  of the  consummation  of the  transactions
contemplated by this Agreement shall refer only to obligations which will not be
held to  represent  additional  consideration  within  the  meaning  of  Section
368(a)(1)(C) of the Code.

                             SECTION 3. THE CLOSING

         3.1 The Closing.  The closing of the transactions  contemplated  hereby
(the "Closing") shall take place at such time, date and place as shall be agreed
upon by the Parties;  provided however, that in no event shall the Closing occur
later than June 30, 1997.

         3.2  Documents to be Delivered  by Seller.  At the Closing,  the Seller
shall deliver to the  Purchaser:  (1) such  instruments  of transfer  (including
consents and approvals of third parties) as are necessary or appropriate, in the
opinion  of  legal  counsel  to the  Purchaser,  to vest in the  Purchaser,  its
successors and assigns,  the full legal and equitable title to the Assets; (2) a
duly executed power of attorney  appointing the Purchaser as the true and lawful
attorney-in-fact  for the Seller to institute and prosecute (in its own name, or
in the name of the Seller and for the  benefit of the  Purchaser)  any action or
proceeding  deemed by the Purchaser to be necessary or  appropriate  to perfect,
assert, or enforce its right, title and interest in and to the


<PAGE>


Assets;  and (3) such evidence as legal counsel to the Purchaser may  reasonably
require to establish  that the Seller has complied with the laws of the State of
Utah  and  the  Code  relating  to the  Seller's  sale  of the  Assets  and  its
liquidation and dissolution pursuant to the provisions of this Agreement.

         3.3  Certificates  and Documents to be Delivered by  Purchaser.  At the
Closing,  the  Purchaser  will  cause  to  be  delivered  to  the  Seller  (1) a
certificate  or  certificates  representing  the Shares,  and (2) an  instrument
evidencing  the  assumption by the Purchaser of those  liabilities of the Seller
specified in Section 2.2 hereof.

               SECTION 4. REPRESENTATIONS AND WARRANTIES OF SELLER

         The Seller  represents  and warrants that the  statements  contained in
this  Section 4 are correct and  complete as of the date of this  Agreement  and
will be correct  and  complete  as of the  Closing  (as though  made then and as
though the Closing were  substituted  for the date of this Agreement  throughout
this Section 4), except as set forth in disclosure  schedule  accompanying  this
Agreement.

         4.1 Organization and Good Standing.  The Seller has been duly organized
and is existing as a corporation in good standing under the laws of the State of
Utah with full power and  authority  (corporate  and other) to own and lease its
properties and to conduct its business as currently conducted. The Seller has no
subsidiary  nor owns or controls,  or has any other equity  investment  or other
interest in, directly or indirectly, any other entity.

         4.2 Authority.  The seller has full power and authority (including full
corporate  power and  authority) to execute and deliver this  Agreements  and to
perform its  obligations  hereunder.  Without  limiting  the  generality  of the
foregoing,  the  stockholders and the Board of Directors of the Seller have duly
authorized  the  execution,  delivery and  performance  of this Agreement by the
Seller.  This Agreement  constitutes the valid and legally binding obligation of
the Seller, enforceable in accordance with its terms and conditions.

         4.3 No Conflicts.  To the best of Seller's  knowledge,  the  execution,
delivery  and  performance  of  this  Agreement  and  the  consummation  of  the
transactions contemplated hereby will not conflict with or result in a breach or
violation  of any term or  provision  of any  instrument  to which the Seller is
bound or affected.

         4.4 Financial Statements.  To the best of Seller's knowledge,  Schedule
4.3 hereto contains true and complete copies of (i) the unaudited  balance sheet
(the "Balance Sheet") of the Seller at  _____________,  1997 (the "Balance Sheet
Date"), and the related unaudited statements of income, shareholders' equity and
cash flows for the three months then ended (the "Financial Statements").

         4.5 Title to Property; Encumbrances. To the best of Seller's knowledge,
the Seller has, and immediately  prior to the Closing will have, good, valid and
marketable title in fee simple to all property reflected on the Balance Sheet as
owned by the Seller and all  property  acquired by the Seller  since the Balance
Sheet Date, in each case free and clear of all liens and encumbrances except for
sales and other  dispositions  of  inventory  in the  ordinary  course since the
Balance Sheet Date which, in the aggregate,  have not been materially  different
from prior periods.

         4.6      Accounts Receivable.  To the best of Seller's knowledge, all


<PAGE>

accounts  receivable  of the Seller  reflected  in the Balance  Sheet and all ac
counts  receivable  of the Seller that have arisen since the Balance  Sheet Date
(except such accounts  receivable as have been  collected  since such dates) are
valid and enforceable claims.

         4.7 Inventories. To the best of Seller's knowledge, except as described
in Schedule 4.6, all inventories of raw materials,  work-in-process and finished
goods set forth or  reflected  in the  Balance  Sheet or  acquired by the Seller
since the Balance  Sheet  Date,  consist of a quality  and  quantity  usable and
saleable in the ordinary course.

         4.8      Trademarks; Patents; Etc.

                  (a) Schedule  4.7(a)  contains a true and complete list of all
letters patent,  patent applications,  trade names,  trademarks,  service marks,
trademark and service mark registrations and applications, copyrights, copyright
registrations and applications,  grants of a license or right to the Seller with
respect to the  foregoing,  both  domestic  and  foreign,  claimed by either the
Seller  or used or  proposed  to be used by the  Seller  in the  conduct  of its
business, whether registered or not, (collectively herein, "Registered Rights").

                  (b) Except as  described in Schedule  4.7(b),  the Seller owns
and has the  unrestricted  right to use the  Registered  Rights and every  trade
secret, know-how, process, discovery,  development,  design, technique, customer
and  supplier  list,   promotional  idea,  marketing  and  purchasing  strategy,
invention,  process,  confidential data and or other  information  (collectively
herein,  "Proprietary  Information")  required  for or  incident  to the design,
development,  manufacture,  operation, sale and use of all products and services
sold or rendered  or  proposed  to be sold or  rendered by the Seller,  free and
clear  of any  right,  equity  or  claim  of  others.  To the  best of  Seller's
knowledge, Seller has not been notified in any manner of any infringement in the
use of any Proprietary  Information.  The Seller has taken  reasonable  security
measures to protect the secrecy,  confidentiality  and value of all  Proprietary
Information.

                  (c)  Schedule  4.7(c)  contains a true and  complete  list and
description of all licenses of or rights to Proprietary  Information  granted to
the Seller by others or to others by the Seller. Except as described in Schedule
4.7(c),  (i) the  Seller  has  not  sold,  transferred,  assigned,  licensed  or
subjected to any Lien,  any Registered  Right or Proprietary  Information or any
interest  therein,  and (ii) the Seller is not  obligated or under any liability
whatever to make any  payments by way of  royalties,  fees or  otherwise  to any
owner or licenser of, or other claimant to, any Registered  Right or Proprietary
Information.

                  (d) There is no claim or demand of any Person  pertaining  to,
or any action that is pending or, to the  Shareholders'  knowledge,  threatened,
which  challenges the rights of the Seller in respect of any Registered Right or
any Proprietary Information.

         4.9      Indebtedness.

                  (a) The Seller has no liability or obligation for indebtedness
other  than as set  forth on  Exhibit  B, and true and  complete  copies  of all
instruments and documents evidencing,  creating,  securing or otherwise relating
to such indebtedness have been delivered to the Purchaser heretofore.  Except as
described in Schedule 4.8(a),  no event has occurred and no condition has become
known to the  Seller  (including  the  transactions  contemplated  hereby)  that
constitutes or, with notice or passage of time, or


<PAGE>

both,  would  constitute a default or a basis of force majeure or other claim of
accelerated or increased rights, termination,  excusable delay or nonperformance
by the Seller or any other person under any  instrument or document  relating to
or evidencing  indebtedness  that would entitle any person to require the Seller
to pay any portion of the  principal  amount of such  indebtedness  prior to the
scheduled  maturity  thereof.  Except  as  set  forth  in  Schedule  4.8(a),  no
instrument or document evidencing,  creating,  securing or otherwise relating to
indebtedness  will  require  the  consent of any person to or as a result of the
consummation of the transactions contemplated by this Agreement.

                  (b) Schedule 4.8(b)  contains a list and brief  description of
all agreements or instruments  pursuant to which any of the Seller's  directors,
employees or shareholders  have  guaranteed any  indebtedness of the Seller (the
"Guaranties"). True and complete copies of all Guaranties have been delivered to
Purchaser.

         4.10 Litigation. To the best of Seller's knowledge, the Seller is not a
party,  and has not been  threatened  to be made a party,  to any action,  suit,
proceeding,  or  investigation  of,  in, or before  any court or  administrative
agency of any government or governmental agency pertaining to Seller, and is not
subject  to any  outstanding  injunction,  judgment,  order or decree of charge,
issued by a government or governmental agency.

         4.11  Consents.  To the  best  of  Seller's  knowledge,  all  consents,
authorizations  and  approvals  required  of any person to or as a result of the
consummation  of the  transactions  contemplated  hereby have been  lawfully and
validly obtained by the Seller.

         4.12 Information  Regarding  Shares.  The Seller  acknowledges that the
Purchaser  has  delivered to it its Annual  Report on Form 10-KSB for the fiscal
year ended  September  30,  1996,  its  Quarterly  Report on Form 10-QSB for the
quarter ended December 31, 1996, and Proxy Statement for the shareholder meeting
held on February  18,  1997.  The Seller has had the  opportunity  to review and
discuss  the  above-referenced  documents  with  the  Purchaser  and has had the
opportunity  to ask  questions  and make  inquiries  of  representatives  of the
Purchaser regarding the Purchaser's  financial condition,  assets and operations
and  the  Seller  has  received  satisfactory  answers  to  such  questions  and
inquiries.

         4.13 Restrictions on Shares.  The Shares when issued to the Seller will
constitute  "restricted  securities"  as that term is  defined  in Rule 144,  as
promulgated  under the  Securities  Act of 1933, as amended (the "Act"),  and as
such  may  not be  transferred  except  pursuant  to an  effective  registration
statement  filed  under  the Act,  or  pursuant  to a valid  exemption  from the
registration   requirements  of  the  Act.  The  Purchaser  has  no  obligation,
whatsoever, to register the Shares under the Act and has no present intention to
so register the Shares.  If the Seller  desires to sell or transfer any interest
in the Shares pursuant to an exemption from registration under the Act and under
state  securities  laws,  the Seller shall first  provide the  Purchaser  with a
description  of  the  circumstances   and  an  opinion  of  counsel   reasonably
satisfactory  to counsel to  Purchaser  that such sale or transfer is so exempt.
The Seller  understands  that resale to the public will not be available  for at
least one year under Rule 144,  as amended and  effective  April 29,  1997.  The
Shares are being acquired by the Seller for investment purposes only, solely for
its own account, and without any present intention of participating  directly or
indirectly  in the  distribution  or resale of all or any portion of the Shares.
The  following  legend  shall be placed  upon the  certificate  or  certificates
representing the Shares:


<PAGE>

                  The  shares  represented  by this  certificate  have  not been
                  registered  under the  Securities Act of 1933. The shares have
                  been acquired for investment and may not be sold,  transferred
                  or  assigned  in  the  absence  of an  effective  registration
                  statement for these shares under the Securities Act of 1933 or
                  an  opinion  of  Pen   Interconnect,   Inc.'s   counsel   that
                  registration is not required under said Act.

         4.14 Review by Counsel. The Seller has had full and fair opportunity to
have this  Agreement  and all  documents  referred  to herein  reviewed by legal
counsel.

                SECTION 5. REPRESENTATIONS AND WARRANTIES OF RENI

         Reni represents and warrants that the statements,  representations  and
warranties  issued by the Seller and  contained  in Section  4.3,  Section  4.5,
Section 4.8,  Section 4.9 and Section 4.10 hereof are correct and complete as of
the date of this  Agreement  and will be correct and  complete as of the Closing
(as though made then and as though the Closing were  substituted for the date of
this Agreement),  except as set forth in disclosure  schedule  accompanying this
Agreement.

                    SECTION 6. REPRESENTATIONS AND WARRANTIES
                             OF PURCHASER AND PARENT

         The  Purchaser  and the Parent each  represents  and warrants  that the
statements  contained  in this Section 6 are correct and complete as of the date
of this  Agreement and will be correct and complete as of the Closing (as though
made  then and as  though  the  Closing  were  substituted  for the date of this
Agreement throughout this Section 6), except as set forth in disclosure schedule
accompanying this Agreement.

         6.1 No  Conflicts.  The  execution,  delivery and  performance  of this
Agreement and the consummation of the transactions  contemplated hereby will not
conflict with or result in a breach or violation of any term or provision of any
instrument to which the Purchaser or Parent is bound or affected.

         6.2  Authority.  The  Purchaser  and  Parent  each have full  power and
authority  (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations  hereunder.  Without  limiting the
generality  of the  foregoing,  the Boards of Directors of the Purchaser and the
Parent have duly  authorized  the  execution,  delivery and  performance of this
Agreement by the Purchaser and the Parent. This Agreement  constitutes the valid
and legally binding  obligation of the Purchaser and the Parent,  enforceable in
accordance with its terms and conditions.

         6.3 Access and Information. The Purchaser and the Parent have delivered
to the Seller its true, correct,  complete and most recent Annual Report on Form
10-KSB for the fiscal year ended  September 30, 1996,  its  Quarterly  Report on
Form 10-QSB for the quarter ended December 31, 1996, and Proxy Statement for the
shareholder  meeting held on February 18, 1997. Each of these documents  contain
the information required to be included therein by applicable law and as to such
required  information  do not contain any untrue  statements of material fact or
omit a material  fact  necessary to make the  statements  contained  therein not
misleading.

                SECTION 7. CONDUCT OF SELLER PRIOR TO THE CLOSING


<PAGE>


         During the period commencing on the date hereof and continuing  through
the Closing,  the Seller covenants and agrees (except as expressly contem plated
by this Agreement or to the extent that the Purchaser shall otherwise  expressly
consent in writing) that:

         7.1 Ordinary Course. The Seller shall conduct its business in, and only
in, the ordinary  course and shall  maintain its  properties  and assets in good
condition and repair.

         7.2 Corporate Changes The Seller shall not declare,  set aside, make or
pay any  dividend  or other  distribution  in  respect of its  capital  stock or
purchase or redeem, directly or indirectly,  any shares of its capital stock, or
liquidate or dissolve or obligate  itself to do, other than as  contemplated  by
this Agreement.

         7.3 Indebtedness The Seller shall not incur any indebtedness,  sell any
debt  securities or lend money to or guarantee the  indebtedness  of any person.
The Seller shall not restructure or refinance its existing Indebtedness.

             SECTION 8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS

         The  obligations  of the Seller under this Agreement are subject to the
Purchaser's  fulfillment,  before or at the  Closing,  of each of the  following
conditions, unless waived in whole or in part in writing by the Seller:

         8.1  Purchaser's  Covenants.  The  Purchaser  and the Parent shall have
performed all covenants  required by this  Agreement to be performed by it at or
before the Closing.

         8.2 Delivery of Shares.  The  Purchaser  shall  deliver to the Seller a
certificate or certificates representing the Shares.

         8.3 Delivery of Assumption Document. The Purchaser shall deliver to the
Seller an assumption  document,  in a form acceptable to counsel for the Seller,
relating to the  assumption of the Seller's  obligations as described in Section
2.2.

                 SECTION 9. CONDITIONS PRECEDENT TO PURCHASER'S
                            AND PARENT'S OBLIGATIONS

         The obligations of the Purchaser and of the Parent under this Agreement
are subject to each of the  following  conditions,  unless waived in whole or in
part in writing by the Purchaser or the Parent:

         9.1 Seller's  Representations  and Warranties.  The representations and
warranties of the Seller set forth in Section 4 and of Reni set forth in Section
5 hereof shall be true and correct in all material respects at Closing as though
made at and as of that date,  except as  affected by  transactions  contemplated
hereby.

     9.2 Seller's  Covenants.  The Seller  shall have  performed  all  covenants
required by this Agreement to be performed by it on or before the Closing.

         9.3  Transfer  Documents.  The Seller  shall  deliver to the  Purchaser
documents sufficient,  in the opinion of legal counsel to the Purchaser, to vest
in the Purchaser,  its successors and assigns, full legal and equitable title to
the Assets, together with the power of attorney described in Section 3.2.

                  SECTION 10. APPROVAL OF SELLER'S SHAREHOLDERS


<PAGE>


         The Board of Directors of Seller  shall and submit and  recommend  this
Agreement  for  shareholder  adoption  and  approval,  as  provided  for  by the
applicable laws of the State of Utah. The  affirmative  vote of the holders of a
majority  of all issued and  outstanding  common  shares of the Seller  shall be
required for the adoption and approval of this Agreement.

            SECTION 11. OBLIGATIONS OF SELLER AFTER THE CLOSING DATE

         11.1  Dissolution.  From and after the  Closing,  the  Seller  will not
engage in any business,  and as soon thereafter as is practicable will liquidate
and dissolve as a corporation,  and, in connection  therewith,  shall distribute
the  Shares  received   pursuant  to  Section  2  hereof  to  Reni  in  complete
cancellation  and redemption of all issued and outstanding  common shares of the
Seller.

         11.2 Seller's Corporate Records.  The Seller will make available to the
Purchaser  for  inspection  and  copying  all books and  records  retained by it
pursuant to Section 1.1 hereof upon reasonable request for access thereto.

                             SECTION 12. TERMINATION

         12.1 Circumstances of Termination. This Agreement may be terminated:

                  (a) by the Board of Directors  of the Seller if any  condition
provided in Section 7 hereof has not been  satisfied  or waived on or before the
Closing;

                   (b) by the  Board of  Directors  of the  Purchaser  or of the
Parent if any condition  provided in Section 8 hereof has not been  satisfied or
waived on or before the Closing;

          (c) by the Board of  Directors  of the Seller,  the  Purchaser  or the
     Parent if the Closing has not occurred by June 30, 1997;

         12.2  Effect  of  Termination.  In the event of a  termination  of this
Agreement  pursuant to Section 11.1  hereof,  each party shall pay the costs and
expenses  incurred by it in connection  with this Agreement and no party (or any
of its officers,  directors and shareholders) shall be liable to any other party
for any costs, expenses,  damages or loss of anticipated profits,  except to the
extent that such  termination  results from the willful breach by a party hereto
of its representations, warranties, covenants or agreements set forth herein, in
which event the Parties  shall retain such legal or  equitable  remedies as they
may enjoy.

                           SECTION 13. INDEMNIFICATION

         13.1 Survival of Representations  and Warranties.  The  representations
and  warranties  of the Parties  hereto  contained  in this  Agreement or in any
writing  delivered  pursuant  hereto or at the Closing shall survive the Closing
and  the  consummation  of  the  transactions   contemplated   hereby  (and  any
examination  or  investigation  by or on behalf of any party  hereto)  until the
second anniversary of the Closing.

         13.2     Indemnification.

                  (a) Reni  covenants  and agrees to defend,  indemnify and hold
harmless the  Purchaser,  the Parent and the Seller and each person who controls
the Purchaser  and/or Parent within the meaning of the Act, to the extent of the
value of the Shares, and by returning the Shares to the Parent


<PAGE>


without  further  recourse,  from and  against  any  damages  arising  out of or
resulting  from:  (i) any  inaccuracy  in or  breach  of any  representation  or
warranty  made  by the  Seller  or  Reni in  this  Agreement  or in any  writing
delivered by the Seller or Reni pursuant to this Agreement or at the Closing; or
(ii) the  failure  of the  Seller to  perform  or  observe  fully any  covenant,
agreement or  provision  to be  performed or observed by the Seller  pursuant to
this Agreement.

                  (b) The  Purchaser  and Parent  covenant  and agree to defend,
indemnify  and hold  harmless  the Seller and Reni from and  against any damages
arising  out of or  resulting  from:  (i) any  inaccuracy  in or  breach  of any
representation  or warranty made by the Purchaser or Parent in this Agreement or
in any writing delivered pursuant to this Agreement or at the Closing;  (ii) the
failure by the Purchaser or Parent to perform or observe any covenant, agreement
or condition to be performed or observed by it pursuant to this Agreement.

         13.3     Third Party Claims.

                  (a)  If any  party  entitled  to be  indemnified  pursuant  to
Section 13.2 (an  "Indemnified  Party")  receives notice of the assertion by any
third party of any claim or of the  commencement by any such third person of any
action (an "Indemnifiable Claim") with respect to which another party hereto (an
"Indemnifying  Party") is or may be  obligated to provide  indemnification,  the
Indemnified  Party shall promptly notify the Indemnifying  Party in writing (the
"Claim  Notice")  of the  Indemnifiable  Claim;  provided,  that the  failure to
provide such notice shall not relieve or otherwise  affect the obligation of the
Indemnifying Party to provide  indemnification  hereunder,  except to the extent
that any damages directly resulted or were caused by such failure.

                  (b) The  Indemnifying  Party  shall  have  thirty  days  after
receipt of the Claim Notice to undertake,  conduct and control,  through counsel
of its own choosing,  and at its expense, the settlement or defense thereof, and
the Indemnified Party shall cooperate with the Indemnifying  Party in connection
therewith;   provided,   that  (i)  the  Indemnifying  Party  shall  permit  the
Indemnified  Party to participate in such  settlement or defense through counsel
chosen by the  Indemnified  Party  (subject to the  consent of the  Indemnifying
Party, which consent shall not be unreasonably withheld), provided that the fees
and expenses of such counsel shall not be borne by the  Indemnifying  Party, and
(ii) the Indemnifying Party shall not settle any Indemnifiable Claim without the
Indemnified  Party's consent.  So long as the  Indemnifying  Party is vigorously
contesting any such  Indemnifiable  Claim in good faith,  the Indemnified  Party
shall not pay or settle such claim  without the  Indemnifying  Party's  consent,
which consent shall not be unreasonably withheld, delayed or conditioned.

                  (c) If the Indemnifying  Party does not notify the Indemnified
Party  within  thirty days after  receipt of the Claim  Notice that it elects to
undertake  the  defense  of  the  Indemnifiable  Claim  described  therein,  the
Indemnified  Party shall have the right to  contest,  settle or  compromise  the
Indemnifiable Claim in the exercise of its reasonable discretion; provided, that
the Indemnified  Party shall notify the Indemnifying  Party of any compromise or
settlement of any such Indemnifiable Claim.

                  (d)  Anything  contained  in this Section 13.3 to the contrary
notwithstanding,  Reni  shall not be  entitled  to assume  the  defense  for any
Indemnifiable  Claim (and shall be liable for the  reasonable  fees and expenses
incurred by the Indemnified  Party in defending such claim) if the Indemnifiable
Claim seeks an order,  injunction or other equitable  relief or relief for other
than money damages against the Purchaser or the Seller which


<PAGE>


the Purchaser determines, after conferring with its counsel, cannot be separated
from any  related  claim for money  damages  and  which,  if  successful,  would
adversely affect the business, properties or prospects of the Seller.

         13.4  Indemnification  Non-Exclusive.   The  foregoing  indemnification
provisions  are in  addition  to,  and  not in  derogation  of,  any  statutory,
equitable or common-law remedy any party may have for breach of  representation,
warranty, covenant or agreement.

                         SECTION 14. GENERAL PROVISIONS

         14.1 Waiver. Any failure on the part of either party to comply with any
of the obligations,  agreements or conditions hereunder may be waived in writing
by the party to whom such compliance is owed.

         14.2 Notices. All notices and other  communications  hereunder shall be
in writing and shall be deemed to have been given if delivered in person or sent
by prepaid, first class, registered or certified United States mail, with return
receipt requested, as follows:


If to Purchaser or Parent:                   If to Seller:

         Pen Interconnect, Inc.              PowerStream Technology, Inc.
         2351 South 2300 West                1825 N. Mountain Springs Parkway
         Salt Lake City, Utah  84119         Springville, Utah  84663
         Attn: James S. Pendleton            Attn: Daniele Reni
         Fax: 801.977.3887

With Purchaser copy to:                     

         Parsons Behle & Latimer
         201 South Main Street
         Suite 1800
         Salt Lake City, Utah  84111
         Attn: Stuart A. Fredman
         Fax: 801.536.6111

         14.3 Entire Agreement. This Agreement (including the documents referred
to herein)  constitutes the entire Agreement  between the Parties and supersedes
and cancels any other agreement,  representation or communication,  whether oral
or written between the Parties hereto relating to the transactions  contemplated
herein or the subject matter hereof. \

         14.4 Governing  Law. This Agreement  shall be governed by and construed
in accordance  with the laws of the State of Utah,  without giving effect to any
choice  or  conflict  of law  provision  (whether  of the State of Utah or other
jurisdiction)  which would cause the application of any rule or regulation other
than of the State of Utah.

         14.5  Effect.  This  Agreement  shall  inure to the  benefit of, and be
binding  upon,  the  Parties  hereto  and  their  successors  and  assigns.  Any
assignment,  however, by either party of its rights under this Agreement without
the written consent of the other party shall be void.

         14.6  Amendments.  The terms and  conditions  of this  Agreement may be
amended or supplemented at any time by written  agreement of both the Seller and
the Purchaser.

         14.7  Counterparts.  This Agreement may be executed  simultaneously in
one

<PAGE>


or more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.

         14.8     Time.  Time is of the essence in this Agreement.

         14.9  Attorneys'  Fees.  In the  event of a  default  or  breach of any
provision  of this  Agreement,  the  defaulting  party  agrees  to pay all costs
incurred by the  non-defaulting  party in enforcing  this  Agreement,  including
reasonable attorneys' fees.

         IN WITNESS  WHEREOF,  the  Parties  have caused  this  Agreement  to be
executed as of the day and date first shown above.

PURCHASER:                                    SELLER:


PEN TECHNOLOGIES, INC.                        PowerStream Technology, Inc.



By:  _/s/ James S. Pendleton_________              By:  /s/ Daniele Reni

Its:    ________CEO_________________               Its:     President


<PAGE>

Pen Interconnect, Inc.                                             Exhibit 11
Calculation of Earnings per share


<TABLE>
<CAPTION>
                                                                     Months          Weighted
                                                  Common              Out -           Average
Fiscal Year End                                   Shares           Standing            Shares
September 30, 1997

<S>                                              <C>                     <C>        <C>      
Balance at October 1, 1996                       3,033,407               12         3,033,407
Contingent Shares                                 55,568                  6            27,784
Acquisition of PowerSteam                         150,000                 6            75,000
Conversion of bridge loan                         88,888                  2            14,815
Exercised Warrants                                745,000                 1            62,083

Balance at September 30, 1997                    4,072,863                          3,213,089

Loss for fiscal year end September 30, 1997                                       ($1,735,483)
Loss per share                                                                         ($0.54)
</TABLE>




<TABLE>
<CAPTION>
                                                                             Months          Weighted
                                                          Common              Out -           Average
Fiscal Year End                                           Shares           Standing            Shares
September 30, 1996

<S>                                                      <C>                     <C>        <C>      
Balance at October 1, 1995                               1,700,000               12         1,700,000
IPO shares issued                                        1,000,000               10           833,333
Acquisition of InCirT                                     333,407                 6           166,695

Balance at September 30, 1996                            3,033,407                          2,700,028

Loss for fiscal year end September 30, 1996                                                 ($709,010)
Loss per share                                                                                 ($0.26)
</TABLE>


<PAGE>

                                                                 Exhibit 23.1




                                     CONSENT


We have issued our report dated  December 12, 1997,  accompanying  the financial
statements of Pen Interconnect, Inc. appearing in the 1997 Annual Report on Form
10-KSB  for the  year  ended  September  30,  1997.  We  hereby  consent  to the
incorporation  by reference  of the  aforementioned  report in the  Registration
Statements  of Pen  Interconnect,  Inc.  on  Forms  S-3  (File  No.  33-96444-D,
effective August 4, 1997 and File No. 333-29927,  effective August 29, 1997) and
on Form S-8 (File No. 333-2618 effective March 22, 1996).





                                                             GRANT THORNTON LLP

Salt Lake City, Utah
January 12, 1998

<PAGE>

                                                                 Exhibit 99

                             PEN INTERCONNECT, INC.
                              2351 South 2300 West
                           Salt Lake City, Utah 84119
                              --------------------

                              Information Statement

         This information statement is provided by the Board of Directors of Pen
Interconnect,  Inc., a Utah  corporation  (the  "Company"),  in connection  with
stockholder  approval by written  consent  ratifying the actions of the Board of
Directors  in issuing  warrants to acquire  1,000,000  shares of Common Stock to
certain lenders.

         The  foregoing  action  has been  effected  by  written  consents  (the
"Consents")  executed by the  holders of an  aggregate  of 51% of the  Company's
outstanding  Common Stock.  In accordance with the regulations of the Securities
and Exchange  Commission (the  "Commission"),  the Consents will be effective 20
days following the mailing of this information statement.

         The  warrants  were  issued  from  January  through  April  1997  to 15
individuals  and entities (the  "lenders") who loaned an aggregate of $1,000,000
to the Company.  The warrants are  exercisable  at $2.00 per share and expire on
the tenth  anniversary  of their  issuance.  The loans are  repayable  after six
months. If a loan is not repaid when due, the number of shares issuable pursuant
to the lender's  warrants  doubles.  If the loan is not repaid within 30 days of
maturity the exercise price for the warrants  decreases to $1.00 per share. If a
loan becomes more than 60 days overdue the exercise  price  becomes equal to the
lesser  of $1.00  per  share  and the  greater  of $.55 per  share or 75% of the
average  closing bid price of the  Company's  Common Stock during the 15 trading
days immediately  preceding the date of exercise (the "Market Price"). If a loan
becomes  more than 60 days  overdue  and the  Company's  stock is not  listed on
Nasdaq,  the exercise  price  becomes equal to the lesser of $1.00 per share and
75% of the Market Price. As of July 31, 1997,  loans with a principal  amount of
$775,000 remain outstanding.  The Company has filed a registration  statement to
register  the sale of  shares  of  Common  Stock  issuable  on  exercise  of the
warrants.

Considerations

         In general the Company's  Certificate of  Incorporation  authorizes the
Board of Directors to create and issue securities  convertible into Common Stock
without  shareholder  approval.  However,  the corporate  governance rules which
apply to companies  listed on the Nasdaq  National  Market System provide that a
company may not without  shareholder  approval in any transaction  issue at less
than the greater of market  value or book value a number of shares equal to more
than 20% of the number of shares of common stock then outstanding.  Although the
matter is not free from doubt,  the Company  believes that it is the position of
Nasdaq that the Company is  required to take into  account all shares  which are
issuable on exercise of the warrants even if it is improbable  that the warrants
will be exercised because the exercise price of the warrants is greater than the
recent  market price of the Common  Stock.  Although  the exercise  price of the
warrants is greater  than the market price of the Common  Stock,  it is arguably
less than the Company's per share book value. Therefore the

<PAGE>


Company has  obtained  the  Consents  approving  the issuance of the warrants in
order to satisfy the Nasdaq rules.

Vote Required

         Under  Utah  law,  the  affirmative  vote of a  majority  of the  votes
eligible  to be cast at a meeting of  shareholders  is  required  to approve the
authorization  of the  issuance  of the  warrants.  The  Consents  satisfy  this
requirement.


Dated:   Salt Lake City, Utah
         September 29, 1997

                                  By Order of the Board of Directors

                                  /s/ Dennis C. Ellis

                                  Dennis C. Ellis
                                  Secretary