Exhibit 10.59

                           SECOND AMENDED AND RESTATED

                                CREDIT AGREEMENT




                          Dated as of February 27, 1997

                                      among

                          MOTIVEPOWER INDUSTRIES, INC.,
                                   as Borrower


                         BANK OF AMERICA NATIONAL TRUST
                            AND SAVINGS ASSOCIATION,
                              as Agent and Lender,

                                       and

                 THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO,
                                   as Lenders




                                   Arranged By


                          BANCAMERICA SECURITIES, INC.













<PAGE>





                                TABLE OF CONTENTS

Section                                                                     Page

ARTICLE I

         DEFINITIONS..........................................................2
         1.01  Certain Defined Terms..........................................2
         1.02  Other Interpretive Provisions.................................31
         1.03  Accounting Principles.........................................32
         1.04  Amendment and Restatement.....................................32

ARTICLE II

         THE CREDITS.........................................................33
         2.01  Amounts and Terms of Commitments..............................33
                  (a)      The Term Credit...................................33
                  (b)      The Revolving Credit..............................34
                  (c)      Letters of Credit.................................34
         2.02  Loan Accounts; Notes..........................................40
               --------------------
         2.03  Procedure for Borrowing.......................................40
               -----------------------
         2.04  Conversion and Continuation Elections.........................41
               -------------------------------------
         2.05  Voluntary Termination or Reduction of Commitments.............42
               -------------------------------------------------
         2.06  Optional Prepayments..........................................43
               --------------------
         2.07  Mandatory Prepayments of Loans; Mandatory Commitment
               ----------------------------------------------------
                  Reductions.................................................43
                  (a)      Asset Dispositions................................43
                  (b)      Subordinated Debt Issuance........................44
                  (c)      Overadvances......................................44
                  (d)      General...........................................44
                  (e)      Reduction of Commitment...........................45
         2.08  Repayment.....................................................45
               ---------
                  (a)      The Term Credit...................................45
                           ---------------
                  (b)      The Revolving Credit..............................45
                           --------------------
         2.09  Interest......................................................46
         2.10  Fees..........................................................46
                  (a)  Arrangement, Agency Fees..............................46
                  (b)      Commitment Fees...................................47
                  (c)      Compensation for Letters of Credit................47
         2.11  Computation of Fees and Interest..............................48
               --------------------------------
         2.12  Payments by the Borrower......................................48
               ------------------------
         2.13  Payments by the Lenders to the Agent..........................49
               ------------------------------------
         2.14  Sharing of Payments, Etc......................................50
               -------------------------
         2.15  Security and Guaranty.........................................50
               ---------------------

ARTICLE III

         TAXES, YIELD PROTECTION AND ILLEGALITY..............................50
         3.01  Taxes.........................................................50
         3.02  Illegality....................................................51
         3.03  Increased Costs and Reduction of Return.......................52
         3.04  Funding Losses................................................53
         3.05  Inability to Determine Rates..................................54




                                        i

<PAGE>


Section                                                                    Page



         3.06  Reserves on Offshore Rate Loans..............................54
               -------------------------------
         3.07  Certificates of Lenders......................................54
               -----------------------
         3.08  Substitution of Lenders......................................54
               -----------------------
         3.09  Survival.....................................................55
               --------

ARTICLE IV

         CONDITIONS PRECEDENT...............................................55
         4.01  Conditions of Initial Closing................................55
                  (a)      Credit Agreement and Notes.......................55
                  (b)      Resolutions; Incumbency..........................55
                  (c)      Organization Documents; Financials and Solvency;
                           Good Standing....................................55
                           -------------
                  (d)      Legal Opinions...................................56
                           --------------
                  (e)      Payment of Fees..................................56
                           ---------------
                  (f)      Collateral Documents.............................56
                           --------------------
                  (g)      Insurance Policies...............................58
                           ------------------
                  (h)      Environmental Review.............................58
                           --------------------
                  (i)      Certificate......................................58
                           -----------
                  (j)      Borrower Reorganization..........................59
                           -----------------------
                  (k)      Repayment of Eurodollar Loans to BABC............59
                           -------------------------------------
                  (l)      Assignment of BABC Loans.........................59
                           ------------------------
                  (m)      Documentation of Borrowing Subsidiary Loans......59
                           -------------------------------------------
                  (n)      Termination of PTRA and HBTC Liens...............59
                           ----------------------------------
                  (o)      Other Documents..................................59
                           ---------------
         4.02  Conditions to All Borrowings.................................59
                  (a)      Notice of Borrowing or Conversion/Continuation
                            ................................................60
                  (b)      Continuation of Representations and Warranties
                            ................................................60
                  (c)      No Existing Default..............................60
                  (d)      Availability.....................................60

ARTICLE V

         REPRESENTATIONS AND WARRANTIES.....................................60
         5.01  Corporate Existence and Power................................60
         5.02  Corporate Authorization; No Contravention....................61
         5.03  Governmental Authorization...................................61
         5.04  Binding Effect...............................................61
         5.05  Litigation...................................................62
         5.06  No Default...................................................62
         5.07  ERISA Compliance.............................................62
         5.08  Use of Proceeds; Margin Regulations..........................63
         5.09  Title to Properties..........................................63
         5.10  Taxes........................................................63
         5.11  Financial Condition..........................................63
         5.12  Environmental Matters........................................64
         5.13  Collateral Documents.........................................65




                                       ii

<PAGE>


Section                                                                    Page



         5.14  Regulated Entities...........................................66
         5.15  No Burdensome Restrictions...................................66
         5.16  Copyrights, Patents, Trademarks and Licenses, etc.
                   .........................................................66
         5.17  Capitalization and Subsidiaries..............................67
               -------------------------------
         5.18  Insurance....................................................67
               ---------
         5.19  Solvency.....................................................67
               --------
         5.20  Swap Obligations.............................................67
               ----------------
         5.21  Full Disclosure..............................................67
               ---------------

ARTICLE VI

         AFFIRMATIVE COVENANTS..............................................68
         6.01  Financial Statements and Borrowing Base Certificate
                   .........................................................68
         6.02  Certificates; Other Information..............................69
               -------------------------------
         6.03  Notices......................................................70
               -------
         6.04  Preservation of Corporate Existence, Etc.....................72
               ----------------------------------------
         6.05  Maintenance of Property; Locomotives.........................72
               ------------------------------------
         6.06  Insurance....................................................72
               ---------
         6.07  Payment of Obligations.......................................73
               ----------------------
         6.08  Compliance with Laws.........................................73
               --------------------
         6.09  Compliance with ERISA........................................74
               ---------------------
         6.10  Inspection of Property and Books and Records.................74
               --------------------------------------------
         6.11  Environmental Laws...........................................74
               ------------------
         6.12  Use of Proceeds..............................................74
               ---------------
         6.13  Location and Perfection of Collateral........................75
               -------------------------------------
         6.14  Further Assurances...........................................75
               ------------------

ARTICLE VII

         NEGATIVE COVENANTS.................................................76
         7.01  Limitation on Liens..........................................76
         7.02  Disposition of Assets........................................78
         7.03  Restriction on Fundamental Changes; Acquisitions.............79
         7.04  Loans and Investments........................................82
         7.05  Limitation on Indebtedness...................................84
         7.06  Transactions with Affiliates.................................84
         7.07  Use of Proceeds..............................................85
         7.08  Contingent Obligations.......................................85
         7.09  Joint Ventures; Subsidiaries.................................86
         7.10  Lease Obligations............................................87
         7.11  Restricted Payments; No Permitted Restrictions for
                  Subsidiaries..............................................87
         7.12  ERISA........................................................88
         7.13  Change in Business; Holding Companies; FSC Operations
                   .........................................................88
         7.14  Accounting Changes...........................................89
               ------------------
         7.15  Capital Expenditures.........................................89
               --------------------




                                       iii

<PAGE>


Section                                                                    Page



         7.16  Maximum Ratio of Funded Debt to Cash Flow....................89
               -----------------------------------------
         7.17  Minimum Tangible Net Worth...................................89
               --------------------------
         7.18  Minimum Fixed Charges Coverage Ratio.........................89
               ------------------------------------

ARTICLE VIII

         EVENTS OF DEFAULT..................................................90
         8.01  Event of Default.............................................90
                  (a)      Non-Payment......................................90
                           -----------
                  (b)      Representation or Warranty.......................90
                           --------------------------
                  (c)      Specific Defaults................................90
                           -----------------
                  (d)      Other Defaults...................................90
                           --------------
                  (e)      Cross-Default....................................90
                           -------------
                  (f)      Insolvency; Voluntary Proceedings................91
                           ---------------------------------
                  (g)      Involuntary Proceedings..........................91
                           -----------------------
                  (h)      ERISA............................................91
                           -----
                  (i)      Monetary Judgments...............................92
                           ------------------
                  (j)      Non-Monetary Judgments...........................92
                           ----------------------
                  (k)      Change of Control................................92
                           -----------------
                  (l)      Loss of Licenses.................................92
                           ----------------
                  (m)      Adverse Change...................................92
                           --------------
                  (n)      Guarantor Defaults...............................92
                           ------------------
                  (o)      Collateral.......................................93
                           ----------
                  (p)      Cross-Acceleration to MK Gain Debt...............93
                           ----------------------------------
                  (q)      Locomotive Leases................................93
                           -----------------
         8.02  Remedies.....................................................93
               --------
         8.03  Specified Swap Contract Remedies.............................94
               --------------------------------
         8.04  Rights Not Exclusive.........................................94
               --------------------
         8.05  Certain Financial Covenant Defaults..........................96
               -----------------------------------

ARTICLE IX

         THE AGENT..........................................................96
         9.01  Appointment and Authorization; "Agent".......................96
         9.02  Delegation of Duties.........................................97
         9.03  Liability of Agent...........................................97
         9.04  Reliance by Agent............................................97
         9.05  Notice of Default............................................98
         9.06  Credit Decision..............................................98
         9.07  Indemnification of Agent.....................................99
         9.08  Agent in Individual Capacity.................................99
         9.09  Successor Agent.............................................100
         9.10  Withholding Tax.............................................100
         9.11  Collateral Matters..........................................102

ARTICLE X

         MISCELLANEOUS.....................................................102
         10.01  Amendments and Waivers.....................................102




                                       iv

<PAGE>


Section                                                                    Page



         10.02  Notices.....................................................103
                -------
         10.03  No Waiver; Cumulative Remedies..............................104
                ------------------------------
         10.04  Costs and Expenses..........................................105
                ------------------
         10.05  Borrower Indemnification....................................105
                ------------------------
         10.06  Marshalling; Payments Set Aside.............................107
                -------------------------------
         10.07  Successors and Assigns......................................107
                ----------------------
         10.08  Assignments, Participations, etc............................107
                ---------------------------------
         10.09  Confidentiality.............................................109
                ---------------
         10.10  Set-off.....................................................110
                -------
         10.11  Intentionally Omitted.......................................110
                ---------------------
         10.12  Notification of Addresses, Lending Offices, Etc.
                   .........................................................110
         10.13  Counterparts................................................110
                ------------
         10.14  Severability................................................111
                ------------
         10.15  No Third Parties Benefited..................................111
                --------------------------
         10.16  Governing Law and Jurisdiction..............................111
                ------------------------------
         10.17  Waiver of Jury Trial........................................111
                --------------------
         10.18  Entire Agreement............................................112
                ----------------
||




                                        v

<PAGE>



    SCHEDULES

    Schedule 1.1A                 Terms of Reorganization
    Schedule 2.01                 Commitments
    Schedule 2.01(c)              Outstanding Letters of Credit as of Closing
    Schedule 2.07                 Motor Coils Machine Shop Equipment
    Schedule 5.05                 Litigation
    Schedule 5.07                 ERISA
    Schedule 5.11                 (A)  December 31, 1996 Unaudited
                                       Financials
                                  (B)  Off Balance Sheet Liabilities
                                  (C)  Pro Forma
                                  (D)  Projections
    Schedule 5.12                 Environmental Matters
    Schedule 5.13                 List of UCC Filing Jurisdictions
    Schedule 5.17                 Capitalization and Subsidiaries
    Schedule 5.18                 Insurance Matters
    Schedule 6.05                 Owned Railroad Locomotives
    Schedule 6.13                 Location of Collateral
    Schedule 7.01                 Permitted Liens
    Schedule 7.05                 Permitted Indebtedness
    Schedule 7.06                 Affiliate Transactions
    Schedule 7.08                 Contingent Obligations
    Schedule 10.02                Lending Offices; Addresses for Notices


    EXHIBITS

    Exhibit A                 Form of Compliance Certificate (Section 1.01)
    Exhibit B                 Form of Amended and Restated Guaranty (Section
                              1.01)
    Exhibit C                 Form of Notice of Borrowing (Section 1.01)
    Exhibit D                 Form of Notice of Conversion/Continuation
                              (Section 1.01)
    Exhibit E                 Form of Revolving Loan Note (Section 1.01)
    Exhibit F                 Form of Amended and Restated Term Loan Note
                              (Section 1.01)
    Exhibit G                 Form of Amended and Restated Security Agreement
                              (Borrower)(Section 1.01)
    Exhibit H                 Form of Amended and Restated Security Agreement
                              (Guarantors) (Section 1.01)
    Exhibit I                 Form of Legal Opinion of Borrower's Counsel
                              (Section 4.01)
    Exhibit J                 Form of Borrowing Base Certificate (Section
                              6.01)
    Exhibit K                 Form of Assignment and Acceptance (Section
                              10.08)




                                       vi

<PAGE>



                           SECOND AMENDED AND RESTATED
                                CREDIT AGREEMENT


         This SECOND AMENDED AND RESTATED CREDIT AGREEMENT is entered into as of
February 27, 1997, among MotivePower  Industries,  Inc., a Delaware  corporation
(the "Borrower"),  the several financial institutions from time to time party to
this Agreement (collectively, the "Lenders"; individually, a "Lender"), and Bank
of America National Trust and Savings Association, as agent for the Lenders (the
"Agent").

         WHEREAS,  MotivePower Industries,  Inc. (f/k/a MK Rail Corporation),  a
Delaware  corporation,  Motor Coils  Manufacturing  Company  (f/k/a  Motor Coils
Manufacturing Co.), a Pennsylvania  corporation ("Motor Coils"),  Engine Systems
Company,  Inc. (f/k/a MK Engine Systems  Company,  Inc.), a New York corporation
("Engine"), Clark Industries Company (f/k/a Clark Industries, Inc.), an Illinois
corporation ("Clark"),  Touchstone Company (f/k/a Touchstone, Inc.), a Tennessee
corporation  ("Touchstone"),  Power Parts Company, a Nevada corporation  ("Power
Parts")   (each  an  "Existing   Borrower"  and   collectively,   the  "Existing
Borrowers"),  and  BankAmerica  Business  Credit,  Inc., a Delaware  corporation
individually  as a lender and as agent  ("BABC"),  are  parties to that  certain
Amended and Restated Loan and Security  Agreement dated as of September 10, 1996
(as amended, the "Existing Loan Agreement");

         WHEREAS,  immediately  prior to the effectiveness of this amendment and
restatement  of the  Agreement,  BABC has  resigned as agent and assigned to the
Agent all of its rights, duties and obligations as agent under the Existing Loan
Agreement (and Agent has assumed all such rights,  duties and obligations as the
successor  agent  thereunder),  and BABC has  assigned to the Lenders all of its
rights and outstanding loans, commitments and letter of credit obligations under
the Existing  Loan  Agreement,  and each Lender has assumed its ratable share of
such loans,  commitments and letter of credit obligations in accordance with the
Pro Rata Shares (as defined below) hereunder;

         WHEREAS,  on the Closing  Date (as defined  below) the Borrower and its
Subsidiaries are undertaking a  reorganization  (the  "Reorganization")of  their
corporate  structure as described in full on Schedule  1.1A hereto,  pursuant to
which (among other  things) the  Borrower  will become a holding  company and no
longer conduct business operations;

         WHEREAS,  pursuant to the  Borrower's  request on the Closing Date, the
proceeds of the Loans (as defined below) hereunder, to the extent necessary, are
being  applied  in  repayment  of  the   outstanding   loans  to  the  Borrowing
Subsidiaries  (as defined  below) on the date  hereof  under the  Existing  Loan
Agreement and Boise Locomotive Company, a Delaware corporation ("Boise




                                        1

<PAGE>



Locomotive"),  provided,  that such  repayment  shall not in any way release the
Borrowing  Subsidiaries from their continuing obligations under the Guaranty (as
defined below); and

         WHEREAS,  the Agent,  the Lenders and the Borrower have agreed to amend
and restate the Existing Loan Agreement (i) to continue to make available to the
Borrower credit facilities in an aggregate amount up to $75,000,000,  which will
(among  other  things) be restated as a secured  term loan which is increased to
$20,000,000  and a  secured  revolving  credit  facility  which  is  reduced  to
$55,000,000, all upon the terms and conditions set forth in this Agreement, (ii)
to amend and restate the guaranty obligations of the Borrowing  Subsidiaries and
certain  other  Subsidiaries  of the  Borrower  set forth in the  Existing  Loan
Agreement to continue such  obligations  as part of the  Guaranty,  and (iii) to
amend and  restate  the  mortgages,  security  interests  and liens  granted  by
Borrower,  the  Borrowing  Subsidiaries  and certain other  Subsidiaries  of the
Borrower in the Existing Loan  Agreement and the other  agreements  contemplated
thereby to continue such mortgages, liens and security interests pursuant to the
Security  Agreements and other  Collateral  Documents (as such terms are defined
below);

         NOW, THEREFORE,  in consideration of the mutual agreements,  provisions
and covenants contained herein, the parties agree as follows:


                                    ARTICLE I

                                   DEFINITIONS

         1.01  Certain Defined Terms.  The following terms have the
following meanings:

                  "Account Debtor" means the Person obligated in any way
         on or in connection with an Account.

                  "Accounts"   means  all  of  the  Borrower's,   the  Borrowing
         Subsidiaries',  Clark's and in certain limited circumstances, the FSC's
         (on a  consolidated  basis) now owned or hereafter  acquired or arising
         accounts,  and any  other  rights to  payment  for the sale or lease of
         goods or rendition of services, whether or not they have been earned by
         performance.

                  "Acquisition"  means any  transaction  or  series  of  related
         transactions  for the purpose of or resulting,  directly or indirectly,
         in (a) the acquisition of all or  substantially  all of the assets of a
         Person, or of any business or division of a Person, (b) the acquisition
         of in  excess  of 50%  of the  capital  stock,  partnership  interests,
         membership interests or equity of any Person, or otherwise




                                        2

<PAGE>



         causing  any  Person  to  become  a  Subsidiary,  or  (c) a  merger  or
         consolidation or any other  combination with another Person (other than
         a  Person  that is a  Subsidiary)  provided  that the  Borrower  or the
         Subsidiary is the surviving entity.

                  "Affiliate"  means, as to any Person,  any other Person which,
         directly or indirectly, is in control of, is controlled by, or is under
         common control with,  such Person.  A Person shall be deemed to control
         another  Person  if  the  controlling  Person  possesses,  directly  or
         indirectly,  the  power  to  direct  or  cause  the  direction  of  the
         management  and  policies  of the other  Person,  whether  through  the
         ownership of voting securities,  membership interests,  by contract, or
         otherwise;  provided,  however, that neither Agent, Arranger or Bank of
         America  Illinois  shall in any event be deemed to be Affiliates of the
         Borrower or its Affiliates.

                  "Agent"  means BofA in its  capacity  as agent for the Lenders
         hereunder, and any successor agent arising under Section 9.09.

                  "Agent-Related  Persons"  means BofA and any  successor  agent
         arising under Section 9.09,  together with their respective  Affiliates
         (including, without limitation, in the case of BofA, the Arranger), and
         the officers,  directors,  employees,  agents and  attorneys-in-fact of
         such Persons and Affiliates.

                  "Agent's  Payment  Office"  means the address for payments set
         forth on  Schedule  10.02 or such  other  address as the Agent may from
         time to time specify.

                  "Agreement"  means this  Second  Amended and  Restated  Credit
         Agreement,  as  hereafter  modified,  amended or restated  from time to
         time.

                  "Applicable  Margin"  means the  percentage as set forth below
         then applicable to,  respectively,  the Commitment  Fee,  Offshore Rate
         Loans, Base Rate Loans, documentary or commercial Letter of Credit fees
         and stand-by Letter of Credit fees as determined by using the following
         performance  based grid after  determining  which of the pricing levels
         (being I through V) specified thereon is then in effect:









                                        3

<PAGE>



<TABLE>

                                            
<CAPTION>
                                            
                                             Pricing             Pricing              Pricing                    
                                            Level II:           Level III:           Level IV:            
         Ratio of:                          less than           less than            less than
     (A) Funded Debt to     Pricing         1.50x and           2.25x and            3.00x and            Pricing
     (B) Cash Flow          Level I:        greater than        greater than         greater than         Level V:     
                            less than       or equal to         or equal to          or equal to          greater than
                            1.00x           1.00x               1.50x                2.25x                3.00
                          ------------      ------------        ------------         ------------         ------------
<S>                           <C>              <C>                  <C>                 <C>                 <C>   
Commitment Fee:               0.20%            0.25%                0.30%               0.35%               0.375%
Offshore Rate Loans:          0.50%            0.75%                1.00%               1.50%               2.00%
Base Rate Loans:              0.00%            0.00%                0.00%               0.50%               1.00%
Documentary or                
Commercial Letters                              
of Credit:                    0.25%            0.375%               0.50%               0.75%               1.00%
Stand-by Letters of          
Credit:                       0.50%            0.75%                1.00%               1.50%               2.00%


</TABLE>



                  As of the Closing Date, the  Applicable  Margin shall mean the
         percentages  set forth under Pricing Level III and in no event will the
         Applicable  Margin be reduced  below  Pricing Level III for a period of
         six (6) months after the Closing Date.  Subject to the  limitations  of
         the first sentence of this  paragraph,  the Pricing Level in effect and
         thereby the  Applicable  Margin will first be subject to  adjustment on
         the third  (3rd)  Business  Day  following  delivery  of the  financial
         statements   as  required  by  Section   6.01(b)  and  the   Compliance
         Certificate  as  required  by Section  6.02(b)  for the Fiscal  Quarter
         ending June 27, 1997, and any such adjustment  shall be effective as of
         the third (3rd)  Business Day following the delivery of such  quarterly
         financial  statements  for each Fiscal  Quarter  thereafter;  provided,
         however,  that if the Borrower would be entitled to have the Applicable
         Margin decreased based on the financial  results for its Fiscal Quarter
         ending in June,  1997 but for the  operation  of the first  sentence of
         this  paragraph,  then such  decrease in the  Applicable  Margin  shall
         instead  take  effect  as of the  date  which  is  the  six  (6)  month
         anniversary  of the Closing Date,  and the  Applicable  Margin shall be
         readjusted  again based on the  financial  results  for the  Borrower's
         Fiscal Quarter  ending in September  1997 and  thereafter  from time to
         time in accordance  with the above  provision.  The applicable  pricing
         level set forth in the grid above (and as such the  Applicable  Margin)
         for  the  Commitment  Fee,   Offshore  Rate  Loans,  Base  Rate  Loans,
         documentary or commercial  Letter of Credit fees and stand-by Letter of
         Credit fees will be  determined  and adjusted (up or down) as necessary
         quarterly  based on which  pricing level as set forth in the grid above
         reflects  the  Borrower's  ratio  of  Funded  Debt  to  Cash  Flow  (as
         determined pursuant to Section




                                        4

<PAGE>



         7.16) for the trailing  twelve  month  period then ended as  calculated
         using  the  Borrower's  quarterly  consolidated  financial  statements.
         Further, if Borrower's annual audited financial statements (as required
         by Section  6.01(a))  and the  Compliance  Certificate  as  required by
         Section  6.02(b)  for  any  Fiscal  Year  as   subsequently   delivered
         demonstrate  that such ratio of Funded Debt to Cash Flow (as determined
         pursuant to Section  7.16)  calculated  at the end of the final  Fiscal
         Quarter in such Fiscal  Year was higher than was  reported in the final
         quarterly  financial  statement  delivered during any such Fiscal Year,
         then the  Borrower  shall pay to the Agent for the  ratable  benefit of
         Lenders a make-up  payment  within five (5) days after  delivery of the
         Borrower's  annual audited  financial  statements.  The make-up payment
         shall be equal to the difference between interest that should have been
         paid   during   such   Fiscal   Year  and   interest   actually   paid.
         Notwithstanding  the  foregoing,  at any time during which the Borrower
         has failed to deliver the financial  statements  for any Fiscal Quarter
         end as required by Section  6.01(b) and the  Compliance  Certificate as
         required by Section 6.02(b), or the annual audited financial statements
         required by Section  6.01(a) hereof and the  Compliance  Certificate as
         required  by  Section  6.02(b),  the ratio of Funded  Debt to Cash Flow
         shall be deemed to be greater  than or equal to 3.0 to 1.0 for purposes
         of the  calculation  of which Pricing Level shall apply in  determining
         the Applicable Margin.

                  "Arranger" means BancAmerica Securities, Inc., a
         Delaware corporation.

                  "Assignee" has the meaning specified in Section
         10.08(a).

                  "Attorney Costs" means and includes all fees and disbursements
         of any law  firm or  other  external  counsel,  the  allocated  cost of
         internal legal services and all disbursements of internal counsel.

                  "Availability"  means,  at  any  time,  (a)  the  sum  of  (A)
         eighty-five percent (85%) of the Net Amount of Eligible Accounts of the
         Borrower,  the  Borrowing  Subsidiaries,   Clark  and  the  FSC  (on  a
         consolidated  basis) plus (B) seventy  percent  (70%) of the  aggregate
         amount  of all  Eligible  Inventory  consisting  of raw  materials  and
         finished goods of the Borrower,  the Borrowing  Subsidiaries  and Clark
         (on a  consolidated  basis),  plus  (C)  thirty  percent  (30%)  of the
         aggregate   amount   of   all   Eligible   Inventory    consisting   of
         work-in-process of the Borrower,  the Borrowing  Subsidiaries and Clark
         (on a  consolidated  basis),  minus  (b)  the sum of (i)  reserves  for
         accrued interest on the Obligations,  (ii) the Environmental Compliance
         Reserve,  and (iii) all other reserves which the Agent deems  necessary
         in the exercise of




                                        5

<PAGE>



         its  reasonable  credit  judgment  to  maintain  with  respect  to  the
         Borrower's, the Borrowing Subsidiaries', Clark's and the FSC's Accounts
         and/or  Inventory,  including,  without  limitation,  reserves  for any
         amounts  which the Agent or any Lender may be  obligated  to pay in the
         future for the account of the Borrower or any Guarantor.

                  "BABC" means BankAmerica Business Credit, Inc., a
         Delaware corporation.

                  "Bankruptcy Code" means the Federal Bankruptcy Reform
         Act of 1978 (11 U.S.C. ss.101, et seq.).

                  "Base Rate" means, for any day, the higher of: (a) one-half of
         one percent  (0.50%) per annum above the latest Federal Funds Rate; and
         (b) the rate of interest  in effect for such day as publicly  announced
         from  time  to  time  by  BofA  in San  Francisco,  California,  as its
         "reference  rate."  (The  "reference  rate" is a rate set by BofA based
         upon various factors including BofA's costs and desired return, general
         economic conditions and other factors, and is used as a reference point
         for pricing some loans,  which may be priced at,  above,  or below such
         announced  rate.) Any change in the  reference  rate  announced by BofA
         shall take effect at the opening of  business on the day  specified  in
         the public announcement of such change.

                  "Base Rate Loan" means a Loan that bears interest based on the
         Base Rate.

                  "BofA"  means  Bank of  America  National  Trust  and  Savings
         Association, a national banking association.

                  "Boise Locomotive" has the meaning set forth in the
         recitals to this Agreement.

                  "Borrower" means MotivePower Industries, Inc., a
         Delaware corporation.

                  "Borrower Pledge Agreement" means the Pledge Agreement of even
         date herewith executed by the Borrower in favor of the Agent, on behalf
         of the Lenders,  pledging all the stock of its Subsidiaries (other than
         MK Gain), and any amendments, modifications or restatements thereof, or
         any  pledge  agreements  entered  into  after the  Closing  Date by the
         Borrower.

                  "Borrowing" means a borrowing hereunder consisting of Loans of
         the same Type made to the Borrower on the same day by the Lenders under
         Article II, and, other than in the case of Base Rate Loans,  having the
         same Interest Period.





                                        6

<PAGE>



                  "Borrowing  Date" means any date on which a  Borrowing  occurs
         under Section 2.03 or a letter of credit is issued under Section 2.01.

                  "Borrowing  Subsidiary"  or  "Borrowing  Subsidiaries"  means,
         individually or collectively,  Engine Systems Company, Inc., a New York
         corporation;   Motor  Coils   Manufacturing   Company,  a  Pennsylvania
         corporation;  Power Parts  Company,  a Nevada  corporation;  Touchstone
         Company,  a Tennessee  corporation;  and Boise  Locomotive  Company,  a
         Delaware corporation.

                  "Business Day" means any day other than a Saturday,  Sunday or
         other  day on which  commercial  banks in  Chicago  are  authorized  or
         required by law to close and, if the applicable Business Day relates to
         any Offshore Rate Loan,  means such a day on which dealings are carried
         on in the applicable offshore dollar interbank market.

                  "Capital Adequacy Regulation" means any guideline,  request or
         directive of any central bank or other Governmental  Authority,  or any
         other law, rule or regulation,  whether or not having the force of law,
         in  each  case,  regarding  capital  adequacy  of  any  bank  or of any
         corporation controlling a bank.

                  "Capital Expenditures" means, all payments due (whether or not
         paid) during a Fiscal Year in respect of the cost of any fixed asset or
         improvement, or replacement,  substitution,  or addition thereto, which
         has a useful life of more than one year, including, without limitation,
         those  costs  arising  in  connection   with  the  direct  or  indirect
         acquisition  of such  asset  by way of  increased  product  or  service
         charges or offset items or in connection with a capital lease.

                  "Cash  Flow"  means,  as to any  Person and for any period for
         which  such  amount  is  being   determined,   EBITDA   minus   Capital
         Expenditures.

                  "CERCLA" has the meaning specified in the definition of
         "Environmental Laws."

                  "Change of Control" means (a) that the Borrower shall cease to
         own,  directly or indirectly,  all of the outstanding  capital stock of
         each Guarantor or MK Gain and its Subsidiaries;  or (b) that any Person
         or group of Persons (within the meaning of the Exchange Act) shall have
         acquired  beneficial  ownership  (within  the  meaning  of  Rule  13d-3
         promulgated  by  the  Securities  and  Exchange  Commission  under  the
         Exchange  Act) of 20% or more of the issued and  outstanding  shares of
         the Borrower's  capital stock having the right to vote for the election
         of directors of Borrower




                                        7

<PAGE>



         under ordinary  circumstances;  or (c) that during any period of twelve
         (12) consecutive  calendar months,  individuals who at the beginning of
         such period  constituted  the Borrower's  board of directors  (together
         with  any new  directors  whose  election  by the  Borrower's  board of
         directors  or  whose   nomination   for  election  by  the   Borrower's
         stockholders  was  approved  by a vote of at  least  two-thirds  of the
         directors  then  still in  office  who  either  were  directors  at the
         beginning of such period or whose  election or nomination  for election
         was  previously  so approved)  cease for any reason other than death or
         disability to constitute a majority of the directors then in office.

                  "Closing Date" means the date of this Agreement.

                  "Code" means the Internal Revenue Code of 1986, and
         regulations promulgated thereunder.

                  "Collateral"  means all property and interests in property and
         proceeds thereof now owned or hereafter acquired by the Borrower or any
         Guarantor or any Borrowing  Subsidiary  (excluding the capital stock of
         MK Gain), including, without limitation, any such property or interests
         in property  (or the  proceeds  thereof) in or upon which a Lien now or
         hereafter exists in favor of the Lenders, or the Agent on behalf of the
         Lenders,  whether  under this  Agreement  or under any other  documents
         executed by any such Person and delivered to the Agent or the Lenders.

                  "Collateral Documents" means,  collectively,  (i) the Security
         Agreements,  the Guaranty, the Mortgages, the Pledge Agreements and all
         other locomotive mortgages and lease assignments,  security agreements,
         mortgages,  deeds of trust,  patent and  trademark  assignments,  lease
         assignments,  guarantees  and  other  similar  agreements  between  the
         Borrower or any  Borrowing  Subsidiary or any Guarantor and the Lenders
         or the Agents for the  benefit of the Agent (on behalf of the  Lenders)
         and/or the Lenders  now or  hereafter  delivered  to the Lenders or the
         Agent pursuant to or in connection with the  transactions  contemplated
         hereby,  and all financing  statements (or comparable  documents now or
         hereafter  filed in  accordance  with the  Uniform  Commercial  Code or
         comparable law) against the Borrower,  any Borrowing  Subsidiary or any
         Guarantor  as  debtor  in favor of the  Lenders  or the  Agent  for the
         benefit  of the  Lenders  as secured  party,  and (ii) any  amendments,
         supplements,  modifications,  renewals,  replacements,  consolidations,
         substitutions and extensions of any of the foregoing.

                  "Commitment",  as to each Lender, means such Lender's Pro Rata
         Share of each of the Term  Commitment  and the Revolving  Commitment as
         the same may be reduced under




                                        8

<PAGE>



         Section 2.05 or as a result of one or more  assignments  under  Section
         10.08.

                  "Commitment Fee" has the meaning specified in
         Section 2.09.

                  "Compliance Certificate" means a certificate
         substantially in the form of Exhibit A.

                  "Contingent Obligation" means, as to any Person, any direct or
         indirect liability of that Person,  whether or not contingent,  with or
         without  recourse,  (a)  with  respect  to  any  Indebtedness,   lease,
         dividend,   letter  of  credit  or  other   obligation   (the  "primary
         obligations") of another Person (the "primary obligor"),  including any
         obligation  of that Person (i) to  purchase,  repurchase  or  otherwise
         acquire such primary  obligations  or any  security  therefor,  (ii) to
         advance  or provide  funds for the  payment  or  discharge  of any such
         primary obligation, or to maintain working capital or equity capital of
         the primary  obligor or otherwise to maintain the net worth or solvency
         or any balance  sheet item,  level of income or financial  condition of
         the primary obligor, (iii) to purchase property, securities or services
         primarily  for the  purpose of assuring  the owner of any such  primary
         obligation  of the  ability of the primary  obligor to make  payment of
         such primary  obligation,  or (iv) otherwise to assure or hold harmless
         the  holder of any such  primary  obligation  against  loss in  respect
         thereof (each, a "Guaranty Obligation"); (b) with respect to any Surety
         Instrument  issued for the  account of that  Person or as to which that
         Person is otherwise  liable for  reimbursement of drawings or payments;
         (c) to purchase any  materials,  supplies or other property from, or to
         obtain the services  of,  another  Person if the  relevant  contract or
         other  related  document or  obligation  requires that payment for such
         materials,  supplies or other property, or for such services,  shall be
         made  regardless  of whether  delivery of such  materials,  supplies or
         other  property is ever made or  tendered,  or such  services  are ever
         performed or tendered or (d) in respect of any Swap Contract.

                  "Contractual   Obligation"   means,  as  to  any  Person,  any
         provision  of any security  issued by such Person or of any  agreement,
         undertaking,  contract,  indenture,  mortgage,  deed of  trust or other
         instrument, document or agreement to which such Person is a party or by
         which it or any of its property is bound.

                  "Conversion/Continuation  Date" means any date on which, under
         Section  2.04,  the Borrower (a) converts  Loans of one Type to another
         Type,  or (b)  continues  as  Loans of the  same  Type,  but with a new
         Interest Period, Loans having Interest Periods expiring on such date.




                                        9

<PAGE>



                  "Default"  means any  event or  circumstance  which,  with the
         giving of notice,  the lapse of time,  or both,  would (if not cured or
         otherwise remedied during such time) constitute an Event of Default.

                  "Disposition"  means (i) the sale, lease,  conveyance or other
         disposition  of property or assets by the Borrower or any Subsidiary of
         the  Borrower  and/or (ii) the sale or transfer by the  Borrower or any
         Subsidiary  of the  Borrower  of any  equity  securities  issued by any
         Subsidiary of the Borrower and held by such transferor Person.

                  "Dollars", "dollars" and "$" each mean lawful money of
         the United States.

                  "EBITDA"  means,  as to any  Person  and for any  period as to
         which such  amount is being  determined,  the sum of the  amounts (on a
         consolidated  basis) for such period of (i) net income from  operations
         (meaning,  among other things,  income exclusive of extraordinary gains
         and losses), (ii) interest expense, (iii) provisions for taxes based on
         income, (iv) depreciation expense, and (v) amortization expense.

                  "Eligible  Accounts"  means all Accounts of the Borrower,  the
         Borrowing  Subsidiaries,  Clark and the FSC (on a  consolidated  basis)
         which the Agent in the exercise of its reasonable commercial discretion
         determines to be Eligible Accounts.  Without limiting the discretion of
         the  Agent to  establish  other  criteria  of  ineligibility,  Eligible
         Accounts shall not include any Account:

                           (A) with  respect  to which  more  than 90 days  have
         elapsed  since the date of the  original  invoice  therefor or which is
         more than 60 days past due  except to the extent  that such  Account is
         secured or payable by a letter of credit in form and substance and from
         an issuer  satisfactory to the Agent in its reasonable  discretion (and
         assigned  to the  Agent,  for the  benefit of the  Lenders);  provided,
         however, that if the Account Debtor is either (i) a Class I Carrier (as
         defined  for  carriers  other than  common  and  contract  carriers  of
         passengers from time to time in the rules and  regulations  promulgated
         by the Surface  Transportation Board,  Department of Transportation) or
         (ii) a Specified Original Equipment Manufacturer, then up to $3,000,000
         of Accounts owing by such Account Debtors  otherwise deemed  ineligible
         by virtue of not having satisfied the requirements of the first part of
         this clause (A) shall  nonetheless be eligible so long as not more than
         120 days have elapsed since the date of the original  invoices therefor
         and such  Accounts  are not more  than 90 days  past due and  otherwise
         satisfy the requirements for Eligible Accounts;





                                       10

<PAGE>



                           (B) with respect to which any of the representations,
         warranties,   covenants,  and  agreements  contained  in  any  Security
         Agreement  are not or have  ceased to be  complete  and correct or have
         been breached;

                           (C) with  respect  to which,  in whole or in part,  a
         check, promissory note, draft, trade acceptance or other instrument for
         the  payment of money has been  received,  presented  for  payment  and
         returned uncollected for any reason;

                           (D)  which   represents   a  progress   billing   (as
         hereinafter  defined),  arises under a contract backed by a performance
         bond,  or as to which the  Borrower  has  extended the time for payment
         without the consent of the Agent;  for the purposes  hereof,  "progress
         billing"  means  any  invoice  for goods  sold or  leased  or  services
         rendered  under a contract or  agreement  pursuant to which the Account
         Debtor's  obligation  to pay  such  invoice  is  conditioned  upon  the
         Borrower's,   such  Borrowing   Subsidiary's,   Clark's  or  the  FSC's
         completion of any further performance under the contract or agreement;

                           (E) as to  which  any one or  more  of the  following
         events has occurred with respect to the Account Debtor on such Account:
         death or judicial  declaration of incompetency of an Account Debtor who
         is an  individual;  the filing by or against  the  Account  Debtor of a
         request  or  petition  for  liquidation,  reorganization,  arrangement,
         adjustment of debts,  adjudication as a bankrupt,  winding-up, or other
         relief under the bankruptcy,  insolvency, or similar laws of the United
         States,  any state or territory thereof,  or any foreign  jurisdiction,
         now or hereafter in effect; the making of any general assignment by the
         Account  Debtor for the  benefit of  creditors;  the  appointment  of a
         receiver or trustee for the Account  Debtor or for any of the assets of
         the Account Debtor, including,  without limitation,  the appointment of
         or taking  possession by a  "custodian",  as defined in the  Bankruptcy
         Code;  the  institution  by or against the Account  Debtor of any other
         type of insolvency  proceeding (under the bankruptcy laws of the United
         States or  otherwise) or of any formal or informal  proceeding  for the
         dissolution or liquidation of, settlement of claims against, or winding
         up of affairs of, the Account Debtor;  the nonpayment  generally by the
         Account Debtor of its debts as they become due; or the cessation of the
         business of the Account Debtor as a going concern;

                           (F) if fifty  percent  (50%) or more of the aggregate
         dollar  amount  of  outstanding  Accounts   (excluding,   however,  any
         so-called  retainages  which are not then due and  owing)  owed at such
         time by the Account Debtor is classified




                                       11

<PAGE>



         as ineligible under the other criteria set forth herein or
         otherwise established by the Agent;

                           (G)  owed  to the FSC or  owed  to any  Person  by an
         Account Debtor which:  (i) does not maintain its chief executive office
         in the United  States;  or (ii) is not organized  under the laws of the
         United States or any state  thereof;  or (iii) is the government of any
         foreign  country  or  sovereign  state,  or  of  any  state,  province,
         municipality,  or  other  political  subdivision  thereof,  or  of  any
         department,   agency,  public  corporation,  or  other  instrumentality
         thereof;  except to the extent that such  Account is secured or payable
         by a letter of credit or foreign credit insurance in form and substance
         and  from  an  issuer  satisfactory  to the  Agent  in  its  reasonable
         discretion (and assigned to the Agent on behalf of the Lenders);

                           (H) owed by an Account  Debtor  which is an Affiliate
         or  employee  of  the  Borrower  or  any  Subsidiary  of  the  Borrower
         including, without limitation, the FSC or MK Gain and its Subsidiaries;

                           (I) except as  provided  in clause  (K) below,  as to
         which either the perfection, enforceability, or validity of the Agent's
         Lien in such Account,  or the Agent's right or ability to obtain direct
         payment to the Agent of the  proceeds of such  Account,  is governed by
         any federal, state, or local statutory requirements other than those of
         the UCC;

                           (J) which is owed by an  Account  Debtor to which the
         Borrower or any of its Subsidiaries is indebted in any way, or which is
         subject to any right of setoff or  recoupment  by the  Account  Debtor,
         unless the Account  Debtor has entered into an agreement  acceptable to
         the Agent to waive setoff rights;  or if the Account Debtor thereon has
         disputed  liability or made any claim with respect to any other Account
         due from such Account Debtor;  but in each such case only to the extent
         of such indebtedness, setoff, recoupment, dispute, or claim;

                           (K)  which is owed by the  government  of the  United
         States of America, or any department,  agency,  public corporation,  or
         other instrumentality  thereof, unless the Federal Assignment of Claims
         Act of 1940,  as amended (31 U.S.C.  ss.  3727 et seq.),  and any other
         steps necessary to perfect the Agent's Lien therein, have been complied
         with to the Agent's satisfaction with respect to such Account;

                           (L)  which  is owed by any  state,  municipality,  or
         other  political  subdivision  of the United States of America,  or any
         department, agency, public corporation, or other




                                       12

<PAGE>



         instrumentality thereof and as to which the Agent determines
         that its Lien therein is not or cannot be perfected;

                           (M)  which  represents  a  sale  on a  bill-and-hold,
         guaranteed  sale, sale and return,  sale on approval,  consignment,  or
         other repurchase or return basis;

                           (N)      which is evidenced by a promissory note or
         other instrument or by chattel paper;

                           (O)  if  Agent  believes,  in  the  exercise  of  its
         reasonable judgment, that the prospect of collection of such Account is
         impaired  or that the  Account may not be paid by reason of the Account
         Debtor's financial inability to pay;

                           (P) with  respect  to which  the  Account  Debtor  is
         located in the states of New Jersey,  Minnesota,  West Virginia, or any
         other  state  requiring  the  filing of a Business  Activity  Report or
         similar  document  in order  to bring  suit or  otherwise  enforce  its
         remedies  against  such  Account  Debtor in the courts or  through  any
         judicial  process of such state,  unless the  Borrower,  any  Borrowing
         Subsidiary,  Clark or the  FSC,  as  applicable,  has  qualified  to do
         business in New Jersey,  Minnesota, West Virginia, or such other state,
         or has filed a Notice of Business Activities Report with the applicable
         division of taxation,  the  department  of revenue,  or with such other
         state offices, as appropriate,  for the then-current year, or is exempt
         from such filing requirement;

                           (Q)     arises out of a sale not made in the ordinary
         course of the Borrower's, any such Borrowing Subsidiary's,
         Clark's, or the FSC's business;

                           (R) the goods  giving rise to such  Account  have not
         been shipped and delivered to and accepted by the Account Debtor or the
         services  giving rise to such  Account  have not been  performed by the
         Borrower  or any  applicable  Borrowing  Subsidiary  or Clark,  and, if
         applicable,  accepted by the  Account  Debtor,  or the  Account  Debtor
         revokes its acceptance of such goods or services;

                           (S)      arising under a contract providing for
         financial penalties for default that may be set-off against
         such Account;

                           (T)      which is not subject to a first priority and
         perfected security interest in favor of the Agent for the
         benefit of the Lenders;

                           (U)      of Touchstone with respect to which the
         Account Debtor is located in Minnesota; or





                                       13

<PAGE>



                           (V) which is owed by an  Account  Debtor who has been
         issued, granted or provided with a performance bond, surety contract or
         other Surety Instrument with respect to Accounts which are related to a
         contract so secured by such performance  bond, surety contract or other
         Surety Instrument.

                  If any Account at any time ceases to be an Eligible Account by
         reason of any of the  foregoing  exclusions  or any failure to meet any
         other eligibility  criteria established by the Agent in the exercise of
         its reasonable  discretion then such Account shall promptly be excluded
         from the calculation of Eligible Accounts,  and the Accounts of the FSC
         shall not in any event be Eligible  Accounts unless they satisfy all of
         the restrictions above, including, without limitation clause (G) above,
         and in addition the Borrower  shall have  provided the Agent (on behalf
         of the Lenders) with a legal opinion from counsel  licensed in Barbados
         and such other  documents  as the Agent  shall  request all in form and
         substance and from Persons  acceptable to the Agent  establishing  that
         Agent  (on  behalf  of the  Lenders)  has a  prior  perfected  security
         interest  in such  Accounts  and such other  matters as the Agent shall
         request on the FSC and further that the Agent shall be  satisfied  with
         its ability to prosecute any claims related to such Accounts.

                  "Eligible  Assignee"  means (a) a  commercial  bank  organized
         under the laws of the United States, or any state thereof, and having a
         combined capital and surplus of at least $100,000,000; (b) a commercial
         bank organized under the laws of any other country which is a member of
         the Organization for Economic Cooperation and Development (the "OECD"),
         or a political  subdivision of any such country,  and having a combined
         capital and surplus of at least  $100,000,000,  provided that such bank
         is acting through a branch or agency located in the United States;  (c)
         a Person  that is  primarily  engaged  in the  business  of  commercial
         banking and that is (i) a Subsidiary of a Lender,  (ii) a Subsidiary of
         a Person of which a Lender is a Subsidiary,  or (iii) a Person of which
         a Lender is a Subsidiary;  (d) a commercial  finance company or finance
         subsidiary  of a  corporation  organized  under the laws of the  United
         States of America,  or any State  thereof,  and having  total assets in
         excess of $100,000,000;  (e) an insurance  company  organized under the
         laws of the United States of America (or any State  thereof) and having
         total assets in excess of  $100,000,000;  (f) a savings bank or savings
         and loan  association  organized under the laws of the United States of
         America,  or any State  thereof,  and having  total assets in excess of
         $100,000,000;  (g) a  pension  fund or other  institutional  lender  or
         investor;  (h) a  corporation  (other  than  a  financial  institution)
         organized  under the laws of any State of the United  States of America
         and having total assets in excess




                                       14

<PAGE>



         of $100,000,000;  and (i) and any Lender party to this Agreement on the
         Closing Date or any Affiliate of any thereof.

                  "Eligible Inventory" means all Inventory of the Borrower,  the
         Borrowing  Subsidiaries  and  Clark  (determined  individually  or on a
         consolidated  basis,  as  applicable),  valued  at the lower of cost or
         market on a first-in,  first out ("FIFO") basis,  that  constitutes raw
         materials,  work-in-process, and first quality finished goods and that:
         (a) is not, in the Agent's reasonable opinion, obsolete, slow-moving or
         unmerchantable;  (b) is  located  at  premises  owned by the  Borrower,
         Borrowing  Subsidiary  or Clark  or on  premises  otherwise  reasonably
         acceptable to the Agent,  provided,  however, that Inventory located on
         premises leased to the Borrower,  a Borrowing Subsidiary or Clark shall
         not be  Eligible  Inventory  unless  the Agent  shall  have  received a
         written waiver or subordination  agreement,  duly executed on behalf of
         the  appropriate  landlord and in form and substance  acceptable to the
         Agent,  of all  Liens  which  the  landlord  for such  premises  may be
         entitled to assert  against  such  Inventory;  (c) is not in transit or
         held on consignment or at a third party's premises;  (d) upon which the
         Agent for the  benefit of the Lenders  has a first  priority  perfected
         security interest; (e) is not spare parts (for manufacturing  equipment
         or not otherwise held for sale in the ordinary  course),  packaging and
         shipping  materials,  supplies,  bill-and-hold  Inventory,  returned or
         defective  Inventory,   or  Inventory  delivered  to  the  Borrower,  a
         Borrowing Subsidiary or Clark on consignment; (f) is not raw materials,
         work-in-process  or finished goods identified to a specific contract as
         to which progress  payments have been  received;  (g) has excluded from
         the value  thereof  freight-in  and other  transportation  charges  and
         warehouse  overhead;  (h)  is not  raw  materials,  work-in-process  or
         finished goods inventory in excess of $3,000,000 in value (based on the
         lower of cost or market value on a FIFO basis) in the  aggregate to the
         extent  it  has  been  identified  to a  specific  contract  for  which
         performance  bonds or a surety  contract or other Surety  Instrument of
         any kind has been issued or provided; or (i) the Agent, in the exercise
         of its reasonable  commercial  discretion,  deems eligible as the basis
         for Revolving Loans based on such collateral and credit criteria as the
         Agent may from time to time  establish.  If any  Inventory  at any time
         ceases to be  Eligible  Inventory,  such  Inventory  shall  promptly be
         excluded from the calculation of Eligible Inventory.

                  "Environmental  Claims" means all claims, however asserted, by
         any Governmental Authority or other Person alleging potential liability
         or  responsibility  for  violation  of any  Environmental  Law,  or for
         release  or injury  to the  environment  or  threat  to public  health,
         personal injury




                                       15

<PAGE>



         (including  sickness,  disease  or  death),  property  damage,  natural
         resources damage, or otherwise alleging liability or responsibility for
         damages  (punitive  or  otherwise),  investigation,  cleanup,  removal,
         remedial or response costs,  restitution,  civil or criminal penalties,
         injunctive  relief,  or other type of relief,  resulting  from or based
         upon the presence, placement, discharge, emission or release (including
         intentional and unintentional,  negligent and non-negligent,  sudden or
         non-sudden,  accidental or non-accidental,  placement,  spills,  leaks,
         discharges, emissions or releases) of any Hazardous Material at, in, or
         from  Property,  whether  or not  owned  by the  Borrower  or  taken as
         Collateral in connection with any operations of the Borrower.

                  "Environmental  Compliance  Reserve"  means any reserves which
         the Agent,  after the Closing Date,  establishes  from time to time for
         amounts that are  reasonably  likely to be expended by the Borrower (or
         its  Subsidiaries) in order for the Borrower (or its  Subsidiaries) and
         their  operations  and  property  to  comply  with  any  notice  from a
         Governmental   Authority   asserting   material   non-compliance   with
         Environmental  Laws;  provided,  however,  that such  reserve  shall be
         limited to an amount  reasonably  likely to be expended by the Borrower
         (or  its  Subsidiaries)  prior  to the  Stated  Maturity  Date,  all as
         reasonably determined by Agent.

                  "Environmental  Laws" means all federal,  state or local laws,
         statutes, common law duties, rules, regulations,  ordinances and codes,
         together with all  administrative  orders,  directed duties,  requests,
         licenses,  authorizations  and permits  of, and  agreements  with,  any
         Governmental  Authorities,  in each  case  relating  to  environmental,
         health,  safety  and  land use  matters;  including  the  Comprehensive
         Environmental   Response,   Compensation  and  Liability  Act  of  1980
         ("CERCLA"),  the Clean Air Act, the Federal Water Pollution Control Act
         of  1972,   the  Solid  Waste   Disposal  Act,  the  Federal   Resource
         Conservation  and Recovery Act, the Toxic  Substances  Control Act, and
         the Emergency Planning and Community Right-to-Know Act.

                  "ERISA" means the Employee  Retirement  Income Security Act of
         1974, and regulations promulgated thereunder.

                  "ERISA  Affiliate" means any trade or business (whether or not
         incorporated) under common control with the Borrower within the meaning
         of Section  414(b) or (c) of the Code (and  Sections  414(m) and (o) of
         the Code for  purposes  of  provisions  relating  to Section 412 of the
         Code).

                  "ERISA  Event" means (a) a Reportable  Event with respect to a
         Pension Plan;  (b) a withdrawal by the Borrower or any ERISA  Affiliate
         from a Pension Plan subject to Section 4063




                                       16

<PAGE>



         of ERISA during a plan year in which it was a substantial  employer (as
         defined in Section  4001(a)(2)  of ERISA) or a cessation of  operations
         which is treated as such a withdrawal  under Section  4062(e) of ERISA;
         (c) a  complete  or partial  withdrawal  by the  Borrower  or any ERISA
         Affiliate   from  a   Multiemployer   Plan  or   notification   that  a
         Multiemployer Plan is in reorganization;  (d) the filing of a notice of
         intent to terminate, the treatment of a Plan amendment as a termination
         under  Section  4041  or  4041A  of  ERISA,  or  the   commencement  of
         proceedings  by the PBGC to terminate a Pension  Plan or  Multiemployer
         Plan; (e) an event or condition  which might  reasonably be expected to
         constitute  grounds under Section 4042 of ERISA for the termination of,
         or the  appointment  of a trustee to  administer,  any Pension  Plan or
         Multiemployer  Plan; or (f) the imposition of any liability under Title
         IV of ERISA,  other than PBGC  premiums  due but not  delinquent  under
         Section 4007 of ERISA, upon the Borrower or any ERISA Affiliate.

                  "Estimated  Remediation Costs" means all costs associated with
         performing  work  to  remediate   contamination  of  real  property  or
         groundwater,  including  engineering  and other  professional  fees and
         expenses,  costs to remove, transport and dispose of contaminated soil,
         costs to "cap" or otherwise  contain  contaminated  soil,  and costs to
         pump and treat water and monitor water quality.

                  "Eurodollar Reserve Percentage" has the meaning
         specified in the definition of "Offshore Rate".

                  "Event of Default" means any of the events or
         circumstances specified in Section 8.01.

                  "Event of Loss" means,  with respect to any  property,  any of
         the  following:  (a) any loss,  destruction or damage of such property;
         (b) any pending or threatened  institution of any  proceedings  for the
         condemnation  or seizure of such  property  or for the  exercise of any
         right of eminent  domain;  or (c) any actual  condemnation,  seizure or
         taking,  by exercise of the power of eminent  domain or  otherwise,  of
         such property,  or  confiscation of such property or the requisition of
         the use of such property.

                  "Exchange Act" means the  Securities  Exchange Act of 1934, as
         amended, and regulations promulgated thereunder.

                  "Existing Borrowers" has the meaning set forth in the
         recitals to this Agreement.

                  "Existing Loan Agreement" has the meaning set forth in
         the recitals to this Agreement.





                                       17

<PAGE>



                  "FDIC" means the Federal Deposit  Insurance  Corporation,  and
         any  Governmental   Authority   succeeding  to  any  of  its  principal
         functions.

                  "Federal Funds Rate" means, for any day, the rate set forth in
         the  weekly  statistical  release  designated  as  H.15(519),   or  any
         successor  publication,  published  by the Federal  Reserve Bank of New
         York  (including  any such  successor,  "H.15(519)")  on the  preceding
         Business Day opposite the caption "Federal Funds  (Effective)";  or, if
         for  any  relevant  day  such  rate  is not so  published  on any  such
         preceding  Business  Day, the rate for such day will be the  arithmetic
         mean as determined  by the Agent of the rates for the last  transaction
         in overnight  federal funds  arranged prior to 9:00 a.m. (New York City
         time) on that day by each of three  leading  brokers of  federal  funds
         transactions in New York City selected by the Agent.

                  "Fee Letter" has the meaning specified in Section
         2.10(a).

                  "Fiscal  Month" means  Borrower's  fiscal month for accounting
         purposes,  which  shall be the four or five week  period  ending on the
         last Friday of each calendar month.

                  "Fiscal  Quarter"  means the  Borrower's  fiscal  quarter  for
         accounting  purposes,  which shall be the three (3) Fiscal Month period
         ending  during  the  calendar  months of  March,  June,  September  and
         December of each year.

                  "Fiscal Year" means the  Borrower's  fiscal year for financial
         accounting  purposes.  The current Fiscal Year of the Borrower will end
         on December 31, 1997.

                  "Fixed  Charges" means, as to any Person and for any period on
         which such  amount is to be  determined,  the sum of the  amounts (on a
         consolidated basis) for such period for (i) interest expense, (ii) rent
         expenses pursuant to all operating leases, (iii) Capital  Expenditures,
         (iv)  principal  payments  which such  Person is  obligated  to make as
         scheduled  payments  with respect to the  Commitments,  Loans and other
         Indebtedness,  (v) cash tax expense paid or due and (vi) cash dividends
         paid.

                  "FRB"  means the Board of  Governors  of the  Federal  Reserve
         System,  and  any  Governmental  Authority  succeeding  to  any  of its
         principal functions.

                  "FSC" means MotivePower Foreign Sales Corporation, a
         Barbados corporation.

                  "Funded Debt" means, for any Person and for any period
         for which such amount is being determined, the sum of the




                                       18

<PAGE>



         amounts for such period (without duplication) of (i) Indebtedness, (ii)
         the aggregate drawn amount of all outstanding Letters of Credit,  (iii)
         the aggregate amount of payments which the Borrower is obligated to pay
         at any time with respect to its redeemable preferred stock and (iv) the
         aggregate amount of obligations with respect to capital leases.

                  "GAAP" means  generally  accepted  accounting  principles  set
         forth  from  time to time in the  opinions  and  pronouncements  of the
         Accounting  Principles  Board and the  American  Institute of Certified
         Public  Accountants and statements and  pronouncements of the Financial
         Accounting  Standards  Board (or  agencies  with  similar  functions of
         comparable   stature   and   authority   within  the  U.S.   accounting
         profession),  which  are  applicable  to  the  circumstances  as of the
         Closing Date and consistently applied.

                  "Governmental  Authority" means any nation or government,  any
         state or other  political  subdivision  thereof,  any central  bank (or
         similar  monetary  or  regulatory   authority)   thereof,   any  entity
         exercising   executive,    legislative,    judicial,    regulatory   or
         administrative  functions  of or  pertaining  to  government,  and  any
         corporation  or other  entity  owned or  controlled,  through  stock or
         capital ownership or otherwise, by any of the foregoing.

                  "Guarantors"   means  each  of  the  Borrowing   Subsidiaries,
         MotivePower Investments,  Clark, FSC, and any other Person that becomes
         a Subsidiary of the Borrower  after the Closing Date other than MK Gain
         and its Subsidiaries.

                  "Guaranty"  means the  Amended and  Restated  Guaranty of even
         date  herewith in  substantially  the form of Exhibit B executed by the
         Guarantors  in favor of the Agent,  on behalf of the Lenders,  together
         with all amendments, modifications and supplements thereto consented to
         by the Agent in writing.

                  "Guaranty Obligation" has the meaning specified in the
         definition of "Contingent Obligation."

                  "Hazardous  Materials"  means  all those  substances  that are
         regulated by, or which may form the basis of liability or a standard of
         conduct  under,  any   Environmental   Law,   including  any  substance
         identified  under any  Environmental  Law as a pollutant,  contaminant,
         hazardous  waste,  hazardous  constituent,   special  waste,  hazardous
         substance,  hazardous  material,  or toxic  substance,  or petroleum or
         petroleum derived substance or waste.





                                       19

<PAGE>



                  "HBTC" means the Houston Belt & Terminal Railway
         Company, a corporation.

                  "Indebtedness" of any Person means, without  duplication,  (a)
         all  indebtedness  for  borrowed  money;  (b) all  obligations  issued,
         undertaken  or assumed as the  deferred  purchase  price of property or
         services (other than trade payables entered into in the ordinary course
         of business on ordinary terms); (c) all non-contingent reimbursement or
         payment  obligations  with  respect  to  Surety  Instruments;  (d)  all
         obligations   evidenced  by  notes,   bonds,   debentures   or  similar
         instruments,  including obligations so evidenced incurred in connection
         with  the  acquisition  of  property,  assets  or  businesses;  (e) all
         indebtedness  created or arising  under any  conditional  sale or other
         title  retention  agreement,  or incurred as financing,  in either case
         with respect to property acquired by the Person (even though the rights
         and remedies of the seller or bank under such agreement in the event of
         default are limited to repossession or sale of such property);  (f) all
         obligations  with  respect  to  capital  leases;  (g) all  indebtedness
         referred to in clauses  (a) through (f) above  secured by (or for which
         the holder of such  Indebtedness  has an existing right,  contingent or
         otherwise,  to be secured by) any Lien upon or in  property  (including
         accounts and contracts  rights) owned by such Person,  even though such
         Person  has not  assumed  or  become  liable  for the  payment  of such
         Indebtedness;   and  (h)  all  Guaranty   Obligations   in  respect  of
         indebtedness  or  obligations  of others of the  kinds  referred  to in
         clauses (a) through (g) above.

                  "Indemnified Liabilities" has the meaning specified in
         Section 10.05.

                  "Indemnified Person" has the meaning specified in
         Section 10.05.

                  "Independent Auditor" has the meaning specified in
         Section 6.01(a).

                  "Insolvency   Proceeding"   means  (a)  any  case,  action  or
         proceeding before any court or other Governmental Authority relating to
         bankruptcy,  reorganization,   insolvency,  liquidation,  receivership,
         dissolution,  winding-up  or  relief  of  debtors,  or (b) any  general
         assignment  for the benefit of creditors,  composition,  marshalling of
         assets for creditors,  or other,  similar arrangement in respect of its
         creditors  generally  or any  substantial  portion  of  its  creditors;
         undertaken  under U.S.  federal,  state or foreign law,  including  the
         Bankruptcy Code.

                  "Interest Payment Date" means, (a) as to any Offshore
         Rate Loan, the last day of each Interest Period applicable




                                       20

<PAGE>



         to such Offshore Rate Loan,  (b) as to any Offshore Rate Loan with a 6-
         or 12-month Interest Period, on each 3-month  anniversary of the making
         of such Offshore  Rate Loan and the last day of the Interest  Period of
         such  Offshore  Rate Loan,  and (c) as to any Base Rate Loan,  the last
         Business  Day of each  calendar  quarter  and each  date  such  Loan is
         converted into another Type of Loan.

                  "Interest  Period"  means,  as to any Offshore Rate Loan,  the
         period  commencing  on  the  Borrowing  Date  of  such  Loan  or on the
         Conversion/Continuation  Date on which  the Loan is  converted  into or
         continued as an Offshore  Rate Loan,  and ending on the date one,  two,
         three or six months (or if available, 12-months) thereafter as selected
         by  the   Borrower   in  its   Notice   of   Borrowing   or  Notice  of
         Conversion/Continuation; provided that:

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

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

                              (iii) no Interest Period for any Loan shall extend
                  beyond the Stated Maturity Date.

                  "Inventory"  means  all  of  the  Borrower's,   the  Borrowing
         Subsidiaries'  and  Clark's  (on a  consolidated  basis)  now owned and
         hereafter acquired inventory,  goods,  merchandise,  and other personal
         property,  wherever  located,  to be  furnished  under any  contract of
         service or held for sale,  all returned  goods,  raw  materials,  other
         materials and supplies of any kind,  nature or description which are or
         might be consumed in such Person's  business or used in connection with
         the packing, shipping, advertising, selling or finishing of such goods,
         merchandise  and such other  personal  property,  and all  documents of
         title or other documents representing them but excluding, in any event,
         railroad locomotives and rolling stock held for lease.

                  "IRS" means the Internal Revenue Service, and any Governmental
         Authority succeeding to any of its principal functions under the Code.





                                       21

<PAGE>



                  "Issuing  Bank" shall  initially mean BofA, and any other bank
         selected  by the  Agent  from time to time to issue  Letters  of Credit
         under Section 2.01(c).

                  "Joint  Venture"  means  a  partnership,   limited   liability
         company,  joint  venture or other similar  legal  arrangement  (whether
         created by contract or conducted  through a separate  legal entity) now
         or  hereafter  formed by the Borrower or any of its  Subsidiaries  with
         another Person in order to conduct a common venture or enterprise  with
         such Person.

                  "Lenders" means the institutions specified in the introductory
         clause hereto. Unless the context otherwise clearly requires,  "Lender"
         includes  any  such  institution  in its  capacity  as  Specified  Swap
         Provider or the Issuing  Bank.  Unless the  context  otherwise  clearly
         requires,  references to any such  institution as a "Lender" shall also
         include any of such  institution's  Affiliates  that may at any time of
         determination be Specified Swap Providers or the Issuing Bank.

                  "Lending  Office"  means,  as to any  Lender,  the  office  or
         offices of such Lender  specified as its "Lending  Office" or "Domestic
         Lending Office" or "Offshore  Lending  Office",  as the case may be, on
         Schedule  10.02, or such other office or offices as the Lender may from
         time to time
         notify the Borrower and the Agent.

                  "Lien" means any security interest,  mortgage,  deed of trust,
         pledge,  hypothecation,  assignment,  charge  or  deposit  arrangement,
         encumbrance,  lien (statutory or other) or preferential  arrangement of
         any kind or nature  whatsoever  in respect of any  property  (including
         those created by, arising under or evidenced by any conditional sale or
         other title  retention  agreement,  the  interest  of a lessor  under a
         capital  lease,  any  financing  lease  having  substantially  the same
         economic effect as any of the foregoing, or the filing of any financing
         statement  naming the owner of the asset to which such lien  relates as
         debtor,  under the Uniform  Commercial Code or any comparable law), but
         not including the interest of a lessor under an operating lease.

                  "Letter of Credit" has the meaning specified in
         Section 2.01(c).

                  "Loan"  means  an  extension  of  credit  by a  Lender  to the
         Borrower  under  Article II, and may be a Base Rate Loan or an Offshore
         Rate Loan (each, a "Type" of Loan),  and includes any Revolving Loan or
         Term Loan.

                  "Loan  Documents"   means  this  Agreement,   the  Notes,  the
         Collateral  Documents,  the Fee Letter,  any  documents  evidencing  or
         related to Specified Swap Contracts or Letters




                                       22

<PAGE>



         of Credit, and all other documents  delivered to the Agent, any Lender,
         a Specified  Swap Provider or the Issuing Bank in  connection  with the
         transactions contemplated by this Agreement.

                  "Majority Lenders" means, at any time, Lenders then holding at
         least  66-2/3% of the then  aggregate  unpaid  principal  amount of the
         Loans,  or, if no such principal  amount is then  outstanding,  Lenders
         then having at least 66-2/3% of the Commitments.

                  "Margin Stock" means "margin stock" as such term is defined in
         Regulation G, T, U or X of the FRB.

                  "Material  Adverse Effect" means (a) a material adverse change
         in, or a  material  adverse  effect  upon,  the  operations,  business,
         properties,  condition  (financial  or  otherwise)  or prospects of the
         Borrower or the Borrower and its  Subsidiaries  taken as a whole; (b) a
         material  impairment of the ability of the Borrower or any Guarantor to
         perform under any Loan  Document and to avoid any Event of Default;  or
         (c) a material adverse effect upon (i) the legality,  validity, binding
         effect or  enforceability  against the Borrower or any Guarantor of any
         Loan  Document,  or (ii) the perfection or priority of any Lien granted
         under any of the Collateral Documents.

                  "MK Gain" means (i) initially MK Gain, S.A. de C.V., a
         Mexican corporation, and its direct and indirect wholly
         owned subsidiaries and (ii) thereafter MPI de Mexico, S.A.
         de C.V. if and when the Agent is notified in writing of the
         consummation of the Borrower's corporate reorganization of
         its Mexican operations, pursuant to which a newly formed
         holding company, MPI de Mexico, S.A. de C.V., shall become a
         Wholly-Owned Subsidiary of the Borrower and all of the
         assets and operations of MK Gain, S.A. de C.V. shall have
         been merged into or contributed to such Person.

                  "Mortgage"  means  any  deed  of  trust,  mortgage,  leasehold
         mortgage, assignment of rents or other document creating a Lien on real
         property or any interest in real property.

                  "Mortgaged Property" means all property subject to a
         Lien pursuant to a Mortgage.

                  "MotivePower   Investments"   means  MotivePower   Investments
         Limited, a Delaware corporation and a direct Wholly-Owned subsidiary of
         the Borrower.

                  "MotivePower  Investments  Pledge  Agreement" means the Pledge
         Agreement of even date herewith executed by MotivePower  Investments in
         favor of the Agent, on behalf of the Lenders, pledging all the stock of
         its Subsidiaries, and




                                       23

<PAGE>



         any amendments,  modifications or restatements  thereof,  or any pledge
         agreements   entered  into  after  the  Closing  Date  by   MotivePower
         Investments.

                  "Multiemployer Plan" means a "Multiemployer  plan", within the
         meaning of Section  4001(a)(3)  of ERISA,  to which the Borrower or any
         ERISA Affiliate makes, is making, or is obligated to make contributions
         or,  during the  preceding  three  calendar  years,  has made,  or been
         obligated to make, contributions.

                  "Net  Amount of Eligible  Accounts"  means,  at any time,  the
         gross amount of Eligible Accounts less sales,  excise or similar taxes,
         and less  returns,  discounts,  claims,  credits and  allowances of any
         nature at any time issued,  owing, granted,  outstanding,  available or
         claimed.

                  "Net Issuance  Proceeds"  means, as to any issuance of debt or
         equity by any Person,  cash proceeds and non-cash  proceeds received or
         receivable  by such Person in connection  therewith,  net of reasonable
         out-of-pocket  costs  and  expenses  paid  or  incurred  in  connection
         therewith in favor of any Person not an Affiliate of such Person,  such
         costs and  expenses  not to exceed  5% of the  gross  proceeds  of such
         issuance.

                  "Net  Proceeds"  means,  as to any  Disposition  by a  Person,
         proceeds in cash, checks or other cash equivalent financial instruments
         as and when  received  by such  Person,  net of: (a) the  direct  costs
         relating to such Disposition  excluding  amounts payable to such Person
         or any Affiliate of such Person,  (b) sales,  use or other  transaction
         taxes paid or payable by such Person as a direct  result  thereof,  and
         (c) amounts  required to be applied to repay  principal,  interest  and
         prepayment premiums and penalties on Indebtedness  secured by a Lien on
         the asset  which is the  subject of such  Disposition.  "Net  Proceeds"
         shall also include  proceeds paid on account of any Event of Loss,  net
         of (i) all money actually  applied to repair or reconstruct the damaged
         property or property  affected by the condemnation or taking,  (ii) all
         of the costs and expenses  reasonably  incurred in connection  with the
         collection of such  proceeds,  award or other  payments,  and (iii) any
         amounts  retained by or paid to parties having  superior rights to such
         proceeds, awards or other payments.

                  "Note" or "Notes" means the Revolving Loan Note and the
         Term Loan Note.

                  "Notice of Borrowing" means a notice in substantially
         the form of Exhibit B.





                                       24

<PAGE>



                  "Notice of Conversion/Continuation" means a notice in
         substantially the form of Exhibit C.

                  "Obligations"   means  all   advances,   debts,   liabilities,
         obligations, covenants and duties arising under any Loan Document owing
         by the Borrower,  the Borrowing Subsidiaries and any other Guarantor to
         any Lender,  the Agent,  the Issuing  Bank, a Specified  Swap  Provider
         and/or any Indemnified  Person,  whether direct or indirect  (including
         those acquired by assignment), absolute or contingent, due or to become
         due, now existing or hereafter arising.

                  "Offshore Rate" means, for any Interest  Period,  with respect
         to Offshore Rate Loans comprising part of the same Borrowing,  the rate
         of  interest  per  annum  (rounded  upward  to the next  1/16th  of 1%)
         determined by the Agent as follows:

         Offshore Rate =         LIBOR
                         1.00 - Eurodollar Reserve Percentage

         Where,

                  "Eurodollar  Reserve  Percentage"  means  for  any day for any
                  Interest Period the maximum reserve percentage (expressed as a
                  decimal,  rounded  upward to the next 1/100th of 1%) in effect
                  on such day (whether or not  applicable  to any Lender)  under
                  regulations   issued   from  time  to  time  by  the  FRB  for
                  determining  the maximum  reserve  requirement  (including any
                  emergency, supplemental or other marginal reserve requirement)
                  with respect to Eurocurrency funding (currently referred to as
                  "Eurocurrency liabilities"); and

                         "LIBOR" means the rate of interest per annum determined
                  by the Agent to be the arithmetic  mean (rounded upward to the
                  next 1/16th of 1%) of the rates of interest per annum notified
                  to the Agent by each Reference  Lender as the rate of interest
                  at which  dollar  deposits  in the  approximate  amount of the
                  amount of the Loan to be made or  continued  as, or  converted
                  into,  an  Offshore  Rate Loan by such  Reference  Lender  and
                  having a maturity  comparable to such Interest Period would be
                  offered to major banks in the London interbank market at their
                  request at approximately 11:00 a.m. (London time) two Business
                  Days prior to the commencement of such Interest Period.

                  The Offshore  Rate shall be adjusted  automatically  as to all
         Offshore Rate Loans then  outstanding  as of the effective  date of any
         change in the Eurodollar Reserve Percentage.

                  "Offshore Rate Loan" means a Loan that bears interest based on
         the Offshore Rate.




                                       25

<PAGE>



                  "Organization  Documents"  means,  for  any  corporation,  the
         certificate or articles of incorporation,  the bylaws,  any certificate
         of  determination  or  instrument  relating to the rights of  preferred
         shareholders of such corporation, any shareholder rights agreement, and
         all applicable  resolutions of the board of directors (or any committee
         thereof) of such corporation.

                  "Other Taxes" means any present or future stamp or documentary
         taxes or any other excise or property taxes,  charges or similar levies
         which  arise from any payment  made  hereunder  or from the  execution,
         delivery  or  registration  of, or  otherwise  with  respect  to,  this
         Agreement or any other Loan Documents.

                  "Participant" has the meaning specified in Section
         10.08(d).

                  "PBGC" means the Pension Benefit Guaranty Corporation,  or any
         Governmental  Authority  succeeding to any of its  principal  functions
         under ERISA.

                  "Pension  Plan"  means a pension  plan (as  defined in Section
         3(2) of  ERISA)  subject  to  Title  IV of  ERISA  which  the  Borrower
         sponsors,  maintains,  or to which it makes, is making, or is obligated
         to make  contributions,  or in the case of a multiple employer plan (as
         described in Section  4064(a) of ERISA) has made  contributions  at any
         time during the immediately preceding five (5) plan years.

                  "Permitted Acquisitions" has the meaning specified in
         Section 7.03.

                  "Permitted Liens" has the meaning specified in
         Section 7.01.

                  "Person"  means  an  individual,   partnership,   corporation,
         limited liability company,  business trust, joint stock company, trust,
         unincorporated association, joint venture or Governmental Authority.

                  "Plan"  means an employee  benefit plan (as defined in Section
         3(3) of ERISA) which the Borrower sponsors or maintains or to which the
         Borrower makes, is making,  or is obligated to make  contributions  and
         includes any Pension Plan.

                  "Pledge Agreements" means the Borrower Pledge
         Agreement, the MotivePower Investments Pledge Agreement and
         the Power Pledge Agreement.

                  "Pledged Collateral" has the meaning specified in the
         Pledge Agreements.




                                       26

<PAGE>



                  "Power Pledge  Agreement"  means the Pledge  Agreement of even
         date herewith executed by Power Parts Company,  a Nevada corporation in
         favor of the Agent, on behalf of the Lenders, pledging all the stock of
         its  Subsidiaries,  and any amendments,  modifications  or restatements
         thereof,  or any pledge agreements  entered into after the Closing Date
         by such Person.

                  "Pro Rata  Share"  means,  as to any  Lender at any time,  the
         percentage  equivalent  (expressed  as a decimal,  rounded to the ninth
         decimal place) at such time of such Lender's  Commitment divided by the
         combined Commitments of all Lenders.

                  "PTRA" means the Port Terminal Railroad Association, a
         Texas association.

                  "Reference Lender" means BofA.

                  "Reorganization" shall have the meaning specified in
         the recitals hereto.

                  "Replacement Lender" has the meaning specified in
         Section 3.08.

                  "Reportable  Event"  means  any of the  events  set  forth  in
         Section 4043(b) of ERISA or the regulations thereunder,  other than any
         such event for which the 30-day notice requirement under ERISA has been
         waived in regulations issued by the PBGC.

                  "Requirement  of  Law"  means,  as  to  any  Person,  any  law
         (statutory or common),  treaty,  rule or regulation or determination of
         an arbitrator or of a Governmental  Authority,  in each case applicable
         to or binding  upon the Person or any of its  property  or to which the
         Person or any of its property is subject.

                  "Responsible Officer" means the chief executive officer or the
         president of the Borrower,  or any other officer  having  substantially
         the same authority and  responsibility;  or, with respect to compliance
         with financial covenants,  the chief financial officer or the treasurer
         of the Borrower,  or any other officer  having  substantially  the same
         authority and responsibility.

                  "Revolving Commitment" means Fifty-Five Million Dollars
         ($55,000,000).

                  "Revolving Loan" has the meaning specified in
         Section 2.01.





                                       27

<PAGE>



                  "Revolving  Loan Note" means the  promissory  note executed by
         the Borrower in favor of the Agent,  on behalf of the Lenders  pursuant
         to  Section  2.02(b),  in  substantially  the  form  of  Exhibit  E  as
         thereafter amended from time to time with the consent of the Agent.

                  "SEC" means the Securities and Exchange Commission, or
         any Governmental Authority succeeding to any of its
         principal functions.

                  "Security Agreement (Borrower)" means the Amended and Restated
         Security  Agreement  executed by the Borrower in favor of the Agent, on
         behalf of the Lenders, in substan tially the form of Exhibit G together
         with all amendments, modifications and supplements thereto consented to
         by the Agent in writing.

                  "Security  Agreement   (Guarantors)"  means  the  Amended  and
         Restated Security  Agreement executed by the Guarantors in favor of the
         Agent, on behalf of the Lenders, in substantially the form of Exhibit H
         together with all amendments,  modifications  and  supplements  thereto
         consented to by the Agent in writing.

                  "Security Agreements" means, collectively, the Security
         Agreement (Borrower) and the Security Agreement
         (Guarantors).

                  "Solvent"  means,  as to any Person at any time,  that (a) the
         fair value of the property of such Person is greater than the amount of
         such  Person's   liabilities   (including   disputed,   contingent  and
         unliquidated  liabilities) as such value is established and liabilities
         evaluated for purposes of Section  101(31) of the Bankruptcy  Code and,
         in the  alternative,  for purposes of the Illinois  Uniform  Fraudulent
         Transfer  Act; (b) the present fair  saleable  value of the property of
         such  Person is not less than the amount  that will be  required to pay
         the  probable  liability  of such  Person on its  debts as they  become
         absolute  and  matured;  (c) such  Person is able to  realize  upon its
         property and pay its debts and other liabilities  (including  disputed,
         contingent and  unliquidated  liabilities) as they mature in the normal
         course of  business;  (d) such  Person does not intend to, and does not
         believe that it will,  incur debts or liabilities  beyond such Person's
         ability  to pay as such  debts  and  liabilities  mature;  and (e) such
         Person is not engaged in business or a transaction, and is not about to
         engage in business or a transaction,  for which such Person's  property
         would constitute unreasonably small capital.

                  "Specified Original Equipment Manufacturer" means
         General  Motors  Corporation  and  General  Electric  Company and their
         respective Subsidiaries and divisions that engage




                                       28

<PAGE>



         primarily in the business of manufacturing railroad
         locomotives or locomotive parts.

                  "Specified  Swap  Contract"  means any Swap  Contract  made or
         entered into at any time, or in effect at any time (whether  heretofore
         or hereafter),  whether directly or indirectly, and whether as a result
         of assignment  or transfer or  otherwise,  between the Borrower and any
         Specified  Swap Provider  which Swap Contract is or was intended by the
         Borrower to have been entered into,  in part or entirely,  for purposes
         of mitigating  interest rate or currency  exchange risk relating to the
         Loans  (which  intent  shall  conclusively  be  deemed  to exist if the
         Borrower so represents to the Specified Swap Provider in writing),  and
         as to which the final  scheduled  payment by the  Borrower is not later
         than the Stated Maturity Date.

                  "Specified Swap Provider"  means any Lender,  or any Affiliate
         of any  Lender,  that  is at the  time of  determina  tion  party  to a
         Specified Swap Contract with the Borrower.

                  "Stated Maturity Date" means the fourth (4th)
         anniversary of the Closing Date.

                  "Subsidiary" of a Person means any  corporation,  association,
         partnership, limited liability company, joint venture or other business
         entity of which more than 50% of the voting stock, membership interests
         or  other  equity   interests  (in  the  case  of  Persons  other  than
         corporations),  is owned or  controlled  directly or  indirectly by the
         Person,  or one  or  more  of the  Subsidiaries  of  the  Person,  or a
         combination  thereof.  Unless the context  otherwise  clearly requires,
         references   herein  to  a  "Subsidiary"   refer  to  a  Subsidiary  or
         Subsidiaries of the Borrower including, without limitation, MK Gain and
         the Guarantors.

                  "Surety  Instruments"  means all letters of credit  (including
         standby and commercial), banker's acceptances,  performance bonds, bank
         guaranties, shipside bonds, surety bonds and similar instruments.

                  "Swap  Contract"  means  any  agreement,  whether  or  not  in
         writing,  relating to any transaction  that is a rate swap, basis swap,
         forward rate transaction,  commodity swap, commodity option,  equity or
         equity index swap or option,  bond, note or bill option,  interest rate
         option,  forward  foreign  exchange  transaction,  cap, collar or floor
         transaction,  currency  swap,  cross-currency  rate swap,  swap option,
         currency option or any other, similar transaction (including any option
         to  enter  into  any  of  the  foregoing)  or  any  combination  of the
         foregoing,  and, unless the context  otherwise  clearly  requires,  any
         master agreement relating to or governing any or all of the foregoing.




                                       29

<PAGE>



                  "Tangible  Net  Worth"  means,  as to any Person and as of any
         date on which the amount  thereof is to be  determined,  (a) the stated
         amount of the  shareholders'  equity  for all  issued  and  outstanding
         capital stock,  minus (b) the aggregate stated amount of any redeemable
         preferred stock (plus accrued and unpaid dividends),  and minus (c) the
         stated  amount of all  patents,  copyrights,  trademarks,  trade names,
         franchises,   goodwill,   deferred  charges,   organization   expenses,
         unamortized discounts and other intangibles.

                  "Taxes"  means any and all  present or future  taxes,  levies,
         imposts, deductions,  charges or withholdings, and all liabilities with
         respect thereto,  excluding,  in the case of each Lender and the Agent,
         such taxes  (including  income taxes or franchise taxes) as are imposed
         on or measured by each Lender's net income by the  jurisdiction (or any
         political  subdivision  thereof) under the laws of which such Lender or
         the Agent,  as the case may be, is  organized  or  maintains  a lending
         office.

                  "Term Commitment" means Twenty Million Dollars
         ($20,000,000).

                  "Term Loan" has the meaning specified in Section 2.01.

                  "Term Loan Note"  means the  amended  and  restated  term loan
         promissory  note  executed  by the  Borrower  in favor of the  Agent on
         behalf of the Lenders pursuant to Section 2.02(b),in  substantially the
         form of  Exhibit  F as  thereafter  amended  from time to time with the
         consent of the Agent.

                  "Type" has the meaning specified in the definition of
         "Loan."

                  "UCC" means the Uniform  Commercial Code as the same may, from
         time to time, be in effect in the State of Illinois; provided, however,
         in the event that, by reason of mandatory provisions of law, any or all
         of the attachment,  perfection or priority of the security  interest of
         Agent  (or any party for  which  Agent is agent) in any  collateral  is
         governed by the Uniform  Commercial Code as in effect in a jurisdiction
         other than the State of Illinois, the term "UCC" shall mean the Uniform
         Commercial  Code as in effect in such  other  jurisdiction  solely  for
         purposes  of  the  provisions   hereof  relating  to  such  attachment,
         perfection or priority and for purposes of definitions  related to such
         provisions.

                  "Unfunded  Pension  Liability"  means  the  excess of a Plan's
         benefit  liabilities  under  Section  4001(a)(16)  of  ERISA,  over the
         current value of that Plan's assets,  determined in accordance with the
         assumptions used for




                                       30

<PAGE>



         funding  the Pension  Plan  pursuant to Section 412 of the Code for the
         applicable plan year.

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

                  "Unused Letter of Credit Subfacility" means an amount equal to
         $15,000,000  minus the sum of (a) the aggregate  undrawn  amount of all
         outstanding   Letters  of  Credit   plus  (b)  the   aggregate   unpaid
         reimbursement obligations with respect to all Letters of Credit.

                  "Wholly-Owned  Subsidiary"  means  any  corporation  in  which
         (other than directors'  qualifying  shares required by law) 100% of the
         capital stock of each class having ordinary  voting power,  and 100% of
         the capital stock of every other class, in each case, at the time as of
         which any  determination  is being made, is owned,  beneficially and of
         record, by the Person being considered,  or by one or more of the other
         Wholly-Owned Subsidiaries, or both.

         1.02  Other Interpretive Provisions.  (a) The meanings of
defined terms are equally applicable to the singular and plural
forms of the defined terms.

                  (b) The words  "hereof",  "herein",  "hereunder"  and  similar
         words  refer to this  Agreement  as a whole  and not to any  particular
         provision of this  Agreement;  and  subsection,  Section,  Schedule and
         Exhibit references are to this Agreement unless otherwise specified.

                  (c) (i) The term "documents" includes any and all instruments,
documents,  agreements,  certificates,  indentures,  notices and other writings,
however evidenced.

                           (ii)   The term "including" is not limiting and means
         "including without limitation."

                          (iii) In the  computation  of  periods  of time from a
         specified date to a later  specified  date, the word "from" means "from
         and  including";   the  words  "to"  and  "until"  each  mean  "to  but
         excluding", and the word "through" means "to and including."

                           (iv)  The  term  "property"   includes  any  kind  of
         property or asset, real, personal or mixed, tangible or intangible.

                            (v)  Reference  to "$" or  "dollars"  shall  mean US
         Dollars or if evaluating another currency,  then the US Dollar value or
         equivalent  at the time of  consideration  utilizing  the spot rate for
         open market transactions in such currency.




                                       31

<PAGE>



                  (d) Unless otherwise expressly provided herein, (i) references
to agreements (including this Agreement) and other contractual instruments shall
be deemed to include all subsequent amendments and other modifications  thereto,
but  only  to the  extent  such  amendments  and  other  modifications  are  not
prohibited by the terms of any Loan Document, and (ii) references to any statute
or regulation  are to be construed as including  all  statutory  and  regulatory
provisions consolidating, amending, replacing, supplementing or interpreting the
statute or regulation.

                  (e)  The  captions  and  headings  of this  Agreement  are for
convenience  of reference only and shall not affect the  interpretation  of this
Agreement.

                  (f) This  Agreement  and other Loan  Documents may use several
different  limitations,  tests or  measurements  to regulate the same or similar
matters.  All such limitations,  tests and measurements are cumulative and shall
each be performed in accordance  with their terms.  Unless  otherwise  expressly
provided,  any  reference  to any  action of the Agent or the  Lenders by way of
consent, approval or waiver shall be deemed modified by the phrase "in its/their
sole discretion."

                  (g) This Agreement and the other Loan Documents are the result
of  negotiations  among and have been  reviewed  by counsel  to the  Agent,  the
Borrower  and  the  other  parties,   and  are  the  products  of  all  parties.
Accordingly, they shall not be construed against the Lenders or the Agent merely
because of the Agent's or Lenders' involvement in their preparation.

         1.03  Accounting  Principles.  Unless  the  context  otherwise  clearly
requires or Mexican GAAP is specifically  referenced,  all accounting  terms not
expressly  defined  herein shall be construed,  and all  financial  computations
required  under  this  Agreement   shall  be  made,  in  accordance  with  GAAP,
consistently  applied.  References  herein to "fiscal year" and "fiscal quarter"
refer to such fiscal periods of the Borrower.

         1.04 Amendment and  Restatement.  (a) This Agreement,  the Guaranty and
the  Security  Agreements  collectively  amend and restate in its  entirety  the
Existing Loan Agreement and, upon effectiveness of this Agreement,  the Guaranty
and the Security  Agreements,  the terms and  provisions  of the  Existing  Loan
Agreement shall,  subject to Sections 1.04(b) and (c), be superseded  hereby and
thereby.

                  (b)  Notwithstanding  the  amendment  and  restatement  of the
Existing Loan Agreement by this Agreement, the Guaranty, the Security Agreements
and the Notes,  the Borrower and the other Existing  Borrowers shall continue to
be liable to BABC,  the Agent and the Lenders with respect to  agreements on the
part of the Existing Borrowers under the Existing Loan Agreement to indemnify




                                       32

<PAGE>



and hold BABC,  the Agent and the Lenders  harmless from and against all claims,
demands,  liabilities,  damages,  losses,  costs,  charges and expenses to which
BABC,  the Agent or any  Lender may be subject  arising in  connection  with any
action taken, failure to take action or transaction contemplated in or under the
Existing Loan Agreement during the period that such agreement was in effect.

                  (c)  Notwithstanding  the  amendment  and  restatement  of the
Existing  Loan  Agreement  by this  Agreement,  the  Guaranty  and the  Security
Agreements, the indebtedness, liabilities and obligations owing to the Agent and
the Lenders by the Borrower and the other Existing  Borrowers under the Existing
Loan Agreement remain outstanding as of the date hereof,  constitute  continuing
Obligations  hereunder and  thereunder  and shall  continue to be secured by the
Collateral.

                  This  Agreement  is  given  in  partial  substitution  for the
Existing Loan  Agreement,  and does not evidence a repayment and  reborrowing of
the obligations of the Existing Borrowers under such agreement, and is in no way
intended to  constitute a novation of the Existing  Loan  Agreement,  including,
without limitation, the guarantees provided thereunder which shall be continuing
under the Guaranty and the Liens  granted  thereunder  which shall be continuing
under the Security Agreements.

                  (d) Upon the  effectiveness of this Agreement,  each reference
to the Existing Loan  Agreement in any other  document,  instrument or agreement
executed   and/or   delivered  in  connection   therewith  (the  "Existing  Loan
Documents") shall mean and be a reference to this Agreement.

                  (e) The parties hereto acknowledge and agree that any waivers,
express  or  implied by course of  conduct  or  otherwise,  amendments  or other
actions (or failures to act) under the  Existing  Loan  Agreement  and the other
Existing  Loan  Documents  shall  be of no  force  or  effect,  and of no use in
interpreting  the rights and duties of the parties under this  Agreement and the
other Loan Documents.


                                   ARTICLE II

                                   THE CREDITS

         2.01  Amounts and Terms of Commitments.

                  (a) The Term  Credit.  Each Lender  severally  agrees,  on the
terms and conditions set forth herein,  to continue to make a single loan to the
Borrower (each such Loan, a "Term Loan") on the Closing Date in an amount not to
exceed such Lender's Pro Rata Share of the Term  Commitment,  and that such Term
Loan shall be made by continuing the Borrower's term loan under the Existing




                                       33

<PAGE>



Loan  Agreement and  converting as much of the revolving loan under the Existing
Loan  Agreement  as shall be  necessary  thereafter  so that  the  Borrower  has
borrowed  the  aggregate  Term  Commitment  of the Lenders on the Closing  Date.
Amounts  borrowed as Term Loans which are repaid or prepaid by the  Borrower may
not be reborrowed.

                  (b) The Revolving Credit. Each Lender severally agrees, on the
terms and conditions set forth herein,  to make revolving  loans to the Borrower
(each such loan,  a  "Revolving  Loan")  from time to time on any  Business  Day
during the period from the Closing Date to the Stated  Maturity Date, in amounts
not to exceed such Lender's Pro Rata Share of the lesser of (i) the Availability
and (ii) the  Revolving  Commitment;  provided,  however,  that, if after giving
effect to any proposed  Borrowing of Revolving  Loans,  the aggregate  principal
amount of all  outstanding  Revolving  Loans,  the undrawn amount of outstanding
Letters  of Credit and any unpaid  reimbursement  obligations  in respect of the
Letters of Credit  would  exceed  either of the  Availability  or the  Revolving
Commitment of the Lenders,  then the Lenders shall not be obligated to make such
proposed  Revolving  Loans  until such  excess has been  eliminated.  Within the
limits  of  each  Lender's  Commitment,  and  subject  to the  other  terms  and
conditions  hereof,  the Borrower may borrow under this Section 2.01(b),  prepay
under Section 2.06 and reborrow under this Section 2.01(b).

                  (c)    Letters of Credit.

                  (i)  Agreement  to Cause  Issuance.  Subject  to the terms and
         conditions of this Agreement,  and in reliance upon the representations
         and  warranties of the Borrower  herein set forth,  the Agent agrees to
         take  reasonable  steps  to cause  the  Issuing  Bank to issue  for the
         account  of the  Borrower  and  to  provide  credit  support  or  other
         enhancement  in  connection  with one or more  stand-by or  documentary
         letters of credit (each such letter of credit, a "Letter of Credit" and
         such  letters of credit,  collectively,  the  "Letters  of  Credit") in
         accordance  with this Section 2.01(c) from time to time during the term
         of this Agreement.

                  (ii) Amounts;  Outside  Expiration  Date.  The Agent shall not
         have any  obligation  to take steps to cause to be issued any Letter of
         Credit at any time: (1) if the maximum  undrawn amount of the requested
         Letter  of  Credit  is  greater  than  the  Unused   Letter  of  Credit
         Subfacility  at such time;  (2) if the  maximum  undrawn  amount of the
         requested Letter of Credit and all  commissions,  fees, and charges due
         from the Borrower in  connection  with the opening  thereof  exceed the
         Availability of Borrower at such time; (3) which has an expiration date
         later than the Stated Maturity Date; or (4) if the stated amount of all
         Letters of Credit (including the one proposed to be issued)  supporting
         or issued in respect




                                       34

<PAGE>



         of any performance bonds, surety contracts or Surety Instruments of any
         kind  exceeds  $2,500,000;  provided,  however,  that,  if after giving
         effect to any such new Letter of Credit, the aggregate principal amount
         of all outstanding  Revolving  Loans, the undrawn amount of outstanding
         Letters of Credit and any unpaid  reimbursement  obligations in respect
         of the Letters of Credit  exceeds  the  Availability  or the  Revolving
         Commitment  of the  Lenders,  then the Lenders  shall refuse to make or
         otherwise restrict the issuance of new Letters of Credit as the Lenders
         determine until such excess has been eliminated.

             (iii)Other  Conditions.   In  addition  to  being  subject  to  the
         satisfaction  of  the  applicable  conditions  precedent  contained  in
         Article IV, the  obligation  of the Agent to take  reasonable  steps to
         cause to be issued any  Letter of Credit is  subject  to the  following
         conditions  precedent having been satisfied in a manner satisfactory to
         the Agent:

                  (1) The Borrower shall have delivered to the proposed  Issuing
Bank of such Letter of Credit,  at such time and in such manner as such proposed
issuer may prescribe,  an application in form and substance satisfactory to such
proposed  issuer  for the  issuance  of the  Letter  of  Credit  and such  other
documents as may be required  pursuant to the terms thereof,  the form and terms
of the  proposed  Letter of Credit shall be  satisfactory  to the Agent and such
proposed Issuing Bank; and

                  (2) as of  the  date  of  issuance,  no  order  of any  court,
arbitrator  or  Governmental  Authority  shall purport by its terms to enjoin or
restrain money center banks generally from issuing letters of credit of the type
and in the  amount  of the  proposed  Letter  of  Credit,  and no  law,  rule or
regulation  applicable  to  money  center  banks  generally  and no  request  or
directive  (whether  or not  having  the  force of law)  from  any  Governmental
Authority with jurisdiction over money center banks generally shall prohibit, or
request  that the proposed  issuer of such Letter of Credit  refrain  from,  the
issuance  of letters of credit  generally  or the  issuance  of such  Letters of
Credit.

                  (iv)   Issuance of Letters of Credit.

                  (1) Request for  Issuance.  The Borrower  shall give the Agent
and the Issuing Bank three (3) Business Days' prior written  notice,  containing
the original  signature of a  Responsible  Officer of the Borrower of Borrower's
request for the issuance of a Letter of Credit. Such notice shall be irrevocable
and shall  specify the original  face amount of the Letter of Credit  requested,
the  effective  date  (which  date shall be a Business  Day) of issuance of such
requested  Letter of  Credit,  whether  such  Letter of Credit may be drawn in a
single or in partial draws, the date on which such requested Letter of Credit is
to expire (which date shall be a Business Day), the purpose for which such




                                       35

<PAGE>



Letter of Credit is to be issued  (such Letter of Credit shall not be issued for
the purpose of backing the issuance of performance  bonds,  or to a surety or in
lieu of performance bonds unless such surety or performance bond has been issued
in accordance with Section 7.08(e) hereof), and the beneficiary of the requested
Letter of Credit.  The Borrower shall attach to such notice the proposed form of
the Letter of Credit that the Agent is requested to cause to be issued.

                  (2)    Responsibilities of the Agent; Issuance.  The Agent
                         ---------------------------------------
shall determine, as of the Business Day immediately preceding the
requested effective date of issuance of the Letter of Credit set
forth in the notice from the Borrower pursuant to Section
                                                  -------
2.01(c)(1), (i) the amount of the applicable Unused Letter of
----------
Credit Subfacility and (ii) the Availability of the Borrower as
of such date, and that such issuance will comply with Section
                                                      -------
2.01(c)(ii).  If the undrawn amount of the requested Letter of
-----------
Credit is not greater than the applicable Unused Letter of Credit
Subfacility and would not exceed the Availability of the
Borrower, and if such issuance will comply with Section
                                                -------
2.01(c)(ii), then the Agent shall take reasonable steps to cause
-----------
such issuer to issue the requested Letter of Credit on such
requested effective date of issuance.

                  (3) Notice of  Issuance.  Promptly  after the  issuance of any
Letter of Credit,  the Agent shall give notice to each Lender of the issuance of
such Letter of Credit.

                  (4)  No  Extensions  or  Amendment.  The  Agent  shall  not be
obligated  to cause any Letter of Credit to be  extended  or amended  unless the
requirements  of this Section  2.01(c)(iv)(4)  are met as though a new Letter of
Credit were being  requested  and issued.  With  respect to any Letter of Credit
which contains any "evergreen" or automatic renewal provision, each Lender shall
be deemed to have  consented to any such  extension  or renewal  unless any such
Lender shall have provided to the Agent, not less than 30 days prior to the last
date on which the  applicable  issuer  can in  accordance  with the terms of the
applicable  Letter of Credit  decline to extend or renew such  Letter of Credit,
written  notice that it declines  to consent to any such  extension  or renewal,
provided,  that if all of the  requirements of this Section  2.01(c)(iv) are met
and no Event or Event of Default  exists,  no Lender shall decline to consent to
any such extension or renewal.

                  (v)    Payments Pursuant to Letters of Credit.

                  (1)  Payment  of Letter of Credit  Obligations.  The  Borrower
agrees to  reimburse  the  Issuing  Bank for any draw under any Letter of Credit
issued for its benefit  immediately  upon  demand,  and to pay the issuer of the
Letter of Credit the amount of all other  obligations  and other amounts payable
to such issuer under or in connection with any Letter of Credit immediately when
due, irrespective of any claim, setoff, defense or other right




                                       36

<PAGE>



which the  Borrower  may have at any time against such Issuing Bank or any other
Person.

                  (2) Revolving Loans to Satisfy Reimbursement  Obligations.  In
the event that the Issuing Bank of any Letter of Credit honors a draw under such
Letter of Credit  and the  Borrower  shall not have  repaid  such  amount to the
Issuing  Bank of such Letter of Credit  pursuant to Section  2.04(c)(v)(1),  the
Agent shall,  upon receiving notice of such failure,  notify each Lender of such
failure, and each Lender shall unconditionally pay to the Agent, for the account
of such Issuing Bank, as and when provided hereinbelow,  an amount equal to such
Lender's Pro Rata Share of the amount of such payment in Dollars and in same day
funds.  If the Agent so notifies the Lenders prior to noon (Chicago time) on any
Business Day,  each Lender shall make  available to the Agent the amount of such
payment,  as provided in the immediately  preceding  sentence,  on such Business
Day.  Such  amounts  paid by the  Lenders to the Agent,  for the  benefit of the
Issuing Bank,  shall  constitute  Revolving  Loans which shall be deemed to have
been requested by the Borrower pursuant to Section 2.01(b).

                  (vi)   Participations.

                  (1) Purchase of Participations. With respect to all Letters of
Credit set forth on Schedule  2.01(c) and immediately upon issuance of any other
Letter of Credit in  accordance  with Section  2.01(c)(iv)  each Lender shall be
deemed to have  irrevocably and  unconditionally  purchased and received without
recourse or warranty,  an undivided  interest  and  participation  in the credit
support  or  enhancement  provided  through  the Agent to such  Issuing  Bank in
connection  with the issuance of such Letter of Credit,  equal to such  Lender's
Pro Rata Share of the face amount of such Letter of Credit  (including,  without
limitation,  all  obligations  of the  Borrower  with respect  thereto,  and any
security therefor or guaranty pertaining thereto).

                  (2) Sharing of Reimbursement Obligation Payments. Whenever the
Agent  receives  a  payment  from  the  Borrower  on  account  of  reimbursement
obligations  in  respect  of a Letter  of  Credit  as to  which  the  Agent  has
previously  received for the account of the Issuing Bank thereof  payment from a
Lender pursuant to Section  2.01(c)(v)(2),  the Agent shall promptly pay to such
Lender such  Lender's Pro Rata Share of such  payment from  Borrower in Dollars.
Each such  payment  shall be made by the Agent on the  Business Day on which the
Agent receives  immediately  available funds paid to such Person pursuant to the
immediately preceding sentence, if received prior to noon (Chicago time) on such
Business Day and otherwise on the next succeeding Business Day.

                  (3)    Documentation.  Upon the request of any Lender, the
Agent shall furnish to such Lender copies of any Letter of
Credit, reimbursement agreements executed in connection




                                       37

<PAGE>



therewith,   application  for  any  Letter  of  Credit  and  credit  support  or
enhancement  provided  through the Agent in connection  with the issuance of any
Letter of Credit, and such other documentation as may reasonably be requested by
such Lender.

                  (4) Obligations Irrevocable. The obligations of each Lender to
make payments to the Agent, for the benefit of the Issuing Bank, with respect to
any  Letter of Credit or with  respect  to any  credit  support  or  enhancement
provided  through  the  Agent  with  respect  to a  Letter  of  Credit,  and the
obligations  of the Borrower to make  payments to the Agent,  for the account of
the Lenders, shall be irrevocable, not subject to any qualification or exception
whatsoever, including, without limitation, any of the following circumstances:

                         (I) any lack of validity or enforceability of this
Agreement or any of the other Loan Documents;

                     (II)  the existence of any claim, setoff, defense or
other right which the Borrower may have at any time against a beneficiary  named
in a Letter of Credit or any  transferee  of any Letter of Credit (or any Person
for whom any such transferee may be acting),  any Lender, the Agent, the Issuing
Bank of such Letter of Credit,  or any other Person,  whether in connection with
this Agreement,  any Letter of Credit, the transactions  contemplated  herein or
any unrelated  transactions  (including any underlying  transactions between the
Borrower or any other Person and the beneficiary named in any Letter of Credit);

                    (III) any draft, certificate or any other document presented
under  the  Letter  of Credit  proving  to be  forged,  fraudulent,  invalid  or
insufficient in any respect or any statement  therein being untrue or inaccurate
in any respect;

                     (IV)  the surrender or impairment of any security
for the performance or observance of any of the terms of any of
the Loan Documents; or

                         (V)  the occurrence of any Default or Event of
Default.

                  (vii)  Recovery or  Avoidance  of  Payments.  In the event any
payment by or on behalf of the  Borrower  received by the Agent with  respect to
any  Letter  of  Credit  (or  any  guaranty  by the  Borrower  or  reimbursement
obligation of the Borrower relating thereto) and distributed by the Agent to the
Lenders on account of their respective  participations therein is thereafter set
aside,  avoided or recovered from the Agent in connection with any receivership,
liquidation  or bankruptcy  proceeding,  the Lenders  shall,  upon demand by the
Agent,  pay to the Agent  their  respective  Pro Rata  Shares of such amount set
aside,  avoided or recovered,  together with interest at the rate required to be
paid by the Agent upon the amount required to be repaid by it.




                                       38

<PAGE>



                  (viii) Indemnification; Exoneration.

                  (1)  Indemnification.   In  addition  to  amounts  payable  as
elsewhere  provided in this  Section  2.01(c),  the  Borrower  hereby  agrees to
protect,  indemnify,  pay and save the  Lenders,  the Issuing Bank and the Agent
harmless  from and against any and all claims,  demands,  liabilities,  damages,
losses, costs, charges and expenses (including reasonable attorneys' fees) which
any Lender or the Agent may incur or be subject to as a  consequence,  direct or
indirect, of the issuance of any Letter of Credit or the provision of any credit
support or enhancement in connection therewith.

                  (2) Assumption of Risk by the Borrower. As among the Borrower,
the Lenders,  the Issuing Bank and the Agent,  the Borrower assumes all risks of
the acts and  omissions  of, or misuse of any of the  Letters  of Credit by, the
respective  beneficiaries  of such Letters of Credit.  In furtherance and not in
limitation of the foregoing,  subject to the provisions of the  applications for
the issuance of Letters of Credit,  the Lenders,  the Issuing Bank and the Agent
shall not be responsible  for: (A) the form,  validity,  sufficiency,  accuracy,
genuineness  or  legal  effect  of  any  document  submitted  by any  Person  in
connection with the  application for and issuance of and  presentation of drafts
with  respect to any of the Letters of Credit,  even if it should prove to be in
any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (B)
the  validity or  sufficiency  of any  instrument  transferring  or assigning or
purporting  to transfer or assign any Letter of Credit or the rights or benefits
thereunder  or  proceeds  thereof,  in whole or in part,  which  may prove to be
invalid or ineffective for any reason; (C) the failure of the beneficiary of any
Letter of Credit to comply duly with  conditions  required in order to draw upon
such  Letter of  Credit;  (D)  errors,  omissions,  interruptions,  or delays in
transmission or delivery of any messages,  by mail, cable,  telegraph,  telex or
otherwise,  whether or not they be in cipher;  (E) errors in  interpretation  of
technical  terms;  (F) any loss or delay in the transmission or otherwise of any
document  required in order make a drawing  under any Letter of Credit or of the
proceeds  thereof;  (G) the  misapplication  by the beneficiary of any Letter of
Credit of the  proceeds of any drawing  under such Letter of Credit;  or (H) any
consequences  arising from causes beyond the control of the Lenders, the Issuing
Bank or the Agent, including,  without limitation,  any act or omission, whether
rightful or wrongful,  of any present or future de jure or de facto Governmental
Authority.  None of the foregoing shall affect, impair or prevent the vesting of
any rights or powers of the Agent,  the  Issuing  Bank or any Lender  under this
Section 2.01(c).

                  (ix)   Outstanding Letters of Credit at Closing.
Schedule 2.01(c) sets forth a complete list, as of the Closing
Date, of all outstanding Letters of Credit under the Existing




                                       39

<PAGE>



Loan Agreement  which are continuing as Letters of Credit  hereunder,  including
the number of such Letters of Credit, the beneficiary, the stated amount and the
expiry date thereof.

         2.02 Loan Accounts;  Notes.  (a) The Loans made by each Lender shall be
evidenced by one or more loan  accounts or records  maintained by such Lender in
the ordinary course of business.  The loan accounts or records maintained by the
Agent and each Lender shall be conclusive absent manifest error of the amount of
the Loans made by the Lenders to the  Borrower  and the  interest  and  payments
thereon.  Any failure so to record or any error in doing so shall not,  however,
limit or otherwise  affect the  obligation of the Borrower  hereunder to pay any
amount owing with respect to the Loans.

                  (b) The Loans made by the  Lenders  will be  evidenced  by the
Revolving  Loan Note and the Term Loan Note in  addition to loan  accounts.  The
Agent,  on behalf of the Lenders,  is irrevocably  authorized by the Borrower to
endorse the Note(s) and the Agent's record shall be conclusive  absent  manifest
error; provided,  however, that the failure of the Agent to make, or an error in
making, a notation thereon with respect to any Loan shall not limit or otherwise
affect the  obligations of the Borrower  hereunder or under any such Note to the
Agent or any Lender.

         2.03 Procedure for Borrowing. (a) Each Borrowing shall be made upon the
Borrower's  irrevocable  written notice  delivered to the Agent in the form of a
Notice of Borrowing  (which  notice must be received by the Agent prior to 11:00
a.m.  (Chicago  time))  (i)  three  (3)  Business  Days  prior to the  requested
Borrowing  Date, in the case of Offshore  Rate Loans,  and (ii) one (1) Business
Day prior to the  requested  Borrowing  Date,  in the case of Base  Rate  Loans,
specifying:

                              (A) the amount of the Borrowing, which shall be in
                  an aggregate  minimum amount of (i) $5,000,000 or any multiple
                  of $1,000,000  in excess  thereof in the case of Offshore Rate
                  Loans and (ii)  $1,000,000  or any  multiple  of  $500,000  in
                  excess thereof in the case of Base Rate Loans;

                              (B)  the requested Borrowing Date, which shall
                  be a Business Day;

                              (C)  the Type of Loans comprising the Borrowing;
                  and

                              (D) if an Offshore Rate Loan,  the duration of the
                  Interest  Period  applicable  to such Loans  included  in such
                  notice.  If the  Notice  of  Borrowing  fails to  specify  the
                  duration of the Interest Period for any




                                       40

<PAGE>



                  Borrowing  comprised  of Offshore  Rate Loans,  such  Interest
                  Period shall be three months.

provided,  however, that with respect to the Borrowing to be made on the Closing
Date,  the Notice of  Borrowing  shall be  delivered to the Agent not later than
12:00 noon (Chicago time) on the Closing Date and such Borrowing will consist of
Base Rate Loans only;  and further  provided  that if so requested by the Agent,
all Borrowings during the first sixty (60) days following the Closing Date shall
have the same  Interest  Period  and shall be Base Rate Loans or  Offshore  Rate
Loans for Interest Periods no longer than one month.

                  (b) The Agent will promptly  notify each Lender of its receipt
of any Notice of Borrowing  and of the amount of such Lender's Pro Rata Share of
that Borrowing.

                  (c) Each  Lender will make the amount of its Pro Rata Share of
each  Borrowing  available  to the Agent for the account of the  Borrower at the
Agent's  Payment  Office by 11:00  a.m.  (Chicago  time) on the  Borrowing  Date
requested  by the  Borrower in funds  immediately  available  to the Agent.  The
proceeds of all such Loans will then be made  available  to the  Borrower by the
Agent by wire transfer in accordance with written  instructions  provided to the
Agent by the Borrower of like funds as received by the Agent.

                  (d) After  giving  effect to any  Borrowing,  unless the Agent
shall otherwise consent,  there may not be more than five (5) different Interest
Periods in effect.

         2.04  Conversion and Continuation Elections. (a)  The
Borrower may, upon irrevocable written notice to the Agent in
accordance with Section 2.04(b):

                            (i) elect,  as of any  Business  Day, in the case of
         Base  Rate  Loans,  or as of the  last day of the  applicable  Interest
         Period,  in the case of any other Type of Loans,  to  convert  any such
         Loans (or any part  thereof in an amount not less than  $5,000,000,  or
         that is in an integral  multiple of $1,000,000 in excess  thereof) into
         Offshore Rate Loans; or

                           (ii)  elect,  as of the  last  day of the  applicable
         Interest Period, to continue any Loans having Interest Periods expiring
         on such day (or any part thereof in an amount not less than $5,000,000,
         or that is in an integral  multiple of $1,000,000 in excess thereof) as
         Offshore Rate Loans with an Interest Period of the same duration;

provided,  that if at any time the  aggregate  amount of Offshore  Rate Loans in
respect of any Borrowing is reduced,  by payment,  prepayment,  or conversion of
part  thereof  to be less  than  $5,000,000,  such  Offshore  Rate  Loans  shall
automatically convert into Base Rate Loans, and on and after such date the right
of the




                                       41

<PAGE>



Borrower to continue  such Loans as, and convert such Loans into,  Offshore Rate
Loans shall terminate.

                  (b)   The    Borrower    shall    deliver    a    Notice    of
Conversion/Continuation  to be  received  by the Agent not later than 11:00 a.m.
(Chicago   time)  at  least  (i)  three   Business   Days  in   advance  of  the
Conversion/Continuation Date, if the Loans are to be converted into or continued
as  Offshore  Rate  Loans;   and  (ii)  one  Business  Day  in  advance  of  the
Conversion/Continuation  Date,  if the Loans are to be converted  into Base Rate
Loans, specifying:

                              (A)  the proposed Conversion/Continuation Date;

                              (B)  the aggregate amount of Loans to be
                  converted or continued;

                              (C)  the Type of Loans resulting from the
                  proposed conversion or continuation; and

                              (D)  other  than in the case of  conversions  into
                  Base  Rate  Loans,  the  duration  of the  requested  Interest
                  Period.

                  (c) If upon the expiration of any Interest  Period  applicable
to Offshore Rate Loans,  the Borrower has failed to select timely a new Interest
Period to be  applicable  to such Offshore Rate Loans or if any Default or Event
of Default then exists,  the Borrower shall be deemed to have elected to convert
such  Offshore  Rate Loans into Base Rate Loans  effective as of the  expiration
date of such Interest Period.

                  (d) The Agent will promptly  notify each Lender of its receipt
of a Notice of  Conversion/Continuation,  or, if no timely notice is provided by
the Borrower,  the Agent will promptly  notify each Lender of the details of any
automatic  conversion.  All conversions and continuations  shall be made ratably
according  to the  respective  outstanding  principal  amounts of the Loans with
respect to which the notice was given held by each Lender.

                  (e) Unless the Majority Lenders otherwise consent,  during the
existence of a Default or Event of Default, the Borrower may not elect to have a
Loan funded as, converted into or continued as an Offshore Rate Loan.

                  (f) After giving effect to any conversion or  continuation  of
Loans, unless the Agent shall otherwise consent, there may not be more than five
(5) different Interest Periods in effect.

        2.05  Voluntary Termination or Reduction of Commitments.  The
Borrower may, upon not less than four (4) Business Days' prior
notice to the Agent, terminate the Term Commitments, or




                                       42

<PAGE>



permanently  reduce the Revolving  Commitments by an aggregate minimum amount of
$5,000,000 or any multiple of $1,000,000 in excess thereof; unless, after giving
effect  thereto  and to any  prepayments  of Loans  made on the  effective  date
thereof,  the  then-outstanding  principal  amount of the Loans would exceed the
amount of the combined  Commitments  then in effect.  Once reduced in accordance
with this Section 2.05, the Commitments  may not be increased.  Any reduction of
the Commitments shall be applied to each Lender according to its Pro Rata Share.
All accrued  Commitment  Fees to, but not including  the  effective  date of any
reduction or termination of Commitments,  shall be paid on the effective date of
such reduction or termination.

        2.06 Optional Prepayments. Subject to Section 3.04, the Borrower may, at
any time or from  time to  time,  upon not less  than  four (4)  Business  Days'
irrevocable notice to the Agent (or on one (1) Business Days' irrevocable notice
to the Agent with respect to Base Rate Loans  outstanding  as Revolving  Loans),
ratably  prepay Loans in whole or in part,  in minimum  amounts of $5,000,000 or
any multiple of $1,000,000 in excess  thereof.  Such notice of prepayment  shall
specify  the date and amount of such  prepayment  and the Type(s) of Loans to be
prepaid.  The Agent will promptly  notify each Lender of its receipt of any such
notice,  and of such Lender's Pro Rata Share of such prepayment.  If such notice
is given by the  Borrower,  the  Borrower  shall  make such  prepayment  and the
payment  amount  specified  in such notice  shall be due and payable on the date
specified  therein,  together  with  accrued  interest  to each such date on the
amount  prepaid and any amounts  required  pursuant  to Section  3.04.  Optional
prepayments of the Term Loan shall be made without  prepayment  penalties  other
than any amounts owing  pursuant to Section 3.04 and shall be applied in inverse
order of maturity.

        2.07  Mandatory Prepayments of Loans; Mandatory Commitment
Reductions.

                (a)  Asset   Dispositions.   If  the  Borrower  or  any  of  its
Subsidiaries (other than MK Gain) shall at any time or from time to time make or
agree to make a  Disposition,  or shall  suffer  an Event of Loss,  then (i) the
Borrower shall promptly  notify the Agent of such proposed  Disposition or Event
of Loss  (including  the amount of the  estimated Net Proceeds to be received by
the Borrower or such Subsidiary in respect  thereof) and (ii) promptly upon, and
in no event later than 10 days after, receipt by the Borrower or such Subsidiary
of the Net Proceeds of such  Disposition  or Event of Loss,  the Borrower  shall
prepay the Term Loan in an aggregate  amount equal to such Net Proceeds,  in the
inverse  order  of  their  stated  maturity;  provided,  however,  that  no such
prepayment shall be required with respect to (A) equipment sales in the ordinary
course of business of obsolete and  non-useable  equipment to the extent the Net
Proceeds of such sale are  reinvested  in equipment  used in the business of the
Borrower or any such Subsidiary within 90 days of receipt




                                       43

<PAGE>



thereof,  or (B) the sale of the  Borrower's  facility  located in  Mountaintop,
Pennsylvania  or  Touchstone's  facility  located in Jackson,  Tennessee  to the
extent the Net  Proceeds of such sale (I) received in cash are  reinvested  in a
new facility for Touchstone and  construction for such facility begins within 12
months from the date of such sale and is  completed  with  reasonable  diligence
thereafter and (II) received in the form of a promissory  note of up to $500,000
in principal  amount are  reinvested  in  equipment  used in the business of the
Borrower or any Guarantor  within 90 days of receipt of the cash payments  under
or in respect of such promissory note, or (C) the sale of equipment resulting in
Net Proceeds of up to  $2,000,000  in  aggregate  amount by Motor Coils from its
machine shop in Braddock, Pennsylvania and identified on Schedule 2.07 hereto to
the extent the Net Proceeds of such sales are  reinvested  in equipment  used by
Motor Coils on or before December 31, 1997.

                (b)  Subordinated   Debt  Issuance.   If  the  Borrower  or  any
Subsidiary (other than MK Gain) shall, at any time, issue any Indebtedness after
the Closing Date which is subordinated  in right of payment to the  Obligations,
is  permitted  under  Section  7.05 and is  otherwise  on terms  and  conditions
including,   without   limitation,   subordination  and  standstill   provisions
acceptable to the Agent in its sole discretion, then the Borrower shall promptly
notify the Agent of the estimated  Net Issuance  Proceeds of such issuance to be
received by the  Borrower in respect  thereof.  Promptly  upon,  and in no event
later than 1 day after, receipt by the Borrower of Net Issuance Proceeds of such
issuance,  the Borrower shall prepay the Term Loan in an aggregate  amount equal
to the amount of such Net Issuance Proceeds, in the inverse order of maturity.

                (c) Overadvances.  In the event that the outstanding  balance of
the Revolving  Loans shall,  at any time,  exceed the lesser at such time of (i)
the Revolving  Commitment and (ii)  Availability less in both the case of clause
(i) and (ii)  above the  outstanding  amount of the  Letters  of Credit  and the
unpaid  reimbursement  obligations  in respect of drawn  letters of credit,  the
Borrower  shall  immediately  repay the  Revolving  Loans in the  amount of such
excess.

                (d)      General.  Any prepayments pursuant to this Section
2.07 shall be applied first to any Base Rate Loans then
outstanding and then to Offshore Rate Loans with the shortest
Interest Periods remaining; provided, however, that if the amount
of Base Rate Loans then outstanding is not sufficient to satisfy
the entire prepayment requirement, the Borrower may, at its
option, place any amounts which it would otherwise be required to
use to prepay Offshore Rate Loans on a day other than the last
day of the Interest Period therefor in an interest-bearing
account pledged to the Agent for the benefit of the Lenders until
the end of such Interest Period at which time such pledged
amounts will be applied to prepay such Offshore Rate Loans.  The




                                       44

<PAGE>



Borrower  shall pay,  together  with each  prepayment  under this Section  2.07,
accrued  interest on the amount  prepaid and any  amounts  required  pursuant to
Section 3.04.

                (e)  Reduction of  Commitment.  Upon the making of any mandatory
prepayment  under this  Section  2.07  (other  than  under  paragraph  (c),  the
Commitment of each Lender shall  automatically  be reduced by an amount equal to
such Lender's ratable share of the aggregate of principal  repaid,  effective as
of the  earlier  of the date that such  prepayment  is made or the date by which
such prepayment is due and payable  hereunder.  All accrued  Commitment Fees to,
but  not  including  the  effective  date of any  reduction  or  termination  of
Commitments,  shall  be  paid  on  the  effective  date  of  such  reduction  or
termination.

        2.08  Repayment.

                (a)      The Term Credit. The Borrower shall repay the Term
Loan on each date as follows (each a "Principal Payment Date"):


                                                                Quarterly Term
                                                                Loan Repayment
                   Payment Date                                     Amount
                   ------------                                     ------
each of June 30, 1997,                                $625,000 each
September 30, 1997,
December 31, 1997, and
March 31, 1998
each of June 30, 1998,                              $1,250,000 each
September 30, 1998,
December 31, 1998 and
March 31, 1999
each of June 30, 1999,                              $1,250,000 each
September 30, 1999,
December 31, 1999 and
March 31, 2000
each of June 30, 2000,                              $1,875,000 each
September 30, 2000, and
December 31, 2000
Stated Maturity Date                                $1,875,000 or the
                                                    then remaining
                                                    principal amount of
                                                    the Term Loan


                (b)      The Revolving Credit.  The Borrower shall repay to
the Lenders in full on the Stated Maturity Date the aggregate
principal amount of Revolving Loans outstanding on such date.





                                       45

<PAGE>



        2.09  Interest.  (a) Each Loan shall bear  interest  on the  outstanding
principal amount thereof from the applicable  Borrowing Date at a rate per annum
equal to the Offshore  Rate or the Base Rate, as the case may be (and subject to
the  Borrower's  right to convert to other Types of Loans under  Section  2.04),
plus the Applicable Margin in effect for such Type of Loan from time to time.

                (b)  Interest  on each  Loan  shall be paid in  arrears  on each
Interest Payment Date. Interest shall also be paid on the date of any prepayment
of Loans under  Section 2.06 or 2.07 for the portion of the Loans so prepaid and
upon payment (including prepayment) in full thereof and, during the existence of
any Event of Default, interest shall be paid on demand of the Agent, which shall
be made at the request or with the consent of the Majority Lenders.

                (c)  Notwithstanding  subsection (a) of this Section 2.09, while
any Event of Default exists and after  acceleration  of the maturity date of the
Loans,  the  Borrower  shall pay  interest  (after  as well as  before  entry of
judgment  thereon to the extent permitted by law) on the principal amount of all
outstanding  Loans,  at a rate per annum  which is  determined  by adding 2% per
annum to the  otherwise  applicable  interest  rate in  effect  for such  Loans;
provided,  however,  that, on and after the  expiration  of any Interest  Period
applicable  to any Offshore Rate Loan  outstanding  on the date of occurrence of
such Event of Default or acceleration,  the principal amount of such Loan shall,
during the  continuation  of such Event of Default or after  acceleration,  bear
interest as a Base Rate Loan at a rate per annum equal to the Base Rate plus (i)
the  Applicable  Margin in effect  for such  Loan  plus (ii) an  additional  two
percent (2%).

                (d)  Anything  herein  to  the  contrary  notwithstanding,   the
obligations  of the  Borrower  to any Lender  hereunder  shall be subject to the
limitation  that payments of interest shall not be required,  for any period for
which  interest  is computed  hereunder,  to the extent (but only to the extent)
that  contracting for or receiving such payment by such Lender would be contrary
to the provisions of any law applicable to such Lender limiting the highest rate
of interest  that may be lawfully  contracted  for,  charged or received by such
Lender,  and in such event the  Borrower  shall pay such Lender  interest at the
highest rate permitted by applicable law.

        2.10 Fees.  (a)  Arrangement,  Agency Fees.  The  Borrower  shall pay an
arrangement fee to the Arranger for the Arranger's own account, and shall pay an
agency fee to the Agent for the Agent's own  account,  as required by the letter
agreement  ("Fee  Letter")  between the Borrower,  the Arranger BofA and Bank of
America Illinois dated December 30, 1996, as amended from time to time.





                                       46

<PAGE>



                (b) Commitment Fees. The Borrower shall pay to the Agent for the
account of each Lender a commitment  fee (the  "Commitment  Fee") on the average
daily  unused  portion of such  Lender's  Revolving  Commitment,  computed  on a
quarterly basis in arrears on the last Business Day of each calendar  quarter as
an  amount  equal to the  average  daily  non-utilization  for that  quarter  as
calculated  by the Agent on the Revolving  Commitment  multiplied by a per annum
rate equal to the Applicable  Margin then in effect for the Commitment Fee. Such
Commitment  Fee shall accrue from the Closing Date to the Stated  Maturity  Date
and shall be due and payable  quarterly  in arrears on the last  Business Day of
each quarter commencing on March 31, 1997 through the Stated Maturity Date, with
the final  payment to be made on the Stated  Maturity  Date;  provided  that, in
connection  with any reduction or termination of Commitments  under Section 2.05
or Section 2.07, the accrued  Commitment Fee calculated for the period ending on
such date shall also be paid on the date of such reduction or termination,  with
the following quarterly payment being calculated on the basis of the period from
such  reduction  or  termination  date  to  such  quarterly  payment  date.  The
Commitment Fees provided in this subsection  shall accrue at all times after the
above-mentioned  commencement  date,  including  at any time during which one or
more conditions in Article IV are not met.

                (c)      Compensation for Letters of Credit.

                (1) Letter of Credit Fees.  Borrower agrees to pay to the Agent,
for the ratable account of the Lenders,  (i) for each stand-by Letter of Credit,
a fee  calculated  at a per annum  rate  equal to the  Applicable  Margin on the
undrawn amount of each such stand-by  Letter of Credit issued for the Borrower's
account and (ii) for each  commercial  or  documentary  Letter of Credit,  a fee
calculated at a one-time flat rate equal to the Applicable  Margin multiplied by
the stated amount of each such commercial or documentary Letter of Credit issued
for the Borrower's  account.  The Letter of Credit fees for stand-by  Letters of
Credit  shall be payable in arrears on the last  Business  Day of each  calendar
quarter  during which each such Letter of Credit  remains  outstanding,  and the
Letter of Credit fees for all commercial or documentary Letters of Credit issued
during each calendar quarter will be payable in arrears on the last Business Day
of each calendar quarter and at maturity.  The Letter of Credit Fee for stand-by
Letters  of Credit  shall be  computed  on the  basis of a 360-day  year for the
actual number of days elapsed.

                (2)  Issuer  Fees and  Charges.  The  Borrower  shall pay to the
Issuing  Bank of any Letter of Credit  issued for the benefit of or on behalf of
the  Borrower  or its  Borrowing  Subsidiaries  solely for such  Issuing  Bank's
account  (i) a  one-time  fronting  fee of 1/8 of 1% of the face  amount of such
Letter of Credit payable upon issuance;  provided, however, that BofA will if it
is the Issuing Bank with respect to any Letter of Credit set forth




                                       47

<PAGE>



on  Schedule  2.01(c)  attempt in good faith to obtain  any  necessary  internal
approvals  or satisfy  any  regulatory  concerns  to permit any such  Letters of
Credit  which have been  issued by BofA under the  Existing  Loan  Agreement  to
continue as outstanding Letters of Credit under this Agreement without requiring
a  reissuance  of such  Letters  of Credit  which  would  necessitate  paying or
otherwise require the payment of an additional fronting fee, and (ii) such other
standard  charges as are  assessed  by such  Issuing  Bank for letters of credit
issued by it, including,  without limitation, its standard fees for documenting,
administering,  amending, renewing, negotiating, paying and canceling letters of
credit and all other  fees  associated  with  issuing  or  servicing  letters of
credit, as and when assessed.

        2.11 Computation of Fees and Interest.  (a) All computations of interest
for Base Rate Loans when the Base Rate is determined by BofA's  "reference rate"
shall be made on the basis of a year of 365 or 366 days, as the case may be, and
actual days elapsed.  All other  computations of fees and interest shall be made
on the basis of a 360-day  year and actual days elapsed  (which  results in more
interest being paid than if computed on the basis of a 365-day  year).  Interest
and fees shall accrue during each period during which  interest or such fees are
computed  from and including the first day thereof to and excluding the last day
thereof.

                (b)      Each determination of an interest rate by the Agent
shall be conclusive and binding on the Borrower and the Lenders
in the absence of manifest error.

        2.12  Payments  by the  Borrower.  (a)  All  payments  to be made by the
Borrower shall be made without set-off,  recoupment or  counterclaim.  Except as
otherwise  expressly provided herein, all payments by the Borrower shall be made
to the Agent for the account of the Lenders at the Agent's Payment  Office,  and
shall be made in Dollars and in immediately available funds, no later than 12:00
noon.  (Chicago  time) on the date  specified  herein.  The Agent will  promptly
distribute  to each  Lender  its Pro Rata  Share (or other  applicable  share as
expressly  provided  herein)  of such  payment in like  funds as  received.  Any
payment  received  by the Agent  later than 12:00 noon  (Chicago  time) shall be
deemed to have been  received on the following  Business Day and any  applicable
interest or fee shall continue to accrue.

                (b) Subject to the  provisions  set forth in the  definition  of
"Interest  Period"  herein,  whenever  any  payment is due on a day other than a
Business Day, such payment shall be made on the following Business Day, and such
extension of time shall in such case be included in the  computation of interest
or fees, as the case may be.

                (c)      Unless the Agent receives notice from the Borrower
prior to the date on which any payment is due to the Lenders that




                                       48

<PAGE>



the Borrower will not make such payment in full as and when required,  the Agent
may assume that the  Borrower has made such payment in full to the Agent on such
date in  immediately  available  funds and the  Agent  may (but  shall not be so
required),  in reliance upon such assumption,  distribute to each Lender on such
due date an  amount  equal to the  amount  then due such  Lender.  If and to the
extent the Borrower has not made such payment in full to the Agent,  each Lender
shall  repay to the Agent on demand  such  amount  distributed  to such  Lender,
together with  interest  thereon at the Federal Funds Rate for each day from the
date such amount is distributed to such Lender until the date repaid.

        2.13  Payments by the Lenders to the Agent.

                (a) Unless the Agent  receives  notice from a Lender on or prior
to the Closing Date or, with respect to any Borrowing after the Closing Date, at
least one (1) Business Day prior to the date of such Borrowing, that such Lender
will not make  available  as and when  required  hereunder  to the Agent for the
account  of the  Borrower  the  amount of that  Lender's  Pro Rata  Share of the
Borrowing,  the Agent may assume that each Lender has made such amount available
to the Agent in immediately  available funds on the Borrowing Date and the Agent
may (but shall not be so  required),  in  reliance  upon such  assumption,  make
available to the  Borrower on such date a  corresponding  amount.  If and to the
extent any Lender shall not have made its full amount  available to the Agent in
immediately  available  funds  and the  Agent  in such  circumstances  has  made
available  to the Borrower  such  amount,  that Lender shall on the Business Day
following such Borrowing Date make such amount available to the Agent,  together
with  interest at the  Federal  Funds Rate for each day during  such  period.  A
notice of the Agent  submitted to any Lender with respect to amounts owing under
this  subsection (a) shall be conclusive,  absent manifest error. If such amount
is so made available,  such payment to the Agent shall  constitute such Lender's
Loan on the date of Borrowing for all purposes of this Agreement. If such amount
is not made  available to the Agent on the Business Day  following the Borrowing
Date,  the Agent will  notify the  Borrower  of such  failure to fund and,  upon
demand by the Agent,  the  Borrower  shall pay such  amount to the Agent for the
Agent's  account,  together with interest thereon for each day elapsed since the
date  of  such  Borrowing,  at a rate  per  annum  equal  to the  interest  rate
applicable at the time to the Loans comprising such Borrowing.

                (b) The failure of any Lender to make any Loan on any  Borrowing
Date shall not relieve any other  Lender of any  obligation  hereunder to make a
Loan on such Borrowing  Date, but no Lender shall be responsible for the failure
of any  other  Lender  to make the Loan to be made by such  other  Lender on any
Borrowing Date.





                                       49

<PAGE>



        2.14  Sharing of Payments,  Etc.  If,  other than as expressly  provided
elsewhere  herein,  any Lender shall obtain on account of the Obligations in its
favor any payment (whether voluntary,  involuntary,  through the exercise of any
right of set-off,  or  otherwise) in excess of its ratable share (or other share
contemplated  hereunder),  such Lender shall immediately (a) notify the Agent of
such fact,  and (b) purchase from the other Lenders such  participations  in the
Loans  made by them as shall be  necessary  to cause such  purchasing  Lender to
share the excess payment pro rata with each of them; provided,  however, that if
all or any  portion of such  excess  payment is  thereafter  recovered  from the
purchasing  Lender,  such  purchase  shall to that extent be rescinded  and each
other  Lender  shall  repay to the  purchasing  Lender the  purchase  price paid
therefor,  together with an amount equal to such paying  Lender's  ratable share
(according to the proportion of (i) the amount of such paying Lender's  required
repayment to (ii) the total amount so recovered from the  purchasing  Lender) of
any interest or other amount paid or payable by the purchasing Lender in respect
of the  total  amount so  recovered.  The  Borrower  agrees  that any  Lender so
purchasing  a  participation  from  another  Lender may,  to the fullest  extent
permitted  by law,  exercise all its rights of payment  (including  the right of
set-off,  but subject to Section  10.10) with respect to such  participation  as
fully as if such Lender were the direct  creditor of the  Borrower in the amount
of such  participation.  The Agent will keep records  (which shall be conclusive
and binding in the absence of manifest error) of participations  purchased under
this  Section  and will in each  case  notify  the  Lenders  following  any such
purchases or repayments.

        2.15  Security  and  Guaranty.  All  Obligations  of the  Borrower,  the
Guarantors and the Borrowing  Subsidiaries  under this Agreement,  the Notes and
all other Loan  Documents  shall be secured in  accordance  with the  Collateral
Documents.


                                   ARTICLE III

                     TAXES, YIELD PROTECTION AND ILLEGALITY

        3.01 Taxes.  (a) Any and all  payments by the Borrower to each Lender or
the Agent under this  Agreement and any other Loan  Document  shall be made free
and clear of, and without  deduction or withholding  for any Taxes. In addition,
the Borrower shall pay all Other Taxes.

                (b) The Borrower  agrees to  indemnify  and hold  harmless  each
Lender and the Agent for the full amount of Taxes or Other Taxes  (including any
Taxes or Other Taxes imposed by any  jurisdiction  on amounts payable under this
Section) paid by the Lender or the Agent and any liability (including penalties,
interest,  additions  to tax and  expenses)  arising  therefrom  or with respect
thereto, whether or not such Taxes or Other Taxes




                                       50

<PAGE>



were correctly or legally asserted.  Payment under this indemnification shall be
made within 30 days after the date the Lender or the Agent makes written  demand
therefor.

                (c) If the  Borrower  shall  be  required  by law to  deduct  or
withhold  any  Taxes  or  Other  Taxes  from or in  respect  of any sum  payable
hereunder to any Lender or the Agent, then:

                                (i)  the sum payable shall be increased as
        necessary so that after making all required  deductions and withholdings
        (including  deductions and  withholdings  applicable to additional  sums
        payable under this  Section)  such Lender or the Agent,  as the case may
        be,  receives an amount  equal to the sum it would have  received had no
        such deductions or withholdings been made;

                               (ii)  the Borrower shall make such deductions and
        withholdings;

                              (iii)  the Borrower shall pay the full amount
        deducted or withheld to the relevant taxing authority or
        other authority in accordance with applicable law; and

                               (iv)  the Borrower shall also pay to each Lender
        or the Agent for the  account of such  Lender,  at the time  interest is
        paid, all additional  amounts which the respective  Lender  specifies as
        necessary to preserve the after-tax yield the Lender would have received
        if such Taxes or Other Taxes had not been imposed.

                (d) Within 30 days after the date of any payment by the Borrower
of Taxes or Other Taxes,  the Borrower shall furnish the Agent the original or a
certified copy of a receipt  evidencing  payment  thereof,  or other evidence of
payment satisfactory to the Agent.

                (e) If the Borrower is required to pay additional amounts to any
Lender or the Agent pursuant to subsection (c) of this Section, then such Lender
shall use reasonable efforts (consistent with legal and regulatory restrictions)
to change the  jurisdiction  of its Lending  Office so as to eliminate  any such
additional  payment by the Borrower which may thereafter  accrue, if such change
in the judgment of such Lender is not otherwise disadvantageous to such Lender.

                (f) Nothing in this Section 3.01 shall override the terms of any
Specified Swap Contract relating to the subject matter hereof.

        3.02  Illegality. (a)  If any Lender determines that the
introduction of any Requirement of Law, or any change in any
Requirement of Law, or in the interpretation or administration of
any Requirement of Law, has made it unlawful, or that any central




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<PAGE>



bank or other Governmental  Authority has asserted that it is unlawful,  for any
Lender or its applicable  Lending  Office to make Offshore Rate Loans,  then, on
notice thereof by the Lender to the Borrower  through the Agent,  any obligation
of that Lender to make Offshore  Rate Loans shall be suspended  until the Lender
notifies the Agent and the Borrower that the  circumstances  giving rise to such
determination no longer exist.

                (b) If a Lender  determines  that it is unlawful to maintain any
Offshore Rate Loan, the Borrower shall,  upon its receipt of notice of such fact
and demand  from such  Lender  (with a copy to the  Agent),  prepay in full such
Offshore  Rate Loans of that Lender then  outstanding,  together  with  interest
accrued thereon and amounts required under Section 3.04,  either on the last day
of the Interest Period thereof,  if the Lender may lawfully continue to maintain
such  Offshore  Rate Loans to such day,  or  immediately,  if the Lender may not
lawfully  continue to  maintain  such  Offshore  Rate Loan.  If the  Borrower is
required  to so prepay any  Offshore  Rate  Loan,  then  concurrently  with such
prepayment, the Borrower shall borrow from the affected Lender, in the amount of
such repayment, a Base Rate Loan.

                (c) If the obligation of any Lender to make or maintain Offshore
Rate Loans has been so  terminated  or  suspended,  the Borrower  may elect,  by
giving  notice to the  Lender  through  the Agent  that all  Loans  which  would
otherwise  be made by the Lender as Offshore  Rate Loans  shall be instead  Base
Rate Loans.

                (d) Before  giving any notice to the Agent  under this  Section,
the affected Lender shall  designate a different  Lending Office with respect to
its Offshore Rate Loans if such  designation will avoid the need for giving such
notice or making  such demand and will not,  in the  judgment of the Lender,  be
illegal or otherwise disadvantageous to the Lender.

        3.03  Increased  Costs  and  Reduction  of  Return.  (a) If  any  Lender
determines that, due to either (i) the introduction of or any change (other than
any change by way of imposition of or increase in reserve requirements  included
in the  calculation  of the Offshore Rate or in respect of the  assessment  rate
payable  by any  Lender to the FDIC for  insuring  U.S.  deposits)  in or in the
interpretation  of any law or regulation  or (ii) the  compliance by that Lender
with any  guideline  or  request  from any  central  bank or other  Governmental
Authority  (whether or not having the force of law), there shall be any increase
in the cost to such Lender of agreeing to make or making, funding or maintaining
any Offshore Rate Loans,  then the Borrower  shall be liable for, and shall from
time to time,  upon demand (with a copy of such demand to be sent to the Agent),
pay to the Agent for the  account  of such  Lender,  additional  amounts  as are
sufficient to compensate such Lender for such increased costs.





                                       52

<PAGE>



                (b)  If  any  Lender   shall  have   determined   that  (i)  the
introduction of any Capital Adequacy Regulation,  (ii) any change in any Capital
Adequacy Regulation, (iii) any change in the interpretation or administration of
any  Capital  Adequacy  Regulation  by any  central  bank or other  Governmental
Authority charged with the  interpretation or  administration  thereof,  or (iv)
compliance by the Lender (or its Lending Office) or any corporation  controlling
the Lender with any Capital  Adequacy  Regulation,  affects or would  affect the
amount of capital  required or expected  to be  maintained  by the Lender or any
corporation  controlling the Lender and (taking into consideration such Lender's
or such  corporation's  policies  with  respect  to  capital  adequacy  and such
Lender's  desired return on capital)  determines that the amount of such capital
is increased as a consequence of its Commitments,  loans, credits or obligations
under this Agreement,  then, upon demand of such Lender to the Borrower  through
the Agent, the Borrower shall pay to the Lender,  from time to time as specified
by the Lender,  additional  amounts sufficient to compensate the Lender for such
increase.

        3.04 Funding  Losses.  The Borrower shall reimburse each Lender and hold
each Lender  harmless  from any loss or expense  which the Lender may sustain or
incur as a consequence of:

                (a)      the failure of the Borrower to make on a timely
basis any payment of principal of any Offshore Rate Loan;

                (b) the failure of the Borrower to borrow, continue or convert a
Loan  after the  Borrower  has  given  (or is deemed to have  given) a Notice of
Borrowing or a Notice of Conversion/ Continuation;

                (c)      the failure of the Borrower to make any prepayment
in accordance with any notice delivered under Section 2.06;

                (d) the prepayment (including pursuant to Section 2.07) or other
payment (including after acceleration thereof) of an Offshore Rate Loan on a day
that is not the last day of the relevant Interest Period; or

                (e)      the automatic conversion under Section 2.04 of any
Offshore Rate Loan to a Base Rate Loan on a day that is not the
last day of the relevant Interest Period;

including any such loss or expense  arising from the liquidation or reemployment
of funds obtained by it to maintain its Offshore Rate Loans or from fees payable
to terminate the deposits from which such funds were  obtained.  For purposes of
calculating  amounts  payable by the Borrower to the Lenders  under this Section
3.04 and under  Section  3.03(a),  each Offshore Rate Loan made by a Lender (and
each  related  reserve,   special  deposit  or  similar  requirement)  shall  be
conclusively  deemed to have been  funded at the LIBOR used in  determining  the
Offshore Rate for such Offshore




                                       53

<PAGE>



Rate Loan by a matching  deposit or other borrowing in the interbank  eurodollar
market for a comparable amount and for a comparable period,  whether or not such
Offshore Rate Loan is in fact so funded.

        3.05 Inability to Determine  Rates. If the Agent determines that for any
reason  adequate and reasonable  means do not exist for determining the Offshore
Rate for any requested  Interest Period with respect to a proposed Offshore Rate
Loan or that the Offshore Rate  applicable  pursuant to Section  2.09(a) for any
requested Interest Period with respect to a proposed Offshore Rate Loan does not
adequately and fairly reflect the cost to such Lenders of funding such Loan, the
Agent will  promptly so notify the  Borrower and each  Lender.  Thereafter,  the
obligation  of the Lenders to make or  maintain  Offshore  Rate Loans  hereunder
shall be suspended until the Agent revokes such notice in writing.  Upon receipt
of such  notice,  the  Borrower  may revoke any Notice of Borrowing or Notice of
Conversion/Continuation  then  submitted by it. If the Borrower  does not revoke
such Notice,  the Lenders shall make, convert or continue the Loans, as proposed
by the Borrower,  in the amount specified in the applicable  notice submitted by
the Borrower,  but such Loans shall be made, converted or continued as Base Rate
Loans instead of Offshore Rate Loans.

        3.06  Reserves on Offshore  Rate Loans.  The Borrower  shall pay to each
Lender, as long as such Lender shall be required under regulations of the FRB to
maintain  reserves  with  respect  to  liabilities  or assets  consisting  of or
including  Eurocurrency  funds or  deposits  (currently  known as  "Eurocurrency
liabilities"),  additional costs on the unpaid principal amount of each Offshore
Rate Loan equal to the actual costs of such  reserves  allocated to such Loan by
the Lender (as determined by the Lender in good faith, which determination shall
be conclusive),  payable on each date on which interest is payable on such Loan,
provided the Borrower shall have received at least 15 days' prior written notice
(with a copy to the Agent) of such  additional  interest  from the Lender.  If a
Lender fails to give notice 15 days prior to the relevant Interest Payment Date,
such additional interest shall be payable 15 days from receipt of such notice.

        3.07  Certificates  of Lenders.  Any Lender  claiming  reimbursement  or
compensation  under this Article III shall deliver to the Borrower  (with a copy
to the  Agent) a  certificate  setting  forth in  reasonable  detail  the amount
payable to the Lender  hereunder and such  certificate  shall be conclusive  and
binding on the Borrower in the absence of manifest error.

        3.08  Substitution of Lenders.  Upon the receipt by the
Borrower from any Lender (an "Affected Lender") of a claim for
compensation under Section 3.03, the Borrower may:  (i) request
the Affected Lender to use commercially reasonable efforts to




                                       54

<PAGE>



obtain a replacement bank or financial institution  satisfactory to the Borrower
and to the Agent (a "Replacement Lender") to acquire and assume all or a ratable
part of all of such Affected Lender's Loans and  Commitment;(ii)  request one or
more of the other  Lenders  to acquire  and assume all or part of such  Affected
Lender's Loans and Commitment; or (iii) designate a Replacement Lender. Any such
designation  of a Replacement  Lender under clause (i) or (iii) shall be subject
to  the  prior  written  consent  of  the  Agent  (which  consent  shall  not be
unreasonably withheld).

        3.09 Survival.  The  agreements and  obligations of the Borrower in this
Article III shall survive the payment of all other Obligations.


                                   ARTICLE IV

                              CONDITIONS PRECEDENT

        4.01  Conditions of Initial  Closing.  The  obligation of each Lender to
agree to enter into this  Agreement and to purchase the existing loans and other
obligations of the Existing Borrowers from BABC is subject to the condition that
the Agent has  received on or before the Closing Date all of the  following,  in
form and substance satisfactory to the Agent and with sufficient copies for each
Lender:

                (a)      Credit Agreement and Notes.  This Agreement
(together with the Exhibits and Schedules substantially in the
form of the Exhibits and Schedules attached hereto, together with
such supplements thereto as the Agent shall approve) and the
Notes executed by the Borrower;

                (b)      Resolutions; Incumbency. The following documents:

                         (i) Copies of the resolutions of the board of directors
        of the Borrower,  MotivePower Investments and each Guarantor authorizing
        the transactions  contemplated hereby,  certified as of the Closing Date
        by the Secretary or an Assistant Secretary of such Person; and

                         (ii)  A  certificate  of  the  Secretary  or  Assistant
        Secretary of the Borrower,  MotivePower  Investments  and each Guarantor
        certifying  the  names  and  true  signatures  of  the  officers  of the
        Borrower,  MotivePower  Investments  or  such  Guarantor  authorized  to
        execute,  deliver and perform,  as applicable,  this Agreement,  and all
        other Loan Documents to be delivered by it hereunder;

                (c)      Organization Documents; Financials and Solvency;
Good Standing. Each of the following documents:





                                       55

<PAGE>



                                (i) the articles or certificate of incorporation
        and  the  bylaws  of the  Borrower,  MotivePower  Investments  and  each
        Guarantor as in effect on the Closing  Date,  certified by the Secretary
        or Assistant Secretary of the Borrower,  MotivePower Investments or such
        Guarantor as of the Closing Date;

                               (ii)  a good standing certificate for the
        Borrower,  MotivePower Investments and each Guarantor from the Secretary
        of State (or similar, applicable Governmental Authority) of its state of
        incorporation and each state where the Borrower, MotivePower Investments
        or such  Guarantor is qualified to do business as a foreign  corporation
        as  of  a  recent  date,  together  with  a  bring-down  certificate  by
        facsimile, dated the Closing Date;

                         (iii)  evidence  satisfactory  to  the  Agent  and  the
        Lenders that the Borrower had consolidated EBITDA (excluding MK Gain) of
        not less than $25 million for the  immediately  preceding  four quarters
        ending December 31, 1996;  provided,  however,  that this calculation of
        EBITDA  may  exclude  from  consideration   certain  cost  items  to  be
        identified  by the  Borrower  and  acceptable  to the  Agent in its sole
        discretion; and

                         (iv)  a  certificate  from  the  Borrower,  MotivePower
        Investments  and each  Guarantor  certifying  that each  such  Person is
        Solvent on a  stand-alone  basis as of the Closing  Date,  together with
        such  evidence  or  financial  statements  as the Agent may  request  to
        document such certification.

                (d)      Legal Opinions.  An opinion of Doepken Keevican &
Weiss, counsel to the Borrower and the Guarantors and addressed
to the Agent and the Lenders, substantially in the form of
Exhibit I together with such local counsel opinions as may be
requested by the Agent;

                (e) Payment of Fees.  Evidence of payment by the Borrower of all
accrued and unpaid  fees,  costs and expenses to the extent then due and payable
on the Closing Date, together with Attorney Costs of BofA to the extent invoiced
prior to or on the Closing Date, plus such additional  amounts of Attorney Costs
as shall constitute BofA's reasonable  estimate of Attorney Costs incurred or to
be incurred by it through the closing  proceedings  (provided that such estimate
shall not thereafter  preclude  final settling of accounts  between the Borrower
and  BofA);  including  any such  costs,  fees  and  expenses  arising  under or
referenced in Sections 2.10 and 10.04;

                (f)      Collateral Documents.  The Guaranty, the Security
Agreement (Borrower), the Security Agreement (Guarantors) and the
other Collateral Documents, executed by the Borrower and/or the




                                       56

<PAGE>



Guarantors, as appropriate, in appropriate form for recording,
where necessary, together with

                                (i) acknowledgment copies of all UCC-l financing
        statements  filed,  registered  or  recorded  to  perfect  the  security
        interests of the Agent for the benefit of the Lenders, or other evidence
        satisfactory  to the Agent  that  there has been  filed,  registered  or
        recorded all financing  statements and other filings,  registrations and
        recordings necessary and advisable to perfect the Liens of the Agent for
        the benefit of the Lenders in accordance with applicable law;

                               (ii)  written advice relating to such Lien and
        judgment   searches  as  the  Agent  shall  have  requested,   and  such
        termination statements or other documents as may be necessary to confirm
        that the Collateral is subject to no other Liens in favor of any Persons
        (other than Permitted Liens);

                              (iii)  all certificates and instruments
        representing the Pledged Collateral, stock transfer powers
        executed in blank in such form as the Agent may specify;

                               (iv)  evidence that all other actions necessary
        or, in the  opinion of the Agent,  desirable  to perfect and protect the
        first priority  security  interest  created by the Collateral  Documents
        have been taken;

                                (v)  funds sufficient to pay any filing or
        recording tax or fee in connection with any and all UCC-1
        financing statements and the Mortgages;

                               (vi)  with respect to the Mortgaged Property, an
        A.L.T.A.  Form B (or other form acceptable to the Agent mortgagee policy
        of title  insurance  or a binder  issued  by a title  insurance  company
        satisfactory  to the Agent and the Lenders)  insuring (or undertaking to
        insure,  in the  case  of a  binder)  that  such  Mortgage  creates  and
        constitutes a valid first Lien against the  Mortgaged  Property in favor
        of the  Agent,  on behalf of the  Lenders,  subject  only to  exceptions
        acceptable  to  the  Agent,   with  such  endorsements  and  affirmative
        insurance as the Agent or any Lender may reasonably request;

                              (vii)  evidence that the Agent, on behalf of the
        Lenders,  has been named as loss payee  under all  policies  of casualty
        insurance,  and as  additional  insured  under all policies of liability
        insurance, required by the Mortgage;

                             (viii)  flood insurance and earthquake insurance on
        terms satisfactory to the Agent;

                               (ix)  current ALTA surveys and surveyor's
        certification as to all real property and all land covered by




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<PAGE>



        a lease in respect of which there is delivered a Mortgage,  or as may be
        reasonably   required  by  the  Agent,   each  in  form  and   substance
        satisfactory to the Agent and the Lenders;

                                (x)  proof of payment of all title insurance
        premiums,  documentary  stamp or intangible  taxes,  recording  fees and
        mortgage taxes payable in connection  with the recording of any Mortgage
        or the  issuance of the title  insurance  policies  (whether  due on the
        Closing Date or in the future) including sums due in connection with any
        future advances;

                               (xi)  such consents, estoppels, subordination
        agreements and other  documents and  instruments  executed by landlords,
        tenants and other  Persons party to material  contracts  relating to any
        Collateral as to which the Agent shall be granted a Lien for the benefit
        of the Lenders, as requested by the Agent; and

                              (xii)  evidence that all other actions necessary
        or, in the  opinion of the Agent,  desirable  to perfect and protect the
        first priority Lien created by the Collateral Documents,  and to enhance
        the Agent's  ability to preserve and protect its interests in and access
        to the Collateral, have been taken;

                (g)      Insurance Policies.  Standard lenders' payable
endorsements with respect to the insurance policies or other
instruments or documents evidencing insurance coverage on the
properties of the Borrower in accordance with Section 6.06;

                (h) Environmental  Review. An environmental site assessment with
respect  to any real  property  as to which the Agent is  granted a Lien for the
benefit of the  Lenders,  dated as of a recent date prior to the  Closing  Date,
prepared by a  qualified  firm  acceptable  to the Agent,  stating,  among other
things,  that  such real  property  is free from  Hazardous  Materials  and that
operations  conducted thereon are in compliance with all Environmental  Laws and
showing any Estimated Remediation Costs;

                (i)      Certificate.  A certificate signed by a Responsible
Officer, dated as of the Closing Date, stating that:

                                (i) the representations and warranties contained
        in Article V are true and correct on and as of such date, as
        though made on and as of such date;

                               (ii)  no Default or Event of Default exists or
        would result from the initial Borrowing; and

                              (iii)  there has occurred since December 31, 1995,
        no event or circumstance that has resulted or could




                                       58

<PAGE>



        reasonably be expected to result in a Material Adverse
        Effect; and

                (j) Borrower Reorganization.  The Reorganization of the Borrower
and its  Subsidiaries  shall have been  consummated in accordance  with Schedule
1.1A hereto,  and  otherwise on terms and  conditions  and pursuant to documents
acceptable to the Agent (and certified  copies of all such documents  shall have
been  provided to the Agent and the  Lenders),  including,  without  limitation,
evidence that all outstanding  loans and letter of credit  obligations under the
Existing Loan Agreement shall have been repaid by the Existing  Borrowers (other
than the  Borrower)  or assumed by the  Borrower,  except to the extent any such
obligations remain under the other Loan Documents;

                (k) Repayment of Eurodollar  Loans to BABC.  Any loans under the
Existing Loan Agreement  with BABC bearing  interest at or with reference to any
type of  Offshore,  LIBOR,  Eurodollar  or other  similar  rate  shall have been
converted into base rate or reference rate loans in a manner satisfactory to the
Agent;

                (l)  Assignment of BABC Loans.  BABC,  the Lenders and the Agent
shall  have  entered  into  Assignment  and  Assumption  Agreements  in form and
substance   acceptable  to  all  such  Persons  pursuant  to  which  the  loans,
commitments  and  rights of BABC as agent and  lender  under the  Existing  Loan
Agreement and the Existing Loan  Documents  shall have been assigned and assumed
by the Agent and the Lenders hereunder;

                (m)      Documentation of Borrowing Subsidiary Loans.   The
                         -------------------------------------------
Borrower shall have provided the Agent with original copies of
the documents and promissory notes (together with pledge
agreements and assignments collaterally assigning such
instruments to the Agent, on behalf of the Lenders) evidencing
the intercompany loans to be made from time to time by the
Borrower directly to the Borrowing Subsidiaries, which
intercompany loans will be unsecured, payable on a demand basis,
subordinated to the obligations and otherwise in form and
substance acceptable to the Agent;

                (n)      Termination of PTRA and HBTC Liens. Evidence that
the Liens in favor of the PTRA and the HBTC have been terminated
pursuant to documents and termination statements in form and
substance acceptable to the Agent; and

                (o)      Other Documents.  Such other approvals, opinions,
documents or materials as the Agent may reasonably request.

        4.02  Conditions to All Borrowings.  The obligation of each
Lender and/or the Agent to make any Loan to be made by it
(including its initial Loan), to cause any Letter of Credit to be
issued or to continue or convert any Loan under Section 2.04 is




                                       59

<PAGE>



subject  to  the  satisfaction  of the  following  conditions  precedent  on the
relevant Borrowing Date or Conversion/Continuation Date:

                (a) Notice of  Borrowing or  Conversion/Continuation.  The Agent
shall have received (with, in the case of the initial Loan only, a copy for each
Lender) a fully  completed  and signed a Notice of  Borrowing,  a request  for a
Letter of Credit (together with an appropriate letter of credit  application) or
a Notice of Conversion/Continuation, as applicable;

                (b)  Continuation  of   Representations   and  Warranties.   The
representations  and warranties in Article V shall be true and correct on and as
of such Borrowing Date or Conversion/  Continuation Date with the same effect as
if made on and as of such Borrowing Date or Conversion/Continuation Date (except
to the extent such  representations and warranties expressly refer to an earlier
date, in which case they shall be true and correct as of such earlier date);

                (c)      No Existing Default.  No Default or Event of
Default shall exist or shall result from such Borrowing, Letter
of Credit issuance or continuation or conversion;

                (d)  Availability.  The  amount  of  Availability  at such  time
(taking into account such proposed Loan or Letter of Credit) shall be sufficient
to permit  the  making  of such  Revolving  Loan,  provided,  however,  that the
foregoing  conditions  precedent are not conditions to each Lender participating
in  or  precedent  are  not  conditions  to  each  Lender  participating  in  or
reimbursing  the Agent for such  Lenders' Pro Rata Share of any Letter of Credit
which is drawn at any time; and

Each  Notice  of  Borrowing,  request  for a Letter  of  Credit  and  Notice  of
Conversion/Continuation  submitted by the Borrower  hereunder shall constitute a
representation  and warranty by the Borrower  hereunder,  as of the date of each
such notice and as of each  Borrowing Date or  Conversion/Continuation  Date, as
applicable, that the conditions in Section 4.02 are satisfied.


                                    ARTICLE V

                         REPRESENTATIONS AND WARRANTIES

        The Borrower represents and warrants to the Agent and each Lender that:

        5.01  Corporate Existence and Power.  The Borrower and each
of its Subsidiaries:

                (a)      is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its
incorporation;




                                       60

<PAGE>



                (b) has the power and authority and all  governmental  licenses,
authorizations,  consents and approvals to own its assets, carry on its business
and to execute, deliver, and perform its obligations under the Loan Documents to
which it is a party;

                (c) is duly qualified as a foreign  corporation  and is licensed
and in good standing under the laws of each  jurisdiction  where in any material
respect  its  ownership,  lease or  operation  of property or the conduct of its
business requires such qualification or license.

        5.02 Corporate Authorization; No Contravention.  The execution, delivery
and performance by the Borrower and its  Subsidiaries of this Agreement and each
other Loan Document to which the Borrower and its Subsidiaries is party, and the
consummation of the  Reorganization,  have been duly authorized by all necessary
corporate action, and do not and will not:

                (a)      contravene the terms of any of that Person's
Organization Documents;

                (b) conflict with or result in any breach or  contravention  of,
or the  creation of any Lien under,  any  document  evidencing  any  Contractual
Obligation  to which such  Person is a party or any order,  injunction,  writ or
decree of any  Governmental  Authority  to which such Person or its  property is
subject; or

                (c)      violate any Requirement of Law.

        5.03  Governmental  Authorization.   No  approval,  consent,  exemption,
authorization,   or  other  action  by,  or  notice  to,  or  filing  with,  any
Governmental  Authority (except for recordings or filings in connection with the
Liens  granted to the Agent under the  Collateral  Documents)  is  necessary  or
required  in  connection  with the  execution,  delivery or  performance  by, or
enforcement  against,  the Borrower or any of the Guarantors of the Agreement or
any other Loan Document or the consummation of the Reorganization.

        5.04 Binding  Effect.  This  Agreement  and each other Loan  Document to
which  the  Borrower  or  any of its  Subsidiaries  is a  party  and  the  other
agreements in connection with the Reorganization constitute the legal, valid and
binding obligations of the Borrower and any of its Subsidiaries to the extent it
is a party  thereto,  enforceable  against such Person in accordance  with their
respective  terms,  except  as  enforceability  may  be  limited  by  applicable
bankruptcy,  insolvency, or similar laws affecting the enforcement of creditors'
rights generally or by equitable principles relating to enforceability.





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<PAGE>



        5.05  Litigation.  Except as  specifically  disclosed in Schedule  5.05,
there are no actions, suits, proceedings,  claims or disputes pending, or to the
best knowledge of the Borrower,  threatened or contemplated,  at law, in equity,
in arbitration or before any Governmental  Authority,  against the Borrower,  or
its Subsidiaries or any of their respective properties which:

                (a)      purport to affect or pertain to this Agreement or
any other Loan Document, or any of the transactions contemplated
hereby or thereby; or

                (b) if determined adversely to the Borrower or its Subsidiaries,
would reasonably be expected to have a Material  Adverse Effect.  No injunction,
writ, temporary  restraining order or any order of any nature has been issued by
any court or other Governmental  Authority  purporting to enjoin or restrain the
execution, delivery or performance of this Agreement or any other Loan Document,
or  directing  that the  transactions  provided  for  herein or  therein  not be
consummated as herein or therein provided.

        5.06 No Default.  No Default or Event of Default  exists or would result
from the  incurring  of any  Obligations  by the  Borrower  or from the grant or
perfection  of the Liens of the Agent and the Lenders on the  Collateral.  As of
the Closing Date, neither the Borrower nor any Subsidiary is in default under or
with respect to any Contractual Obligation in any respect which, individually or
together with all such defaults, could reasonably be expected to have a Material
Adverse  Effect,  or that would,  if such default had occurred after the Closing
Date, create an Event of Default under Section 8.01(e).

        5.07  ERISA Compliance.  Except as specifically disclosed in
Schedule 5.07:

                (a) Each Plan is in compliance in all material respects with the
applicable  provisions  of ERISA,  the Code and other federal or state law. Each
Plan which is intended to qualify under Section  401(a) of the Code has received
a favorable  determination  letter from the IRS and to the best knowledge of the
Borrower, nothing has occurred which would cause the loss of such qualification.
The Borrower and each ERISA Affiliate has made all required contributions to any
Plan subject to Section 412 of the Code, and no application for a funding waiver
or an extension of any  amortization  period pursuant to Section 412 of the Code
has been made with respect to any Plan.

                (b) There are no pending or, to the best  knowledge of Borrower,
threatened claims, actions or lawsuits, or action by any Governmental Authority,
with respect to any Plan which has resulted or could  reasonably  be expected to
result in a Material Adverse Effect. There has been no prohibited transaction or
violation of the fiduciary responsibility rules with respect to




                                       62

<PAGE>



any Plan which has  resulted  or could  reasonably  be  expected  to result in a
Material Adverse Effect.

                (c) (i) No ERISA Event has occurred or is reasonably expected to
occur;  (ii) no Pension Plan has any Unfunded Pension  Liability;  (iii) neither
the Borrower nor any ERISA  Affiliate  has incurred,  or  reasonably  expects to
incur,  any  liability  under Title IV of ERISA with respect to any Pension Plan
(other than premiums due and not delinquent  under Section 4007 of ERISA);  (iv)
neither the Borrower nor any ERISA Affiliate has incurred, or reasonably expects
to incur,  any liability  (and no event has occurred  which,  with the giving of
notice  under  Section  4219 of ERISA,  would  result in such  liability)  under
Section  4201 or 4243 of ERISA with  respect to a  Multiemployer  Plan;  and (v)
neither the Borrower nor any ERISA  Affiliate has engaged in a transaction  that
could be subject to Section 4069 or 4212(c) of ERISA.

        5.08 Use of Proceeds; Margin Regulations.  The proceeds of the Loans are
to be used solely for the  purposes  set forth in and  permitted by Section 6.12
and Section 7.07.  Neither the Borrower nor any Subsidiary is generally  engaged
in the business of  purchasing or selling  Margin Stock or extending  credit for
the purpose of purchasing or carrying Margin Stock.

        5.09 Title to Properties.  The Borrower and its  Subsidiaries  have good
record and marketable  title in fee simple to, or valid leasehold  interests in,
all real property  necessary or used in the ordinary conduct of their respective
businesses,  except for such defects in title as could not,  individually  or in
the  aggregate,  have a Material  Adverse  Effect.  As of the Closing Date,  the
property of the Borrower and its Subsidiaries is subject to no Liens, other than
Permitted Liens.

        5.10 Taxes. The Borrower and its Subsidiaries have filed all Federal and
other material tax returns and reports  required to be filed,  and have paid all
Federal  and other  material  taxes,  assessments,  fees and other  governmental
charges  levied  or  imposed  upon  them or their  properties,  income or assets
otherwise due and payable,  except those which are being contested in good faith
by appropriate proceedings and for which adequate reserves have been provided in
accordance  with GAAP,  or if such taxes are due by MK Gain to a Mexican  taxing
authority  then in  accordance  with  Mexican  GAAP.  There is no  proposed  tax
assessment  against the Borrower or any Subsidiary  that would,  if made, have a
Material Adverse Effect.

        5.11  Financial  Condition.   (a)  The  audited  consolidated  financial
statements of the Borrower and its Subsidiaries  dated December 31, 1995 and the
unaudited  consolidated and consolidating  financial  statements of the Borrower
and its  Subsidiaries  dated  December  31, 1996 (which are  attached  hereto as
Schedule 5.11(A)), and the related consolidated and consolidating  statements of
income or operations, shareholders'




                                       63

<PAGE>



equity and cash flows for the fiscal years then ended on such
dates:

                                (i)  were prepared in accordance with GAAP
        consistently  applied  throughout the period covered thereby,  except as
        otherwise  expressly  noted  therein,  subject to  ordinary,  good faith
        year-end audit adjustments;

                               (ii)  fairly present the financial condition of
        the Borrower and its Subsidiaries as of the date thereof and
        results of operations for the period covered thereby; and

                              (iii) except as specifically disclosed in Schedule
        5.11(B), show all material indebtedness and other liabilities, direct or
        contingent,  of the Borrower and its consolidated Subsidiaries as of the
        date thereof,  including liabilities for taxes, material commitments and
        Contingent Obligations.

                (b)      Since December 31, 1995, there has been no Material
Adverse Effect.

                (c) The pro forma  delivered  on the date  hereof  and  attached
hereto as  Schedule  5.11(C) is the  unaudited  consolidated  and  consolidating
balance  sheet of the  Borrower  and its  Subsidiaries,  and was prepared by the
Borrower  assuming the  consummation  of the  transactions  contemplated by this
Agreement  as  of  the  Closing  Date   (including,   without   limitation   the
Reorganization)  and based on the unaudited  consolidating  balance sheet of the
Borrower  dated  December  31,  1996 and was  prepared in  accordance  with GAAP
(subject to the exceptions set forth on Schedule 5.11(C) hereof), with only such
adjustments thereto as would be required in accordance with GAAP.

                (d) The  projections  delivered on the Closing Date and attached
hereto as Schedule 5.11(D)  represent the Borrower's best estimate of the future
financial  performance of the Borrower and its consolidated  Subsidiaries (other
than MK Gain) for the periods set forth  therein.  These  projections  have been
prepared on the basis of the assumptions  set forth therein,  which the Borrower
believes are fair and reasonable in light of current and reasonably  foreseeable
business conditions.

        5.12  Environmental  Matters.  (a) Except as  specifically  disclosed in
Schedule  5.12,  the ongoing  operations  of the Borrower  and its  Subsidiaries
comply in all respects with all Environmental  Laws,  except such  noncompliance
which  would not (if  enforced  in  accordance  with  applicable  law) result in
liability  in excess of $500,000 in the  aggregate  (or with respect to MK Gain,
which could have a Material Adverse Effect).

                (b)      Except as specifically disclosed in Schedule 5.12,
the Borrower and its Subsidiaries have obtained all licenses,




                                       64

<PAGE>



permits,  authorizations and registrations  required under any Environmental Law
("Environmental  Permits") and necessary for their  respective  ordinary  course
operations,  all  such  Environmental  Permits  are in  good  standing,  and the
Borrower and each of its  Subsidiaries are in compliance with all material terms
and conditions of such Environmental Permits.

                (c) Except as  specifically  disclosed in Schedule 5.12, none of
the Borrower,  its Subsidiaries or any of their  respective  present property or
operations,  is subject to any outstanding  written order from or agreement with
or investigation by any Governmental  Authority,  nor subject to any judicial or
docketed   administrative   proceeding,   respecting  any   Environmental   Law,
Environmental Claim or Hazardous Material, nor subject to any claim,  proceeding
or notice from any Person regarding Environmental Laws,  Environmental Claims or
Hazardous Materials.

                (d) Except as specifically disclosed in Schedule 5.12, there are
no Hazardous  Materials  or other  conditions  or  circumstances  existing  with
respect to any  property of the  Borrower  or any  Subsidiary,  or arising  from
operations prior to the Closing Date, of the Borrower or any of its Subsidiaries
that would  reasonably be expected to give rise to  Environmental  Claims with a
potential  liability of the Borrower and its  Subsidiaries in excess of $500,000
in the  aggregate  for any such  condition,  circumstance  or property  (or with
respect to MK Gain, which could have a Material  Adverse  Effect).  In addition,
(i) neither the Borrower nor any  Subsidiary has any  underground  storage tanks
(x) that are not properly registered or permitted under applicable Environmental
Laws, or (y) that are leaking or disposing of Hazardous Materials off-site,  and
(ii) the Borrower and its  Subsidiaries  have notified all of their employees of
the existence, if any, of any health hazard arising from the conditions of their
employment and have met all notification  requirements under Title III of CERCLA
and all other Environmental Laws.

        5.13 Collateral Documents.  (a) The provisions of each of the Collateral
Documents  are  effective to create in favor of the Agent for the benefit of the
Lenders,  a legal, valid and enforceable first priority security interest in all
right,  title and interest of the Borrower and the  Guarantors in the collateral
described  therein;  and financing  statements have been filed in the offices in
all of the  jurisdictions  listed on Schedule 5.13,  which is also a schedule to
the Security Agreement and each patent and trademark assignment included as part
of the  Collateral  Documents  has been filed in the U.S.  Patent and  Trademark
Office and the U.S. Copyright Office.

                (b) Each Mortgage when  delivered  will be effective to grant to
the Agent for the benefit of the Lenders a legal, valid and enforceable mortgage
lien on all the right,  title and interest of the mortgagor  under such Mortgage
in the Mortgaged




                                       65

<PAGE>



Property  described  therein.  When each such  Mortgage is duly  recorded in the
offices listed on the schedule to such Mortgage and the mortgage  recording fees
and taxes in respect  thereof are paid and  compliance is otherwise had with the
formal  requirements  of state law  applicable  to the  recording of real estate
mortgages generally,  each such mortgaged property,  subject to the encumbrances
and  exceptions  to title set  forth  therein  and  except as noted in the title
policies delivered to the Agent pursuant to Section 4.01, is subject to a legal,
valid,  enforceable  and  perfected  first  priority  deed of  trust;  and  when
financing  statements have been filed in the offices specified in such Mortgage,
such Mortgage also creates a legal, valid,  enforceable and perfected first Lien
on, and security  interest in, all right,  title and interest of the Borrower or
any Guarantor under such Mortgage in all personal property and fixtures which is
covered by such Mortgage, subject to no other Liens, except the encumbrances and
exceptions to title set forth therein and except as noted in the title  policies
delivered to the Agent pursuant to Section 4.01, and Permitted Liens.

                (c)      All representations and warranties of the Borrower
and the Guarantors party thereto contained in the Collateral
Documents are true and correct.

        5.14 Regulated  Entities.  None of the Borrower,  any Person controlling
the Borrower,  or any Subsidiary,  is an "Investment Company" within the meaning
of the Investment Company Act of 1940. The Borrower is not subject to regulation
under the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate  Commerce Act, any state public  utilities code, or any other Federal
or state statute or regulation limiting its ability to incur Indebtedness.

        5.15 No Burdensome Restrictions.  Neither the Borrower nor any Guarantor
is a  party  to or  bound  by any  Contractual  Obligation,  or  subject  to any
restriction in any Organization Document, or any Requirement of Law, which could
reasonably be expected to have a Material Adverse Effect.

        5.16 Copyrights, Patents, Trademarks and Licenses, etc. The Borrower and
the Guarantors own or are licensed or otherwise have the right to use all of the
patents,  trademarks,  service  marks,  trade  names,  copyrights,   contractual
franchises,  authorizations  and other rights that are reasonably  necessary for
the operation of their respective  businesses,  without conflict with the rights
of any other Person.  To the best knowledge of the Borrower,  no slogan or other
advertising device, product,  process, method, substance, part or other material
now  employed,  or now  contemplated  to be  employed,  by the  Borrower  or any
Subsidiary  (other  than MK Gain)  infringes  upon any rights  held by any other
Person.  Except  as  specifically  disclosed  in  Schedule  5.05,  no  claim  or
litigation  regarding  any of the  foregoing  is pending or  threatened,  and no
patent, invention, device, application,




                                       66

<PAGE>



principle or any statute, law, rule, regulation, standard or code is pending or,
to the  knowledge  of the  Borrower,  proposed,  which,  in either  case,  could
reasonably be expected to have a Material Adverse Effect.

        5.17  Capitalization  and  Subsidiaries.  As of the  Closing  Date,  the
Borrower has no Subsidiaries other than those specifically disclosed in part (a)
of Schedule 5.17 hereto and has no equity  investments in any other  corporation
or entity other than those specifically  disclosed in part (b) of Schedule 5.17.
The amount of the Borrower's and each of its Subsidiaries' authorized and issued
capital stock and the ownership of every block  representing  5% or more thereof
is  as  set  forth  on  Schedule  5.17  including,   without  limitation,  after
implementation of the Reorganization.

        5.18 Insurance.  Except as specifically  disclosed in Schedule 5.18, the
properties  of the Borrower and its  Subsidiaries  are insured with  financially
sound and reputable insurance companies not Affiliates of the Borrower,  in such
amounts,  with such  deductibles  and  covering  such  risks as are  customarily
carried by companies engaged in similar businesses and owning similar properties
in  localities  where the  Borrower or such  Subsidiary  operates,  and all such
insurance policies in effect on the Closing Date are described on Schedule 5.18.

        5.19  Solvency.  The Borrower and each of its Subsidiaries
are Solvent.

        5.20  Swap Obligations.   On the Closing Date, neither the
Borrower nor any of its Subsidiaries has incurred any outstanding
obligations under any Swap Contracts.

        5.21 Full Disclosure.  None of the representations or warranties made by
the  Borrower  or any  Subsidiary  in the Loan  Documents  as of the  date  such
representations  and  warranties  are  made  or  deemed  made,  and  none of the
statements contained in any exhibit,  report, statement or certificate furnished
by or on behalf of the Borrower or any  Subsidiary in  connection  with the Loan
Documents  (including the offering and disclosure  materials  delivered by or on
behalf of the Borrower to the Lenders prior to the Closing  Date),  contains any
untrue  statement of a material  fact or omits any material  fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances under which they are made, not misleading as of the time when made
or delivered.






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<PAGE>



                                   ARTICLE VI

                              AFFIRMATIVE COVENANTS

        So long as any Lender shall have any Commitment  hereunder,  or any Loan
or other  Obligation  shall remain  unpaid or  unsatisfied,  unless the Majority
Lenders waive compliance in writing:

        6.01 Financial  Statements and Borrowing Base Certificate.  The Borrower
shall deliver to the Agent, in form and detail satisfactory to the Agent and the
Majority Lenders, with sufficient copies for each Lender:

                (a) as soon as  available,  but not later than 90 days after the
end of each Fiscal Year  (commencing  with the Fiscal  Year ended  December  31,
1996, a copy of the (i) audited  consolidated  balance sheet of the Borrower and
its Subsidiaries,  (ii) unaudited consolidated balance sheet of the Borrower and
its Subsidiaries  (excluding MK Gain and its Subsidiaries),  and (iii) unaudited
consolidated   and   consolidating   balance  sheet  of  the  Borrower  and  its
Subsidiaries,  all  as at  the  end  of  such  year,  and  the  related  audited
consolidated and unaudited consolidated (excluding MK Gain and its Subsidiaries)
and consolidating  statements of income or operations,  shareholders' equity and
cash flows for such year for the Borrower and its Subsidiaries, setting forth in
each case in  comparative  form the figures for the previous  Fiscal  Year,  and
accompanied   by  the   opinion  of  Deloitte  &  Touche,   L.L.P.   or  another
nationally-recognized independent public accounting firm ("Independent Auditor")
which report shall state that such  consolidated  financial  statements  present
fairly the financial  position for the periods indicated in conformity with GAAP
applied  on a basis  consistent  with prior  years.  Such  opinion  shall not be
qualified  or limited  because of a  restricted  or limited  examination  by the
Independent   Auditor  of  any  material   portion  of  the  Borrower's  or  any
Subsidiary's  records and shall be delivered to the Agent pursuant to a reliance
agreement between the Agent and Lenders and such Independent Auditor in form and
substance satisfactory to the Agent;

                (b) as soon as  available,  but not later than 45 days after the
end of each  Fiscal  Quarter of each  Fiscal  Year  (commencing  with the Fiscal
Quarter  ending  in  March  1997),  a copy  of the  unaudited  consolidated  and
consolidating  balance sheet of the Borrower and its Subsidiaries  (including an
additional  consolidated  balance  sheet of the  Borrower  and its  Subsidiaries
excluding MK Gain and its Subsidiaries) as of the end of such Fiscal Quarter and
the related consolidated,  consolidated (excluding MK Gain and its Subsidiaries)
and consolidating statements of income,  shareholders' equity and cash flows for
the Borrower and its Subsidiaries for the period commencing on the first day and
ending on the last day of such Fiscal  Quarter,  and  certified by a Responsible
Officer as fairly presenting, in




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<PAGE>



accordance   with  GAAP  (subject  to  ordinary,   good  faith   year-end  audit
adjustments),  the  financial  position  and the  results of  operations  of the
Borrower and its Subsidiaries;

                (c) as soon as  available,  but not later than 30 days after the
end of each Fiscal  Month  (commencing  for the Fiscal  Month ending in February
1997), a copy of the unaudited  consolidated and consolidating  balance sheet of
the Borrower and its Subsidiaries  (including an additional consolidated balance
sheet  of  the  Borrower  and  its  Subsidiaries   excluding  MK  Gain  and  its
Subsidiaries)  as at the end of such Fiscal Month and the related  consolidated,
consolidated   (excluding  MK  Gain  and  its  Subsidiaries)  and  consolidating
statement of income,  shareholders' equity and cash flows for such Fiscal Month,
and certified by a Responsible Officer as fairly presenting,  in accordance with
GAAP (subject to ordinary, good faith year-end audit adjustments), the financial
position and the results of operations of the Borrower and its Subsidiaries;

                (d) as soon as  available,  but not later than fifteen (15) days
after the end of each Fiscal  Month  (commencing  with the Fiscal  Month  ending
February 21, 1997):  (a) a Borrowing  Base  Certificate  for the  Borrower,  the
Borrowing  Subsidiaries  and  Clark  (on a  consolidated  basis)  in the form of
Exhibit J attached  hereto;  and (b) a  statement  of the balance of each of the
intercompany  loans  between  the  Borrower  and each  Borrowing  Subsidiary  in
accordance  with  Section  7.04.  If the  Borrower's  records  or reports of the
Collateral  are prepared by an accounting  service or other agent,  the Borrower
hereby  authorizes such service or agent to deliver such records,  reports,  and
related documents to the Agent, for distribution to the Lenders.

        6.02  Certificates; Other Information.  The Borrower shall
furnish to the Agent, with sufficient copies for each Lender:

                (a) concurrently  with the delivery of the financial  statements
referred to in Section 6.01(a), a certificate of the Independent Auditor stating
that in making the examination  necessary  therefor no knowledge was obtained of
any Default or Event of Default, except as specified in such certificate;

                (b)      concurrently with the delivery of the financial
statements referred to in Sections 6.01(a) and (b), a Compliance
Certificate executed by a Responsible Officer;

                (c) as soon as  available,  but not later  than five (5) days of
filing with the SEC,  copies of all  financial  statements  and reports that the
Borrower sends to its shareholders,  and copies of all financial  statements and
regular,  periodical or special reports  (including  Forms 10K, 10Q and 8K) that
the Borrower or any Subsidiary may make to, or file with, the SEC;





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<PAGE>



                (d)  on  or  before  December  1 of  each  year,  a  budget  and
projections  for the next Fiscal Year on a month by month and  consolidated  and
consolidating basis and otherwise in form and substance reasonably acceptable to
the Agent; and

                (e)  promptly,   such  additional   information   regarding  the
business,  financial  or  corporate  affairs of (I) the  Borrower  or any of its
Subsidiaries  (other  than MK Gain) as the Agent,  at the request of any Lender,
may  from  time to time  request,  and (II) MK Gain or its  Subsidiaries  as the
Agent,  at the request of any Lender,  may from time to time  request  after the
occurrence  of a  Default  or  Event  of  Default  or if MK  Gain  or any of its
Subsidiaries  shall  breach,  default or violate any terms or  conditions of any
Contractual  Obligations of such person evidencing Indebtedness with a principal
amount in excess of  $1,000,000  which breach,  default or violation  would with
notice or the passage of time cause or permit the  acceleration  of the maturity
of such Indebtedness or a failure to pay any amounts due and owing thereon.

        6.03  Notices.  The Borrower shall promptly notify the Agent,
and if requested by the Agent, all the Lenders:

                (a)      of the occurrence of any Default or Event of
Default, and of the occurrence or existence of any event or
circumstance that foreseeably will become a Default or Event of
Default;

                (b) of (i) any  breach  or  nonperformance  of,  or any  default
under,  any  Contractual  Obligation of the Borrower or any of its  Subsidiaries
which  could  result  in a  Material  Adverse  Effect;  and  (ii)  any  dispute,
litigation, investigation,  proceeding or suspension which may exist at any time
between the Borrower or any of its Subsidiaries  and any Governmental  Authority
involving  amounts in excess of  $250,000  or which  could  result in a Material
Adverse Effect;

                (c) of the commencement of, or any material  development in, any
litigation or proceeding  affecting the Borrower or any  Subsidiary (i) in which
the  amount of damages  claimed  is  $2,500,000  (or its  equivalent  in another
currency or currencies) or more,  (ii) in which  injunctive or similar relief is
sought and which, if adversely determined,  would reasonably be expected to have
a Material Adverse Effect,  or (iii) in which the relief sought is an injunction
or other stay of the performance of this Agreement or any Loan Document;

                (d) upon,  but in no event  later than 10 days  after,  becoming
aware of (i) any and all enforcement,  investigation,  cleanup, removal or other
governmental or regulatory actions  instituted,  completed or threatened against
the Borrower or any Subsidiary or any of their respective properties pursuant to
any applicable Environmental Laws, (ii) all other Environmental




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<PAGE>



Claims,  and (iii) any  environmental or similar  condition on any real property
adjoining or in the  vicinity of the property of the Borrower or any  Subsidiary
that could  reasonably be anticipated to cause such property or any part thereof
to be subject to any restrictions on the ownership,  occupancy,  transferability
or use of such property under any Environmental Laws;

                (e) of any other litigation or proceeding affecting the Borrower
or any of its Subsidiaries which the Borrower would be required to report to the
SEC pursuant to the Exchange Act,  within four (4) days after reporting the same
to the SEC;

                (f) of  any of the  following  events  affecting  the  Borrower,
together  with a copy of any  notice  with  respect  to such  event  that may be
required to be filed with a Governmental Authority and any notice delivered by a
Governmental Authority to the Borrower with respect to such event:

                                (i)  an ERISA Event;

                               (ii) if any of the representations and warranties
        in Section 5.07 ceases to be true and correct;

                              (iii)  the adoption of any new Pension Plan or
        other Plan subject to Section 412 of the Code;

                               (iv)  the adoption of any amendment to a Pension
        Plan or other Plan subject to Section 412 of the Code, if such amendment
        results in a material  increase in  contributions  or  Unfunded  Pension
        Liability; or

                                (v)  the commencement of contributions to any
        Pension Plan or other Plan subject to Section 412 of the
        Code;

                (g)      of any material change in accounting policies or
financial reporting practices by the Borrower or any of its
consolidated Subsidiaries;

                (h)      of the entry by the Borrower or any of its
Subsidiaries (other than MK Gain) into any Swap Contract,
together with the details thereof;

                (i)  of  the  occurrence  of  any  default,  event  of  default,
termination  event or other event under any Swap  Contract that after the giving
of notice,  passage of time or both,  would permit either  counterparty  to such
Swap Contract to terminate  early any or all trades  relating to such  contract;
and

                (j) upon the request from time to time of the Agent, termination
or unwind  amounts,  together  with a  description  of the  method by which such
amounts were determined, relating to any




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<PAGE>



then-outstanding Swap Contracts to which the Borrower or any of its Subsidiaries
(other than MK Gain) is party.

                Each notice under this Section shall be accompanied by a written
statement by a  Responsible  Officer  setting  forth  details of the  occurrence
referred  to  therein,  and stating  what  action the  Borrower or any  affected
Subsidiary  proposes to take with respect  thereto and at what time. Each notice
under Section 6.03(a) shall describe with  particularity  any and all clauses or
provisions  of this  Agreement  or  other  Loan  Document  that  have  been  (or
foreseeably will be) breached or violated.

        6.04  Preservation of Corporate Existence, Etc.  The Borrower
shall, and shall cause each Subsidiary to:

                (a)      preserve and maintain in full force and effect its
corporate existence and good standing under the laws of its state
or jurisdiction of incorporation;

                (b)   preserve  and  maintain  in  full  force  and  effect  all
governmental  rights,   privileges,   qualifications,   permits,   licenses  and
franchises  necessary or desirable in the normal conduct of its business  except
in connection  with  transactions  permitted by Section 7.03 and sales of assets
permitted by Section 7.02;

                (c)      use reasonable efforts, in the ordinary course of
business, to preserve its business organization and goodwill; and

                (d) preserve or renew all of its registered patents, trademarks,
trade names and service marks, the non-preservation of which could reasonably be
expected to have a Material Adverse Effect.

        6.05  Maintenance  of  Property;  Locomotives.  (a) The  Borrower  shall
maintain,  and shall cause each  Subsidiary  to  maintain,  and preserve all its
property  which is used or  useful in its  business  in good  working  order and
condition,  ordinary  wear and tear and make all necessary  repairs  thereto and
renewals and  replacements  thereof  except where the failure to do so could not
reasonably be expected to have a Material Adverse Effect, except as permitted by
Section 7.02.

        (b) All  railroad  locomotives  which are owned by the Borrower or Boise
Locomotive  as of the  Closing  Date are listed on Schedule  6.05,  and all such
locomotives and any other owned locomotives  acquired after the Closing Date are
currently and during the term of this  Agreement  shall only be located and used
within the 48 contiguous states of the United States.

        6.06  Insurance.  In addition to insurance requirements set
forth in the Collateral Documents, the Borrower shall maintain,
and shall cause each of its Subsidiaries to maintain, with




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<PAGE>



financially sound and reputable independent insurers,  insurance with respect to
its  properties  and business  against  loss or damage of the kinds  customarily
insured  against by Persons  engaged  in the same or similar  business,  of such
types and in such amounts as are customarily carried under similar circumstances
by  such  other  Persons;  including  workers'  compensation  insurance,  public
liability and property and casualty insurance, which amount shall not be reduced
by the Borrower in the absence of 30 days' prior  notice to the Agent.  All such
insurance (other than for MK Gain) shall name the Agent as loss  payee/mortgagee
and as additional  insured,  for the benefit of the Lenders,  as their interests
may appear.  All casualty and key man  insurance  maintained by the Borrower and
the  Guarantors  shall name the Agent as loss payee and all liability  insurance
shall name the Agent as  additional  insured for the benefit of the Lenders,  as
their  interests  may  appear.  Upon  request  of the Agent or any  Lender,  the
Borrower shall furnish the Agent,  with  sufficient  copies for each Lender,  at
reasonable intervals (but not more than once per calendar year) a certificate of
a  Responsible  Officer of the Borrower  (and,  if  requested by the Agent,  any
insurance  broker of the  Borrower)  setting  forth the nature and extent of all
insurance  maintained by the Borrower and its  Subsidiaries  in accordance  with
this  Section  or  any  Collateral  Documents  (and  which,  in  the  case  of a
certificate of a broker, were placed through such broker).

        6.07 Payment of Obligations.  The Borrower  shall,  and shall cause each
Subsidiary  (excluding MK Gain for purposes of paragraphs (b) and (c) below) to,
pay and discharge as the same shall become due and payable, all their respective
obligations and liabilities, including:

                (a) all tax liabilities, assessments and governmental charges or
levies upon it or its properties or assets,  unless the same are being contested
in good faith by  appropriate  proceedings  and adequate  reserves in accordance
with GAAP are being  maintained  by the Borrower or such  Subsidiary  or if such
taxes are due by MK Gain to a Mexican taxing  authority then in accordance  with
Mexican GAAP;

                (b)      all lawful claims which, if unpaid, would by law
become a Lien upon its property; and

                (c)      all indebtedness, as and when due and payable, but
subject to any subordination provisions contained in any
instrument or agreement evidencing such Indebtedness.

        6.08  Compliance  with Laws. The Borrower shall comply,  and shall cause
each Subsidiary to comply, in all material respects with all Requirements of Law
of any  Governmental  Authority  having  jurisdiction  over  it or its  business
(including  the  Federal  Fair  Labor  Standards  Act),  except  such  as may be
contested in good faith or as to which a bona fide dispute may exist.




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<PAGE>



        6.09 Compliance with ERISA.  The Borrower shall, and shall cause each of
its ERISA  Affiliates  to: (a) maintain  each Plan in compliance in all material
respects with the applicable  provisions of ERISA, the Code and other federal or
state law; (b) cause each Plan which is qualified  under  Section  401(a) of the
Code to maintain such qualification;  and (c) make all required contributions to
any Plan subject to Section 412 of the Code.

        6.10  Inspection of Property and Books and Records.  The Borrower  shall
maintain and shall cause each  Subsidiary to maintain proper books of record and
account,  in which full, true and correct entries in conformity with GAAP (or in
the case of MK Gain,  Mexican  GAAP)  consistently  applied shall be made of all
financial  transactions  and matters  involving  the assets and  business of the
Borrower and such  Subsidiary.  The Borrower shall permit,  and shall cause each
Subsidiary  (including MK Gain only to the extent an event  specified in Section
6.02(e)(II)  has  occurred and is  continuing)  to permit,  representatives  and
independent  contractors  of the  Agent  or any  Lender  to  visit  and  inspect
(including taking and removing samples) any of their respective  properties,  to
examine their respective  corporate,  financial and operating records,  and make
copies thereof or abstracts therefrom,  and to discuss their respective affairs,
finances and accounts with their respective directors, officers, and independent
public  accountants,  all at the expense of the Borrower and at such  reasonable
times during normal  business  hours and as often as may be reasonably  desired,
upon  reasonable  advance  notice to the  Borrower;  provided,  however,  when a
Default or an Event of Default  exists the Agent or any Lender may do any of the
foregoing  at the expense of the  Borrower at any time  during  normal  business
hours and without advance notice.

        6.11  Environmental Laws.  (a)  The Borrower shall, and shall
cause each Subsidiary to, conduct its operations and keep and
maintain its property in compliance in all material respects with
all Environmental Laws.

                (b) Upon the  written  request of the Agent or any  Lender,  the
Borrower shall submit and cause each of its Subsidiaries to submit, to the Agent
with sufficient copies for each Lender, at the Borrower's sole cost and expense,
at  reasonable  intervals,  a report  providing  an update of the  status of any
environmental, health or safety compliance, hazard or liability issue identified
in any notice or report  required  pursuant  to  Section  6.03(d),  that  could,
individually or in the aggregate, result in liability in excess of $500,000.

        6.12 Use of Proceeds.  The Borrower  shall use the proceeds of the Loans
solely (i) to refinance all Obligations under the Existing Loan Agreement,  (ii)
to fund  Permitted  Acquisitions,  (iii) for other working  capital needs of the
Borrower not in contravention of any Requirement of Law or of any Loan Document




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<PAGE>



or (iv) to loan such  proceeds  directly to the  Borrowing  Subsidiaries  (on an
unsecured and demand  repayment basis pursuant to documents and promissory notes
acceptable to the Agent and the Lenders,  which  documents and promissory  notes
are  subordinated  to the  Obligations and pledged to the Agent on behalf of the
Lenders)  provided  that such  Borrowing  Subsidiaries  shall  likewise  only be
permitted  to use the proceeds of such  intercompany  loans in  accordance  with
paragraphs (i) through (iii) above.

        6.13 Location and Perfection of Collateral.  The Borrower represents and
warrants to the Agent and the Lenders  that:  (a)  Schedule 6.3 is a correct and
complete list of the Borrower's and each Guarantor's chief executive office, the
location of its books and records,  the locations of the Collateral with respect
to that Person,  and the  locations of all of its other places of business;  and
(b) Schedule 6.3 correctly  identifies any of such facilities and locations that
are not owned by the  Borrower  or a  Guarantor  and sets forth the names of the
owners  and  lessors  or  sublessors  of  and,  to the  best  of the  Borrower's
knowledge,  the holders of any mortgages on, such facilities and locations.  The
Borrower covenants and agrees that it will not and will cause the Guarantors not
to (i) maintain any Collateral at any location other than those locations listed
for the Borrower or any Guarantor on Schedule 6.3, (ii) otherwise  change or add
to any of such locations,  or (iii) change the location of their chief executive
office from the location  identified in Schedule 6.3,  unless it gives the Agent
at least thirty (30) days' prior written notice thereof and executes any and all
financing  statements and other  documents that the Agent requests in connection
therewith.  Without  limiting  the  foregoing,   Borrower  represents  that  all
Inventory is, and covenants  that all of its Inventory  will be,  located either
(a) on premises owned by the Borrower or a Guarantor,  (b) on premises leased by
the Borrower,  provided that the Agent has received an executed  landlord waiver
from the landlord of such  premises in form and  substance  satisfactory  to the
Agent,  (c) in a public  warehouse,  provided  that the  Agent has  received  an
executed  bailee  letter from the  applicable  public  warehouseman  in form and
substance satisfactory to the Agent or (d) up to $5,000,000 in the aggregate may
be held by a consignee  of the Borrower or any of its  Subsidiaries  for sale on
consignment  with no landlord  waiver.  The Borrower  agrees and agrees to cause
each  Guarantor  to, take all steps  necessary  to maintain the  perfection  and
priority of the Agent's Lien and security interest (on behalf of the Lenders) in
the Collateral.

        6.14 Further Assurances.  (a) The Borrower shall ensure that all written
information,  exhibits and reports  furnished to the Agent or the Lenders do not
and will not contain any untrue statement of a material fact and do not and will
not omit to state any material fact or any fact necessary to make the statements
contained  therein not misleading in light of the  circumstances  in which made,
and will  promptly  disclose to the Agent and the Lenders and correct any defect
or error that may be




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<PAGE>



discovered therein or in any Loan Document or in the execution,
acknowledgment or recordation thereof.

                (b) Promptly upon request by the Agent or the Majority  Lenders,
the Borrower  shall (and shall cause each  Guarantor  to) execute,  acknowledge,
deliver, record, re-record, file, re-file, register and re-register, any and all
such  further  acts,  deeds,   conveyances,   security  agreements,   mortgages,
assignments,  estoppel  certificates,  financing  statements  and  continuations
thereof, termination statements, notices of assignment, transfers, certificates,
assurances and other instruments the Agent or such Lenders,  as the case may be,
may  reasonably  require  from  time to time in  order  (i) to  carry  out  more
effectively  the purposes of this Agreement or any other Loan Document,  (ii) to
subject  to the Liens  created  by any of the  Collateral  Documents  any of the
properties,  rights or  interests  covered by any of the  Collateral  Documents,
(iii) to perfect and maintain the validity, effectiveness and priority of any of
the Collateral  Documents and the Liens intended to be created thereby, and (iv)
to better assure, convey, grant, assign, transfer, preserve, protect and confirm
to the Agent and Lenders the rights  granted or now or hereafter  intended to be
granted  to the  Lenders  under any Loan  Document  or under any other  document
executed in connection therewith.


                                   ARTICLE VII

                               NEGATIVE COVENANTS

        So long as any Lender shall have any Commitment  hereunder,  or any Loan
or other  Obligation  shall remain  unpaid or  unsatisfied,  unless the Majority
Lenders waive compliance in writing:

        7.01  Limitation on Liens.  The Borrower shall not, and shall not suffer
or permit any Subsidiary (other than MK Gain) to, directly or indirectly,  make,
create,  incur,  assume or suffer to exist any Lien upon or with  respect to any
part of its property,  whether now owned or hereafter  acquired,  other than the
following ("Permitted Liens"):

                (a) any Lien (other than a Lien on the  Collateral)  existing on
property of the  Borrower or any  Guarantor on the Closing Date and set forth in
Schedule 7.01 securing Indebtedness outstanding on such date;

                (b)      any Lien created under any Loan Document;

                (c) Liens for taxes,  fees,  assessments  or other  governmental
charges which are not delinquent or remain payable  without  penalty,  or to the
extent that  nonpayment  thereof is permitted by Section 6.07,  provided that no
notice of lien has been filed or recorded under the Code;




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<PAGE>



                (d)   carriers',    warehousemen's,    mechanics',   landlords',
materialmen's, repairmen's or other similar Liens arising in the ordinary course
of business which are not delinquent or remain payable  without penalty or which
are  being  contested  in  good  faith  and by  appropriate  proceedings,  which
proceedings have the effect of preventing the forfeiture or sale of the property
subject thereto;

                (e) Liens  (other than any Lien  imposed by ERISA and other than
on the  Collateral)  consisting of pledges or deposits  required in the ordinary
course of  business  in  connection  with  workers'  compensation,  unemployment
insurance and other social security legislation;

                (f) Liens (other than Liens on the  Collateral)  on the property
of the Borrower or the Guarantors securing (i) the nondelinquent  performance of
bids,  trade  contracts  (other  than for  borrowed  money),  leases,  statutory
obligations,  (ii) contingent  obligations on surety and appeal bonds, and (iii)
other nondelinquent  obligations of a like nature; in each case, incurred in the
ordinary course of business,  provided all such Liens in the aggregate would not
(even if enforced) cause a Material Adverse Effect;

                (g) Liens  (other than Liens on the  Collateral)  consisting  of
judgment or judicial  attachment  liens,  provided that the  enforcement of such
Liens is  effectively  stayed  and all such liens in the  aggregate  at any time
outstanding for the Borrower and the Guarantors do not exceed $250,000;

                (h)  easements,  rights-of-way,  restrictions  and other similar
encumbrances  incurred  in  the  ordinary  course  of  business  which,  in  the
aggregate,  are  not  substantial  in  amount,  and  which  do not  in any  case
materially  detract from the value of the property  subject thereto or interfere
with  the  ordinary   conduct  of  the   businesses  of  the  Borrower  and  its
Subsidiaries;

                (i) Liens on assets of  corporations  which become  Subsidiaries
after the date of this Agreement;  provided, however, that such Liens existed at
the time the respective corporations became Subsidiaries and were not created in
anticipation thereof;

                (j) purchase money security  interests on any property  acquired
or held by the Borrower or its Borrowing  Subsidiaries in the ordinary course of
business, securing Indebtedness incurred or assumed for the purpose of financing
all or any part of the cost of acquiring  such  property;  provided that (i) any
such Lien  attaches to such property  concurrently  with or within 20 days after
the  acquisition  thereof,  (ii) such Lien  attaches  solely to the  property so
acquired in such  transaction,  (iii) the  principal  amount of the debt secured
thereby  does  not  exceed  100% of the  cost of such  property,  and  (iv)  the
principal amount of the Indebtedness  secured by any and all such purchase money
security




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interests shall not at any time exceed, together with
Indebtedness permitted under Section 7.05(d), $5,000,000;

                (k) Liens  securing  obligations in respect of capital leases on
assets  subject to such leases;  provided that such capital leases are otherwise
permitted hereunder;

                (l) Liens  arising  solely by virtue of any  statutory or common
law provision  relating to banker's  liens,  rights of set-off or similar rights
and remedies as to deposit  accounts or other funds  maintained  with a creditor
depository  institution;  provided  that  (i)  such  deposit  account  is  not a
dedicated cash  collateral  account and is not subject to  restrictions  against
access by the Borrower in excess of those set forth by  regulations  promulgated
by the FRB, and (ii) such deposit account is not intended by the Borrower or any
Subsidiary to provide collateral to the depository institution; and

                (m) Liens on certain limited assets of Boise Locomotive in favor
of the issuer of a performance  bond on behalf of Boise Locomotive in connection
with the  issuance  of  performance  bonds as  expressly  permitted  by  Section
7.08(e).

        7.02 Disposition of Assets. The Borrower shall not, and shall not suffer
or permit any  Subsidiary  to,  directly or  indirectly,  sell,  assign,  lease,
convey,  transfer  or  otherwise  permit a  Disposition  of (whether in one or a
series of transactions) any property  (including  accounts and notes receivable,
with  or  without  recourse)  or  enter  into  any  agreement  to do  any of the
foregoing,  except the following transactions to the extent they are arms-length
transactions  with  Persons  who  are  not  Affiliates  of the  Borrower  or its
Subsidiaries  for  pricing  reflecting  the fair  market  value of any assets or
property being sold:

                (a)      Dispositions of inventory, or used, worn-out or
surplus equipment, all in the ordinary course of business;

                (b)  the  sale  of  equipment  in  the  ordinary  course  and in
accordance  with past  practices to the extent that such  equipment is exchanged
for credit against the purchase price of similar replacement  equipment,  or the
proceeds of such sale are  reasonably  promptly  (and in any event within ninety
(90)  days of such  sale)  applied  to the  purchase  price of such  replacement
equipment;

                (c)  Dispositions  (other than by MK Gain and its  Subsidiaries)
not  otherwise  permitted  hereunder  which  are  made for  fair  market  value;
provided,  that  (i) at the  time of any  Disposition,  no  Default  or Event of
Default  shall exist or shall result after  giving  effect to such  Disposition,
(ii) the aggregate sales price from such Disposition  shall be paid in cash, and
(iii) the aggregate value of all assets so sold by the




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<PAGE>



Borrower  and its  Subsidiaries,  together,  shall not  exceed the lesser of (i)
$3,000,000  in any Fiscal Year (plus the amount of the proceeds from the sale of
the Borrower's  Mountaintop,  PA facility  during the Fiscal Year it is sold, if
ever) and (ii)  $10,000,000  in the aggregate  during the term of the Agreement;
and

                (d)  Dispositions by MK Gain and its Subsidiaries of assets with
a value  not in excess of twenty  percent  (20%) of the  aggregate  value of the
assets of MK Gain and its Subsidiaries (on a consolidated  basis) as shown on MK
Gain's  consolidated  financial  statements in any Fiscal Year, and in any event
not in excess of $20,000,000 in the aggregate.

        7.03 Restriction on Fundamental Changes; Acquisitions.  Neither Borrower
nor any of its  Subsidiaries  will: (a) enter into any  transaction of merger or
consolidation;   (b)  liquidate,  windup  or  dissolve  itself  (or  suffer  any
liquidation or dissolution);  (c) convey,  sell,  lease,  sublease,  transfer or
otherwise dispose of, in one transaction or a series of transactions, all or any
substantial  part of its  business or assets,  or the capital  stock of or other
equity  interests  in any of its  Subsidiaries,  whether now owned or  hereafter
acquired; or (d) acquire by purchase or otherwise all or any substantial part of
the business or assets of, or stock or other  evidence of  beneficial  ownership
of,  any  Person;   provided,   however,  (i)  the  Borrower  may  make  Capital
Expenditures  used for the purchase of assets  permitted  under Section 7.15 and
Investments  permitted  under Section 7.04;  (ii) any Subsidiary  (other than MK
Gain) of Borrower may be merged with or into Borrower (provided that Borrower is
the surviving  entity) or any other Subsidiary of Borrower (other than MK Gain);
(iii)   notwithstanding   any  prohibition  on  MK  Gain  or  its   wholly-owned
Subsidiaries making any such purchases or acquisitions  referenced above, and so
long as no Default or Event of Default has occurred and is continuing  hereunder
after giving effect thereto, MK Gain and its wholly-owned Subsidiaries may enter
into  future  acquisitions  that are not  hostile  in nature to  acquire  all or
substantially  all of the assets or capital stock of any corporation,  entity or
division   (collectively,   "MK  Gain   Acquisitions")  if:  (A)  the  aggregate
consideration to be paid by MK Gain and its wholly-owned  Subsidiaries,  whether
in the form of cash payments, promissory notes or other deferred purchase price,
or assumed debt and liabilities and Indebtedness, in connection with all such MK
Gain Acquisitions and howsoever  evidenced,  shall not exceed $25,000,000 in the
aggregate  (less the  amount  of any  Investments  by MK Gain in Joint  Ventures
pursuant to Section  7.04(g));  (B) such MK Gain  Acquisitions  shall only be of
businesses  and assets  related or similar to the  Borrower's  current  lines of
business and satisfying the  restrictions in Section 7.13, and which  businesses
would not subject the Agent or any Lender to regulatory or third party  approval
in  connection  with the  exercise  of their  rights  and  remedies  under  this
Agreement or any other Loan Documents; and (C) other than as




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<PAGE>



permitted by Section 7.05(f),  no new Indebtedness for borrowed money to finance
such acquisition will be incurred in connection with such MK Gain  Acquisitions;
(iv)  notwithstanding  any prohibition on the Borrower making any such purchases
or acquisitions  referenced above, and so long as no Default or Event of Default
has occurred  and is  continuing  hereunder  after giving  effect  thereto,  the
Borrower  may enter into future  acquisitions  that are not hostile in nature to
acquire  all  or  substantially  all of  the  assets  or  capital  stock  of any
corporation, entity or division (collectively, "Permitted Acquisitions") if:

                (A) the  aggregate  consideration  to be  paid by the  Borrower,
whether  in the  form of cash  payments,  promissory  notes  or  other  deferred
purchase price, or assumed debt and liabilities and Indebtedness,  in connection
with all such Permitted  Acquisitions and howsoever evidenced,  shall not exceed
$15,000,000  in the  aggregate  during the first  twelve (12)  months  after the
Closing Date or $45,000,000 in the aggregate at any time;

                (B) such Permitted  Acquisitions shall only be of businesses and
assets  related or similar  to the  Borrower's  current  lines of  business  and
satisfying  the  restrictions  in Section 7.13, and which  businesses  would not
subject  the Agent or any  Lender  to  regulatory  or third  party  approval  in
connection  with the exercise of their rights and remedies  under this Agreement
or any other Loan Documents;

                (C) the assets so acquired shall be  transferred  free and clear
of any liens and encumbrances (other than Permitted Liens), and any assumed debt
and  liabilities  and  Indebtedness  (excluding  purchase money debt and Capital
Leases  otherwise  permitted  under  Section  7.05) shall be repaid  prior to or
simultaneously with any such Permitted Acquisition;

                (D) other  than under the  Agreement,  no new  Indebtedness  for
borrowed money to finance such  acquisition  will be incurred in connection with
such Permitted Acquisitions;

                (E) environmental  audits, pro forma financial  statements and a
pro forma  borrowing base  certificate (in the form of Exhibit J and showing the
pro forma  borrowing  base of the Borrower after  consummation  of the Permitted
Acquisition),  appraisals  and any other testing or due diligence  investigation
reasonably  required by Agent shall have been completed in a satisfactory manner
and  shows  that the  Borrower  shall  continue  to be in  compliance  with this
Agreement  after  the  consummation  of such  Permitted  Acquisition  including,
without limitation, its pro forma compliance with Sections 7.16, 7.17 and 7.18;

                (F)  Agent,  on behalf of  Lenders,  will be granted a first and
prior perfected  security  interest  (subject to Permitted  Liens) in any assets
being so acquired including, without




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<PAGE>



limitation, a pledge of any capital stock together with a guarantee from any new
Subsidiary  (if such  Permitted  Acquisition  is an  acquisition of stock) and a
pledge of the underlying assets to secure such Subsidiary guarantee; and

                (G) Agent and the Lenders  shall have  received at least 15 days
advance  written  notice of any proposed  acquisition  together with each of the
following documents in form and substance reasonably satisfactory to the Agent:

                (I) pro forma balance  sheets of the Borrower (the  "Acquisition
Pro Forma") on a consolidated and consolidating  basis,  based on financial data
as of a recent  date,  which shall be complete and shall  accurately  and fairly
represent  Borrower's assets,  liabilities,  financial  condition and results of
operations in accordance with GAAP consistently applied, but taking into account
such Permitted  Acquisition  and the  transactions  contemplated by any purchase
agreement documenting such Permitted Acquisition, and such Acquisition Pro Forma
shall  establish that the maximum  Revolving  Loans shall exceed the outstanding
principal  balance  on  the  Revolving  Loan  by at  least  $5,000,000  and  the
Acquisition  Projections  (as  hereinafter  defined)  shall  establish that such
minimum  availability shall continue for at least 30 days after the consummation
of such Future Acquisition;

                (II)   Projections   prepared   in   accordance   with   Section
7.03(iv)(G)(I) (the "Acquisition  Projections") hereof and based upon historical
financial data of a recent date satisfactory to Agent,  taking into account such
Future  Acquisition on a pro forma basis for the prior four (4) quarters and for
the next three (3) years; and

                (III) a certificate of the chief  financial  officer of Borrower
to the effect that:  (x) Borrower will be Solvent upon the  consummation  of the
transactions  contemplated  by the  Acquisition;  (y) the  Acquisition Pro Forma
fairly  presents the  financial  condition  of the  Borrower (on a  consolidated
basis)  as  of  the  date  thereof  after  giving  effect  to  the  transactions
contemplated by such Permitted Acquisition;  (z) the Acquisition Projections are
reasonable estimates of the future financial  performance of Borrower subsequent
to the date thereof  based upon the  historical  performance  of Borrower  after
taking  into  account  the  consummation  of the  Permitted  Acquisition  and in
addition show that on that basis the Borrower would have been in compliance with
the financial  covenants set forth in Sections 7.16,  7.17 and 7.18 for the four
(4) quarter period immediately prior to such Permitted Acquisition; and

                (H)  Agent,  on behalf of  Lenders,  shall  have  received  Lien
searches  (reasonably  satisfactory  to Agent) with  respect to any assets being
acquired.





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<PAGE>



        7.04 Loans and Investments.  The Borrower shall not purchase or acquire,
or suffer or permit any of its Subsidiaries to purchase or acquire,  or make any
commitment therefor,  any capital stock, equity interest,  or any obligations or
other  securities of, or any interest in, any Person,  or make or commit to make
any  Acquisitions,  or make or commit to make any  advance,  loan,  extension of
credit  or  capital  contribution  to or any other  investment  in,  any  Person
including any Affiliate of the Borrower (together, "Investments"), except for:

                (a)      Investments held by the Borrower or its
Subsidiaries in the form of cash equivalents or short-term
marketable securities;

                (b)      extensions of credit in the nature of accounts
receivable or notes receivable arising from the sale or lease of
goods or services in the ordinary course of business;

                (c) extensions of credit by the Borrower in cash directly to any
of its Borrowing  Subsidiaries in the form of intercompany loans;  provided that
such intercompany loans shall be subject to the following terms and conditions:

                (i) such loans shall be unsecured and payable on demand, and the
                Borrower and the  Borrowing  Subsidiaries  hereby agree that all
                such  Indebtedness  shall be subordinated in right of payment to
                the final payment in full in cash of the Obligations;

                (ii) no  Default  or Event of  Default  shall  then exist and be
                continuing  or would  result after giving  effect  thereto,  and
                after giving  effect to each such  intercompany  loan,  both the
                Borrower  making such loan and the  recipient  thereof  shall be
                Solvent;

                (iii)  each  recipient  of such a loan  shall  use the  proceeds
                thereof  solely for its own  working  capital  requirements  and
                other general corporate  purposes arising in the ordinary course
                of its business or as permitted by Section 6.12; and

                (iv) such loans shall be  evidenced by  subordinated  promissory
                notes in form and substance  acceptable to the Agent and pledged
                to and delivered to the Agent pursuant to  documentation in form
                and  substance  acceptable  to the Agent  granting the Agent (on
                behalf  of the  Lenders)  a first  perfected  security  interest
                therein;

                (d)  Investments  by the Borrower in its Borrowing  Subsidiaries
satisfying the terms and conditions of paragraph (c) above and incurred in order
to consummate Permitted Acquisitions otherwise permitted under Section 7.03;





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<PAGE>



                (e)      Investments by the Borrower in Joint Ventures not
exceeding $2,500,000 in any Fiscal Year as to all such
investments in the aggregate;

                (f)      Investments by the Borrower in its wholly-owned
Subsidiaries (other than MK Gain and its Subsidiaries and/or the
Borrowing Subsidiaries) not in excess of $2,500,000 in the
aggregate;

                (g) Investments by MK Gain in (i) its wholly-owned  Subsidiaries
from  time to time  or (ii) in  Joint  Ventures  in  amounts  not in  excess  of
$10,000,000 in the aggregate (less the aggregate amount of MK Gain  Acquisitions
in excess of  $15,000,000),  provided  that in either  case the  funds,  monies,
properties or  consideration  constituting  such Investment or Joint Venture was
not received  from or provided by (directly or  indirectly)  the Borrower or its
other  Subsidiaries  at any time on or after the Closing Date  provided  that at
such  time no  Default  or Event of  Default  shall  then have  occurred  and be
continuing or would result after giving effect thereto;

                (h) Investments by the Borrower in Boise  Locomotive in the form
of asset drop downs and  assignments of title to owned  railroad  locomotives or
rights with respect to leased railroad  locomotives,  provided that the Borrower
shall have (i) obtained all consents with respect to Contractual Obligations and
otherwise  required  to  consummate  such  transactions  without  violating  any
Contractual  Obligations  of the  Borrower  or any  of  its  Subsidiaries,  (ii)
provided  the Agent with ten (10)  Business  Days prior  written  notice of such
transactions  (including  a  certification  that all  consents  as  required  by
paragraph (i) above have been  obtained),  (iii) with respect to owned  railroad
locomotives,  provided the Agent (on behalf of the Lenders) with such  documents
as may be reasonably requested by the Agent and in form and substance reasonably
acceptable  to  the  Agent  including,  without  limitation,  properly  recorded
assignments of all locomotives  mortgages and assignments of leases with respect
to such locomotives and a legal opinion from legal counsel in form and substance
reasonably  satisfactory  to  the  Agent  opining  as to  the  continuing  prior
perfected  security  interest  of the Agent (on behalf of the  Lenders)  in such
owned  railroad   locomotives  and  the  corporate  power  and  authority,   and
enforceability of the transfer documents and mortgages with respect thereto; and
(iv) no Default or Event of Default  shall then have  occurred and be continuing
or would result after giving effect thereto;

                (i)  Investments  by  the  Borrower  in  any  purchaser  of  its
Mountaintop,  Pennsylvania  facility  in the form of a  promissory  note  with a
principal  amount not in excess of $500,000 in the  aggregate  which  promissory
note represents the deferred portion of the purchase price from the sale of such
Mountaintop, Pennsylvania facility; and





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<PAGE>



                (j)  Investments  by the Borrower in MK Gain in the form of that
certain  promissory note in the original  principal amount of $16,551,001.67 and
dated June 30, 1995, provided that the Borrower may not extend any further funds
or loans under such promissory note, but the Borrower may (so long as no Default
or Event of Default  has then  occurred  or would  result  after  giving  effect
thereto) elect to make a further  capital  contribution to MK Gain by converting
such promissory  note to equity,  and after written notice thereof the Agent may
present the original of such promissory note which has been pledged to Agent (on
behalf of the Lenders) for cancellation.

        7.05 Limitation on  Indebtedness.  The Borrower shall not, and shall not
suffer or permit any Subsidiary to, create,  incur, assume,  suffer to exist, or
otherwise  become or remain  directly or indirectly  liable with respect to, any
Indebtedness, except:

                (a)      Indebtedness incurred pursuant to this Agreement;

                (b)      Indebtedness consisting of Contingent Obligations
permitted pursuant to Section 7.08;

                (c)      Indebtedness existing on the Closing Date and set
forth in Schedule 7.05;

                (d)      Indebtedness incurred in connection with leases
permitted pursuant to Section 7.10(c);

                (e)      Indebtedness consisting of purchase money loans
permitted pursuant to Section 7.01(j); and

                (f)  Indebtedness  of MK Gain  (including and not in addition to
any Indebtedness permitted under paragraphs (a) through (e) above) not in excess
of $65,000,000 in aggregate principal amount at any time outstanding;  provided,
however, that in no event may the Borrower or any Guarantor be liable in any way
or have any Contingent  Obligation  with respect to any such  Indebtedness of MK
Gain.

        7.06 Transactions with Affiliates. The Borrower shall not, and shall not
suffer  or  permit  any  Subsidiary  to,  enter  into any  transaction  with any
Affiliate  of the  Borrower,  except  upon  fair  and  reasonable  terms no less
favorable to the Borrower or such  Subsidiary  than would obtain in a comparable
arm's-length  transaction with a Person not an Affiliate of the Borrower or such
Subsidiary  (which shall  include,  without  limitation,  not  permitting  their
outstanding  trade credit being extended to, or accounts or accounts  receivable
due from MK Gain and its  Subsidiaries to exceed,  the payment terms provided to
other creditors generally,  and in any event to not be outstanding for more than
90 days)  except  that (a) the  Borrower  and its  Subsidiaries  may make travel
advances  or other  loans to their  employees  in  connection  with  relocations
provided that all such




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<PAGE>



loans and advances are less than $75,000 in the  aggregate,  (b) the  Borrower's
Subsidiaries  may make  payments to the  Borrower,  (i) to satisfy the  Federal,
state and local income tax  obligations to the extent such  obligations  are the
result of the net  consolidated  income  of the  Borrower's  Subsidiaries  being
attributed  to the Borrower for tax  purposes,  (ii) as permitted  under Section
9.10  hereof or (iii) to pay such other  amounts as are  described  on  Schedule
7.06.

        7.07 Use of Proceeds.  (a) The Borrower  shall not, and shall not suffer
or permit any  Borrowing  Subsidiary  to, use any portion of the Loan  proceeds,
directly or indirectly,  (i) to purchase or carry Margin Stock, (ii) to repay or
otherwise refinance  indebtedness of the Borrower or others incurred to purchase
or carry Margin  Stock,  (iii) to extend credit for the purpose of purchasing or
carrying any Margin  Stock,  or (iv) to acquire any security in any  transaction
that is subject to Section 13 or 14 of the Exchange Act.

                (b) The  Borrower  shall not,  directly or  indirectly,  use any
portion of the Loan  proceeds (i)  knowingly to purchase  Ineligible  Securities
from the Arranger during any period in which the Arranger makes a market in such
Ineligible  Securities,  (ii) knowingly to purchase  during the  underwriting or
placement period Ineligible Securities being underwritten or privately placed by
the  Arranger,  or (iii) to make payments of principal or interest on Ineligible
Securities underwritten or privately placed by the Arranger and issued by or for
the benefit of the Borrower or any Affiliate of the Borrower.  The Arranger is a
registered  broker-dealer  and  permitted  to  underwrite  and  deal in  certain
Ineligible  Securities;  and "Ineligible  Securities" means securities which may
not be  underwritten  or dealt in by member banks of the Federal  Reserve System
under  Section 16 of the Banking  Act of 1933 (12 U.S.C.  ss. 24,  Seventh),  as
amended.

        7.08  Contingent  Obligations.  The  Borrower  shall not,  and shall not
suffer or permit any Subsidiary to, create, incur, assume or suffer to exist any
Contingent Obligations or to have any surety or performance bond obligation used
on its behalf except:

                (a)      endorsements for collection or deposit in the
ordinary course of business;

                (b)      Contingent Obligations of the Borrower and its
Subsidiaries existing as of the Closing Date and listed in
Schedule 7.08;

                (c)      Contingent Obligations under the Loan Documents;

                (d)      Contingent Obligations of MK Gain and its wholly-
owned Subsidiaries in the form of guaranties with respect to any
Indebtedness permitted under Section 7.05(f);




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<PAGE>



                (e)  Contingent  Obligations  of the  Borrower  with  respect to
performance bonds or surety contracts of any kind provided that such performance
bonds or surety contracts are issued in connection with Contractual  Obligations
to reconstruct  railroad locomotives which provide aggregate total consideration
and payments to the Borrower and its  Subsidiaries  not in excess of $10,000,000
in the aggregate  (whether or not progress payments have been made thereunder or
such amounts are then due and owing) and are issued  pursuant to  contracts  and
agreements  in form  and  substance  and from an  issuer  or  surety  reasonably
satisfactory  to the Agent,  and in any event such issuer or surety shall not be
permitted  to take a Lien on any  property  or  assets  of the  Borrower  or its
Subsidiaries other than the Inventory and Accounts  (excluding cash payments not
made directly to such issuer or surety)  directly  identifiable  to the contract
being supported by such surety or performance bond; and

                (f)  Contingent  Obligations  of the  Borrower  in the  form  of
unsecured  guaranties of (i) the  Indebtedness of any Borrowing  Subsidiary with
respect to  Indebtedness  permitted  under Section 7.05(a) through (e), (ii) the
obligations  of Boise  Locomotive  being  assumed by Boise  Locomotive  from the
Borrower pursuant to the transactions permitted under Section 7.04(h), and (iii)
up  to  $1,000,000  of  other   obligations  or  liabilities  of  any  Borrowing
Subsidiaries  which are  permitted  by the terms of this  Agreement,  but in any
event excluding any guaranty or other  Contingent  Obligation of any kind of the
Indebtedness,  obligations and/or liabilities of MK Gain and its Subsidiaries or
Joint Ventures.

        7.09 Joint Ventures; Subsidiaries. The Borrower shall not, and shall not
suffer or permit any Subsidiary to (a) form a new  Subsidiary  after the Closing
Date, except that MK Gain may form additional Wholly-Owned Subsidiaries, and the
Borrower may form a new  Wholly-Owned  Subsidiary to serve as a Mexican  holding
company called MPI de Mexico,  S.A. de C.V. provided that such corporation shall
not hold any  assets  except  that all of the  assets or stock of MK Gain (as it
exists on the Closing Date) may be contributed to such company provided that (i)
no Default or Event of Default  then exists and is  continuing  or would  result
after  giving  effect  thereto,  (ii) such  transaction  can be  completed  on a
tax-free basis to the Borrower and the Guarantors,  (iii) MPI de Mexico, S.A. de
C.V.  will be only a holding  company and not conduct any business or operations
of any kind and (iv) the  Borrower  provides  the  Agent  with at least ten (10)
Business  Days prior written  notice of such  transaction  providing  reasonable
details on the terms and structure  thereof and reaffirming the treatment of and
pledge to the Agent (on behalf of the Lenders) of any  Indebtedness  owing by MK
Gain to the Borrower or any Guarantor or (b) enter into any Joint Venture, other
than in the ordinary  course of business and in accordance  with past practices,
except that MK Gain may enter into Joint  Ventures with Persons  (other than the
Borrower and/or any Guarantors) as permitted by Section 7.04(g)(ii).




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<PAGE>



        7.10 Lease Obligations.  The Borrower shall not, and shall not suffer or
permit any Subsidiary to, (i) create or suffer to exist any  obligations for the
payment  of rent for any  property  under  lease or  agreement  to lease or (ii)
directly or indirectly, enter into any arrangement with any Person providing for
the Borrower or such  Subsidiary  to lease or rent property that the Borrower or
such  Subsidiary  has sold or will sell or  otherwise  transfer to such  Person,
except for:

                (a)      leases of the Borrower and its Subsidiaries in
existence on the Closing Date and any renewal, extension or
refinancing thereof;

                (b)  operating  leases  entered  into  by the  Borrower  and its
Subsidiaries in the ordinary  course of business  (including any in existence on
the Closing  Date) for which the  aggregate  amount of Rentals  (as  hereinafter
defined) payable by (i) the Borrower and its  Subsidiaries  (other than MK Gain)
on a  consolidated  basis in any  Fiscal  Year in  respect of such lease and all
other such leases would exceed Fifteen Million Dollars  ($15,000,000) or (ii) MK
Gain and its  Subsidiaries  (on a  consolidated  basis)  in any  Fiscal  Year in
respect  of such lease and all other  such  leases  would  exceed  Four  Million
Dollars  ($4,000,000);  where the term "Rentals" means all payments due from the
lessee or sublessee under a lease,  including,  without limitation,  basic rent,
percentage  rent,  property taxes,  utility or maintenance  costs, and insurance
premiums;

                (c) capital leases other than those  permitted  under clause (a)
of this  Section,  entered  into by the  Borrower  or any  Subsidiary  after the
Closing  Date to  finance  the  acquisition  of  equipment;  provided  that  the
aggregate  rental  payments  for  all  such  capital  leases  shall  not  exceed
$5,000,000  less the  amount  of any  outstanding  purchase  money  Indebtedness
permitted under Section 7.05(e); and

                (d)  sale-leasebacks  of  locomotives  by the  Borrower or Boise
Locomotive  in  the  ordinary  course  of  its  business,  which  sale-leaseback
transactions are otherwise done in compliance with Section 7.02(c) above.

        7.11 Restricted  Payments;  No Permitted  Restrictions for Subsidiaries.
(a) The Borrower  shall not, and shall not suffer or permit any  Subsidiary  to,
declare  or  make  any  dividend  payment  or  other   distribution  of  assets,
properties,  cash, rights, obligations or securities on account of any shares of
any class of its capital  stock,  or purchase,  redeem or otherwise  acquire for
value any  shares of its  capital  stock or any  warrants,  rights or options to
acquire such shares, now or hereafter outstanding; except that:

                (i)      the Borrower may declare and make dividend payments
or other distributions payable solely in its common stock;




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                (ii) the Borrower  may  purchase,  redeem or  otherwise  acquire
shares of its common  stock or  warrants  or options to acquire  any such shares
with the proceeds received from the substantially concurrent issue of new shares
of its common stock;

                (iii) any Subsidiary may declare and pay cash dividends
to the Borrower;

                (iv) so long as no  Default  or  Event  of  Default  shall  have
occurred or would result after giving effect thereto, the Borrower may make cash
dividend  payments on its common stock not in excess of $3,000,000 in any Fiscal
Year; and

                (v) Motor Coils or  Touchstone  may declare and pay dividends to
MotivePower  Investments in the form of promissory notes which otherwise satisfy
the terms and  conditions  for loans under Section  7.04(c) (as if such dividend
constituted a loan from MotivePower Investments instead of the Borrower).

                (b) The Borrower shall not permit any of its Subsidiaries (other
than MK Gain) to, directly or indirectly, create or otherwise cause or suffer to
exist or become  effective any  encumbrance or restriction on the ability of any
such  Subsidiary  to (I) pay  dividends or make any other  distributions  to the
Borrower or any of its other  Subsidiaries  (1) on its capital stock or (2) with
respect to any other interest or participation  in, or measured by, its profits,
(II) pay any indebtedness owed to the Borrower or any of its other Subsidiaries,
(III) make loans or advances to the  Borrower or any of its other  Subsidiaries,
or (IV)  transfer any of its  properties or assets to the Borrower or any of its
other Subsidiaries (collectively,  "Encumbrances"), except for such Encumbrances
existing  under or by reason of (1) this  Agreement,  (2)  applicable  law,  (3)
customary  non-assignment  provisions  in leases  entered  into in the  ordinary
course of business and  consistent  with past  practices,  or (4) purchase money
obligations for property acquired in the ordinary course of business that impose
restrictions of the nature described in paragraph  (b)(IV) above on the property
so acquired.

        7.12 ERISA.  The Borrower  shall not, and shall not suffer or permit any
of its ERISA Affiliates to: (a) engage in a prohibited  transaction or violation
of the  fiduciary  responsibility  rules  with  respect  to any Plan  which  has
resulted or could  reasonably be expected to result in liability of the Borrower
in an  aggregate  amount in excess of $500,000;  or (b) engage in a  transaction
that could be subject to Section 4069 or 4212(c) of ERISA.

        7.13  Change in Business; Holding Companies; FSC Operations.
The Borrower shall not, and shall not suffer or permit any
Subsidiary to, engage in any material line of business
substantially different from those lines of business carried on




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by the Borrower and its  Subsidiaries on the date hereof.  Both the Borrower and
MotivePower  Investments  shall only act as holding companies to own the capital
stock of their  Subsidiaries  and shall not own other assets or conduct business
operations  except in accordance  with past  practices as in effect  immediately
after the  Reorganization.  The FSC will only be permitted to engage in business
as a foreign sales  corporation on a commission  basis,  being  commissioned for
foreign sales on an  acceptable  basis within the IRS  guidelines,  and will not
have any assets or property of any kind other than  Accounts  then due and owing
in the ordinary course of business from foreign Persons in aggregate amounts not
in excess of $5,000,000 (and provided that an equivalent  account  receivable is
created in favor of one of the  Guarantors or the Borrower) and a minimal amount
in a bank account which may be maintained in Barbados.

        7.14 Accounting Changes. The Borrower shall not, and shall not suffer or
permit any Subsidiary to, make any significant change in accounting treatment or
reporting  practices,  except as required by GAAP,  or change the fiscal year of
the Borrower or of any Subsidiary.

        7.15 Capital Expenditures.  The Borrower shall not, and shall not permit
any Subsidiary to make or incur any Capital  Expenditure if, after giving effect
thereto,  the aggregate  amount of all Capital  Expenditures by the Borrower and
its Subsidiaries on a consolidated basis would exceed during any Fiscal Year the
amount of  $15,000,000  plus an amount equal to the proceeds of equipment  sales
which are made and  reinvested  in  replacement  equipment  in  accordance  with
Section 7.02(b) during any Fiscal Year.

        7.16  Maximum  Ratio of Funded  Debt to Cash Flow.  The  Borrower  (on a
consolidated  basis with its  subsidiaries  other than MK Gain) shall not permit
the ratio as of the last day of each Fiscal  Quarter  after the Closing  Date of
its (A)  Funded  Debt  as of such  date to (B)  Cash  Flow  for the  immediately
preceding  four  Fiscal  Quarters  ending on such date,  to be greater  than (i)
3.50:1.00 for Fiscal Quarters ending during Fiscal Year 1997, (ii) 3.25:1.00 for
Fiscal Quarters ending during Fiscal Year 1998, and (iii) 3.00:1.00 thereafter.

        7.17 Minimum Tangible Net Worth.  The Borrower (on a consolidated  basis
with its  Subsidiaries  other than MK Gain)  shall not permit its  Tangible  Net
Worth at any  time to be less  than the sum of (i) 90% of  actual  Tangible  Net
Worth as of December  31, 1996  (which  excludes MK Gain),  plus (ii) 75% of the
Borrower's  cumulative net income (which  excludes MK Gain, and shall not in any
event be reduced by losses) commencing January 1, 1997.

        7.18  Minimum Fixed Charges Coverage Ratio.    The Borrower
(on a consolidated basis with its Subsidiaries other than MK




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Gain) shall not permit the ratio of its (A)(i)  EBITDA,  plus (ii) rent  expense
pursuant to all  operating  leases to (B) Fixed  Charges,  as of the last day of
each Fiscal  Quarter after the Closing Date for the  immediately  preceding four
Fiscal  Quarters  ending as of the last day of each such Fiscal  Quarter,  to be
less than 1.25:1.00.


                                  ARTICLE VIII

                                EVENTS OF DEFAULT

        8.01  Event of Default.  Any of the following shall
constitute an "Event of Default":

                (a)  Non-Payment.  The Borrower  fails to make,  (i) when and as
required to be made herein,  payments of any amount of principal of any Loan, or
(ii) within 3 days after the same becomes due,  payment of any interest,  fee or
any other amount payable  hereunder or under any other Loan Document  including,
without limitation, any Specified Swap Contract; or

                (b)  Representation or Warranty.  Any representation or warranty
by the Borrower or any of its  Subsidiaries  made or deemed made herein,  in any
other Loan  Document,  or which is  contained  in any  certificate,  document or
financial or other statement by the Borrower,  any Borrowing Subsidiary,  or any
Responsible Officer,  furnished at any time under this Agreement, or in or under
any other Loan  Document is incorrect  in any  material  respect on or as of the
date made or deemed made; or

                (c)      Specific Defaults.  The Borrower fails to perform
or observe any term, covenant or agreement contained in (i) any
of Section 6.01, 6.02, 6.03 for a period of five (5) days or
(ii) in any of Section 6.06 or 6.13 or in Article VII; or

                (d) Other  Defaults.  The  Borrower  or any of its  Subsidiaries
fails to  perform  or  observe  any other  term or  covenant  contained  in this
Agreement  or any other Loan  Document to which it is a party,  and such default
shall  continue  unremedied for a period of 20 days after the earlier of (i) the
date upon which a Responsible  Officer knew or  reasonably  should have known of
such failure or (ii) the date upon which written  notice thereof is given to the
Borrower by the Agent or any Lender; or

                (e)  Cross-Default.  The  Borrower  or any  of its  Subsidiaries
(other  than  MK  Gain)  (A)  fails  to  make  any  payment  in  respect  of any
Indebtedness,  preferred  stock or  Contingent  Obligation,  having an aggregate
principal amount or redemption price (including  undrawn  committed or available
amounts and  including  amounts  owing to all  creditors  under any  combined or
syndicated credit arrangement) of more than $1,000,000 when due




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(whether by scheduled maturity,  required prepayment,  acceleration,  demand, or
otherwise)  and such  failure  continues  after the  applicable  grace or notice
period, if any,  specified in the relevant document on the date of such failure;
or (B) fails to perform or observe any other condition or covenant, or any other
event shall occur or condition exist, under any agreement or instrument relating
to any such  Indebtedness,  preferred stock or Contingent  Obligation,  and such
failure continues after the applicable grace or notice period, if any, specified
in the  relevant  document  on the date of such  failure  if the  effect of such
failure,  event or condition is to cause,  or to permit the holder or holders of
such  Indebtedness  or preferred stock or beneficiary or  beneficiaries  of such
Indebtedness  or preferred stock (or a trustee or agent on behalf of such holder
or holders or  beneficiary  or  beneficiaries)  to cause  such  Indebtedness  or
preferred  stock  to be  declared  to be due and  payable  prior  to its  stated
maturity,  or such Contingent Obligation to become payable or cash collateral in
respect thereof to be demanded; or

                (f) Insolvency;  Voluntary  Proceedings.  The Borrower or any of
its Subsidiaries  (i) ceases or fails to be solvent,  or generally fails to pay,
or admits in writing its inability to pay, its debts as they become due, subject
to applicable  grace periods,  if any,  whether at stated maturity or otherwise;
(ii) voluntarily  ceases to conduct its business in the ordinary  course;  (iii)
commences any Insolvency  Proceeding  with respect to itself;  or (iv) takes any
action to effectuate or authorize any of the foregoing; or

                (g)  Involuntary  Proceedings.  (i) Any  involuntary  Insolvency
Proceeding   is  commenced  or  filed   against  the  Borrower  or  any  of  its
Subsidiaries, or any writ, judgment, warrant of attachment, execution or similar
process, is issued or levied against a substantial part of the Borrower's or any
of its Subsidiary's properties, and any such proceeding or petition shall not be
dismissed, or such writ, judgment,  warrant of attachment,  execution or similar
process  shall not be  released,  vacated or fully  bonded  within 60 days after
commencement,  filing  or levy;  (ii) the  Borrower  or any of its  Subsidiaries
admits  the  material  allegations  of a petition  against it in any  Insolvency
Proceeding,  or an order for relief (or  similar  order under  non-U.S.  law) is
ordered  in any  Insolvency  Proceeding;  or (iii)  the  Borrower  or any of its
Subsidiaries  acquiesces in the appointment of a receiver,  trustee,  custodian,
conservator,  liquidator,  mortgagee in possession (or agent therefor), or other
similar Person for itself or a substantial  portion of its property or business;
or

                (h) ERISA.  (i) An ERISA  Event  shall  occur with  respect to a
Pension Plan or  Multiemployer  Plan which has resulted or could  reasonably  be
expected to result in liability  of the Borrower  under Title IV of ERISA to the
Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess




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<PAGE>



of $1,000,000;  or (ii) the aggregate amount of Unfunded Pension Liability among
all Pension Plans at any time exceeds  $1,000,000;  or (iii) the Borrower or any
ERISA  Affiliate  shall  fail to pay  when  due,  after  the  expiration  of any
applicable grace period, any installment  payment with respect to its withdrawal
liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate
amount in excess of $1,000,000; or

                (i) Monetary Judgments. One or more non-interlocutory judgments,
non-interlocutory  orders,  decrees or arbitration awards is entered against the
Borrower or any Guarantor  involving in the aggregate a liability (to the extent
not covered by  independent  third-party  insurance as to which the insurer does
not  dispute  coverage)  as to any  single or  related  series of  transactions,
incidents  or  conditions,  of  $500,000  or  more,  and the same  shall  remain
unsatisfied, unvacated and unstayed pending appeal for a period of 10 days after
the entry thereof; or

                (j) Non-Monetary Judgments.  Any non-monetary judgment, order or
decree is entered against the Borrower or any of its Subsidiaries  which does or
would reasonably be expected to have a Material Adverse Effect,  and there shall
be any period of 10 consecutive  days during which a stay of enforcement of such
judgment or order,  by reason of a pending appeal or otherwise,  shall not be in
effect; or

                (k)      Change of Control.  There occurs any Change of
Control; or

                (l) Loss of Licenses.  Any other Governmental  Authority revokes
or fails to renew  any  license,  permit or  franchise  of the  Borrower  or any
Subsidiary,  or the Borrower or any Subsidiary for any reason loses any material
license,  permit or  franchise,  or the Borrower or any  Subsidiary  suffers the
imposition of any restraining order,  escrow,  suspension or impound of funds in
connection with any proceeding  (judicial or administrative) with respect to any
license, permit or franchise and the result is a Material Adverse Effect; or

                (m)      Adverse Change.  There occurs a Material Adverse
Effect; or

                (n)  Guarantor  Defaults.  Any  Guarantor  fails in any material
respect to perform or observe any term,  covenant or agreement in the  Guaranty;
or the Guaranty is for any reason  partially  (including  with respect to future
advances) or wholly revoked or  invalidated,  or otherwise  ceases to be in full
force and effect,  or the  Guarantor or any other Person  contests in any manner
the  validity  or  enforceability  thereof  or  denies  that it has any  further
liability or obligation thereunder; or any event described at subsections (f) or
(g) of this Section occurs with respect to any Guarantor; or





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                (o)      Collateral.

                                (i)  any provision of any Collateral Document
        shall for any reason  cease to be valid and  binding  on or  enforceable
        against the  Borrower or any of its  Subsidiaries  party  thereto or the
        Borrower or any of its  Subsidiaries  shall so state in writing or bring
        an action to limit its obligations or liabilities thereunder; or

                               (ii) any Collateral Document shall for any reason
        (other  than  pursuant  to the  terms  thereof)  cease to create a valid
        security  interest in the Collateral  purported to be covered thereby or
        such security  interest shall for any reason cease to be a perfected and
        first priority security interest subject only to Permitted Liens; or

                (p)  Cross-Acceleration  to MK Gain Debt. A default occurs under
any  mortgage,  indenture  or  instrument  under which there may be issued or by
which there may be secured or evidenced  any  Indebtedness  of MK Gain or any of
its  Subsidiaries  (or  any  Guaranty  Obligation  of MK  Gain  or  any  of  its
Subsidiaries),  whether such  Indebtedness or Guaranty  Obligation now exists or
shall be created after the date hereof, which default (a) is caused by a failure
to pay  principal  of or premium,  if any, or interest on such  Indebtedness  or
Guaranty Obligation prior to the expiration of the grace period provided in such
Indebtedness  (a "Payment  Default") or (b) results in the  acceleration of such
Indebtedness or Guaranty  Obligation  prior to its express maturity and, in each
case, the principal amount of such Indebtedness or Guaranty Obligation, together
with the principal amount of any other Indebtedness or Guaranty Obligation as to
which  there has been a Payment  Default  or the  maturity  of which has been so
accelerated, aggregates $1,000,000 or more; or

                (q) Locomotive  Leases.  Any default,  violation or breach shall
occur in any covenants or agreements  contained in any lease documents  pursuant
to which the Borrower or Boise Locomotive  leases railroad  locomotives from any
other Person,  and such locomotive  lease shall be terminated,  or such default,
violation or breach shall  continue,  for more than the applicable  grace period
(and  shall  not have  been  waived  in  writing),  and  shall  give the  lessor
thereunder the right to terminate such locomotive  lease or otherwise bring suit
of any kind  against the Borrower or Boise  Locomotive  for  injunctive  relief,
damages or other penalties or costs of any kind; or

        8.02  Remedies.  If any Event of Default occurs, the Agent
shall, at the request of, or may, with the consent of, the
Majority Lenders,

                (a)      declare the commitment of each Lender to make Loans
to be terminated, whereupon such commitments shall be terminated;





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                (b)  declare  the  unpaid  principal  amount of all  outstanding
Loans, all interest  accrued and unpaid thereon,  and all other amounts owing or
payable  hereunder or under any other Loan  Document to be  immediately  due and
payable,  without presentment,  demand, protest or other notice of any kind, all
of which are hereby expressly waived by the Borrower; and

                (c)      exercise on behalf of itself and the Lenders all
rights and remedies available to it and the Lenders under the
Loan Documents or applicable law;

provided, however, that upon the occurrence of any event specified in subsection
(f) or (g) of Section 8.01 (in the case of clause (i) of subsection (g) upon the
expiration  of the 60-day  period  mentioned  therein),  the  obligation of each
Lender to make Loans  shall  automatically  terminate  and the unpaid  principal
amount of all outstanding  Loans and all interest and other amounts as aforesaid
shall  automatically  become due and payable without further act of the Agent or
any Lender.

        8.03  Specified  Swap  Contract  Remedies.   Notwithstanding  any  other
provision of this Article VIII,  each  Specified  Swap  Provider  shall have the
right,  with prior  notice to the Agent,  but without the approval or consent of
the Agent or the other  Lenders,  with respect to any Specified Swap Contract of
such Specified Swap  Provider,  (a) to declare an event of default,  termination
event or other  similar  event  thereunder,  (b) to  determine  net  termination
amounts in accordance with the terms of such Specified Swap Contract, and (c) to
prosecute any legal action  against the Borrower to enforce net amounts owing to
such Specified Swap Provider.

        8.04 Rights Not Exclusive. (a) The rights provided for in this Agreement
and the other Loan  Documents are  cumulative and are not exclusive of any other
rights,  powers,  privileges or remedies  provided by law or in equity, or under
any other instrument, document or agreement now existing or hereafter arising.

                (b) If an Event of Default exists:  (i) the Agent shall have for
the benefit of the Lenders, in addition to all other rights of the Agent and the
Lenders,  the rights and  remedies of a secured  party  under the UCC;  (ii) the
Agent may, at any time,  take  possession of the  Collateral  and keep it on the
applicable  Borrower's or any Guarantor's  premises,  at no cost to the Agent or
any Lender,  or remove any part of it to such other place or places as the Agent
may desire,  or the Borrower shall,  upon the Agent's demand,  at the Borrower's
cost,  assemble  the  Collateral  and make it  available to the Agent at a place
reasonably convenient to the Agent; and (iii) the Agent 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 the  Agent  deems  advisable,  in its sole
discretion, and may, if the Agent




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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. Without in any way requiring notice to
be given in the  following  manner,  the Borrower  agrees that any notice by the
Agent of sale,  disposition or other intended action  hereunder or in connection
herewith,  whether required by the UCC or otherwise, shall constitute reasonable
notice to the Borrower if such notice is mailed by registered or certified mail,
return receipt requested,  postage prepaid,  or is delivered  personally against
receipt,  at least five (5) Business Days prior to such action to the Borrower's
address  specified in or pursuant to Section 10.12. If any Collateral is sold on
terms other than  payment in full at the time of sale,  no credit shall be given
against the Obligations  until the Agent or the Lenders receive payment,  and if
the buyer  defaults  in  payment,  the Agent may resell the  Collateral  without
further notice to the Borrower or any other Person. In the event the Agent seeks
to take possession of all or any portion of the Collateral by judicial  process,
the Borrower and the Guarantors  irrevocably waive: (a) the posting of any bond,
surety or security with respect thereto which might  otherwise be required;  (b)
any demand for  possession  prior to the  commencement  of any suit or action to
recover the Collateral; and (c) any requirement that the Agent retain possession
and not  dispose of any  Collateral  until after  trial or final  judgment.  The
Borrower and the  Guarantors  agree that the Agent has no obligation to preserve
rights to the  Collateral  or  marshal  any  Collateral  for the  benefit of any
Person.  The Agent is hereby  granted a license or other  right to use,  without
charge, the Borrower's and the Guarantors' labels,  patents,  copyrights,  name,
trade secrets, trade names,  trademarks,  and advertising matter, or any similar
property,  in completing  production of,  advertising or selling any Collateral,
and the  Borrower's  and the  Guarantors'  rights  under  all  licenses  and all
franchise  agreements shall inure to the Agent's  benefit.  The proceeds of sale
shall be applied in accordance with this Agreement and the Borrower shall remain
liable for any deficiency.

                (c)      Supporting Letter of Credit; Cash Collateral.  If
                         --------------------------------------------
any Letter of Credit is outstanding upon the termination of this
Agreement, then upon such termination the Borrower shall deposit
with the Agent, for the ratable benefit of the Lenders, with
respect to each Letter of Credit then outstanding, as the
Majority Lenders, in their sole discretion shall specify, either
(A) a standby letter of credit (a "Supporting Letter of Credit")
                                   ---------------------------
in form and substance satisfactory to the Agent, issued by an
issuer satisfactory to the Agent and in an amount equal to the
greatest amount for which such Letter of Credit may be drawn,
under which Supporting Letter of Credit the Agent is entitled to
draw amounts necessary to reimburse the Agent and the Lenders for
payments made by the Agent and the Lenders under such Letter of
Credit or under any credit support or enhancement provided
through the Agent with respect thereto, or (B) cash in amounts




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necessary to reimburse the Agent and the Lenders for payments made or to be made
(including,  without  limitation,  the amount that the Agent  estimates  will be
necessary to cover its expenses and legal fees in  connection  therewith) by the
Agent or the Lenders under such Letter of Credit or under any credit  support or
enhancement  provided  through the Agent with respect  thereto.  Such Supporting
Letter of Credit or deposit of cash shall be held by the Agent,  for the ratable
benefit of the Lenders,  as security for, and to provide for the payment of, the
aggregate undrawn amount of such Letters of Credit remaining outstanding.

        8.05  Certain  Financial  Covenant  Defaults.  In the event that,  after
taking into account any extraordinary charge to earnings taken or to be taken as
of the end of any fiscal period of the Borrower (a  "Charge"),  and if solely by
virtue of such  Charge,  there would exist an Event of Default due to the breach
of any of Sections 7.16,  7.17, or 7.18 as of such fiscal period end date,  such
Event of Default shall be deemed to arise upon the earlier of (a) the date after
such fiscal  period end date on which the  Borrower  announces  publicly it will
take, is taking or has taken such Charge  (including an announcement in the form
of a statement in a report filed with the SEC) or, if such  announcement is made
prior to such fiscal  period end date,  the date that is such fiscal  period end
date; and (b) the date the Borrower  delivers to the Agent its audited annual or
unaudited  quarterly  financial  statements  in  respect of such  fiscal  period
reflecting such Charge as taken.


                                   ARTICLE IX

                                    THE AGENT

        9.01  Appointment  and  Authorization;   "Agent".   Each  Lender  hereby
irrevocably  (subject to Section 9.09)  appoints,  designates and authorizes the
Agent to take such action on its behalf under the  provisions of this  Agreement
and each other Loan Document and to exercise such powers and perform such duties
as are  expressly  delegated  to it by the terms of this  Agreement or any other
Loan Document,  together with such powers as are reasonably  incidental thereto.
Notwithstanding  any  provision  to the  contrary  contained  elsewhere  in this
Agreement or in any other Loan Document,  the Agent shall not have any duties or
responsibilities,  except those expressly set forth herein,  nor shall the Agent
have or be deemed to have any  fiduciary  relationship  with any Lender,  and no
implied  covenants,   functions,   responsibilities,   duties,   obligations  or
liabilities  shall be read into this  Agreement  or any other Loan  Document  or
otherwise  exist  against the Agent.  Without  limiting  the  generality  of the
foregoing sentence, the use of the term "agent" in this Agreement with reference
to the Agent is not  intended  to connote  any  fiduciary  or other  implied (or
express)  obligations  arising  under  agency  doctrine of any  applicable  law.
Instead, such term is used merely as a matter of




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market  custom,  and is  intended  to create or reflect  only an  administrative
relationship between independent contracting parties.

        9.02 Delegation of Duties. The Agent may execute any of its duties under
this  Agreement or any other Loan  Document by or through  agents,  employees or
attorneys-in-fact  and shall be  entitled  to advice of counsel  concerning  all
matters  pertaining to such duties.  The Agent shall not be responsible  for the
negligence or misconduct of any agent or  attorney-in-fact  that it selects with
reasonable care.

        9.03 Liability of Agent. None of the Agent-Related  Persons shall (i) be
liable  for any  action  taken or omitted to be taken by any of them under or in
connection  with this  Agreement or any other Loan Document or the  transactions
contemplated hereby (except for its own gross negligence or willful misconduct),
or (ii) be  responsible  in any manner to any of the  Lenders  for any  recital,
statement,  representation or warranty made by the Borrower or any Subsidiary or
Affiliate of the Borrower,  or any officer thereof,  contained in this Agreement
or in any other Loan Document, or in any certificate, report, statement or other
document  referred to or  provided  for in, or received by the Agent under or in
connection with, this Agreement or any other Loan Document,  or for the value of
or  title  to any  Collateral,  or  the  validity,  effectiveness,  genuineness,
enforceability  or sufficiency of this Agreement or any other Loan Document,  or
for any  failure of the  Borrower  or any other  party to any Loan  Document  to
perform its obligations  hereunder or thereunder.  No Agent-Related Person shall
be under any  obligation  to any  Lender to  ascertain  or to  inquire as to the
observance or performance  of any of the agreements  contained in, or conditions
of, this  Agreement or any other Loan  Document,  or to inspect the  properties,
books or  records  of the  Borrower  or any of the  Borrower's  Subsidiaries  or
Affiliates.

        9.04  Reliance by Agent.  (a) The Agent  shall be entitled to rely,  and
shall be fully  protected  in relying,  upon any  writing,  resolution,  notice,
consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone
message,  statement  or other  document  or  conversation  believed  by it to be
genuine and correct and to have been signed,  sent or made by the proper  Person
or Persons,  and upon advice and statements of legal counsel  (including counsel
to the  Borrower),  independent  accountants  and other experts  selected by the
Agent.  The Agent  shall be fully  justified  in failing or refusing to take any
action  under this  Agreement or any other Loan  Document  unless it shall first
receive  such  advice  or  concurrence  of  the  Majority  Lenders  as it  deems
appropriate  and,  if it so  requests,  it  shall  first be  indemnified  to its
satisfaction  by the Lenders against any and all liability and expense which may
be incurred by it by reason of taking or continuing to take any such action. The
Agent shall in all cases be fully protected in acting, or in




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refraining  from  acting,  under this  Agreement  or any other Loan  Document in
accordance  with a request or consent of the  Majority  Lenders and such request
and any action  taken or failure to act pursuant  thereto  shall be binding upon
all of the Lenders.

                (b) For purposes of determining  compliance  with the conditions
specified in Section 4.01, each Lender that has executed this Agreement shall be
deemed to have consented to,  approved or accepted or to be satisfied with, each
document or other matter either (i) if it is in  substantially  the form sent by
the Agent to such Lender for consent, approval,  acceptance or satisfaction,  or
(ii) required to be consented to or approved by or acceptable or satisfactory to
such Lender on the Closing  Date,  to the extent not so delivered to such Lender
but available at Closing.

        9.05 Notice of Default.  The Agent shall not be deemed to have knowledge
or notice of the  occurrence  of any  Default or Event of  Default,  except with
respect to defaults in the payment of  principal,  interest and fees required to
be paid to the Agent for the account of the Lenders, unless the Agent shall have
received  written  notice  from a  Lender  or the  Borrower  referring  to  this
Agreement,  describing  such  Default or Event of Default and stating  that such
notice is a "notice  of  default".  The Agent  will  notify  the  Lenders of its
receipt of any such  notice.  The Agent shall take such  action with  respect to
such Default or Event of Default as may be requested by the Majority  Lenders in
accordance with Article VIII; provided, however, that unless and until the Agent
has received  any such  request,  the Agent may (but shall not be obligated  to)
take such  action,  or refrain  from taking such  action,  with  respect to such
Default or Event of Default as it shall deem  advisable or in the best  interest
of the Lenders.

        9.06  Credit  Decision.  Each  Lender  acknowledges  that  none  of  the
Agent-Related Persons has made any representation or warranty to it, and that no
act by the Agent hereinafter  taken,  including any review of the affairs of the
Borrower and its Subsidiaries,  shall be deemed to constitute any representation
or warranty by any Agent-Related Person to any Lender. Each Lender represents to
the Agent that it has, independently and without reliance upon any Agent-Related
Person and based on such documents and information as it has deemed appropriate,
made  its own  appraisal  of and  investigation  into the  business,  prospects,
operations,  property, financial and other condition and creditworthiness of the
Borrower and its Subsidiaries, the value of and title to any Collateral, and all
applicable  bank  regulatory  laws  relating  to the  transactions  contemplated
hereby, and has made its own decision to enter into this Agreement and to extend
credit to the Borrower and its  Borrowing  Subsidiaries  hereunder.  Each Lender
also  represents  that it will,  independently  and  without  reliance  upon any
Agent-Related  Person and based on such  documents and  information  as it shall
deem appropriate at the time, continue to




                                       98

<PAGE>



make its own credit  analysis,  appraisals and decisions in taking or not taking
action  under  this  Agreement  and the other Loan  Documents,  and to make such
investigations  as it deems  necessary  to  inform  itself  as to the  business,
prospects,   operations,   property,   financial   and   other   condition   and
creditworthiness  of  the  Borrower.  Except  for  notices,  reports  and  other
documents expressly herein required to be furnished to the Lenders by the Agent,
the Agent shall not have any duty or  responsibility  to provide any Lender with
any credit or other information concerning the business, prospects,  operations,
property,  financial  and other  condition or  creditworthiness  of the Borrower
which may come into the possession of any of the Agent-Related Persons.

        9.07   Indemnification  of  Agent.   Whether  or  not  the  transactions
contemplated hereby are consummated, the Lenders shall indemnify upon demand the
Agent-Related  Persons  (to the  extent  not  reimbursed  by or on behalf of the
Borrower  and without  limiting  the  obligation  of the Borrower to do so), pro
rata, from and against any and all Indemnified Liabilities;  provided,  however,
that no Lender shall be liable for the payment to the  Agent-Related  Persons of
any portion of such Indemnified  Liabilities resulting solely from such Person's
gross  negligence or willful  misconduct.  Without  limitation of the foregoing,
each Lender shall  reimburse  the Agent upon demand for its ratable share of any
costs or out-of-pocket expenses (including, without limitation,  Attorney Costs)
incurred by the Agent in connection with the preparation,  execution,  delivery,
administration,   modification,   amendment  or  enforcement   (whether  through
negotiations,  legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities  under, this Agreement,  any other Loan Document,  or
any document contemplated by or referred to herein, to the extent that the Agent
is not  reimbursed  for such  expenses  by or on  behalf  of the  Borrower.  The
undertaking  in this  Section  shall  survive  the  payment  of all  Obligations
hereunder and the resignation or replacement of the Agent.

        9.08 Agent in  Individual  Capacity.  BofA and its  Affiliates  may make
loans to,  issue  letters of credit for the account of,  accept  deposits  from,
acquire equity  interests in, engage in Swap  Contracts and generally  engage in
any kind of banking,  trust, financial advisory,  underwriting or other business
with the Borrower and its  Subsidiaries  and  Affiliates as though BofA were not
the Agent hereunder and without notice to or consent of the Lenders. The Lenders
acknowledge  that,  pursuant  to such  activities,  BofA or its  Affiliates  may
receive  information   regarding  the  Borrower  or  its  Affiliates  (including
information that may be subject to  confidentiality  obligations in favor of the
Borrower or such  Subsidiary) and  acknowledge  that the Agent shall be under no
obligation to provide such information to them. With respect to its Loans,  BofA
shall have the same rights and powers  under this  Agreement as any other Lender
and may exercise




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the same as though it were not the Agent,  and the terms  "Lender" and "Lenders"
include BofA in its individual capacity.

        9.09 Successor  Agent. The Agent may, and at the request of the Majority
Lenders shall, resign as Agent upon 30 days' notice to the Lenders. If the Agent
resigns under this Agreement,  the Majority Lenders shall appoint from among the
Lenders a  successor  agent  for the  Lenders  which  successor  agent  shall be
approved  by the  Borrower.  If no  successor  agent is  appointed  prior to the
effective  date of the  resignation of the Agent,  the Agent may appoint,  after
consulting  with the Lenders and the Borrower,  a successor agent from among the
Lenders.  Upon the acceptance of its appointment as successor  agent  hereunder,
such successor  agent shall succeed to all the rights,  powers and duties of the
retiring  Agent,  and the term "Agent" shall mean such  successor  agent and the
retiring  Agent's  appointment,  powers and duties as Agent shall be terminated.
After any retiring  Agent's  resignation  hereunder as Agent,  the provisions of
this  Article IX and  Sections  10.04 and 10.05 shall inure to its benefit as to
any  actions  taken or omitted  to be taken by it while it was Agent  under this
Agreement.  If no successor agent has accepted  appointment as Agent by the date
which is 30 days  following  a  retiring  Agent's  notice  of  resignation,  the
retiring Agent's  resignation shall nevertheless  thereupon become effective and
the Lenders  shall perform all of the duties of the Agent  hereunder  until such
time, if any, as the Majority  Lenders appoint a successor agent as provided for
above.

        9.10  Withholding Tax.  (a)  If any Lender is a "foreign
corporation, partnership or trust" within the meaning of the Code
and such Lender claims exemption from, or a reduction of, U.S.
withholding tax under Sections 1441 or 1442 of the Code, such
Lender agrees with and in favor of the Agent, to deliver to the
Agent:

                                (i)  if such Lender claims an exemption from, or
        a  reduction  of,  withholding  tax under a United  States  tax  treaty,
        properly  completed  IRS Forms 1001 and W-8  before  the  payment of any
        interest  in the first  calendar  year and  before  the  payment  of any
        interest in each third  succeeding  calendar year during which  interest
        may be paid under this Agreement;

                               (ii)  if such Lender claims that interest paid
        under this  Agreement  is exempt  from  United  States  withholding  tax
        because  it is  effectively  connected  with a  United  States  trade or
        business of such Lender,  two properly  completed and executed copies of
        IRS Form 4224  before the  payment of any  interest  is due in the first
        taxable year of such Lender and in each succeeding  taxable year of such
        Lender during which interest may be paid under this  Agreement,  and two
        copies of IRS Form W-9; and





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                         (iii) such other form or forms as may be required under
        the Code or other laws of the United  States as a condition to exemption
        from, or reduction of, United States withholding tax.

                Such Lender agrees to promptly notify the Agent of any change in
circumstances  which would  modify or render  invalid any claimed  exemption  or
reduction.

                (b) If any  Lender  claims  exemption  from,  or  reduction  of,
withholding  tax under a United States tax treaty by providing IRS Form 1001 and
such Lender sells,  assigns,  grants a participation in, or otherwise  transfers
all or part of the  Obligations  of the  Borrower  to such  Lender,  such Lender
agrees to notify the Agent of the percentage amount in which it is no longer the
beneficial owner of Obligations of the Borrower to such Lender. To the extent of
such percentage  amount,  the Agent will treat such Lender's IRS Form 1001 as no
longer valid.

                (c)  If  any  Lender  claiming   exemption  from  United  States
withholding tax by filing IRS Form 4224 with the Agent sells, assigns,  grants a
participation  in, or otherwise  transfers all or part of the Obligations of the
Borrower to such Lender, such Lender agrees to undertake sole responsibility for
complying with the  withholding  tax  requirements  imposed by Sections 1441 and
1442 of the Code.

                (d) If any Lender is entitled to a reduction  in the  applicable
withholding tax, the Agent may withhold from any interest payment to such Lender
an amount equivalent to the applicable withholding tax after taking into account
such reduction.  If the forms or other documentation  required by subsection (a)
of this Section are not delivered to the Agent, then the Agent may withhold from
any  interest  payment  to  such  Lender  not  providing  such  forms  or  other
documentation an amount equivalent to the applicable withholding tax.

                (e) If the IRS or any other Governmental Authority of the United
States or other  jurisdiction  asserts a claim  that the Agent did not  properly
withhold tax from amounts paid to or for the account of any Lender  (because the
appropriate form was not delivered,  was not properly executed,  or because such
Lender failed to notify the Agent of a change in  circumstances  which  rendered
the exemption  from, or reduction of,  withholding tax  ineffective,  or for any
other reason) such Lender shall  indemnify the Agent fully for all amounts paid,
directly or indirectly,  by the Agent as tax or otherwise,  including  penalties
and interest, and including any taxes imposed by any jurisdiction on the amounts
payable to the Agent under this  Section,  together  with all costs and expenses
(including  Attorney Costs). The obligation of the Lenders under this subsection
shall survive the payment of all  Obligations and the resignation or replacement
of the Agent.




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        9.11  Collateral  Matters.  (a) The Agent is authorized on behalf of all
the Lenders,  without the necessity of any notice to or further consent from the
Lenders,  from time to time to take any action with respect to any Collateral or
the  Collateral  Documents  which  may be  necessary  to  perfect  and  maintain
perfected  the  security  interest  in and  Liens  upon the  Collateral  granted
pursuant to the Collateral Documents.

                (b) The Lenders  irrevocably  authorize the Agent, at its option
and in its  discretion,  to release any Lien granted to or held by the Agent (on
behalf of the Lenders or otherwise) upon any Collateral (i) upon  termination of
the Commitments and payment in full of all Loans and all other Obligations known
to the Agent and payable under this Agreement or any other Loan  Document;  (ii)
constituting  property  sold  or to be  sold  or  disposed  of as  part of or in
connection with any disposition permitted hereunder; (iii) constituting property
in which the Borrower or any  Subsidiary  owned no interest at the time the Lien
was granted or at any time thereafter;  (iv) constituting property leased to the
Borrower or any Subsidiary under a lease which has expired or been terminated in
a transaction permitted under this Agreement or is about to expire and which has
not been, and is not intended by the Borrower or such  Subsidiary to be, renewed
or extended;  (v) consisting of an instrument  evidencing  Indebtedness or other
debt instrument, if the indebtedness evidenced thereby has been paid in full; or
(vi) if approved,  authorized or ratified in writing by the Majority  Lenders or
all the  Lenders,  as the case may be, as  provided  in Section  10.01(f).  Upon
request by the Agent at any time,  the  Lenders  will  confirm  in  writing  the
Agent's authority to release particular types or items of Collateral pursuant to
this Section  9.11(b),  provided that the absence of any such  confirmation  for
whatever reason shall not affect the Agent's rights under this Section 9.11.

                (c) Each Lender  agrees  with and in favor of each other  (which
agreement shall not be for the benefit of the Borrower or any  Subsidiary)  that
the Borrower's obligation to such Lender under this Agreement and the other Loan
Documents is not and shall not be secured by any real property collateral now or
hereafter  acquired by such Lender other than the real property described in the
Mortgages.


                                    ARTICLE X

                                  MISCELLANEOUS

        10.01 Amendments and Waivers. No amendment or waiver of any provision of
this  Agreement or any other Loan  Document,  and no consent with respect to any
departure by the Borrower or any Subsidiary therefrom, shall be effective unless
the same shall be in writing and signed by the Majority Lenders (or by the Agent
at the written request of the Majority Lenders) and the Borrower and




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<PAGE>



acknowledged  by the  Agent,  and then  any  such  waiver  or  consent  shall be
effective only in the specific  instance and for the specific  purpose for which
given;  provided,  however,  that no such waiver,  amendment,  or consent shall,
unless  in  writing  and  signed  by  all  the  Lenders  and  the  Borrower  and
acknowledged by the Agent, do any of the following:

                (a)      increase or extend the Commitment of any Lender (or
reinstate any Commitment terminated pursuant to Section 8.02);

                (b)  postpone or delay any date fixed by this  Agreement  or any
other Loan  Document  for any  payment or  mandatory  prepayment  of  principal,
interest, fees or other amounts due to the Lenders (or any of them) hereunder or
under any other Loan Document;

                (c) reduce the principal  of, or the rate of interest  specified
herein on any Loan,  or (subject to clause (ii) below) any fees or other amounts
payable hereunder or under any other Loan Document;

                (d)      change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Loans which is required
for the Lenders or any of them to take any action hereunder; or

                (e)      amend this Section, or Section 2.14, or any
provision herein providing for consent or other action by all
Lenders; or

                (f)  discharge  any  Guarantor,  or release  any  portion of the
Collateral  except as otherwise  may be provided in the  Collateral  Document or
this  Agreement  or except  where the consent of the  Majority  Lenders  only is
specifically provided for;

and, provided further, that (i) no amendment, waiver or consent shall, unless in
writing and signed by the Agent in addition to the  Majority  Lenders or all the
Lenders, as the case may be, affect the rights or duties of the Agent under this
Agreement or any other Loan Document, and (ii) the Fee Letter may be amended, or
rights or privileges  thereunder waived, in a writing executed by the respective
parties thereto.

        10.02 Notices. (a) All notices, requests,  consents,  approvals, waivers
and other communications shall be in writing and mailed, faxed or delivered,  to
the  address  or  facsimile  number  specified  for  notices on  Schedule  10.02
(including,  unless the  context  expressly  otherwise  provides,  by  facsimile
transmission,  provided that any matter transmitted by the Borrower by facsimile
(i) shall be  immediately  confirmed by a telephone call to the recipient at the
number  specified  on Schedule  10.02,  and (ii) shall be  followed  promptly by
delivery of a hard copy  original  thereof)  or, if directed to the Borrower (at
the address set forth below), or, in the case of any Person




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to such other address as shall be designated by such Person in a written  notice
to the other parties,  and as directed to any other party, at such other address
as shall be designated by such party in a written notice in compliance with this
Section 10.02.

Notices to the Borrower should be addressed as follows:

        MotivePower Industries, Inc.
        200 Reedsdale Street
        Pittsburgh, PA  15233
        Attention:  General Counsel and Treasurer
        Telecopy No.: (412) 237-2269

with a copy to:

        Doepken Keevican & Weiss
        Professional Corporation
        37th Floor, USX Tower
        600 Grant Street
        Pittsburgh, PA  15219
        Attention:  James F. Bauerle
        Telecopy No.:  (412) 355-2609

                (b) All such notices,  requests and  communications  shall, when
transmitted  by overnight  delivery,  or faxed,  be effective when delivered for
overnight  (next-day)  delivery,  or  transmitted  in legible  form by facsimile
machine,  respectively, or if mailed, upon the third Business Day after the date
deposited  into the U.S.  mail,  or if  delivered,  upon  delivery;  except that
notices  pursuant  to Article  II or IX shall not be  effective  until  actually
received by the Agent.

                (c) Any agreement of the Agent and the Lenders herein to receive
certain  notices by telephone or facsimile is solely for the  convenience and at
the request of the Borrower. The Agent and the Lenders shall be entitled to rely
on the  authority  of any Person  purporting  to be a Person  authorized  by the
Borrower to give such  notice and the Agent and the  Lenders  shall not have any
liability  to the Borrower or other Person on account of any action taken or not
taken by the Agent or the Lenders in reliance upon such  telephonic or facsimile
notice.  The obligation of the Borrower to repay the Loans and other obligations
hereunder  shall not be  affected  in any way or to any extent by any failure by
the Agent and the Lenders to receive  written  confirmation of any telephonic or
facsimile  notice or the receipt by the Agent and the Lenders of a  confirmation
which is at variance  with the terms  understood by the Agent and the Lenders to
be contained in the telephonic or facsimile notice.

        10.03  No Waiver; Cumulative Remedies.  No failure to
exercise and no delay in exercising, on the part of the Agent or
any Lender, any right, remedy, power or privilege hereunder,
shall operate as a waiver thereof; nor shall any single or




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partial exercise of any right, remedy, power or privilege hereunder preclude any
other or further  exercise  thereof or the exercise of any other right,  remedy,
power or privilege.

        10.04  Costs and Expenses.  The Borrower shall:

                (a)  whether  or not the  transactions  contemplated  hereby are
consummated,  pay or reimburse BofA  (including in its capacity as Agent) within
five Business Days after demand  (subject to Section  4.01(e)) for all costs and
expenses  incurred by BofA  (including  in its capacity as Agent) in  connection
with the development,  preparation,  delivery,  syndication,  administration and
execution of, and any amendment,  supplement, waiver or modification to (in each
case,  whether or not  consummated),  this Agreement,  any Loan Document and any
other  documents  prepared  in  connection   herewith  or  therewith,   and  the
consummation  of the  transactions  contemplated  hereby and thereby,  including
reasonable  Attorney Costs incurred by BofA (including in its capacity as Agent)
with respect thereto; and

                (b) pay or  reimburse  the Agent,  the  Arranger and each Lender
within five  Business  Days after  demand  (subject to Section  4.01(e)) for all
costs and expenses (including,  without limitation,  Attorney Costs) incurred by
them in connection with the enforcement,  attempted enforcement, or preservation
of any rights or remedies under this Agreement or any other Loan Document during
the  existence  of an  Event  of  Default  or after  acceleration  of the  Loans
(including  in  connection  with any  "workout" or  restructuring  regarding the
Loans, and including in any Insolvency Proceeding or appellate proceeding); and

                (c) pay or reimburse  BofA  (including in its capacity as Agent)
within five  Business  Days after  demand  (subject to Section  4.01(e)) for all
appraisal (including the allocated cost of internal appraisal services),  audit,
environmental  inspection  and  review  (including  the  allocated  cost of such
internal  services),  search and filing costs,  fees and  expenses,  incurred or
sustained by BofA  (including in its capacity as Agent) in  connection  with the
matters referred to under subsections (a) and (b) of this Section.

        10.05  Borrower  Indemnification.  (a)  Whether or not the  transactions
contemplated  hereby are consummated,  the Borrower shall indemnify,  defend and
hold the  Agent-Related  Persons,  and each  Lender  and each of its  respective
officers, directors,  employees, counsel, agents and attorneys-in-fact (each, an
"Indemnified  Person")  harmless  from  and  against  any and  all  liabilities,
obligations,  losses,  damages,  penalties,  actions,  judgments,  suits, costs,
charges,  expenses and disbursements  (including,  without limitation,  Attorney
Costs) of any kind or nature  whatsoever which may at any time (including at any
time  following  repayment of the Loans and  termination  of all Specified  Swap
Contracts and the termination, resignation or replacement of




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the Agent or replacement  of any Lender) be imposed on,  incurred by or asserted
against any such Person in any way relating to or arising out of this  Agreement
or any  document  contemplated  by or  referred to herein,  or the  transactions
contemplated  hereby, or any action taken or omitted by any such Person under or
in  connection  with  any  of  the  foregoing,  including  with  respect  to any
investigation,  litigation or proceeding (including any Insolvency Proceeding or
appellate  proceeding)  related  to or  arising  out of  this  Agreement  or any
Specified  Swap  Contracts  or the  Loans  or the use of the  proceeds  thereof,
whether or not any  Indemnified  Person is a party  thereto (all the  foregoing,
collectively, the "Indemnified Liabilities");  provided, that the Borrower shall
have  no  obligation  hereunder  to  any  Indemnified  Person  with  respect  to
Indemnified  Liabilities  resulting  solely from the gross negligence or willful
misconduct  of such  Indemnified  Person.  The  agreements in this Section shall
survive payment of all other Obligations.

                (b) (i) The Borrower shall  indemnify,  defend and hold harmless
        each  Indemnified  Person,  from and  against  any and all  liabilities,
        obligations,  losses, damages,  penalties,  actions,  judgments,  suits,
        costs,   charges,   expenses  or   disbursements   (including,   without
        limitation,   Attorney   Costs  and  the  allocated   cost  of  internal
        environmental  audit or review  services),  which may be  incurred by or
        asserted against such  Indemnified  Person in connection with or arising
        out  of  any  pending  or   threatened   investigation,   litigation  or
        proceeding,  or any  action  taken by any  Person,  with  respect to any
        Environmental  Claim arising out of or related to any property,  whether
        or not  subject to a Mortgage  in favor of the Agent or any  Lender,  or
        arising out of or related to any  operations of the Borrower.  No action
        taken by legal  counsel  chosen by the Agent or any Lender in  defending
        against any such  investigation,  litigation  or proceeding or requested
        remedial,  removal or response action shall vitiate or in any way impair
        the  Borrower's  obligation  and duty  hereunder to  indemnify  and hold
        harmless the Agent and each Lender.

                         (ii) In no event shall any site visit, observation,  or
        testing by the Agent or any Lender  (or any  contractee  of the Agent or
        any  Lender)  be deemed a  representation  or  warranty  that  Hazardous
        Materials  are or are not  present in, on, or under,  the site,  or that
        there  has been or  shall be  compliance  with  any  Environmental  Law.
        Neither  the  Borrower  nor any other  Person is entitled to rely on any
        site visit, observation,  or testing by the Agent or any Lender. Neither
        the Agent nor any Lender owes any duty of care to protect  the  Borrower
        or any other  Person  against,  or to inform the  Borrower  or any other
        party  of,  any  Hazardous  Materials  or any  other  adverse  condition
        affecting  any site or  property.  The  Agent or any  Lender  may in its
        discretion  disclose to the  Borrower or any other  Person any report or
        findings made as a result of, or in connection with, any site visit,




                                       106

<PAGE>



        observation,  or  testing  by the  Agent  or any  Lender.  The  Borrower
        understands  and agrees that the Agent and the Lenders  make no warranty
        or  representation  to the  Borrower or any other Person  regarding  the
        truth,  accuracy or completeness of any such report or findings that may
        be  disclosed.  The Borrower  also  understands  that,  depending on the
        results of any site  visit,  observation  or testing by the Agent or any
        Lender and  disclosed  to the  Borrower,  the  Borrower may have a legal
        obligation to notify one or more environmental  agencies of the results,
        that  such  reporting  requirements  are  site-specific,  and  are to be
        evaluated by the Borrower without advice or assistance from the Agent or
        any Lender.

                (c) The obligations in this Section shall survive payment of all
other Obligations. At the election of any Indemnified Person, the Borrower shall
defend  such  Indemnified  Person  using  legal  counsel  satisfactory  to  such
Indemnified  Person  in such  Person's  sole  discretion,  at the sole  cost and
expense of the  Borrower.  All amounts  owing under this  Section  shall be paid
within 30 days after demand.

        10.06 Marshalling; Payments Set Aside. Neither the Agent nor the Lenders
shall be under any obligation to marshall any assets in favor of the Borrower or
any other Person or against or in payment of any or all of the  Obligations.  To
the extent that the Borrower makes a payment to the Agent or the Lenders, or the
Agent or the Lenders  exercise  their right of set-off,  and such payment or the
proceeds  of such  set-off or any part  thereof  are  subsequently  invalidated,
declared to be  fraudulent  or  preferential,  set aside or required  (including
pursuant  to any  settlement  entered  into by the  Agent or such  Lender in its
discretion)  to be  repaid  to a  trustee,  receiver  or  any  other  party,  in
connection with any Insolvency  Proceeding or otherwise,  then (a) to the extent
of such  recovery  the  obligation  or part  thereof  originally  intended to be
satisfied  shall be revived  and  continued  in full force and effect as if such
payment had not been made or such set-off had not occurred,  and (b) each Lender
severally  agrees  to pay to the Agent  upon  demand  its pro rata  share of any
amount so recovered from or repaid by the Agent.

        10.07 Successors and Assigns.  The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns,  except that the Borrower may not assign or transfer any
of its rights or  obligations  under this  Agreement  without the prior  written
consent of the Agent and each Lender.

        10.08  Assignments,  Participations,  etc. (a) Any Lender may,  with the
written  consent of the Borrower at all times other than during the existence of
a Default or an Event of Default,  and the written  consent of the Agent,  which
consents of the Borrower and the Agent shall not be  unreasonably  withheld,  at
any time assign




                                       107

<PAGE>



and delegate to one or more Eligible Assignees (provided that no written consent
of the Borrower or the Agent shall be required in connection with any assignment
and delegation by a Lender to an Eligible  Assignee that is an Affiliate of such
Lender) (each an "Assignee")  all, or any ratable part of all, of the Loans, the
Commitments and the other rights and obligations of such Lender hereunder,  in a
minimum amount of $5,000,000;  provided,  however, that (i) the Borrower and the
Agent may  continue to deal solely and directly  with such Lender in  connection
with the  interest so assigned to an Assignee  until (A) written  notice of such
assignment,   together   with  payment   instructions,   addresses  and  related
information with respect to the Assignee,  shall have been given to the Borrower
and the Agent by such Lender and the Assignee;  (B) such Lender and its Assignee
shall have  delivered to the Borrower and the Agent an Assignment and Acceptance
in the form of Exhibit K  ("Assignment  and  Acceptance")  and (C) the  assignor
Lender or  Assignee  has paid to the  Agent a  processing  fee in the  amount of
$3,500, (ii) if the assignor Lender or any of its Affiliates is a Specified Swap
Provider  with respect to any  Specified  Swap  Contract,  such Lender shall not
assign  all of its  interest  in the Loans and the  Commitments  to an  Assignee
unless such Assignee,  or an Affiliate of such  Assignee,  shall also assume all
obligations  of such  assignor  Lender or  Affiliate  with  respect  to all such
Specified  Swap  Contracts,  and (iii) for  purposes  of  clarification,  if the
Borrower  is  entitled  to consent to any  assignment,  it shall be deemed to be
reasonable for the Borrower to withhold such consent if the proposed assignee is
a Person primarily  engaged in, a parent  corporation or Subsidiary of, or under
common control with a Person  primarily  engaged in the  manufacture of railroad
locomotives.

                (b) From and after the date that the Agent notifies the assignor
Lender  that it has  received  (and  provided  its consent  with  respect to) an
executed   Assignment  and  Acceptance  and  payment  of  the   above-referenced
processing fee (i) the Assignee  thereunder  shall be a party hereto and, to the
extent that rights and  obligations  hereunder have been assigned to it pursuant
to such  Assignment and  Acceptance,  shall have the rights and obligations of a
Lender under the Loan  Documents,  and (ii) the assignor  Lender  shall,  to the
extent that rights and obligations  hereunder and under the other Loan Documents
have been assigned by it pursuant to such Assignment and Acceptance,  relinquish
its rights and be released from its obligations under the Loan Documents.

                (c) Immediately  upon each Assignee's  making its processing fee
payment under the Assignment and  Acceptance,  this Agreement shall be deemed to
be amended to the  extent,  but only to the  extent,  necessary  to reflect  the
addition of the Assignee and the resulting adjustment of the Commitments arising
therefrom.   The  Commitment  allocated  to  each  Assignee  shall  reduce  such
Commitments of the assigning Lender pro tanto.





                                       108

<PAGE>



                (d) Any  Lender  may at any time sell to one or more  commercial
banks  or  other  Persons  not  Affiliates  of the  Borrower  (a  "Participant")
participating  interests  in any Loans,  the  Commitment  of that Lender and the
other interests of that Lender (the  "originating  Lender")  hereunder and under
the other Loan Documents;  provided,  however, that (i) the originating Lender's
obligations  under this Agreement shall remain  unchanged,  (ii) the originating
Lender shall remain solely  responsible for the performance of such obligations,
(iii) the Borrower and the Agent shall continue to deal solely and directly with
the originating  Lender in connection  with the originating  Lender's rights and
obligations  under  this  Agreement  and the other Loan  Documents,  and (iv) no
Lender  shall  transfer  or grant any  participating  interest  under  which the
Participant  has rights to approve  any  amendment  to, or any consent or waiver
with respect to, this Agreement or any other Loan Document, except to the extent
such amendment, consent or waiver would require unanimous consent of the Lenders
as  described  in the first  proviso to Section  10.01.  In the case of any such
participation,  the  Participant  shall be  entitled  to the benefit of Sections
3.01, 3.03 and 10.05 as though it were also a Lender  hereunder,  and if amounts
outstanding under this Agreement are due and unpaid, or shall have been declared
or shall have become due and payable upon the occurrence of an Event of Default,
each Participant  shall be deemed to have the right of set-off in respect of its
participating  interest in amounts owing under this Agreement to the same extent
as if the amount of its  participating  interest were owing  directly to it as a
Lender under this Agreement.

                (e) Notwithstanding  any other provision in this Agreement,  any
Lender may at any time  create a  security  interest  in, or pledge,  all or any
portion of its  rights  under and  interest  in this  Agreement  in favor of any
Federal  Reserve  Lender  in  accordance  with  Regulation  A of the FRB or U.S.
Treasury  Regulation 31 C.F.R.  ss.203.14,  and such Federal  Reserve Lender may
enforce  such  pledge  or  security  interest  in  any  manner  permitted  under
applicable law.

        10.09  Confidentiality.  Each  Lender  agrees  to take and to cause  its
Affiliates to take normal and  reasonable  precautions  and exercise due care to
maintain the confidentiality of all information  identified as "confidential" or
"secret" by the Borrower  and provided to it by the Borrower or any  Subsidiary,
or by the Agent on such Borrower's or Subsidiary's  behalf, under this Agreement
or any other Loan Document,  and neither it nor any of its Affiliates  shall use
any such  information  other than in connection  with or in  enforcement of this
Agreement and the other Loan Documents or in connection  with any other business
now or hereafter  existing or contemplated  with the Borrower or any Subsidiary;
except to the extent such information (i) was or becomes generally  available to
the public other than as a result of  disclosure  by the Lender,  or (ii) was or
becomes  available  on a  non-confidential  basis  from a source  other than the
Borrower,




                                       109

<PAGE>



provided that such source is not bound by a  confidentiality  agreement with the
Borrower known to the Lender;  provided,  however,  that any Lender may disclose
such  information  (A) at the  request or  pursuant  to any  requirement  of any
Governmental  Authority to which the Lender is subject or in connection  with an
examination  of such Lender by any such  authority;  (B) pursuant to subpoena or
other  court  process;  (C)  when  required  to  do so in  accordance  with  the
provisions of any applicable  Requirement  of Law; (D) to the extent  reasonably
required in connection with any litigation or proceeding to which the Agent, any
Lender or their respective Affiliates may be party; (E) to the extent reasonably
required in  connection  with the exercise of any remedy  hereunder or under any
other  Loan  Document;  (F) to such  Lender's  independent  auditors  and  other
professional advisors; (G) to any Participant or Assignee,  actual or potential,
provided  that  such  Person   agrees  in  writing  to  keep  such   information
confidential to the same extent required of the Lenders hereunder; (H) as to any
Lender or its  Affiliate,  as expressly  permitted  under the terms of any other
document or  agreement  regarding  confidentiality  to which the Borrower or any
Subsidiary is party or is deemed party with such Lender or such  Affiliate;  and
(I) to its Affiliates.

        10.10  Set-off.  In addition  to any rights and  remedies of the Lenders
provided  by  law,  if an  Event  of  Default  exists  or the  Loans  have  been
accelerated,  each  Lender  is  authorized  at any time  and from  time to time,
without  prior  notice to the  Borrower,  any such  notice  being  waived by the
Borrower to the fullest  extent  permitted  by law, to set off and apply any and
all deposits (general or special,  time or demand,  provisional or final) at any
time held by, and other indebtedness at any time owing by, such Lender to or for
the credit or the account of the Borrower against any and all Obligations  owing
to such Lender,  now or hereafter  existing,  irrespective of whether or not the
Agent or such Lender  shall have made demand  under this  Agreement  or any Loan
Document and although such  Obligations  may be  contingent  or unmatured.  Each
Lender  agrees  promptly  to notify the  Borrower  and the Agent  after any such
set-off and application made by such Lender; provided, however, that the failure
to  give  such  notice  shall  not  affect  the  validity  of such  set-off  and
application.

        10.11  Intentionally Omitted.

        10.12 Notification of Addresses, Lending Offices, Etc. Each Lender shall
notify the Agent in writing of any  changes in the  address to which  notices to
the Lender should be directed,  of addresses of any Lending  Office,  of payment
instructions  in respect of all payments to be made to it hereunder  and of such
other administrative information as the Agent shall reasonably request.

        10.13  Counterparts.  This Agreement may be executed in any
number of separate counterparts, each of which, when so executed,




                                       110

<PAGE>



shall be deemed an original,  and all of said counterparts  taken together shall
be deemed to constitute but one and the same instrument.

        10.14 Severability.  The illegality or unenforceability of any provision
of this Agreement or any instrument or agreement required hereunder shall not in
any way  affect  or impair  the  legality  or  enforceability  of the  remaining
provisions of this Agreement or any instrument or agreement required hereunder.

        10.15 No Third  Parties  Benefited.  This  Agreement is made and entered
into for the sole protection and legal benefit of the Borrower, the Lenders, the
Agent and the Agent-Related Persons, and their permitted successors and assigns,
and no other Person shall be a direct or indirect legal  beneficiary of, or have
any  direct  or  indirect  cause of  action or claim in  connection  with,  this
Agreement or any of the other Loan Documents.

        10.16  Governing Law and Jurisdiction.  (a)  THIS AGREEMENT
AND THE NOTES  SHALL BE GOVERNED  BY, AND  CONSTRUED  IN  ACCORDANCE  WITH,  THE
INTERNAL LAW OF THE STATE OF ILLINOIS;  PROVIDED  THAT THE AGENT AND THE LENDERS
SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.

                (b)  ANY  LEGAL  ACTION  OR  PROCEEDING  WITH  RESPECT  TO  THIS
AGREEMENT  OR ANY OTHER LOAN  DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE
OF ILLINOIS OR OF THE UNITED STATES FOR THE NORTHERN  DISTRICT OF ILLINOIS,  AND
BY EXECUTION AND DELIVERY OF THIS AGREEMENT,  EACH OF THE COMPANY, THE AGENT AND
THE  LENDERS  CONSENTS,  FOR  ITSELF  AND IN  RESPECT  OF ITS  PROPERTY,  TO THE
NONEXCLUSIVE  JURISDICTION OF THOSE COURTS. EACH OF THE BORROWER,  THE AGENT AND
THE LENDERS  IRREVOCABLY  WAIVES ANY  OBJECTION,  INCLUDING ANY OBJECTION TO THE
LAYING OF VENUE OR BASED ON THE  GROUNDS OF FORUM NON  CONVENIENS,  WHICH IT MAY
NOW OR  HEREAFTER  HAVE TO THE  BRINGING  OF ANY  ACTION OR  PROCEEDING  IN SUCH
JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT  RELATED  HERETO.  THE
BORROWER,  THE AGENT AND THE LENDERS EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS,
COMPLAINT OR OTHER  PROCESS,  WHICH MAY BE MADE BY ANY OTHER MEANS  PERMITTED BY
ILLINOIS LAW.

                (c)      Nothing contained in this Section shall override
any contrary provision contained in any Swap Contract.

        10.17 Waiver of Jury Trial. THE BORROWER, THE LENDERS AND THE AGENT EACH
WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION
BASED  UPON OR  ARISING  OUT OF OR  RELATED  TO THIS  AGREEMENT,  THE OTHER LOAN
DOCUMENTS,  OR THE TRANSACTIONS  CONTEMPLATED  HEREBY OR THEREBY, IN ANY ACTION,
PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST
ANY OTHER PARTY OR ANY AGENT-RELATED  PERSON,  PARTICIPANT OR ASSIGNEE,  WHETHER
WITH RESPECT TO CONTRACT CLAIMS,  TORT CLAIMS, OR OTHERWISE.  THE BORROWER,  THE
LENDERS AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE




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<PAGE>



TRIED BY A COURT TRIAL  WITHOUT A JURY.  WITHOUT  LIMITING  THE  FOREGOING,  THE
PARTIES FURTHER AGREE THAT THEIR  RESPECTIVE  RIGHT TO A TRIAL BY JURY IS WAIVED
BY OPERATION OF THIS SECTION AS TO ANY ACTION,  COUNTERCLAIM OR OTHER PROCEEDING
WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF
THIS AGREEMENT OR THE OTHER LOAN  DOCUMENTS OR ANY PROVISION  HEREOF OR THEREOF.
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,  RENEWALS,  SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.

        10.18 Entire  Agreement.  This  Agreement,  together with the other Loan
Documents,  embodies the entire agreement and understanding  among the Borrower,
the  Lenders  and  the  Agent,  and  supersedes  all  prior  or  contemporaneous
agreements  and  understandings  (including,  without  limitation,  that certain
Commitment Letter dated December 30, 1996 among the Borrower, the Arranger, BofA
and Bank of America  Illinois) of such Persons,  verbal or written,  relating to
the subject  matter hereof and thereof  except as otherwise set forth in Section
1.04 and the Fee Letter.

                                      * * *






                                       112

<PAGE>



        IN WITNESS WHEREOF,  the parties hereto have caused this Agreement to be
duly  executed  and  delivered  in Chicago by their  proper and duly  authorized
officers as of the day and year first above written.


                                        MOTIVEPOWER INDUSTRIES, INC., as
                                        Borrower


                                        By:

                                        Title:



                                        BANK OF AMERICA NATIONAL TRUST
                                        AND SAVINGS ASSOCIATION, as Agent
                                        and a Lender


                                        By:

                                        Title:



                                        ABN AMRO BANK, N.V., as a Lender


                                        By:

                                        Title:



                                        THE BANK OF NEW YORK, as a Lender


                                        By:

                                        Title:



                                        CORESTATES BANK, N.A., as a Lender


                                        By:

                                        Title:







                                       113

<PAGE>



                                        CREDIT LYONNAIS NEW YORK BRANCH, as
                                        a Lender


                                        By:

                                        Title:



                                        DG BANK DEUTSCHE GENOSSENSCHAFTS
                                        BANK, as a Lender


                                        By:

                                        Title:



                                        MELLON BANK, N.A., as a Lender


                                        By:

                                        Title:



                                        NATIONAL BANK OF CANADA, as a Lender


                                        By:

                                        Title:



                                        NATIONAL CITY BANK, as a Lender


                                        By:

                                        Title:



                                        PNC BANK, N.A., as a Lender


                                        By:

                                        Title:




                                       114

<PAGE>



                  IN WITNESS  WHEREOF,  the undersigned have accepted and agreed
to this Agreement as of the date first above written.


                                          Motor Coils Manufacturing Company

                                          By:
                                          Title:


                                          Engine Systems Company, Inc.

                                          By:
                                          Title:


                                          Clark Industries Company

                                          By:
                                          Title:


                                          Power Parts Company

                                          By:
                                          Title:


                                          Touchstone Company

                                          By:
                                          Title:


                                          MotivePower Investments Limited

                                          By:
                                          Title:


                                          Boise Locomotive Company

                                          By:
                                          Title:


                                          MotivePower Foreign Sales Corporation

                                          By:
                                          Title:





                                       115

<PAGE>


                                                            SCHEDULE 2.01



<TABLE>
<CAPTION>

                                   COMMITMENTS
                               AND PRO RATA SHARES



                                                                                                                          Pro
                                                               Term                         Revolving                     Rata
Lender                               Commitment                Commitment                   Commitment                    Share
<S>                                  <C>                       <C>                          <C>                           <C>     
Bank of America NT                   $12,000,000               $ 3,199,999.97               $ 8,800,000.03                16.0003%
& SA

ABN AMRO Bank,                       $ 7,000,000               $ 1,866,666.67               $ 5,133,333.33                9.3333%
N.A.
The Bank of                          $ 7,000,000               $ 1,866,666.67               $ 5,133,333.33                9.3333%
New York

Corestates Bank,                     $ 7,000,000               $ 1,866,666.67               $ 5,133,333.33                9.3333%
N.A.

Credit Lyonnais                      $ 7,000,000               $ 1,866,666.67               $ 5,133,333.33                9.3333%
New York Branch

DG Bank Deutsche                     $ 7,000,000               $ 1,866,666.67               $ 5,133,333.33                9.3333%
Gennossenschafts
Bank

Mellon Bank, N.A.                    $ 7,000,000               $ 1,866,666.67               $ 5,133,333.33                9.3333%

National Bank of                     $ 7,000,000               $ 1,866,666.67               $ 5,133,333.33                9.3333%
Canada

National City Bank                   $ 7,000,000               $ 1,866,666.67               $ 5,133,333.33                9.3333%
of Pennsylvania

PNC Bank, N.A.                       $ 7,000,000               $ 1,866,666.67               $ 5,133.333.33                9.3333%
                                     -----------               --------------               --------------                -----

     TOTAL                           $75,000,000               $20,000,000.00               $55,000,000.00                100%


</TABLE>









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<PAGE>