Exhibit 10.2
 
 
 
                              FINANCING AGREEMENT
 
 
 
                      The CIT Group/Business Credit, Inc.
 
                                 (as Lender)
 
 
                                       And
 
 
                                   Zilog, Inc.
 
                                  (as Borrower)
 
 
                             Dated:  December  30, 1998
 
 
 
 
 
<PAGE>
 
 
 
 
 
 
 
 
                                   TABLE OF CONTENTS
                                                                   Page
 
SECTION 1.   Definitions                                             3
SECTION 2.   Conditions Precedent                                   15
SECTION 3.   Revolving Loans                                        19
SECTION 4.   CAPEX Term Loans                                       22
SECTION 5.   Letters of Credit                                      24
SECTION 6.   Collateral                                             26
SECTION 7.   Representations, Warranties and Covenants              35
SECTION 8.   Interest, Fees and Expenses                            39
SECTION 9.   Powers                                                 45
SECTION 10.  Events of Default and Remedies                         46
SECTION 11.  Termination                                            50
SECTION 12.  Miscellaneous                                          50
 
EXHIBIT
 
Exhibit A - Form of  Revolving  Loan  Promissory Note A
Exhibit B - Form of CAPEX Term Loan Promissory Note B
 
SCHEDULES
 
Schedule 1 - Existing Liens
Schedule 2 - Collateral Information
 
 
THE CIT GROUP/BUSINESS CREDIT, INC., a New York corporation,
(hereinafter "CITBC") with offices located at 300 South Grand Avenue, Los
Angeles, CA  90071, is pleased to confirm the terms and conditions under
which CITBC shall make revolving loans, CAPEX Term Loans and other financial
accommodations to ZILOG, INC.  (herein the "Company"), a Delaware
corporation with a principal place of business at 910 East Hamilton Avenue,
Campbell, CA  95008.
 
SECTION  1.   Definitions
 
Accounts shall mean all of the Company's now existing and future:  (a)
accounts (as defined in the UCC), and any and all other receivables (whether
or not specifically listed on schedules furnished to CITBC), including,
without limitation, all accounts created by or arising from all of the
Company's sales, leases, rentals of goods or renditions of services to its
customers, and all accounts arising from sales, leases, rentals or
renditions of services made under any of the Company's trade names or
styles, or through any of the Company's divisions; (b) any and all
instruments, documents, contract rights and chattel paper, all as defined
in the UCC; (c) unpaid seller's or lessor's rights (including rescission,
replevin, reclamation, repossession and stoppage in transit) relating to the
foregoing or arising therefrom; (d) rights to any goods represented by any
of the foregoing, including rights to returned, reclaimed or repossessed
goods; (e) deposit accounts, reserves and credit balances arising pursuant
hereto; (f) guarantees or collateral for any of the foregoing; (g) insurance
policies or rights relating to any of the foregoing (h) General Intangibles
(including all rights to payment, including those arising in connection with
bank and non-bank credit cards) pertaining to any and all of the foregoing;
(i) notes, deposits or property of account debtors securing the obligations
of any such account debtors to the Company, and (j) cash and non-cash
proceeds of any and all the foregoing.
 
Anniversary Date shall mean the date occurring three (3) years from the
Closing Date and the same date in every year thereafter.
 
Availability shall mean at any time the positive difference between: (a) the
Borrowing Base, and (b) the sum of (i) the outstanding aggregate amount of
all Obligations, including without limitation, all Obligations with respect
to Revolving Loans  but excluding the Letters of Credit and CAPEX Term
Loans, plus (ii) the Availability Reserve.
 
Availability Reserve shall mean the sum of: (a) three (3) months rental
payments or similar charges for any of the Company's leased premises for
which the Company has not delivered to CITBC a landlord's waiver (as
provided by CITBC from time to time, or otherwise in form and substance
satisfactory to CITBC in the exercise of its reasonable business judgment),
provided that any such amounts shall be adjusted from time to time hereafter
upon (i) delivery to CITBC of any such acceptable waiver, (ii) the opening
or closing of a Collateral location and/or (iii) any change in the amount
of rental payments or similar charges; and (b) any reserve which CITBC may
reasonably require from time to time pursuant to the explicit terms of this
Financing Agreement, including without limitation, for Letters of Credit
pursuant to Paragraph 5.1 of Section 5 hereof.
 
Borrowing Base shall mean the sum of (a) eighty  percent (80%) of the
Company's aggregate outstanding Eligible Accounts Receivable, plus (b) the
lesser of (i) forty percent (40%) of the aggregate value of the Company's
Eligible Inventory, valued at the lower of cost or market, on a first in,
first out basis or (ii) 80% of the appraised net orderly liquidation
percentage value of Eligible Inventory.  Inventory advances will be subject
to receipt of an Inventory Appraisal performed by an appraiser mutually
agreed upon but paid for by the Company.  Absent the occurrence of an Event
of Default, appraisals shall not be required more than twice in any fiscal
year.
 
Business Day shall mean any day that on which CITBC is open for business in
Los Angeles, California and New York, New York, which is not (i) a Saturday,
Sunday or legal holiday in the state of New York or (ii) a day on which
banking institutions chartered by the state of New York or the United States
are legally required to close.
 
CAPEX Fee  shall mean the processing fee due CITBC on funding of any CAPEX
Term Loan equal to the product of (x) the amount of such CAPEX Term Loan
multiplied by (y) 0.25%.
 
CAPEX Term Loan Promissory Note shall mean a promissory note in the form of
Exhibit B hereto executed by the Company from time to time to evidence a
CAPEX Term Loan made by CITBC under Section 4 hereof.
 
CAPEX Term Loans shall mean the term loans made and to be made to the
Company by CITBC within the CAPEX Term Loan Line of Credit in accordance
with and as more fully described in Section 4 of this Financing Agreement.
 
CAPEX Term Loan Line of Credit shall mean the commitment of CITBC to make
CAPEX Term Loans to the Company pursuant to Section 4 of this Financing
Agreement in the aggregate amount of up to $15,000,000.
 
Capital Expenditures for any period shall mean the aggregate of all
expenditures of the Company during such period that in conformity with GAAP
are required to be included in or reflected by the property, plant or
equipment or similar fixed asset account reflected in the balance sheet of
the Company.
 
Capital Improvements shall mean operating Equipment and facilities (other
than land) acquired or installed for use in the Company's business
operations.
 
Capital Lease shall mean any lease of property (whether real, personal or
mixed) which, in conformity with GAAP, is accounted for as a capital lease
or a Capital Expenditure on the balance sheet of the Company.
 
Chase Bank Rate Loans shall mean any loans or advances pursuant to this
Financing Agreement made or maintained at a rate of interest based upon the
Chase Bank Rate.
 
Chase Bank Rate shall mean the rate of interest per annum announced by The
Chase Manhattan Bank from time to time as its prime rate in effect at its
principal office in New York City.   (The prime rate is not intended to be
the lowest rate of interest charged by The Chase Manhattan Bank to its
borrowers).
 
CITBC Commitment Letter shall mean the Commitment Letter dated October 2,
1998 issued by CITBC to, and accepted by, the Company.
 
Closing Date shall mean the date that this Financing Agreement has been duly
executed by the parties hereto and delivered to CITBC.
 
Collateral shall mean all present and future Accounts, Equipment (acquired
after February 27, 1998), Inventory, Documents of Title, General Intangibles
License and Other Collateral of the Company.
 
Collateral Management Fee shall mean the sum paid to CITBC in accordance
with  Paragraph  8.8 of Section 8 of this Financing Agreement to offset the
reasonable costs (excluding Out-of-Pocket expenses) of CITBC's personnel in
connection with record keeping, periodic examinations, analyzing and
evaluating the Collateral.
 
Consolidated Balance Sheet shall mean a consolidated or compiled, as
applicable, balance sheet for the Company and its consolidated subsidiaries,
eliminating all inter-company transactions and prepared in accordance with
GAAP.
 
Consolidating Balance Sheet shall mean a Consolidated Balance Sheet plus
individual balance sheets for the Company and its consolidated subsidiaries,
showing all eliminations of inter-company transactions and prepared in
accordance with GAAP, and including a balance sheet for the Company
exclusively.
 
Copyrights shall mean all present and hereafter acquired copyrights
registrations, recording, applications, designs, styles, licenses, marks,
prints and labels bearing any of the foregoing, goodwill, deed any and all
general intangible, intellectual property and copyright rights and all cash
and non-cash proceeds thereof.
 
Default shall mean any event specified in Section 10 hereof, whether or not
any requirement for the giving of notice, the lapse of time, or both, or any
other condition, event or act, has been satisfied.
 
Default Rate of Interest shall mean a rate of interest per annum on any
Obligations hereunder, equal to the sum of: (a) two percent (2%) and (b) the
applicable contract rate of interest based upon any applicable increment
over the Chase Bank Rate plus the Chase Bank Rate, as determined under
Section 8 hereof, which CITBC shall be entitled to charge the Company on all
Obligations due CITBC by the Company, as further set forth in Paragraph 10.2
of Section 10 of this Financing Agreement.
 
Depository Accounts shall have the meaning specified in Paragraph 3.4 of
Section 3 of this Financing Agreement.
 
Documentation Fee shall mean (a) the sum of $15,000.00 which amount is
included in the Loan Facility Fee and intended to compensate CITBC for the
use of CITBC's in-house Legal Department and facilities in documenting, in
whole or in part, the initial transaction solely on behalf of CITBC,
exclusive of Out-of-Pocket Expenses, and (b) subsequent to the Closing Date
CITBC's standard fees relating to any and all modifications, waivers,
releases, amendments or additional collateral with respect to this Financing
Agreement, the Collateral and/or the Obligations.
 
Documents of Title shall mean all present and future documents (as defined
in the  UCC) evidencing or arising from any and all Accounts, Inventory or
Equipment including, warehouse receipts, bills of lading, shipping
documents, chattel paper, instruments and similar documents, all whether
negotiable or not and all goods and Inventory relating thereto and all cash
and non-cash proceeds of the foregoing.
 
Early Termination Date shall mean the date on which this Financing Agreement
or the Revolving Line of Credit is terminated and which date is prior to an
Anniversary Date.
 
Early Termination Fee shall: (a) mean the fee CITBC is entitled to charge
the Company in the event the Line of Credit or this Financing Agreement is
terminated on a date prior to an Anniversary Date, except as CITBC may waive
in writing; and (b) be determined by multiplying the Line of Credit by one
half of one percent (0.5%) per annum for the number of days from the Early
Termination Date to the next succeeding Anniversary Date.
 
EBITDA shall mean, in any period, all earnings of the Company before all (i)
interest and tax obligations, (ii) depreciation, (iii) amortization for said
period, and (iv) merger related restructuring and special charges consistent
with the provisions of the Senior Secured Notes, solely with respect to the
nine months ending October 4, 1998, all determined in accordance with GAAP
on a consistent basis with the latest audited financial statements of the
Company, but excluding the effect of extraordinary and/or non-reoccurring
 gains or losses for such period.
 
Eligible Accounts Receivable shall mean the gross amount of the Company's
Trade Accounts Receivable that are subject to a valid, exclusive, first
priority and fully perfected security interest in favor of CITBC, which
conform to the warranties contained herein and at all times continue to be
acceptable to CITBC in the exercise of its reasonable business judgment,
less, without duplication, the sum of: (a) any returns, discounts,
chargebacks, claims, credits and allowances of any nature (whether issued,
owing, granted, claimed or outstanding), and (b) reserves for: (i) sales to
the United States of America,  any state or other governmental entity or to
any agency, department or division thereof, except for any such accounts as
to which the Company has complied with the Assignment of Claims Act of 1940
or any other applicable statute, rules or regulation, to CITBC's
satisfaction in the exercise of its reasonable business judgment; (ii)
foreign accounts other than accounts (x) secured by letters of credit (in
form and substance satisfactory to CITBC) issued or confirmed by, and
payable at, banks having a place of business in the United States of America
and payable in United States currency or credit insurance from domestic
carriers acceptable to CITBC, or (y) to customers residing in Canada
provided such accounts otherwise comply with all of the other criteria for
eligibility hereunder, are payable in United States currency and such
accounts do not exceed $500,000 .00 in the aggregate at any one time; (iii)
accounts that remain unpaid more than ninety (90) days from invoice date;
(iv) contra accounts; (v) sales to any subsidiary or to any company
affiliated with the Company in any way; (vi) bill and hold (deferred
shipment) or consignment sales; (vii) sales to any customer which is (A)
insolvent, (B) the debtor in any bankruptcy, insolvency, arrangement,
reorganization, receivership or similar proceedings under any federal or
state law, (C) negotiating, or has called a meeting of its creditors for
purposes of negotiating, a compromise of its debts or (D) financially
unacceptable to CITBC or has a credit rating unacceptable to CITBC; (viii)
all sales to any customer if fifty percent (50%) or more of the aggregate
dollar amount of all outstanding invoices to such customer, are unpaid more
than ninety (90) days from invoice date; (ix)  pre-billed receivables and
receivables arising from progress billing; (x) an amount representing,
historically, returns, discounts, claims, RMA/stock rotation reserve, direct
debit agreement reserve, price protection reserve, G/L allowances, COD
sales, non-product Accounts, credits and allowances; and (xi) any other
reasons deemed necessary by CITBC in its reasonable business judgment,
including those which are customary either in the commercial finance
industry or in the lending practices of CITBC.
 
Eligible Inventory shall mean the gross amount of the Company's domestic
Inventory that is subject to a valid, exclusive first priority and fully
perfected security interest in favor of CITBC and which conforms to the
warranties contained herein, which is subject to the most recent appraisal
indicating an acceptable orderly liquidation value of the Inventory and
which is in all respects in form and substance satisfactory to CITBC, and
which at all times continue to be acceptable to CITBC in the exercise of its
reasonable business judgment, less any (a) work-in-process at outside
processors, (b) supplies, including chemicals and gases (other than raw
materials), (c) goods not present in the United States of America, (d) goods
returned or rejected by the Company's customers other than goods that are
undamaged and  resalable in the normal course of business, goods to be
returned to the Company's suppliers, (e) goods in transit to third parties
(other than the Company's agents or warehouses), or Inventory in possession
of a warehouseman, bailee or other third party, unless such warehouseman,
bailee or third party has executed a notice of security interest agreement
and waived any and all lien rights (in form and substance satisfactory to
CITBC) and CITBC has taken all other action required to perfect its security
interest in such Inventory, (f) goods at third party locations for which
CITBC has not received a waiver in form and substance satisfactory to CITBC,
and provided that CITBC may and in addition thereto require an Availability
Reserve for warehousing third party processor charges or other applicable
fees and charges, and (g) less any reserves required by CITBC in its
reasonable discretion, including for unsorted Inventory, special order
goods, discontinued, slow-moving and obsolete Inventory, market value
declines, bill and hold (deferred shipment), consignment sales, and
shrinkage.
 
Equipment shall mean all present and hereafter acquired equipment (as
defined in the UCC) including, without limitation, all machinery, equipment,
furnishings and fixtures, and all additions, substitutions and replacements
thereof, wherever located, together with all attachments, components, parts,
equipment and accessories installed thereon or affixed thereto and all
proceeds of whatever sort.
 
ERISA shall mean the Employee Retirement Income Security Act or 1974, as
amended from time to time and the rules and regulations promulgated
thereunder from time to time.
 
Eurocurrency Reserve Requirements for any day, as applied to a LIBOR Loan,
shall mean the aggregate (without duplication) of the rates (expressed as
a decimal fraction) of reserve requirements in effect with respect to CITBC
and/or any present or future participant on such day (including, without
limitation, basic, supplemental, marginal and emergency reserves under any
regulations of the Board of Governors of the Federal Reserve System or other
governmental authority having jurisdiction with respect thereto, as now and
from time to time in effect), dealing with reserve requirements prescribed
for Eurocurrency funding (currently referred to as "Eurocurrency
Liabilities" in Regulation D of such Board) maintained by CITBC and/or any
such participants (such rate to be adjusted to the nearest one sixteenth of
one percent (1/16 of 1%) or, if there is not a nearest one sixteenth of one
percent (1/16 of 1%), to the next higher one sixteenth of one percent (1/16
of 1%)).
 
Event(s) of Default shall have the meaning provided for in Section 10 of
this Financing Agreement.
 
Executive Officers shall mean the Chairman, President, Chief Executive
Officer, Chief Operating Officer, Chief Financial Officer, Executive Vice
President(s), Senior Vice President(s), Treasurer, Controller and Secretary
of the Company.
 
Fiscal Quarter shall mean, with respect to the Company, each fiscal quarter
of the Company (each with an approximate 13 week duration) ending on or
about March 31, June 30, September 30, and December 31 of each Fiscal Year.
 
Fiscal Year shall mean each twelve (12) month period commencing on January
1 of each year and ending on the following December 31.
 
Fixed Charge Coverage Ratio shall mean, for the relevant period, the ratio
determined by dividing EBITDA by the sum of (a) Interest Expense, (b) the
amount of principal repaid or scheduled to be repaid on the CAPEX Term
Loans, Senior Secured Notes and Indebtedness (other than Revolving Loans),
(c) Capital Expenditures paid in cash and (d) all federal, state and local
income tax expenses due and payable.
 
GAAP shall mean generally accepted accounting principles in the United
States of America as in effect from time to time and for the period as to
which such accounting principles are to apply, provided that in the event
the Company modifies its accounting procedures as applied as of the Closing
Date, the Company shall provide such statements of reconciliation which
shall be in form and substance acceptable to CITBC.
 
General Intangibles shall have the meaning set forth in the UCC, and shall
include, without limitation, all present and future right, title and
interest in and to: (a) all Trademarks, corporate names, business names,
fictitious business names, logos and any other designs or sources of
business identities, indicative of origin, (b) Patents, together with any
improvements on said Patents, utility models, industrial models, designs
and, (c) Copyrights, (d) trade secrets, (e) licenses, (f) all applications
with respect to the foregoing, (g) all right, title and interest in and to
any and all extensions and renewals and (h) goodwill with respect to any of
the foregoing, (i) any other forms of similar intellectual property, (j) all
customer lists, distribution agreements, supply agreements, indemnification
rights and tax refunds, and (k) intellectual property, software,
applications, proprietary property and rights, programs, technical know how
and similar property, together with all monies and claims for monies now or
hereafter due and payable in connection with any of the foregoing or
otherwise, and all cash and non-cash proceeds thereof.
 
Indebtedness shall mean, without duplication, all liabilities, contingent
or otherwise, which are any of the following: (a) obligations in respect of
money (borrowed or otherwise) or for the deferred purchase price of
property, services or assets, other than Inventory, or (b) lease obligations
which, in accordance with GAAP, have been, or which should be capitalized.
 
Interest Expense shall mean total interest obligations (paid or accrued) of
the Company, determined in accordance with GAAP, on a consistent basis with
the latest audited statements of the Company.
 
 Interest Period shall mean:
 
(a)  initially (but subsequent to thirty (30) days from the Closing
Date), as the case may be a one month, two month, three month, six month or
twelve month period commencing on the borrowing or conversion date with
respect to a LIBOR Loan and ending one, two, three, six or twelve months
thereafter, as applicable; and
 
(b)  thereafter, at the option of the Company, any one month, two
month, three month, six month or twelve month period commencing on the last
day of the immediately preceding Interest Period applicable to such LIBOR
Loan and ending one, two, three, six months or twelve month thereafter, as
applicable;
 
Provided that, the foregoing provisions relating to Interest Periods are
subject to the following:
 
(i)  if any Interest Period would otherwise end on a day which is not
a Business Day or a Working Day, that Interest Period shall be
extended to the next succeeding Business Day, unless the result of
such extension would extend such payment into another calendar month
in which event such Interest Period shall end on the immediately
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 a calendar month;
 
(iii)  for purposes of determining the availability of Interest
Periods, such Interest Periods shall be deemed available if (x) Chase
Manhattan Bank quotes an applicable  rate to CITBC or CITBC
determines the LIBOR Rate, as provided in the definition of LIBOR,
(y) the LIBOR Rate  determined by Chase Manhattan Bank or CITBC on
the basis of such quote will adequately and fairly reflect the cost
of maintaining or funding its loans bearing interest at LIBOR, for
such Interest Period, and (z) such Interest Period will end on or
before the Anniversary Date or the last day of the then current term
of this Financing Agreement.   If a requested Interest Period shall
be unavailable in accordance with the foregoing sentence, the Company
shall continue to pay interest on the Obligations at the applicable
per annum rate based upon the Chase Bank Rate.
 
Inventory shall mean all of the Company's present and hereafter acquired
inventory (as defined in the UCC), including, without limitation,
application-specific standard products ("ASSPs"), microprocessors,
microcontrollers, digital signal processors, semiconductors, chips,
converters, memory drivers, analog and discrete devices, wafers, quartz, and
all merchandise, inventory and goods, and all additions, substitutions and
replacements thereof, wherever located, together with all goods and
materials used or usable in manufacturing, processing, packaging or shipping
same; in all stages of production - from raw materials through
work-in-process to finished goods - and all proceeds thereof of whatever
sort.
 
Issuing Bank shall mean the bank issuing Letters of Credit for the Company.
 
Letters of Credit shall mean all letters of credit issued with the
assistance of CITBC in accordance with Section 5 hereof by the Issuing Bank
for or on behalf of the Company.
 
Letter of Credit Guaranty shall mean the guaranty delivered by CITBC to the
Issuing Bank of the Company's reimbursement obligations under the Issuing
Bank's reimbursement agreement, application for Letter of Credit or other
like document.
 
Letter of Credit Guaranty Fee shall mean the fee CITBC may charge the
Company under Paragraph  8.3 of Section 8,  of this Financing Agreement for:
 a) issuing a Letter of Credit Guaranty  and/or b) otherwise aiding the
Company in obtaining Letters of Credit, all pursuant to Section 5 hereof.
 
Letter of Credit Sub-Line shall mean the aggregate amount of $5,000,000.
 
LIBOR shall mean at any time of determination, and subject to availability,
for each applicable Interest Period, a variable rate of interest equal to:
(a) at CITBC's election (i) the applicable LIBOR quoted to CITBC by The
Chase Manhattan Bank (or any successor thereof), or (ii) the rate of
interest determined by CITBC at which deposits in U.S.  Dollars are offered
for the relevant Interest Period based on information presented on Telerate
Systems at Page 3750 as of 11:00  A.M.  (London time) on the day which is
two (2) Business Days prior to the first day of such interest period;
provided that if at least two such offered rates appear on the Telerate
System at Page 3750 in respect of such interest period, the arithmetic mean
of all such rates (as determined by CITBC) will be the rate used; divided
by (b) a number equal to 1.0 minus the aggregate (but without duplication)
of the rates (expressed as decimal fraction) of Eurocurrency Reserve
Requirements in effect on the day which is two (2) Business Days prior to
the beginning of such Interest Period.
 
LIBOR Lending Office with respect to CITBC, shall mean the applicable office
of Chase Manhattan Bank or any successor thereof.
 
LIBOR Loan shall mean any loans made pursuant to this Financing Agreement
at such time as they are made and/or are being maintained at a rate of
interest based upon  LIBOR, provided that (i) no Default or Event of Default
has occurred hereunder, which has not been waived in writing by CITBC, and
(ii) no LIBOR Loan shall be made after the date that is three months prior
to the Anniversary Date or any other applicable Early Termination Date.
 
Line of Credit shall mean the commitment of CITBC to (a) make Revolving
Loans pursuant to Section 3 of this Financing Agreement (b) assist the
Company in opening Letters of Credit pursuant to Section 5 of this Financing
Agreement and (c) make and CAPEX Term Loans pursuant to Section 4 of this
Financing Agreement, in the aggregate amount equal to $40,000,000.
 
Line of Credit Fee shall: (a) mean the fee due CITBC at the end of each
month for the Line of Credit, and (b) be determined by multiplying the
difference between (i) the Line of Credit, and (ii) the sum of (x) the
average daily balance of Revolving Loans of the Company plus (y) the average
daily balance of Letters of Credit outstanding plus (z) the average daily
balance of CAPEX Term Loans for said month, by  one quarter of one percent
(0.25%) per annum for the number of days in said month.
 
Loan Documents shall mean this Financing Agreement, the Promissory Notes,
the mortgages and/or deeds of trust, the other closing documents and any
other ancillary loan and security agreements executed from time to time in
connection with this Financing Agreement, all as may be renewed, amended,
extended, increased or supplemented from time to time.
 
Loan Facility Fee shall mean the fee payable to CITBC in accordance with,
and pursuant to, the provisions of Paragraph 8.7 of Section 8 of this
Financing Agreement.
 
Obligations shall mean all loans, advances and extensions of credit made or
to be made by CITBC to the Company or to others for the Company's account
(including, without limitation, all Revolving Loans, Letter of Credit
Guaranties and CAPEX Term Loans); any and all indebtedness and obligations
which may at any time be owing by the Company to CITBC howsoever arising,
whether now in existence or incurred by the Company from time to time
hereafter; whether secured by pledge, lien upon or security interest in any
of the Company's Collateral, assets or property or the assets or property
of any other person, firm, entity or corporation; whether such indebtedness
is absolute or contingent, joint or several, matured or unmatured, direct
or indirect and whether the Company is liable to CITBC for such indebtedness
as principal, surety, endorser, guarantor or otherwise.   Obligations shall
also include indebtedness owing to CITBC by the Company under this Financing
Agreement, any other Loan Document or under any other agreement or
arrangement now or hereafter entered into between the Company and CITBC;
indebtedness or obligations incurred by, or imposed on, CITBC as a result
of environmental claims arising out of the Company's operation, premises or
waste disposal practices or sites; the Company's liability to CITBC as maker
or endorser of any promissory note or other instrument for the payment of
money; the Company's liability to CITBC under any instrument of guaranty or
indemnity, or arising under any guaranty, endorsement or undertaking which
CITBC may make or issue to others for the Company's account, including any
accommodation extended with respect to applications for Letters of Credit,
CITBC's acceptance of drafts or CITBC's endorsement of notes or other
instruments for the Company's account and benefit.
 
Other Collateral shall mean all now owned and hereafter acquired lockbox,
blocked account and any other deposit accounts maintained with any bank or
financial institutions into which the proceeds of Collateral are or may be
deposited; all cash and other monies and property in the possession or
control of CITBC; all books, records, ledger cards, disks and related data
processing software at any time evidencing or containing information
relating to any of the Collateral described herein or otherwise necessary
or helpful in the collection thereof or realization thereon; all investment
property, and all cash and non-cash proceeds of the foregoing.
 
Out-of-Pocket Expenses shall mean all of CITBC's present and future
reasonable expenses incurred relative to this Financing Agreement or any
other Loan Documents, whether incurred heretofore or hereafter, which
expenses shall include, without being limited to: the cost of record
searches, all costs and expenses incurred by CITBC in opening bank accounts,
depositing checks, receiving and transferring funds, and wire transfer
changes, any charges imposed on CITBC due to returned items and
"insufficient funds" of deposited checks and CITBC's standard fee relating
thereto, any amounts paid by CITBC, incurred by or charged to CITBC by the
Issuing Bank under the Letter of Credit Guaranty or the Company's
reimbursement agreement, application for Letter of Credit or other like
document which pertain either directly or indirectly to such Letters of
Credit, and CITBC's standard fees relating to the Letters of Credit and any
drafts thereunder, reasonable travel, lodging and similar expenses of
CITBC's  personnel in inspecting and monitoring the Collateral from time to
time hereunder, any applicable reasonable counsel fees and disbursements,
fees and taxes relative to the filing of financing statements, all expenses,
costs and fees set forth in Paragraph 10.3 of Section 10 of this Financing
Agreement.
 
Patents shall mean all of the Company's present and hereafter acquired
patents, patent applications, registrations, any reissues or renewals
thereof, licenses, any inventions and improvements claimed thereunder, and
all general intangible, intellectual property and patent rights with respect
thereto of the Company and all income, royalties, cash and non-cash proceeds
thereof.
 
Permitted Encumbrances shall mean: (a) liens existing on the date hereof
which are listed on Schedule 1 hereto; (b) other liens expressly permitted,
or consented to in writing by CITBC; (c) Purchase Money Liens; (d) liens of
local or state authorities for franchise or other like taxes, provided that
the aggregate amounts of such liens shall not exceed $100,000.00 in the
aggregate at any one time; (e) statutory liens of landlords and liens of
carriers, warehousemen, mechanics, materialmen and other like liens imposed
by law, created in the ordinary course of business and for amounts not yet
due (or which are being contested in good faith, by appropriate proceedings
or other appropriate actions which are sufficient to prevent imminent
foreclosure of such liens) and with respect to which adequate reserves or
other appropriate provisions are being maintained by the Company in
accordance with GAAP; (f) deposits made (and the liens thereon) in the
ordinary course of business of the Company (including, without limitation,
security deposits for leases, indemnity bonds, surety bonds and appeal
bonds) in connection with workers' compensation, unemployment insurance and
other types of social security benefits or to secure the performance of
tenders, bids, contracts (other than for the repayment or guarantee of
borrowed money or purchase money obligations), statutory obligations and
other similar obligations arising as a result of progress payments under
government contracts; (g) easements (including, without limitation,
reciprocal easement agreements and utility agreements), encroachments, minor
defects or irregularities in title, variation and other restrictions,
charges or encumbrances (whether or not recorded) affecting the Real Estate,
if applicable, and which in the aggregate do not materially interfere with
the occupation, use or enjoyment by the Company in its business of the
property so encumbered; and (h) liens granted CITBC by the Company; (i)
liens of judgment creditors provided such liens do not exceed, in the
aggregate, at any time, $100,000.00 (other than liens bonded or insured to
the reasonable satisfaction of CITBC); (j) liens on the assets of the
Company (excluding Collateral) granted pursuant to the Collateral Documents,
as set forth and in effect as of the Closing Date, pursuant to the Senior
Secured Notes; and (ii) liens for taxes not yet due and payable or which are
being diligently contested in good faith by the Company by appropriate
proceedings and which liens are not (y) other than with respect to Real
Estate, senior to the liens of CITBC or (z) for taxes due the United States
of America or any state thereof having similar priority statutes, as further
set forth in paragraph 7.6 hereof.
 
Permitted Indebtedness shall mean: (a) current Indebtedness maturing in less
than one year and incurred in the ordinary course of business for raw
materials, supplies, equipment, services, taxes or labor; (b) the
Indebtedness secured by Purchase Money Liens; (c) Subordinated Debt; (d)
Indebtedness arising under the Letters of Credit and this Financing
Agreement; (e) deferred taxes and other expenses incurred in the ordinary
course of business; (f) Indebtedness pursuant to the Senior Secured Notes,
as in effect; and (g) other Indebtedness existing on the date of execution
of this Financing Agreement and listed in the most recent financial
statement delivered to CITBC or otherwise disclosed to CITBC in writing
prior to the Closing Date.
 
Promissory Notes shall mean the notes, in the form of Exhibits A and B
attached hereto, delivered by the Company to CITBC to evidence the CAPEX
Term Loans pursuant to, and repayable in accordance with, the provisions of
Section 4 of this Financing Agreement.
 
Purchase Money Liens shall mean liens on any item of equipment acquired
after the date of this Financing Agreement provided that (a) each such lien
shall attach only to the property to be acquired and the cash proceeds
thereof and the improvements thereon, (b) a description of the property so
acquired is furnished to CITBC, and (c) the debt incurred in connection with
such acquisitions shall not exceed in the aggregate $5,000,000.00 in any
Fiscal Year.
 
Real Estate shall mean the Company's fee and/or leasehold interests in the
real property.
 
Revolving Line of Credit shall mean the aggregate commitment of CITBC to
make loans and advances pursuant to Section 3 of this Financing Agreement
and issue Letters of Credit Guaranties pursuant to Section 5 hereof to the
Company, in the aggregate amount of $25,000,000.
 
Revolving Loans shall mean the loans and advances made, from time to time,
to or for the account of the Company by CITBC pursuant to Section 3 of this
Financing Agreement.
 
Revolving Loan Account shall have the meaning specified in Paragraph 3.6 of
Section 3, of this Financing Agreement.
 
Senior Secured Notes shall mean the 9 1/2% Senior Secured Notes due 2005, in
the original principal amount of $280,000,000, as set forth in the Indenture
dated as of February 27, 1998, between the Company and State Street Bank and
Trust Company, as trustee, as in effect as of the Closing Date, and absent
any amendment or modification thereof.
 
Subordinated Debt shall mean, if applicable, any debt due a subordinating
creditor (and the note evidencing such) which shall be subordinated, by a
subordination agreement, to the prior payment and satisfaction of the
Obligations of the Company to CITBC (in form and substance satisfactory to
CITBC).
 
Subsidiaries shall mean each of the Company's subsidiaries, including Zilog
Philippines, Inc., Zilog Electronics Philippines, Inc., Zilog U.K., Zilog
Japan, Zilog Asia, Ltd., and Zilog International.
 
Tangible Net Worth shall mean, at any date of determination, an amount equal
to (a) Total Assets plus the outstanding principal amount of the Senior
Secured Notes minus (b) the sum of (x) Total Liabilities and (y) General
Intangibles, and shall be determined in accordance with GAAP, on a
consistent basis with the latest audited statements of the Company.
 
TPG shall mean TPG Partners II, L.P.,  or any affiliate thereof, as majority
shareholder of the Company.
 
Total Assets shall mean  total assets determined in accordance with GAAP,
on a basis consistent with the latest audited statements of the Company.
 
Total Liabilities shall mean total liabilities determined in accordance with
GAAP, on a basis consistent with the latest audited statements of the
Company.
 
Trade Accounts Receivable shall mean that portion of the Company's Accounts
which arises from the sale of Inventory or the rendition of services in the
ordinary course of the Company's business.
 
Trademarks shall mean all present and hereafter acquired trademarks,
trademark registrations, recordings, applications, tradenames, trade styles,
service marks, prints and labels (on which any of the foregoing may appear),
licenses, reissues, renewals, general intangibles, and intellectual property
and trademark rights pertaining to any of the foregoing, together with the
goodwill associated therewith, and all cash, income, royalties, and non-cash
proceeds thereof.
 
UCC shall mean the Uniform Commercial Code as in effect from time to time
in the state of California.
 
 
Working Day shall mean any Business Day on which dealings in foreign
currencies and exchange between banks may be carried on in the place where
CITBC's Eurodollar Lending Office is located.
 
SECTION  2.   Conditions Precedent
 
2.  Conditions Precedent
The obligation of CITBC to make loans hereunder is subject to the
satisfaction of, or waiver of, immediately prior to or concurrently with the
initial extension of credit hereunder by CITBC, the following conditions
precedent:
 
(a)     Lien Searches - CITBC shall have received tax, judgment and
Uniform Commercial Code searches satisfactory to CITBC for all locations
presently occupied or used by the Company.
 
(b)     Casualty Insurance - The Company shall have delivered to CITBC
evidence satisfactory to CITBC that casualty insurance policies listing
CITBC as loss payee or mortgagee, as the case may be, are in full force and
effect, all as set forth in Paragraph 7.5 of Section 7 of  this Financing
Agreement.
 
(c)     UCC Filings - Any documents (including without limitation,
financing statements) required to be filed in order to create, in favor of
CITBC, a first and exclusive perfected security interest in the Collateral
with respect to which a security interest may be perfected by a filing under
the  UCC shall have been properly filed in each office in each jurisdiction
required in order to create in favor of CITBC a perfected lien on the
Collateral.   CITBC shall have received  acknowledgment copies of all such
filings (or, in lieu thereof, CITBC shall have received other evidence
satisfactory to CITBC that all such filings have been made); and CITBC shall
have received evidence that all necessary filing fees and all taxes or other
expenses related to such filings have been paid in full.
 
(d)     Board Resolution - CITBC shall have received a copy of the
resolutions of the Board of Directors of the Company authorizing the
execution, delivery and performance of (i) this Financing Agreement, , and
(ii) any related agreements, in each case certified by the Secretary or
Assistant Secretary of the Company as of the date hereof, together with a
certificate of the Secretary or Assistant Secretary of the Company as to the
incumbency and signature of the officers of the Company executing such Loan
Documents and any certificate or other documents to be delivered by them
pursuant hereto, together with evidence of the incumbency of such Secretary
or Assistant Secretary.
 
(e)     Corporate Organization - CITBC shall have received (i) a copy
of the Certificate of Incorporation of the Company certified by the
Secretary of State of its incorporation, and (ii) a copy of the By-Laws of
the Company certified by the Secretary or Assistant Secretary thereof, all
as amended through the date hereof.
 
(f)     Officer's Certificate - CITBC shall have received an executed
Officer's Certificate of the Company, satisfactory in form and substance to
CITBC, certifying that (i) the representations and warranties contained
herein are true and correct in all material respects on and as of the date
hereof; (ii) the Company is in compliance with all of the terms and
provisions set forth herein; and (iii) no Default or Event of Default has
occurred
 
(g)     Opinions - Counsel for the Company shall have delivered to
CITBC opinions satisfactory to CITBC opining, inter alia, that, subject to
the (i) filing, priority and remedies provisions of the Uniform Commercial
Code, (ii) the provisions of the Bankruptcy Code, insolvency statutes or
other like laws, (iii) the equity powers of a court of law and (iv) such
other matters as may be agreed upon with CITBC: this Financing Agreement and
all other Loan Documents of the Company and the Guarantors are (A) valid,
binding and enforceable according to their terms, (B) are duly authorized,
executed and delivered, and (C) do not violate any terms, provisions,
representations or covenants in the charter or by-laws of the Company or,
to the best knowledge of such counsel, of any loan agreement, mortgage, deed
of trust, note, security or pledge agreement or indenture to which the
Company or the Guarantors are a signatory or by which the Company or its
assets are bound, including inter alia that the financing under this
Financing Agreement (including Revolving Loans, Letters of Credit and CAPEX
Term Loans) constitutes permitted indebtedness under the Senior Secured
Notes, the grant of the security interest hereunder in the Collateral does
not contravene any terms of the Senior Secured Notes and that the Trustee
for the Senior Secured Note holders does not have a lien on the Collateral.
 In addition, counsel to such Trustee and the Senior Secured Note holders
shall have delivered an opinion satisfactory to CITBC that the Intercreditor
Agreement(s) have been duly authorized, executed and delivered and
constitute valid and binding agreements enforceable against such Senior
Secured Note holders in accordance with the terms thereof.
 
(h)     Absence of Default - No Default, Event of Default or material
adverse change shall have occurred in the financial condition, business,
prospects, profits, operations or assets of the Company or the Company's
subsidiaries shall have occurred.
 
(i)    Legal Restraints/Litigation - As of the Closing Date, there
shall be no x) litigation, investigation or proceeding (judicial or
administrative) pending or threatened against the Company or its
subsidiaries or their assets, by any agency, division or department of any
county, city, state or federal government arising out of this Financing
Agreement, y) injunction, writ or restraining order restraining or
prohibiting the financing arrangements contemplated under this Financing
Agreement or z) to the best knowledge of the Company, suit, action,
investigation or proceeding (judicial or administrative) pending or
threatened against the Company or its Subsidiaries or their assets, which,
in the opinion of CITBC, if adversely determined could have a material
adverse effect on the business, operation, assets, financial condition or
Collateral of the Company.
 
(j)     Intercreditor Agreement - The Trustee for the Senior Secured
Note holders shall have executed and delivered to CITBC an Intercreditor
Agreement, in form and substance satisfactory to CITBC.
 
(k)     Additional Documents - The Company shall have executed and
delivered to CITBC all Loan Documents necessary to consummate the lending
arrangement contemplated between the Company and CITBC.
 
(l)     Disbursement Authorization - The Company shall have delivered
to CITBC all information necessary for CITBC to issue wire transfer
instructions on behalf of the Company for the initial and subsequent loans
and/or advances to be made under this Financing Agreement including, but not
limited to, disbursement authorizations in form acceptable to CITBC.
 
(m)     Examination & Verification - CITBC shall have completed to the
satisfaction of CITBC an examination and verification of the Accounts,
Inventory, books and records of the Company and the Guarantors which
examination shall indicate that, after giving effect to all Revolving Loans
advances and extensions of credit to be made at closing, the Company shall
have an opening additional Availability of at least $10,000,000, as
evidenced by a borrowing base certificate delivered by the Company to CITBC
as of the Closing Date, all as more fully required by the CITBC Commitment
Letter.   It is understood that such requirement contemplates that all debts
and obligations are current, and that all payables are being handled in the
normal course of the Company's business and consistent with its past
practice.
 
(n)     Depository Accounts - The Company shall have established a
system of lockbox and bank accounts with respect to the collection of
Accounts and the deposit of proceeds of Inventory as shall be acceptable to
CITBC in all respects.  Such accounts shall be subject to three party
agreements (between the Company, CITBC and the depository bank), which shall
be in form and substance satisfactory to CITBC.
 
(o)     Existing Revolving Credit Agreement - The Company's
existing credit agreement with Goldman Sachs Credit Partners (as Syndication
Agent) and BankBoston N.A.  (as Administrative Agent) (the "Existing
Lenders") shall be (x) terminated, (y) all loans and obligations of the
Company and/or the Guarantors thereunder shall be paid or satisfied in full,
including thorough utilization of the proceeds of the initial Revolving
Loans and CAPEX Term Loans to be made under this Financing Agreement and (z)
all liens upon or security interest in favor of the Existing Lenders on the
Collateral and otherwise in connection therewith shall be terminated and/or
released upon such payment.
 
(p)    CITBC Commitment Letter - The Company shall have fully
complied, to the satisfaction of CITBC, with all of the terms and conditions
of the CITBC Commitment Letter.
 
Upon the execution of this Financing Agreement, certain of the above
Conditions Precedent shall not have been deemed satisfied, including
conditions (a), (c), (h), (j), (m), and (n), provided that, notwithstanding
the foregoing, except as CITBC and the Company may otherwise agree win
writing, prior to the disbursements of any loans hereunder and prior to any
public statement or filing by the Company that a closing has occurred
hereunder, on or before 90 days from the Closing Date, the Company must
fulfill and comply with all of the Conditions Precedent, all to CITBC's
satisfaction. All applicable fees hereunder shall be due and payable upon
execution and delivery of this Financing Agreement and shall be deemed fully
earned upon Closing whether or not all Conditions Precedent are satisfied.
 
2.2     Conditions to Each Extension of Credit
 
Except to the extent expressly set forth in this Financing Agreement,
the agreement of CITBC to make any extension of credit requested to be made
by it to the Company on any date (including without limitation, the initial
extension of credit) is subject to the satisfaction of the following
conditions precedent:
 
a)      Representations and Warranties - Each of the representations
and warranties made by the Company in or pursuant to this Financing
Agreement shall be true and correct in all material respects on and as of
such date as if made on and as of such date.
 
b)      No Default - No Default or Event of Default shall have
occurred and be continuing on such date or after giving effect to the
extension of credit requested to be made on such date.
 
c)      Borrowing Base - Except as may be otherwise agreed to from
time to time by CITBC and the Company in writing, after giving effect to the
extension of credit requested to be made by the Company on such date, the
aggregate outstanding balance of the Revolving Loans owing by the Company
plus the Availability Reserve will not exceed the lesser of (i) the
Revolving Line of Credit or (ii) Borrowing Base of the Company.
 
Each borrowing by the Company hereunder shall constitute a representation
and warranty by the Company as of the date of such loan or advance that each
of the representations, warranties and covenants contained in the Financing
Agreement have been satisfied and are true and correct, except as the
Company and CITBC shall otherwise agree herein or in a separate writing.
 
 
SECTION  3.   Revolving Loans
 
3.  Revolving Loans
 
3.1  CITBC agrees, subject to the terms and conditions of this
Financing Agreement from time to time, and within  the Availability  but
subject to CITBC's right to make "Overadvances", to make loans and advances
to the Company on a revolving basis (i.e.  subject to the limitations set
forth herein, the Company may borrow, repay and re-borrow Revolving Loans).
 
  Such loans and advances shall be in amounts not to exceed the lesser of
(a) the Borrowing Base or (b) the Revolving Line of Credit.   All requests
for loans and advances must be received by an officer of CITBC no later than
1:00 p.m., New York time, of the day on which such loans and advances are
required.   Should CITBC for any reason honor requests for advances in
excess of the limitations set forth herein, such advances shall be
considered "Overadvances" and shall be made in CITBC's sole discretion,
subject to any additional terms CITBC deems necessary.
 
3.2   In furtherance of the continuing assignment and security
interest in the Company's Accounts and Inventory, the Company will, upon the
creation of Accounts and purchase or acquisition of Inventory, execute and
deliver to CITBC in such form and manner as CITBC may reasonably require,
solely for CITBC's convenience in maintaining records of Collateral, such
confirmatory schedules of Accounts and Inventory as CITBC may reasonably
request, and such other appropriate reports designating, identifying and
describing the Accounts and Inventory as CITBC may reasonably require.   In
addition, upon CITBC's request, the Company shall provide CITBC with copies
of agreements with, or purchase orders from, the Company's customers, and
copies of invoices to customers, proof of shipment or delivery and such
other documentation and information relating to said Accounts and other
collateral as CITBC may reasonably require.   Failure to provide CITBC with
any of the foregoing shall in no way affect, diminish, modify or otherwise
limit the security interests granted herein.   The Company hereby authorizes
CITBC to regard the Company's printed name or rubber stamp signature on
assignment schedules or invoices as the equivalent of a manual signature by
one of the Company's authorized officers or agents.
 
3.3  The Company hereby represents and warrants that:  each Trade
Account Receivable is based on an actual and bona fide sale and delivery of
goods or rendition of services to customers, made by the Company in the
ordinary course of its business; the goods and Inventory being sold and the
Trade Accounts Receivable created are the exclusive property of the Company
and are not and shall not be subject to any lien, consignment arrangement,
encumbrance, security interest or financing statement whatsoever, other than
the Permitted Encumbrances; the invoices evidencing such Trade Accounts
Receivable are in the name of the Company; and the customers of the Company
have accepted the goods or services, owe and are obligated to pay the full
amounts stated in the invoices according to their terms, without dispute,
offset, defense, counterclaim or contra, except for disputes and other
matters arising in the ordinary course of business with respect to which the
Company has complied with the notification requirements of Paragraph 3.5 of
Section 3 of this Financing Agreement.   The Company confirms to CITBC that
any and all taxes or fees relating to its business, its sales, the Accounts
or goods relating thereto, are its sole responsibility and that same will
be paid by the Company when due and that none of said taxes or fees
represent a lien on or claim against the Accounts.   The Company hereby
further represents and warrants that it owns its Inventory free and clear
of any security interest, encumbrances, liens or financing statements
whatsoever other than Permitted Encumbrances, and that it shall not acquire
any Inventory on a consignment basis, nor co-mingle its Inventory with any
of its customers or any other person, including pursuant to any bill and
hold sale or otherwise, and that its Inventory is marketable to its
customers in the ordinary course of business of the Company, except as it
may otherwise report in writing to CITBC pursuant to paragraph 3.5 hereof
from time to time.  The Company also warrants and represents that it is a
duly and validly existing corporation and is qualified in all states where
the failure to so qualify would have an adverse effect on the business of
the Company or the ability of the Company to enforce collection of Accounts
due from customers residing in that state.   The Company agrees to maintain
such books and records regarding Accounts and Inventory as CITBC may
reasonably require and agrees that the books and records of the Company will
reflect CITBC's interest in the Accounts and Inventory.   All of the books
and records of the Company will be available to CITBC on reasonable prior
notice at normal business hours, including any records handled or maintained
for the Company by any other company or entity.
 
 3.4  Until CITBC has advised the Company to the contrary after the
occurrence of an Event of Default, the Company may and will enforce, collect
and receive all amounts owing on the Accounts for CITBC's benefit and on
CITBC's behalf, but at the Company's expense; such privilege shall terminate
automatically upon the institution by or against the Company of any
proceeding under any bankruptcy or insolvency law or, at the election of
CITBC, upon the occurrence of any other Event of Default and until such
Event of Default is waived in writing by CITBC or cured to CITBC's
satisfaction.  Any checks, cash, credit card sales and receipts, notes or
other instruments or property received by the Company with respect to any
Accounts shall be held by the Company in trust for CITBC, separate from the
Company's own property and funds, and promptly turned over to CITBC with
proper assignments or endorsements by deposit to the special depository
accounts in CITBC's name (whether lockbox accounts or otherwise) designated
by CITBC for such purposes (the "Depository Accounts").   The Company shall:
(i) direct all of its account debtors to deposit any and all proceeds of
Collateral into the Depository Accounts; (ii) irrevocably authorize and
direct any banks which maintain the Company's initial receipt of cash,
checks and other items to promptly wire transfer all available funds to a
Depository Account; (iii) advise all such banks of CITBC's security interest
in such funds; and (iv) indicate on all of its invoices that funds should
be delivered to and deposited in a Depository Account. The Company shall
provide CITBC with prior written notice of any and all deposit accounts
opened or to be opened subsequent to the Closing Date.  All amounts received
by CITBC in payment of Accounts or proceeds of any other Collateral
(excluding Equipment) will be credited to the Company's  Revolving Loan
Account upon CITBC's receipt of "collected funds" at CITBC's bank account
in New York, New York one (1) Business Day after its receipt, if received
no later than 1:00 p.m.  EST or on the next succeeding Business Day if
received after 1:00 PM EST.   No checks, drafts or other instrument received
by CITBC shall constitute final payment to CITBC unless and until such
instruments have actually been collected.
 
3.5  The Company agrees to notify CITBC promptly of any matters
materially affecting the value, enforceability or collectibility of any
Account in the amount of $25,000 or more and of all material customer
disputes, offsets, defenses, counterclaims, returns, rejections and all
reclaimed or repossessed merchandise or goods, and of any material adverse
effect in the value of its Inventory. In addition, any and all such matters
shall be reported in the weekly and monthly collateral reports (as
applicable) provided to CITBC hereunder, in such detail and format as CITBC
may reasonably require from time to time.  The Company agrees to issue
credit memoranda promptly (with duplicates to CITBC upon request after the
occurrence of an Event of Default) upon accepting returns or granting
allowances, and may continue to do so until CITBC has notified the Company
, subsequent to the occurrence of an Event of Default which has not been
waived in writing by CITBC, that all future credits or allowances are to be
made only after CITBC's prior written approval.   Upon the occurrence of an
Event of Default and until such time as such Event of Default is waived in
writing by CITBC or cured to CITBC's reasonable satisfaction, and on notice
from CITBC, the Company agrees that all returned, reclaimed or repossessed
merchandise or goods shall be set aside by the Company, marked with CITBC's
name (as secured party) and held by the Company for CITBC's account.
 
3.6  CITBC shall maintain a separate account on its books in the
Company's name (the "Revolving Loan Account") in which the Company will be
charged with loans and advances made by CITBC to it or for its account, and
with any other Obligations, including any and all costs, expenses and
reasonable attorney's fees which CITBC may incur in connection with the
exercise by or for CITBC of any of the rights or powers herein conferred
upon CITBC, or in the prosecution or defense of any action or proceeding to
enforce or protect any rights of CITBC in connection with this Financing
Agreement, the other Loan Documents or the Collateral assigned hereunder,
or any Obligations owing to CITBC by the Company.   The Company will be
credited with all amounts received by CITBC from the Company or from others
for the Company's account, including, as above set forth, all amounts
received by CITBC in payment of Accounts, and such amounts will be applied
to payment of the Obligations as set forth herein.  In no event shall prior
recourse to any Accounts or other security granted to or by the Company be
a prerequisite to CITBC's right to demand payment of any Obligation.
Further, it is understood that CITBC shall have no obligation whatsoever to
perform in any respect any of the Company's contracts or obligations
relating to the Accounts.
 
3.7  After the end of each month, CITBC shall promptly send the
Company a statement showing the accounting for the charges, loans, advances
and other transactions occurring between CITBC and the Company during that
month.   The monthly statements shall be deemed correct and binding upon the
Company and shall constitute an account stated between the Company and CITBC
unless CITBC receives a written statement of the exceptions within forty
five (45) days of the date of the monthly statement.
 
3.8  In the event that any requested advance exceeds Availability or
that (a) the sum of (i) Revolving Loans and (ii) the Availability Reserve
exceeds (b)(x) the Borrowing Base or (y) the Revolving Line of Credit
(herein the amount of any such excess shall be referred to as the "Excess")
such Excess shall be due and payable to CITBC immediately upon CITBC's
demand therefor.
 
4.  CAPEX Term Loans
 
4.1  Within the available and unused CAPEX Term Loan Line of Credit
and upon receipt from the Company of a CAPEX Term Loan Promissory Note in
the form of Exhibit B attached hereto, in the amount of the CAPEX Term Loan
(as calculated pursuant to paragraph 4.5 herein below), in accordance with
the terms hereof, CITBC will extend to the Company a CAPEX Term Loan,
provided: a) no Default or Event of Default, which has not been waived in
writing by CITBC or cured to its reasonable satisfaction, has occurred or
would occur after giving effect to such CAPEX Term Loan and b)  all of the
conditions listed below are fulfilled to the sole but reasonable
satisfaction of CITBC.
 
 4.2  CAPEX Term Loan proceeds: (a) are to be used exclusively to pay
for, or reimburse the Company for, the acquisition by the Company of Capital
Improvements (other than Real Estate), provided that (i) CITBC has a first
and exclusive lien on such Capital Improvement, and (ii) any such Capital
Improvement is not subject to Purchase Money Liens, and (b) will be
disbursed upon completion of the delivery, assembly and installation of the
Capital Improvement.  Upon funding of any CAPEX Term Loan the Company shall
pay the CAPEX Fee to CITBC.
 
 4.3  The Company must give CITBC thirty (30) days prior written
notice of its intention to enter into a CAPEX Term Loan and may not draw
down any CAPEX Term Loans after the close of business on the date occurring
two (2) years from the date hereof.
 
 4.4 The Company shall be entitled to a total of ten (10) CAPEX Term
Loans, consisting of up to four (4) CAPEX Term Loans per calendar year but
no more than one (1) CAPEX Term Loan in any Fiscal Quarter.
 
 4.5 No CAPEX Term Loan may exceed (x) eighty percent (80%) of the
appraised orderly liquidation value of currently existing Equipment acquired
subsequent to February 27, 1998 ("Appraised Equipment"), or (y) seventy
percent (70%) of the total acquisition cost of new manufacturing Equipment
("Acquired Equipment"), exclusive of assembly costs, installation expenses,
maintenance, shipping costs, software, taxes and import or custom charges
(as reflected on invoices and other contracts of purchase delivered to
CITBC) for which the CAPEX Term Loan is sought.  A reserve may be included
in the foregoing calculations for the cost of disassembly and removal of
fixtures and clean up of hazardous materials. In addition, each CAPEX Term
Loan shall be subject to the fulfillment of each of the following
conditions: (a) Appraised Equipment and Acquired Equipment is subject to
CITBC's first and exclusive lien; (b) all Acquired Equipment and Appraised
Equipment must be stand alone identifiable equipment; (c) the Company shall
timely provide UCC fixture filings, landlord waiver agreements, and such
other documents as CITBC may reasonably require for all Acquired Equipment
and Appraised Equipment which may constitute fixtures; (d) the Company shall
comply with all applicable environmental laws, including use and disposal
of any hazardous materials, and any Equipment containing hazardous materials
or otherwise requiring clean-up in accordance with any applicable government
environmental regulations or upon any exercise by CITBC of its rights
hereunder shall be cleaned up at the Company's cost and expense upon CITBC's
reasonable request; and (e) Equipment appraisals must be performed by
appraisers mutually agreed upon who will be retained by CITBC but paid for
by the Company. Notwithstanding the foregoing, CAPEX Term Loans supported
by Appraised Equipment will not exceed $10,000,000 in the aggregate and
CAPEX Term Loans supported by Acquired Equipment will not exceed the
$5,000,000 in the aggregate.
 
 4.6 The CAPEX Term Loans must be in increments of $500,000.00 or
whole multiples thereof and must be disbursed either concurrently with or
within three months of delivery, assembly, installation and acceptance of
such Capital Improvement.
 
4.7 Each CAPEX Term Loan will be repaid to CITBC by the Company as
follows: (a) CAPEX Term Loans based on Appraised Equipment will amortize by
sixty (60) equal monthly payments commencing on the first business day of
the month following funding thereof; and (b) CAPEX Term Loans based on
Acquired Equipment will amortize by thirty six (36) equal monthly payments
commencing on the first business day of the month following funding thereof.
To the extent repaid, CAPEX Term Loans may not be reborrowed under this
Section 4 of this Financing Agreement and the CAPEX Term Loan Line of Credit
shall be permanently reduced by the amount of any such repayment(s).  Upon
the sale of any Equipment securing any CAPEX Term Loan, the net proceeds
thereof shall be applied to the applicable CAPEX Term Loan tranche.  In the
event all of the Equipment securing such loan is sold and the proceeds
thereof do not equal or exceed the outstanding balance of such loan, the
Company hereby agrees and confirms that CITBC may charge its Revolving Loan
Account with the amount of any such shortfall.
 
4.8  In the event this Financing Agreement or the Line of Credit is
terminated by either CITBC or the Company for any reason whatsoever, all
CAPEX Term Loans shall become due and payable on the effective date of such
termination notwithstanding any provision to the contrary in the Promissory
Notes or this Financing Agreement.
 
4.9  The Company may prepay at any time, at its option, in whole or
in part  the CAPEX Term Loans, provided that on each such prepayment, the
Company shall pay accrued interest on the principal so prepaid to the date
of such prepayment.
 
 
 4.10  The Company hereby authorizes CITBC to charge its Revolving
Loan Account with all amounts due under this Section 4 as such amounts
become due.   The Company confirms that any charges which CITBC may so make
to its Revolving Loan Account as herein provided will be made as an
accommodation to the Company and solely at CITBC's discretion.
 
SECTION 5.   Letters of Credit
 
        To assist the Company in establishing or opening documentary and
standby Letters of Credit with an Issuing Bank to cover the purchase of
inventory, equipment or otherwise, the Company has requested CITBC to join
in the applications for such Letters of Credit, and/or guarantee payment or
performance of such Letters of Credit and any drafts or acceptances
thereunder through the issuance of the Letters of Credit Guaranty, thereby
lending CITBC's credit to the Company and CITBC has agreed to do so.   These
arrangements shall be handled by CITBC subject to the terms and conditions
set forth below.
 
5.1  Within the Revolving Line of Credit and Availability, CITBC
shall assist the Company in obtaining Letter(s) of Credit in an aggregate
amount outstanding at any time not to exceed the Letter of Credit Sub-Line.
CITBC's assistance for amounts in excess of the limitation set forth herein
shall at all times and in all respects be in CITBC's sole discretion.   It
is understood that the form and purpose of each Letter of Credit and all
documentation in connection therewith, and any amendments, modifications or
extensions thereof, must be mutually acceptable to CITBC, the Issuing Bank
and the Company.   Any and all outstanding Letters of Credit shall be
reserved dollar for dollar from Availability  as an Availability Reserve.
 Any Letter of Credit issued hereunder shall not have an expiry date
subsequent to the Anniversary Date, unless otherwise agreed to by CITBC, and
upon any termination of the Line of Credit or this Financing Agreement in
accordance with Section 11 hereof, CITBC may establish a reserve equal to
110% of the face amount of any such outstanding Letters of Credit.
Notwithstanding anything herein to the contrary, upon the occurrence of a
Default and/or Event of Default, CITBC's assistance in connection with any
Letter of Credit Guaranty hereunder shall be in CITBC's sole discretion and
CITBC may reserve 110% of the face amount of outstanding Letters of Credit,
unless such Default and/or Event of Default is cured to CITBC's satisfaction
or waived by CITBC in writing.
 
5.2  CITBC shall have the right, without prior notice to the Company,
to charge the Company's Revolving Loan Account on CITBC's books with the
amount of any and all indebtedness, liability or obligation of any kind
incurred by CITBC under the Letters of Credit Guaranty at the earlier of a)
payment by CITBC under the Letters of Credit Guaranty, or b) the occurrence
of an Event of Default.   Any amount charged to Company's Revolving Loan
Account shall be deemed a Revolving Loan hereunder and shall incur interest
at the rate provided in Paragraph 8.1 of Section 8 of this Financing
Agreement.  Any such charges shall be set forth in CITBC's monthly accounts
to the Company.
 
5.3  The Company unconditionally indemnifies CITBC and holds CITBC
harmless from any and all loss, claim or liability incurred by CITBC arising
from any transactions or occurrences relating to Letters of Credit
established or opened for the Company's account, the collateral relating
thereto and any drafts or acceptances thereunder, and all Obligations
thereunder, including any such loss or claim due to any action taken by any
Issuing Bank, other than for any such loss, claim or liability arising out
of the gross negligence or willful misconduct by CITBC under the Letters of
Credit Guaranty.   The Company further agrees to hold CITBC harmless from
any errors or omission, negligence or misconduct by the Issuing Bank.   The
Company's unconditional obligation to CITBC hereunder shall not be modified
or diminished for any reason or in any manner whatsoever, other than as a
result of CITBC's gross negligence or willful misconduct.   The Company
agrees that any charges incurred by CITBC for the Company's account by the
Issuing Bank shall be conclusive on CITBC and may be charged to the
Company's Revolving Loan Account.
 
 5.4  CITBC shall not be responsible for: the existence, character,
quality, quantity, condition, packing, value or delivery of the goods
purporting to be represented by any documents; any difference or variation
in the character, quality, quantity, condition, packing, value or delivery
of the goods from that expressed in the documents; the validity, sufficiency
or genuineness of any documents or of any endorsements thereon, even if such
documents should in fact prove to be in any or all respects invalid,
insufficient, fraudulent or forged; the time, place, manner or order in
which shipment is made; partial or incomplete shipment, or failure or
omission to ship any or all of the goods referred to in the Letters of
Credit or documents; any deviation from instructions; delay, default, or
fraud by the shipper and/or anyone else in connection with the Collateral
or the shipping thereof; or any breach of contract between the shipper or
vendors and the Company.   Furthermore, without being limited by the
foregoing, CITBC shall not be responsible for any act or omission with
respect to or in connection with any Collateral, absent its gross negligence
or willful misconduct.
 
5.5  The Company agrees that any action taken by CITBC, if taken in
good faith, or any action taken by any Issuing Bank, under or in connection
with the Letters of Credit, the guarantees, the drafts or acceptances, or
the Collateral, shall be binding on the Company and shall not put CITBC in
any resulting liability to the Company.   In furtherance thereof, CITBC
shall have the full right and authority to clear and resolve any questions
of non-compliance of documents; to give any instructions as to acceptance
or rejection of any documents or goods; to execute any and all steamship or
airways guaranties (and applications therefore), indemnities or delivery
orders; to grant any extensions of the maturity of, time of payment for, or
time of presentation of, any drafts, acceptances, or documents; and to agree
to any amendments, renewals, extensions, modifications, changes or
cancellations of any of the terms or conditions of any of the applications,
Letters of Credit, drafts or acceptances; all in CITBC's sole name, and the
Issuing Bank shall be entitled to comply with and honor any and all such
documents or instruments executed by or received solely from CITBC, all
without any notice to or any consent from the Company.   Notwithstanding any
prior course of conduct or dealing with respect to the foregoing including
amendments and non-compliance with documents and/or the Company's
instructions with respect thereto, CITBC may exercise its rights hereunder
in its sole and reasonable business judgement.
 
5.6  Without CITBC's express consent and endorsement in writing, the
Company agrees: (a) not to execute any and all applications for steamship
or airway guaranties, indemnities or delivery orders; to grant any
extensions of the maturity of, time of payment for, or time of presentation
of, any drafts, acceptances or documents; or to agree to any amendments,
renewals, extensions, modifications, changes or cancellations of any of the
terms or conditions of any of the applications, Letters of Credit, drafts
or acceptances; and (b) after the occurrence of an Event of Default which
is not cured within any applicable grace period, if any, or waived by CITBC,
not to (i) clear and resolve any questions of non-compliance of documents,
or (ii) give any instructions as to acceptances or rejection of any
documents or goods.
 
 5.7  The Company agrees that any necessary import, export or other
licenses or certificates for the import or handling of the Collateral will
have been promptly procured; all foreign and domestic governmental laws and
regulations in regard to the shipment and importation of the Collateral, or
the financing thereof will have been promptly and fully complied with; and
any certificates in that regard that CITBC may at any time request will be
promptly furnished.   In this connection, the Company warrants and
represents that all shipments made under any such Letters of Credit are in
accordance with the laws and regulations of the countries in which the
shipments originate and terminate, and are not prohibited by any such laws
and regulations.   The Company assumes all risk, liability and
responsibility for, and agrees to pay and discharge, all present and future
local, state, federal or foreign taxes, duties, or levies.   Any embargo,
restriction, laws, customs or regulations of any country, state, city, or
other political subdivision, where the Collateral is or may be located, or
wherein payments are to be made, or wherein drafts may be drawn, negotiated,
accepted, or paid, shall be solely the Company's risk, liability and
responsibility.
 
 5.8  Upon any payments made to the Issuing Bank under the Letter of
Credit Guaranty, CITBC shall acquire by subrogation, any rights, remedies,
duties or obligations granted or undertaken by the Company to the Issuing
Bank in any application for Letters of Credit, any standing agreement
relating to Letters of Credit or otherwise, all of which shall be deemed to
have been granted to CITBC and apply in all respects to CITBC and shall be
in addition to any rights, remedies, duties or obligations contained herein.
 
SECTION  6.   Collateral
 
6.1  As security for the prompt payment in full of all loans and
advances made and to be made to the Company from time to time by CITBC
pursuant hereto, as well as to secure the payment in full of the other
Obligations, the Company hereby, and pursuant to the Loan Documents, pledges
and grants to CITBC a continuing general lien upon and security interest in
all of its:
 
(a)  Accounts;
 
(b)  Inventory;
 
(c)  Limited License for its General Intangibles;
 
(d)  Documents of Title;
 
(e)  Other Collateral; and
 
(f)   Equipment (acquired subsequent to February 27, 1998);
 
6.2  The security interests granted hereunder shall extend and attach
to:
 
(a)  All Collateral which is presently in existence and which is
owned by the Company or in which the Company has any interest, whether held
by the Company or others for its account, and, if any Collateral is
Equipment, whether the Company's interest in such Equipment is as owner or
lessee or conditional vendee;
 
(b)  All Equipment (acquired subsequent to February 27, 1998) whether
the same constitutes personal property or fixtures, including, but without
limiting the generality of the foregoing, all dies, jigs, tools, benches,
molds, tables, accretions, component parts thereof and additions thereto,
as well as all accessories, motors, engines and auxiliary parts used in
connection with or attached to such Equipment; and
 
(c)  All Inventory and any portion thereof which may be returned,
rejected, reclaimed or repossessed by either CITBC or the Company from the
Company's customers, as well as to all supplies, goods, incidentals,
packaging materials, labels and any other items which contribute to the
finished goods or products manufactured or processed by the Company, or to
the sale, promotion or shipment thereof.
 
6.3  The Company agrees to safeguard, protect and hold all Inventory
for CITBC's account and make no disposition thereof except in the regular
course of the business of the Company as herein provided.   Until CITBC has
given the Company notice to the contrary after the occurrence of an Event
of Default, any Inventory may be sold and shipped by the Company to its
customers in the ordinary course of the Company's business, on open account
and on terms currently being extended by the Company to its customers,
provided that all proceeds of all sales (including cash, accounts
receivable, checks, notes, instruments for the payment of money and similar
proceeds) are forthwith transferred, endorsed, and turned over and delivered
to CITBC in accordance with Paragraph 3.4 of Section 3 of this Financing
Agreement.   CITBC shall have the right to withdraw this permission at any
time upon the occurrence of an Event of Default and until such time as such
Default and/or Event of Default is waived in writing by CITBC or cured to
CITBC's satisfaction, in which event no further disposition shall be made
of the Inventory by the Company without CITBC's prior written approval.
Cash sales or sales of inventory in which a lien upon, or security interest
in, Inventory is retained by the Company shall be made by the Company only
with the approval of CITBC, and the proceeds of such sales or sales of
inventory for cash shall not be commingled with the Company's other
property, but shall be segregated, held by the Company in trust for CITBC
as CITBC's exclusive property, and shall be delivered immediately by the
Company to CITBC in the identical form received by the Company by deposit
to the Depository Accounts.   Upon the sale, exchange, or other disposition
of Inventory, as herein provided, the security interest in the Company's
Inventory provided for herein shall, without break in continuity and without
further formality or act, continue in, and attach to, all proceeds,
including any instruments for the payment of money, accounts receivable,
contract rights, documents of title, shipping documents, chattel paper and
all other cash and non-cash proceeds of such sale, exchange or disposition.
 As to any such sale, exchange or other disposition, CITBC shall have all
of the rights of an unpaid seller, including stoppage in transit, replevin,
rescission and reclamation. Irrespective of CITBC's perfection status in any
and all of the Company's General Intangibles, including without limitations
any Trademarks, Copyrights or licenses with respect thereto, the Company
hereby irrevocably grants CITBC a royalty free license to sell or otherwise
dispose or transfer, in accordance with paragraphs 6.8 and 10.3 and the
applicable terms hereof, any of the Company's Inventory upon the occurrence
of an Event of Default which has not been waived in writing by CITBC.
 
6.4  The Company agrees at its own cost and expense to keep the
Equipment in as good and substantial repair and condition as the same is now
or at the time the lien and security interest granted herein shall attach
thereto, reasonable wear and tear excepted, making any and all repairs and
replacements when and where necessary.   The Company also agrees to
safeguard, protect and hold Equipment (which is subject to CITBC's lien
hereunder) for CITBC's account and make no disposition thereof unless the
Company first obtains the prior written approval of CITBC.   Any sale,
exchange or other disposition of any Equipment (which is subject to CITBC's
lien hereunder) shall only be made by the Company with the prior written
approval of CITBC, and the proceeds of any such sales shall not be
commingled with the Company's other property, but shall be segregated, held
by the Company in trust for CITBC as CITBC's exclusive property, and shall
be delivered immediately by the Company to CITBC in the identical form
received by the Company by deposit to the Depository Accounts.   Such
proceeds shall be applied to the Obligations in such order as CITBC may
reasonably deem necessary. Upon the sale, exchange, or other disposition of
the Equipment (which is subject to CITBC's lien hereunder), as herein
provided, the security interest provided for herein shall, without break in
continuity and without further formality or act, continue in, and attach to,
all proceeds, including any instruments for the payment of money, accounts
receivable, contract rights, documents of title, shipping documents, chattel
paper and all other cash and non-cash proceeds of such sales, exchange or
disposition.   As to any such sale, exchange or other disposition, CITBC
shall have all of the rights of an unpaid seller, including stoppage in
transit, replevin, rescission and reclamation.   Notwithstanding anything
herein above contained to the contrary, the Company may sell, exchange or
otherwise dispose of obsolete Equipment or Equipment no longer needed in the
Company's operations, provided, however, that (a) the then book value or
market value of the Equipment so disposed of does not exceed [5,000,000] in
the aggregate in any Fiscal Year and (b) the proceeds of such sales or
dispositions of Equipment (which is subject to  CITBC's lien hereunder) are
delivered to CITBC in accordance with the foregoing provisions of this
paragraph and shall be applied to any applicable CAPEX Term Loans, or to the
Obligations in CITBC's discretion.
 
6.5  The rights and security interests granted to CITBC hereunder are
to continue in full force and effect, notwithstanding the termination of
this Financing Agreement or the fact that the  Revolving Loan Account
maintained in the Company's name on the books of CITBC may from time to time
be temporarily in a credit position, until the final payment in full to
CITBC of all Obligations and the termination of this Financing Agreement.
Any delay, or omission by CITBC to exercise any right hereunder, shall not
be deemed a waiver thereof, or be deemed a waiver of any other right, unless
such waiver shall be in writing and signed by CITBC.   A waiver on any one
occasion shall not be construed as a bar to or waiver of any right or remedy
on any future occasion.
 
6.6  Notwithstanding CITBC's security interest in the various assets
constituting Collateral and to the extent that the Obligations are now or
hereafter secured by any assets or property other than the Collateral or by
the guarantee, endorsement, assets or property of any other person, CITBC
shall have the right in its sole discretion to determine which rights,
security, liens, security interests or remedies CITBC shall at any time
pursue, foreclose upon, relinquish, subordinate, modify or take any other
action with respect to, without in any way modifying or affecting any of
them, or any of CITBC's rights hereunder.
 
6.7  Any reserves or balances to the credit of the Company and any
other property or assets of the Company in the possession or control of
CITBC (in each case which are part of the Collateral) may be held by CITBC
as security for any Obligations and applied in whole or partial satisfaction
of such Obligations when due.   The liens and security interests granted
herein and any other lien or security interest CITBC may have in any other
assets of the Company, shall secure payment and performance of all now
existing and future Obligations.   CITBC may in its discretion charge any
or all of the Obligations to the Revolving Loan Account of the Company when
due.
 
6.8 (a)  The Company shall deliver to CITBC, and/or shall cause the
appropriate party to deliver to CITBC, from time to time such pledge or
security agreements with respect to General Intangibles (now or hereafter
acquired) of the Company and all of its subsidiaries  as CITBC shall require
to obtain valid royalty free license to sell or transfer Collateral (upon
the occurrence of an Event of Default which has not been waived in writing
by CITBC), including goods and products developed or manufactured by the
Company with respect thereto.   It is the intent of the parties hereto to
grant to CITBC a non-exclusive license in  the Company's General Intangibles
such that CITBC can exercise its rights and remedies to obtain the proceeds,
consideration, or distributions from any Collateral, including any sale or
transfer of Accounts and Inventory, as set forth in the Financing Agreement.
In furtherance of the foregoing, the Company shall provide timely notice to
CITBC of any additional Patents, Trademarks, tradenames, service marks,
Copyrights, brand names, trade names, logos and other trade designations
acquired or applied for subsequent to the Closing Date and the Company shall
execute such documentation as CITBC may reasonably require to obtain and
perfect its lien thereon.
 
        (b) The Company hereby represents and warrants that it owns, possesses
or has the exclusive right (subject to any licensing or similar agreements
which may be in effect from time to time, in accordance with the terms
hereof) to the General Intangibles used in connection with its business,
sales and operations, subject to (x) the Permitted Encumbrances and Senior
Secured Note holders' security interest in the Senior Secured Note holders'
Collateral (as defined in the Senior Secured Notes and as in effect as of
the Closing Date), and (y) CITBC's rights and interests therein as set forth
in this Financing Agreement and the Loan Documents.   The Company and CITBC
hereby agree as follows:
 
(A)     The Company hereby irrevocably grants and shall cause its
Subsidiaries, if applicable, to grant to CITBC a royalty-free,
non-exclusive license to the Company's and, if applicable, its
Subsidiaries' General Intangibles, including its Trademarks,
Copyrights, Patents, licenses and any and all right, title and
interest in any of the foregoing for the sole purpose, upon the
occurrence of an Event of Default, of the right to: (i) collect
and retain any Accounts, and sell, transfer and distribute
Inventory bearing any General Intangibles; (ii) advertise for
sale Inventory bearing any General Intangibles; (iii) hold,
acquire, deliver or distribute Inventory bearing any General
Intangibles, including Trademarks; and (iv) make, assemble,
prepare for sale or complete, or cause others to do so, any
applicable raw materials or Inventory bearing any General
Intangibles, including Trademarks, and to sell or transfer any
such Inventory, all as further set forth in this Financing
Agreement.  The foregoing rights and license are for the
purposes enumerated herein and not for the sale of General
Intangibles by CITBC to any third party.  Any agent or
transferee of CITBC shall be solely entitled to the rights
enumerated herein.
 
 (B)    In connection with the exercise of the foregoing remedies and
subject to Permitted Encumbrances and rights of applicable
third parties pursuant to law, CITBC is hereby granted
permission to use all of the Company's and, if applicable, its
Subsidiaries': (i) General Intangibles, including Trademarks,
licenses, Copyrights, Patents, franchises and other proprietary
and intellectual property rights which are used in connection
with Inventory, for the purposes of completing, selling or
disposing of Inventory, (ii) Equipment for the purpose of
completing the manufacture of unfinished goods, raw materials
or work-in-process comprising Inventory, and (iii) the
Company's  and its Subsidiaries' Real Estate for purposes of
such completion and sale.   The foregoing rights may be
exercised by CITBC, without cost to CITBC and  the Company
hereby indemnifies CITBC and holds CITBC harmless  from any and
all costs, fees, expenses and any and all liabilities incurred
in connection with the exercises of the foregoing rights and
remedies, and confirms that any such amounts shall be deemed
Obligations hereunder.
 
(C)     The Company hereby further agrees  that it shall not encumber,
sell or transfer any of its General Intangibles, including the
Trademarks, provided that the Company may sell certain rights
to its General Intangibles for use in foreign territories and
with respect to goods which do not compete with the business or
sales of the Company or sublicense its General Intangibles, all
in the ordinary course of its business, provided further that
any such sale or sublicense shall not impair the rights of
CITBC to collect and retain the proceeds of Accounts and sell,
transfer or dispose of Inventory in accordance with the terms
of or its rights under this limited license this Financing
Agreement.
 
 (D)    The provisions of this paragraph shall inure and be binding
upon the respective parties to this Financing Agreement and
their respective successors and assigns and upon any sale,
transfer or divestiture by the Company and/or its Subsidiaries,
of their respective interests in General Intangibles, any such
purchaser, transferee or successor or assign shall take subject
to the provision hereof.
 
SECTION 7.   Representations, Warranties and Covenants
 
7.1  The Company hereby warrants, represents and covenants that: (a)
the fair value of the Company's assets exceeds the book value of the
Company's liabilities; (b) the Company is generally able to pay its debts
as they become due and payable; and (c) the Company does not have
unreasonably small capital to carry on its business as it is currently
conducted absent extraordinary and unforeseen circumstances.   The Company
further warrants and represents that Schedule 2 hereto correctly and
completely sets forth (i) the Company's chief executive office, (ii) all of
the Company's Collateral locations, (iii) all tradenames used by the
Company, (iv) all Patents, Trademarks and Copyrights owned and/or used by
the Company and (v) the applicable monthly rent or other charges with
respect to each Collateral location; and, except for the Permitted
Encumbrances, after filing of financing statements in the applicable filing
clerks office at the locations set forth in Schedule 2, this Financing
Agreement creates a valid, perfected and first priority security interest
upon and security interests in the Collateral and the security interests
granted herein constitute and shall at all times constitute the first and
only liens on the Collateral; that, except for the Permitted Encumbrances,
the Company is or will be at the time additional Collateral is acquired by
it, the absolute owner of the Collateral with full right to pledge, sell,
consign, transfer and create a security interest therein, free and clear of
any and all claims or liens in favor of others; that the Company will at its
expense forever warrant and, at CITBC's request, defend the same from any
and all claims and demands of any other person other than the Permitted
Encumbrances; that the Company will not grant, create or permit to exist,
any lien upon or security interest in the Collateral, or any proceeds
thereof, in favor of any other person other than the holders of the
Permitted Encumbrances; and that the Equipment does not comprise a part of
the Inventory of the Company and that the Equipment is and will only be used
by the Company in its business and will not be held for sale or lease, or
removed from its premises, or otherwise disposed of by the Company without
the prior written approval of CITBC except as otherwise permitted in
Paragraph  6.4 of Section 6 of this Financing Agreement.
 
7.2  The Company agrees to maintain books and records pertaining to
the Collateral in such detail, form and scope as CITBC shall reasonably
require, consistent with its standard practices and in accordance with GAAP.
The Company agrees that upon reasonable prior notice CITBC or its agents
may enter upon the Company's premises at any time during normal business
hours, and from time to time in its reasonable business judgement, for the
purpose of inspecting the Collateral, and any and all records pertaining
thereto.   The Company agrees to afford CITBC thirty (30) days prior written
notice of any change in the location of any Collateral, other than to
locations, that as of the Closing Date, are known to CITBC and at which
CITBC has filed financing statements and otherwise fully perfected its liens
thereon.   The Company is also to advise CITBC promptly, in sufficient
detail, of any material adverse change relating to the type, quantity or
quality of the Collateral or on the security interests granted to CITBC
therein.
 
7.3  The Company agrees to:  execute and deliver to CITBC, from time
to time, solely for CITBC's convenience in maintaining a record of the
Collateral, such written statements, and schedules as CITBC may reasonably
require, designating, identifying or describing the Collateral pledged to
CITBC hereunder.   The Company's failure, however, to promptly give CITBC
such statements, or schedules shall not affect, diminish, modify or
otherwise limit CITBC's security interests in the Collateral.
 
7.4  The Company agrees to comply with the requirements of all state
and federal laws in order to grant to CITBC valid and perfected first
security interests in the Collateral, subject only to the Permitted
Encumbrances.   CITBC is hereby authorized by the Company to file from time
to time any financing statements covering the Collateral whether or not the
Company's signature appears thereon.   The Company agrees to do whatever
CITBC may reasonably request, from time to time, by way of:  filing notices
of liens, financing statements, amendments, renewals and continuations
thereof; cooperating with CITBC's custodians; keeping stock records;
transferring proceeds of Collateral to CITBC's possession; and performing
such further acts as CITBC may reasonably require in order to effect the
purposes of this Financing Agreement.
 
7.5 (a) The Company agrees to maintain insurance on the Equipment and
Inventory under such policies of insurance, with such insurance companies,
in such reasonable amounts and covering such insurable risks as are at all
times reasonably satisfactory to CITBC.   All policies covering the,
Equipment (which is subject to CITBC's lien hereunder) and Inventory are,
subject to any applicable rights of any holders of Permitted Encumbrances
holding claims senior to CITBC, to be made payable to CITBC, in case of
loss, under a standard non-contributory "mortgagee", "lender" or "secured
party" clause and are to contain such other provisions as CITBC may require
to fully protect CITBC's interest in the, Inventory and Equipment and to any
payments to be made under such policies.   All original policies or true
copies thereof are to be delivered to CITBC, premium prepaid, with the loss
payable endorsement in CITBC's favor, and shall provide for not less than
thirty (30) days prior written notice to CITBC of the exercise of any right
of cancellation.   At the Company's request, or if the Company fails to
maintain such insurance, CITBC may arrange for such insurance, but at the
Company's expense and without any responsibility on CITBC's part for:
obtaining the insurance, the solvency of the insurance companies, the
adequacy of the coverage, or the collection of claims.   Upon the occurrence
of an Event of Default which is not waived or cured to CITBC's satisfaction,
CITBC shall, subject to the rights of any holders of Permitted Encumbrances
holding claims senior to CITBC, have the sole right, in the name of CITBC
or the Company, to file claims under any insurance policies, to receive,
receipt and give acquittance for any payments that may be payable
thereunder, and to execute any and all endorsements, receipts, releases,
assignments, reassignments or other documents that may be necessary to
effect the collection, compromise or settlement of any claims under any such
insurance policies.
 
(b)  In the event the Company fails to provide CITBC with timely
evidence, acceptable to CITBC,  of its maintenance of insurance coverage
required pursuant to paragraph 7.5(a) above,  CITBC may purchase insurance
to protect CITBC's interests in the Collateral, at the Company's expense.
The insurance acquired by CITBC may, but need not, protect the Company's
interest in the Collateral, and therefore such insurance may not pay claims
which the Company may have with respect to the Collateral or pay any claim
which may be made against the Company in connection with the Collateral. The
Company may request cancellation of any such insurance obtained by CITBC, and
CITBC shall promptly cancel such insurance, but only after providing CITBC
with satisfactory evidence that the Company has applicable insurance.   In
the event CITBC purchases, obtains or acquires  insurance covering all or any
portion of the Collateral, the Company shall be responsible for all of the
applicable costs of such insurance, including premiums, interest (at the
applicable Chase Bank Rate for Revolving Loans  set forth in paragraph 8.1
of Section 8 hereof), fees and any other charges with respect thereto, until
the effective date of the cancellation or the expiration of such insurance.
  CITBC may charge all of such premiums, fees, costs, interest and other
charges to the Company's Revolving Loan Account. The Company hereby
acknowledges that the costs of the premiums of any insurance acquired by
CITBC may exceed the costs of insurance which the Company may be able to
purchase on its own. In the event that CITBC purchases such insurance, CITBC
will notify the Company of said purchase within thirty (30) days after the
date of such purchase.   If, within thirty (30) days of the date of such
notice, the Company provides CITBC with proof that the Company had the
insurance coverage required pursuant to 7.5(a) above (in form and substance
satisfactory to CITBC) as of the date on which CITBC purchased insurance and
the Company continued at all times to have such insurance, then CITBC agrees
to cancel the insurance purchased by CITBC and credit the Company's Revolving
Loan Account with the amount of all costs, interest and other charges
associated with such insurance, including with any amounts previously charged
by CITBC to the Revolving Loan Account.
 
7.6  The Company agrees to pay, when due, all taxes, sales taxes,
assessments, claims and other charges (herein "taxes") lawfully levied or
assessed upon the Company or the Collateral unless such taxes are being
diligently contested in good faith by the Company by appropriate proceedings
and adequate reserves are established in accordance with GAAP.
Notwithstanding the foregoing, if any lien shall be filed or claimed
thereunder x) for taxes due the United States of America or y) which in
CITBC's opinion might create a valid obligation having priority over the
rights granted to CITBC herein, such lien shall not be deemed to be a
Permitted Encumbrance hereunder and the Company shall immediately pay such
tax and remove the lien of record.   If the Company fails to do so promptly,
then at CITBC's election, CITBC may (i) create an Availability Reserve in
such amount as it may deem appropriate in its business judgement, in an
approximate amount equal to such taxes and penalties (due or anticipated),
or (ii) on the Company's behalf, pay such taxes, and the amount thereof shall
be an Obligation secured hereby and due to CITBC on demand.  CITBC shall
notify the Company of any such actions.
 
7.7  The Company:  (a) agrees to comply with all acts, rules,
regulations and orders of any legislative, administrative or judicial body
or official, which the failure to comply with would have a material and
adverse impact on the Collateral, or any material part thereof, or on the
business or operations of the Company; provided that the Company may contest
any acts, rules, regulations, orders and directions of such bodies or
officials in any reasonable manner which will not, in CITBC's reasonable
opinion, materially and adversely effect CITBC's rights or priority in the
Collateral; (b) agrees to comply with all environmental statutes, acts,
rules, regulations or orders as presently existing or as adopted or amended
in the future, applicable to the Collateral, the ownership and/or use of its
real property and operation of its business, which the failure to comply
with would have a material and adverse impact on the Collateral, or any
material part thereof, or on the operation of the business of the Company;
and (c) shall not be deemed to have breached any provision of this Paragraph
7.7 if (i) the failure to comply with the requirements of this Paragraph 7.7
resulted from good faith error or innocent omission, (ii) the Company
promptly commences and diligently pursues a cure of such breach, and (iii)
such failure is cured or good progress toward cure is demonstrated, within
(30) days following the Company's receipt of notice of such failure and the
Company continues in good faith to move promptly toward cure, in conformity
with applicable law and any governmental entity order or agreement with
respect thereto, and to the reasonable satisfaction of CITBC.   The Company
hereby indemnifies CITBC and agrees to defend and hold CITBC harmless from
and against any and all loss, damage, claim, liability, injury or expense
which CITBC may sustain or incur (other than solely as a result of the
physical actions of CITBC on the Company's premises which are determined to
constitute gross negligence or willful misconduct by a court of competent
jurisdiction) in connection with:  any and all claims or expenses asserted
against CITBC as a result of any environmental pollution, hazardous material
or environmental clean-up of the Company's Real Property; or any claim or
expense which results from the Company's operations (including, but not
limited to, the Company's off-site disposal practices), and the Company
further agrees that this indemnification shall survive termination of this
Financing Agreement as well as the payment of all Obligations or amounts
payable hereunder.
 
7.8  Until termination of this Financing Agreement and payment and
satisfaction of all Obligations due hereunder, the Company agrees that,
unless CITBC shall have otherwise consented in writing, the Company will
furnish to CITBC: (a) within ninety (90) days after the end of each Fiscal
Year of the Company, an audited Consolidated Balance Sheet, with a
Consolidating Balance Sheet attached thereto, as at the close of such year,
and statements of profit and loss, cash flow and reconciliation of surplus
of the Company and its consolidated subsidiaries for such year, audited by
independent public accountants selected by the Company and satisfactory to
CITBC; (b) within forty five (45) days after the end of each Fiscal Quarter
a Consolidated Balance Sheet and Consolidating Balance Sheet as at the end
of such period and statements of profit and loss, cash flow and surplus of
the Company and its consolidated subsidiaries, certified by an authorized
financial or accounting officer of the Company; (c) within thirty (30) days
after the end of each month a Consolidated Balance Sheet as at the end of
such period and statements of profit and loss, cash flow and surplus of the
Company and all subsidiaries for such period, certified by an authorized
financial or accounting officer of the Company; and (d) from time to time,
such further information regarding the business affairs and financial
condition of the Company and its consolidated subsidiaries as CITBC may
reasonably request, including without limitation (i) the accountant's
management practice letter and (ii) annual cash flow projections (to be
provided within 30 days as of the end of any fiscal year) in form
satisfactory to CITBC.   Each financial statement which the Company is
required to submit hereunder must be accompanied by an officer's
certificate, signed by the President, Vice President, Controller, or
Treasurer, pursuant to which any one such officer must certify that: (x) the
financial statement(s) fairly and accurately represent(s) the Company's
financial condition at the end of the particular accounting period, as well
as the Company's operating results during such accounting period, subject
to year-end audit adjustments; and (y) during the particular accounting
period: (A) there has been no Default or Event of Default under this
Financing Agreement, provided, however, that if any such officer has
knowledge that any such Default or Event of Default, has occurred during
such period, the existence of and a detailed description of same shall be
set forth in such officer's certificate; (B) the Company has not received
any notice of cancellation with respect to its property insurance policies;
(C) the Company has not received any notice that could result in a material
adverse effect on the value of the Collateral taken as a whole; and (D) the
exhibits attached to such financial statement(s) constitute detailed
calculations showing compliance with all financial covenants contained in
this Financing Agreement.
 
7.9  Until termination of the Financing Agreement and payment and
satisfaction of all Obligations due hereunder, the Company agrees that,
without the prior written consent of CITBC, except as otherwise herein
provided, the Company will not:
 
    (a) Mortgage, assign, pledge, transfer or otherwise permit any
        lien, charge, security interest, encumbrance or judgment
        (whether as a result of a purchase money or title retention
        transaction, or other security interest, or otherwise) to
        exist on any of its assets or goods, whether real, personal or
        mixed, whether now owned or hereafter acquired, except for the
        Permitted Encumbrances;
    (b) Incur or create any Indebtedness other than the Permitted
        Indebtedness;
    (c) Borrow any money on the security of the Company's Collateral
        or any other assets or stock of the Company from sources other
        than CITBC;
    (d) Sell, lease, assign, transfer or otherwise dispose of (i)
        Collateral, except as otherwise specifically permitted by this
        Financing Agreement, or (ii) either all or substantially all
        of the Company's assets, which do not constitute Collateral;
    (e) Merge, consolidate or otherwise alter or modify its corporate
        name, principal place of business, structure, status or
        existence, or enter into or engage in any operation or
        activity materially different from that presently being
        conducted by the Company, or purchase or acquire all or
        substantially all of the capital stock or assets of any
        corporation or entity, except that the Company may change its
        corporate name or address; provided that (i) the Company shall
        give CITBC thirty (30) days prior written notice thereof and
        (ii) the Company shall execute and deliver prior to or
        simultaneously with any such action any and all documents and
        agreements requested by CITBC (including, without limitation,
        any and all U.C.C.  financing statements) to confirm the
        continuation and preservation of all security interests and
        liens granted to CITBC hereunder;
    (f) Assume, guarantee, endorse, or otherwise become liable upon
        the obligations of any person, firm, entity or corporation,
        except by the endorsement of negotiable instruments for
        deposit or collection or similar transactions in the ordinary
        course of business;
    (g) Declare or pay any dividend or distributions of any kind on,
        or purchase, acquire, redeem or retire, any of the capital
        stock or equity interest, of any class whatsoever, whether now
        or hereafter outstanding, excluding non-cash dividends on
        preferred stock, or cash dividends from the proceeds of any
        initial public offering consistent with the terms and
        provisions of the Senior Secured Notes relating thereto; or
    (h) Make any advance or loan to, or any investment in, any firm,
        entity, person or corporation or purchase or acquire all or
        substantially all of the stock or assets of any entity, person
        or corporation, except that the Company may make loans to its
        employees in an amount not to exceed $50,000 in any fiscal
        year.
 
7.10  Until termination of the Financing Agreement and payment and
satisfaction in full of all Obligations hereunder, the Company shall:
 
(a)  maintain at all times during each fiscal quarter ending
below a Tangible Net Worth of not less than the amount set
forth below for the applicable period:
 
Fiscal Period                                   Tangible Net Worth
 
(i) For the Fiscal Quarter ending
on or about December 31, 1998                       $220,000,000
(ii) For the Fiscal Quarter ending
on or about March 31, 1999                          $205,000,000
(iii) For the Fiscal Quarter ending
on or about June 30, 1999                           $195,000,000
(iv) For the Fiscal Quarter ending
on or about September 30, 1999                      $185,000,000
(v) For the Fiscal Quarter ending
on or about December 31, 1999                       $175,000,000
(vi) For the Fiscal Quarter ending
on or about March 31, 2000 and each
Fiscal Quarter thereafter                           $180,000,000
 
 
(b)  maintain at the end of each Fiscal Quarter during the
periods set forth below a Fixed Charge Coverage Ratio of not
less than the ratio set forth below for the applicable period:
 
Period                                                  Ratio
 
(i) For the Fiscal Quarter ending
on or about June, 1999                                  0.55
(ii) For the Fiscal Quarter ending
on or about September, 1999                             0.60
(iii) For the Fiscal Quarter ending
on or about December, 1999                              0.65
(iv) For the Fiscal Quarter ending
on or about March, 2000                                 0.70
(v) For the Fiscal Quarter ending
on or about June, 2000                                  0.75
(vi) For the Fiscal Quarter ending
on or about September, 2000                             0.80
(vii) For the Fiscal Quarter ending
on or about December, 2000                              0.85
(viii) For the Fiscal Quarter ending
on or about March, 2001                                 0.90
(ix) For the Fiscal Quarter ending
on or about June, 2001                                  0.95
(x) For the Fiscal Quarter ending
on or about September, 2001 and each
Quarter ending  thereafter                              1.00
 
The foregoing ratio shall be calculated on a cumulative quarterly
basis on a rolling four quarter basis thereafter.
 
(c) Notwithstanding anything in this paragraph 7.10 to the contrary,
the foregoing covenants shall not be tested unless (i) the Company's
Availability is less than $7,500,000 at any time during the sixty
(60) day period prior to any applicable date of calculation if no
CAPEX Term Loans are outstanding, or (ii) the Company's Availability
is less than $15,000,000 at any time during the sixty (60) day period
prior to any applicable date of calculation if any CAPEX Term Loans
are outstanding, or (iii) a Default or Event of Default has occurred
hereunder.
 
7.11 The Company agrees to advise CITBC in writing of:  a) all
expenditures (actual or anticipated) in excess of $150,000.00 from the
budgeted amount therefor in any Fiscal Year for x) environmental clean-up,
y) environmental compliance or z) environmental testing and the impact of
said expenses on the Company's Working Capital; and b) any notices the
Company receives from any local, state or federal authority advising the
Company of any environmental liability (real or potential) stemming from the
Company's operations, its premises, its waste disposal practices, or waste
disposal sites used by the Company and to provide CITBC with copies of all
such notices if so required.
 
7.12 The Company hereby agrees to pay any and all fees, costs,
expenses, charges, liabilities, obligations and other amounts relating to,
or contemplated by, any Lockbox Agreement and any ancillary agreements
entered in connection therewith from time to time, including for the
establishment and maintenance of post office boxes and depository and
collection accounts.   In furtherance thereof, the Company hereby agrees
that any and all such payments shall be deemed Obligations and, absent prior
payment thereof by the Company and notice of payment to CITBC, irrevocably
instructs CITBC, to charge its Revolving Loan Account under this Financing
Agreement with any and all payments which CITBC may, in its sole discretion,
make from time to time with respect to any such Lockbox Agreement.   CITBC
shall provide written notice thereof, whether in the form of monthly
statements or otherwise. The Company hereby agrees to indemnify and hold
harmless CITBC and its officers, directors, employees, attorneys and agents
(each an "Indemnified Party") from, and holds each of them harmless
against, any and all losses (including, without limitation, losses resulting
from items deposited and returned unpaid or returned under a claim that a
presentment of warranty has been breached), liabilities, obligations,
claims, actions, damages, costs and expenses (including attorney's fees) and
any payments made by CITBC pursuant to any indemnity provided by CITBC with
respect to or to which any Indemnified Party could be subject insofar as
such losses, liabilities, obligations, claims, actions, damages, costs, fees
or expenses arise from or relate to the lockbox and/or the depository
account and/or the agreements executed in connection therewith, whether
through the alleged or actual negligence of such person or otherwise, except
and to the extent that the same results solely and directly from the gross
negligence or willful misconduct of such Indemnified Party as finally
determined by a court of competent jurisdiction.   This indemnity shall
survive termination of this Financing Agreement.  CITBC may, in its
reasonable business judgement, establish such Availability Reserves with
respect thereto as it may deem advisable under the circumstances and, upon
any termination hereof, hold such reserves as cash reserves for any such
contingent liabilities for the applicable duration of CITBC's indemnity
under any such Lockbox or Depository Account Agreements.  CITBC shall
provide written notice to the Company of the foregoing as set forth herein.
 
7.13    The Company shall take all action reasonably necessary to
assure that its computer-based systems are able to effectively process date-
sensitive data functions.   The Company represents and warrants that the
"Year 2000" problem (that is, the inability of certain computer
applications to recognize and properly perform date-sensitive functions
involving certain dates on or about or subsequent to December 31, 1999) will
not result in a material adverse effect on the Company's business, assets
or operations.   The Company reasonably anticipates that all computer
applications which are material to its business will, on a timely basis, be
able to properly perform date-sensitive functions for all dates on and after
January 1, 2000.   Upon CITBC's request from time to time, the
Company shall provide to CITBC assurances that the Company's computer
systems and software are or will be Year 2000 compliant on a timely basis,
all in form and substance reasonably satisfactory to CITBC.
 
SECTION  8.   Interest, Fees and Expenses
 
 8.1  Interest on the Revolving  Loans which are Chase Bank Rate
Loans shall be payable monthly as of the end of each month and shall be in
an amount equal to the Chase Bank Rate per annum on the average of the net
balances owing by the Company to CITBC in the Company's Revolving Loan
Account at the close of each day during such month.  In the event of any
change in said  Chase Bank Rate, the rate hereunder for Chase Bank Rate
Loans shall change, as of the first of the month following any such change,
so as to remain  at the  Chase Bank Rate.   The rate hereunder for Chase
Bank Rate Loans shall be calculated based on a 360-day year.   CITBC shall
be entitled to charge the Company's Revolving Loan Account at the rate
provided for herein when due until all Obligations have been paid in full.
 
8.2   Interest on the CAPEX Term Loans shall be payable monthly as of
the end of each month on the unpaid balance or on payment in full prior to
maturity, and with respect to Chase Rate Loans shall be in an amount equal
to the Chase Bank Rate plus one percent (1%) per annum.   In the event of
any change in said Chase Bank Rate the rate hereunder for Chase Bank Rate
Loans shall change, as of the first of the month following any change, so
as to remain one percent (1%) above the Chase Bank Rate.   The rate
hereunder shall be calculated based on a 360 day year.   CITBC shall be
entitled to charge such interest to the Company's Revolving Loan Account at
the rate provided for herein when due until all Obligations have been paid
in full.
 
8.3  In consideration of the Letter of Credit Guaranty of CITBC, the
Company shall pay CITBC the Letter of Credit Guaranty Fee which shall be an
amount equal to one and one half percent (1.5%) per annum on the face amount
of each Letter of Credit issued pursuant to Section 5 hereof, and shall be
payable upon issuance thereof.
 
8.4  Any and all charges, fees, commissions, costs and expenses
charged to CITBC for the Company's account by any Issuing Bank in connection
with or arising out of Letters of Credit issued pursuant to this Financing
Agreement or out of transactions relating thereto will be charged to the
Company's Revolving Loan Account in full when charged to or paid by CITBC,
or as may be due upon any early termination hereof, and when made by any
such Issuing Bank shall be conclusive on CITBC.
 
8.5  The Company shall reimburse or pay CITBC, as the case may be,
for: (a) all Out-of-Pocket Expenses of CITBC, (b) any applicable
Documentation Fee, and (c) the CAPEX Fee, if applicable.
 
8.6  Upon the last Business Day of each month, commencing on November
30, 1998, the Company shall pay CITBC the Line of Credit Fee.
 
8.7  To induce CITBC to enter into this Financing Agreement and to
extend to the Company the Revolving Loans, Letters of Credit Guaranties, and
the CAPEX Term Loans, the Company shall pay to CITBC a Loan Facility Fee in
the amount of $150,000.00 (which shall be fully earned on the Closing Date,
and which amount includes the Documentation Fee in subparagraph (a) of the
definition thereof) with $100,000 payable upon execution of this Financing
Agreement and the remaining $50,000 payable upon the earlier of one year
from the Closing Date or any prior Early Termination Date.  The Commitment
Fee, as outlined in the CITBC Commitment Letter (less any Out-of-Pocket
Expenses), shall be credited toward the Loan Facility Fee upon consummation
of this financing transaction on the Closing Date.
 
8.8  On the Closing Date and each anniversary of the Closing Date
thereafter, the Company shall pay to CITBC the Collateral Management Fee in
the amount of $25,000, which shall be deemed fully earned when paid (and due
payable and on the first business day of each year from the Closing Date.)
 The foregoing Collateral Management Fee shall automatically increase to
$50,000 per year upon any request for a Revolving Loan hereunder (including
the year of any such request).
 
8.9  Upon the occurrence of a Default or an Event of Default, which
is not waived in writing by CITBC, the Company shall pay CITBC's standard
charges and the reasonable fees for CITBC's personnel used by CITBC for
reviewing the books and records of the Company and for verifying, testing,
protecting, safeguarding, preserving or disposing of all or any part of the
Collateral (which fees shall be in addition to the Collateral Management Fee
and any Out-of-Pocket Expenses).
 
8.10 The Company hereby authorizes CITBC to charge the Company's
Revolving Loan Account with CITBC with the amount of all payments due
hereunder as such payments become due. The Company confirms that any charges
which CITBC may so make to the Company's  Revolving Loan Account as herein
provided will be made as an accommodation to the Company and solely at
CITBC's discretion.
 
8.11  In the event that CITBC shall have determined in the exercise
of its reasonable business judgement that subsequent to the Closing Date any
change in applicable law, rule, regulation or guideline regarding capital
adequacy, or any change in the interpretation or administration thereof, or
compliance by CITBC (or any financial institution which may become a
participant or Lender hereunder) with any new request or directive regarding
capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, has or would have the effect
of reducing the rate of return on CITBC's capital as a consequence of its
obligations hereunder to a level below that which CITBC could have achieved
but for such adoption, change or compliance (taking into consideration
CITBC's policies with respect to capital adequacy) by an amount reasonably
deemed by CITBC to be material, then, from time to time, the Company shall
pay no later than five (5) days following demand to CITBC such additional
amount or amounts as will compensate CITBC's for such reduction.   In
determining such amount or amounts, CITBC may use any reasonable averaging
or attribution methods.   The protection of this Paragraph 8.11 shall be
available to CITBC regardless of any possible contention of invalidity or
inapplicability with respect to the applicable law, regulation or condition.
 A certificate of CITBC setting forth such amount or amounts as shall be
necessary to compensate CITBC with respect to this Section 8 and the
calculation thereof when delivered to the Company shall be conclusive on the
Company absent manifest error.  Notwithstanding anything in this paragraph
to the contrary, in the event CITBC has exercised its rights pursuant to
this paragraph, and subsequent thereto determines that the additional
amounts paid by the Company in whole or in part exceed the amount which
CITBC actually required pursuant hereto, the excess, if any, shall be
returned to the Company by CITBC.
 
8.12.   In the event that any change in applicable law, treaty or
governmental regulation, or any change therein or in the interpretation or
application thereof, or compliance by CITBC with any request or directive
(whether or not having the force of law) from any central bank or other
financial, monetary or other authority, shall:
 
(a)  subject CITBC to any tax of any kind whatsoever with respect to
this Financing Agreement or change the basis of taxation of payments to
CITBC of principal, fees, interest or any other amount payable hereunder or
under any other documents (except for changes in the rate of tax on the
overall net income of CITBC by the federal government or the jurisdiction
in which it maintains its principal office);
 
(b)  impose, modify or hold applicable any reserve, special deposit,
assessment or similar requirement against assets held by, or deposits in or
for the account of, advances or loans by, or other credit extended by, any
office CITBC by reason of or in respect to this Financing Agreement and the
Loan Documents, including (without limitation) pursuant to Regulation D of
the Board of Governors of the Federal Reserve System; or
 
(c)  impose on CITBC any other condition with respect to this
Financing Agreement or any other document, and the result of any of the
foregoing is to increase the cost to CITBC of making, renewing or
maintaining its loans hereunder by an amount that CITBC deems to be material
in the exercise of its reasonable business judgement or to reduce the amount
of any payment (whether of principal, interest or otherwise) in respect of
any of the loans by an amount that CITBC deems to be material in the
exercise of its reasonable business judgement, then, in any case the Company
shall pay CITBC, within five (5) days following its demand, such additional
cost or such reduction, as the case may be.   CITBC shall certify the amount
of such additional cost or reduced amount to the Company and the calculation
thereof and such certification shall be conclusive upon the Company absent
manifest error.  Notwithstanding anything in this paragraph to the contrary,
in the event CITBC has exercised its rights pursuant to this paragraph, and
subsequent thereto determine that the additional amounts paid by the Company
in whole or in part exceed the amount which CITBC actually required pursuant
hereto, the excess, if any, shall be returned to the Company by CITBC.
 
8.13    LIBOR Conversion Options
 
(a)   The Company may elect, subsequent to ten (10) business
days from the Closing Date and from time to time thereafter, (i) to request
any loan made hereunder to be a LIBOR Loan as of the date of such loan or
(ii) to convert Chase Bank Rate Loans to LIBOR Loans, and may elect from
time to time to convert LIBOR Loans to Chase Bank Rate Loans by giving CITBC
at least three (3) Business Days' prior irrevocable notice of such election,
provided that any such conversion of LIBOR Loans to Chase Bank Rate Loans
shall only be made, subject to the second following sentence, on the last
day of an Interest Period with respect thereto.   Should the Company elect
to convert Chase Bank Rate Loans to LIBOR Loans, it shall give CITBC at
least four Business Days' prior irrevocable notice of such election.   If
the last day of an Interest Period with respect to a loan that is to be
converted to a LIBOR Loan is not a Business Day, then such conversion shall
be made on the next succeeding Business Day or Business Day, as the case may
be, and during the period from such last day of an Interest Period to such
succeeding Business Day or Business Day, as the case may be, such loan shall
bear interest as if it were an Chase Bank Rate Loan.   All or any part of
outstanding Chase Bank Rate Loans then outstanding with respect to Revolving
Loans and CAPEX Term Loans may be converted to LIBOR Loans as provided
herein, provided that partial conversions shall be in multiples in an ag-
gregate principal amount of $1,000,000 or more.  CITBC shall be entitled to
charge the Company a $500 fee upon the first effective day of any such
election for a LIBOR Loan.
 
(b)  Any LIBOR Loans may be continued as such upon the expira-
tion of an Interest Period, provided the Company so notifies  CITBC, at
least three (3) Business Days' prior to the expiration of said Interest
Period, and provided further that no LIBOR Loan may be continued as such
upon the occurrence of any Default or Event of Default which has not been
waived in writing by CITBC or cured to its reasonable satisfaction under
this Financing Agreement, but shall be automatically converted to an Chase
Bank Rate Loan on the last day of the Interest Period during which occurred
such Default or Event of Default.  Absent such notification, LIBOR Rate
Loans shall convert to Chase Bank Rate Loans on the last day of the
applicable Interest Period.  Each notice of election, conversion or
continuation furnished by the Company pursuant hereto shall specify whether
such election, conversion or continuation is for a [one, two, three or six]
month period.  Notwithstanding anything to the contrary contained herein,
CITBC (or any participant or co-lender, if applicable) shall not be required
to purchase United States Dollar deposits in the London interbank market or
from any other applicable LIBOR Rate market or source or otherwise "match
fund" to fund LIBOR Rate Loans, but any and all provisions hereof relating
to LIBOR Rate Loans shall be deemed to apply as if CITBC (and any other
Lender or participant, if applicable) had purchased such deposits to fund
any LIBOR Rate Loans.
 
(c)  The Company may request a LIBOR Loan, convert any Chase
Rate Loan or continue any LIBOR Loan provided that no Default or Event of
Default which has not been waived in writing by CITBC or cured to its
reasonable satisfaction has occurred hereunder, which has not been waived
in writing by CITBC.
 
8.14    Interest Rate.
 
(a)  The LIBOR Loans shall bear interest for each Interest Period
with respect thereto on the unpaid principal amount thereof at a rate per
annum equal to the LIBOR determined for each Interest Period in accordance
with the terms hereof plus:
 
(i)  2% with respect to Revolving Loans; and
(ii) 3% with respect to CAPEX Term Loans
 
(b)  If all or a portion of the outstanding principal amount of the
Obligations shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise), such outstanding amount, to the extent it is a
LIBOR Loan, shall be converted to a Chase Bank Rate Loan at the end of the
last Interest Period therefor for which CITBC on or prior to the date such
unpaid principal amount became due, shall have determined a LIBOR.
 
(c)  The Company may not have more than four (4) facilities which are
LIBOR Loans outstanding at any given time.
 
8.15    Computation and Payment of Interest.
 
(a)  Interest in respect of the LIBOR Loans shall be calculated on
the basis of a 360 day year and shall be payable on the last day of each
month.
 
(b)  CITBC shall, at the request of the Company, deliver to the
Company a statement showing the quotations given by Chase Manhattan Bank and
the computations used by CITBC in determining any interest rate pursuant to
Paragraph 8.14 of Section 8 hereof.
 
8.16    Inability to Determine Interest Rate.
 
As further set forth in paragraph 8.10 above, in the event that
CITBC(or any financial institution which may become a participant or Lender
hereunder) shall have determined in the exercise of its reasonable business
judgement (which determination shall be conclusive and binding upon the
Company) that by reason of circumstances affecting the interbank LIBOR
market, adequate and reasonable means do not exist for ascertaining LIBOR
applicable for any Interest Period with respect to (a) a proposed loan that
the Company has requested be made as a LIBOR Loan, (b) a LIBOR Loan that
will result from the requested conversion of a Chase Bank Rate Loan into a
LIBOR Loan or (c) the continuation of LIBOR Loans beyond the expiration of
the then current Interest Period with respect thereto, CITBC shall forthwith
give written notice of such determination to the Company at least one day
prior to, as the case may be, the requested borrowing date for such LIBOR
Loan, the conversion date of such Chase Bank Rate Loan or the last day of
such Interest Period.   If such notice is given (i) any requested LIBOR Loan
shall be made as a Chase Bank Rate Loan, (ii) any Chase Bank Rate Loan that
was to have been converted to a LIBOR Loan shall be continued as a Chase
Bank Rate Loan, and (iii) any outstanding LIBOR Loan shall be converted, on
the last day of then current Interest Period with respect thereto, to a
Chase Bank Rate Loan.   Until such notice has been withdrawn by CITBC, no
further LIBOR Loan shall be made nor shall the Company have the right to
convert a Chase Bank Rate Loan to a LIBOR Loan.
 
8.17    Payments.
 
If any payment on a LIBOR Loan becomes due and payable on a day other
than a Business Day, the maturity thereof shall be extended to the next
succeeding Business Day unless the result of such extension would be to
extend such payment into another calendar month in which event such payment
shall be made on the immediately preceding Business Day.
 
8.18    Illegality.
 
Notwithstanding any other provisions herein, if any law, regulation,
treaty or directive or any change therein or in the interpretation or
application thereof, shall make it unlawful for CITBC to make or maintain
LIBOR Loans as contemplated herein, the then outstanding LIBOR Loans, if
any, shall be converted automatically to Chase Bank Rate Loans on the next
succeeding Interest Payment Date or within such earlier period as required
by law.   The Company hereby agrees promptly to pay CITBC, upon its demand,
any additional amounts necessary to compensate CITBC for any costs incurred
by CITBC in making any conversion in accordance with this Section 8
including, but not limited to, any interest or fees payable by CITBC or The
Chase Manhattan Bank to lenders of funds obtained by either of them in order
to make or maintain LIBOR Loans hereunder.
 
8.19    Indemnity
 
The Company agrees to indemnify and to hold  CITBC (including any
participant or co-lender, if applicable) harmless from any loss or expense
which  CITBC may sustain or incur as a consequence of (a) default by the
Company in payment of the principal amount of or interest on any LIBOR
Loans, as and when the same shall be due and payable in accordance with the
terms of this Financing Agreement, including, but not limited to, any such
loss or expense arising from interest or fees payable by  CITBC to lenders
of funds obtained by either of them in order to maintain CITBC's LIBOR Loans
hereunder, (b) default by the Company in making a borrowing or conversion
after the Company has given a notice in accordance with Paragraph 8.13 of
Section 8 hereof, (c) any prepayment of LIBOR Loans on a day which is not
the last day of the Interest Period applicable thereto, including without
limitation prepayments arising as a result of the application of the
collection of Accounts to the Revolving Loans and (d) default by the Company
in making any prepayment after the Company had given notice to CITBC
thereof.   This covenant shall survive termination of this Financing
Agreement and payment of the outstanding Obligations.
 
8.20    LIBOR Provisions
 
Notwithstanding anything to the contrary in this Agreement, in the
event that, by reason of any Regulatory Change (for purposes hereof
"Regulatory Change" shall mean, with respect to CITBC, any change after the
date of this Agreement in United States Federal, state or foreign law or
regulations (including, without limitation, Regulation D) or the adoption
or making after such date of any interpretation, directive or request apply-
ing to a class of banks including CITBC of or under any United States
Federal, state or foreign law or regulations (whether or not having the
force of law and whether or not failure to comply therewith would be
unlawful), CITBC either (a) incurs any material additional costs based on
or measured by the excess above a specified level of the amount of a
category of deposits or other liabilities of such bank which includes
deposits by reference to which the interest rate on LIBOR Loans is
determined as provided in this Financing Agreement or a category of
extensions of credit or other assets of CITBC which includes LIBOR Loans or
(b) becomes subject to any material restrictions on the amount of such a
category of liabilities or assets which it may hold, then, if CITBC so
elects by notice to the Company the obligation of CITBC to make or continue,
or to convert Chase Bank Rate Loans into LIBOR Loans hereunder shall be
suspended until such Regulatory Change ceases to be in effect.
 
8.21    Application
 
For purposes of this Financing Agreement and Section 8 thereof, any
reference to CITBC shall include any financial institution which may become
a participant or co-lender subsequent to the Closing Date.
 
SECTION  9.   Powers
 
The Company hereby constitutes CITBC or any person or agent CITBC may
designate as its attorney-in-fact, at the Company's cost and expense, to
exercise all of the following powers, which being coupled with an interest,
shall be irrevocable until all of the Company's Obligations to CITBC have
been paid in full:
 
(a)  To receive, take, endorse, sign, assign and deliver, all in the
name of CITBC or the Company, any and all checks, notes, drafts, and other
documents or instruments relating to the Collateral;
 
(b)  To receive, open and dispose of all mail addressed to the
Company and to notify postal authorities to change the address for delivery
thereof to such address as CITBC may designate;
 
(c)  To request from customers indebted on Accounts at any time, in
the name of CITBC or the Company or that of CITBC's designee, information
concerning the amounts owing on the Accounts;
 
(d)  To transmit to customers indebted on Accounts notice of CITBC's
interest therein and to notify customers indebted on Accounts to make
payment directly to CITBC for the Company's account; and
 
(e)  To take or bring, in the name of CITBC or the Company, all
steps, actions, suits or proceedings deemed by CITBC necessary or desirable
to enforce or effect collection of the Accounts.
 
Notwithstanding anything hereinabove contained to the contrary, the
powers set forth in (b), (d) and (e) above may only be exercised after the
occurrence of an Event of Default and until such time as such Event of
Default is waived in writing by CITBC or cured to CITBC's satisfaction.
 In addition, absent the occurrence of a Default or Event of Default which
has not been waived in writing by CITBC or cured to its reasonable
satisfaction or the consent of the Company, the powers set forth in (c)
above will be exercised in the name of the Company or in the name of a
certified public accountant designated by CITBC.
 
SECTION  10.   Events of Default and Remedies
 
10.1  Notwithstanding anything hereinabove to the contrary, CITBC may
terminate this Financing Agreement immediately upon the occurrence of any
of the following (herein "Events of Default"):
 
(a)     cessation of the business of the Company or its Subsidiaries
or the calling of a meeting of the creditors of the Company
for purposes of compromising the debts and obligations of the
Company;
(b)     the failure of the Company to generally meet debts as they
mature;
(c)     (i) the commencement by the Company of any bankruptcy,
insolvency, arrangement, reorganization, receivership or
similar proceedings under any federal or state law; (ii) the
commencement against the Company or its Subsidiaries, of any
bankruptcy, insolvency, arrangement, reorganization,
receivership or similar proceeding under any federal or state
law by creditors of the Company, which proceeding shall not
have been controverted within ten (10) days or shall not have
been dismissed and vacated within thirty (30) days of
commencement, or any of the actions sought in any such
proceeding shall occur or the Company shall take action to
authorize or effect any of the actions in any such proceeding,
or (iii) the commencement by the Company's Subsidiaries, or
any one of them, of any bankruptcy, insolvency, arrangement,
reorganization, receivership or similar proceeding under any
applicable state law, or the commencement against  the
Company's Subsidiaries, or any one of them, of any involuntary
bankruptcy, insolvency, arrangement, reorganization,
receivership or similar proceeding under applicable law, which
proceeding shall not have been controverted within ten (10)
days and shall not have been dismissed or vacated within
thirty (30) days of commencement, or any of the actions sought
in any such proceeding shall occur or the Company's
Subsidiaries, or any one of them, shall take action to
authorize or effect any of the actions in any such proceeding;
(d)     breach by the Company of any warranty, representation or
covenant contained herein (other than those referred to in
sub-paragraph [e] below) or in any other written agreement
between the Company or CITBC, provided that such breach by the
Company of any of the warranties, representations or covenants
referred in this clause (d) shall not be deemed to be an Event
of Default unless and until such breach shall remain
unremedied to CITBC's satisfaction for a period of ten (10)
days from the date of such breach;
(e)     breach by the Company of any warranty, representation or
covenant of Paragraphs 3.3 (other than the third sentence of
Paragraph 3) and 3.4 of Section 3 hereof; Paragraphs 6.3 and
6.4 (other than the first sentence of Paragraph 6.4) of
Section 6 hereof; Paragraphs 7.1, 7.5, 7.6, 7.8 through 7.12
hereof;
(f)     failure of the Company to pay any of the Obligations within
five (5) Business Days of the due date thereof, provided that
nothing contained herein shall prohibit CITBC from charging
such amounts to the Company's Revolving Loan Account on the
due date thereof;
(g)     the Company shall (i) engage in any "prohibited transaction"
as defined in ERISA, (ii) have any "accumulated funding
deficiency" as defined in ERISA, (iii) have any "reportable
event" as defined in ERISA, (iv) terminate any "plan", as
defined in ERISA or (v) be engaged in any proceeding in which
the Pension Benefit Guaranty Corporation shall seek
appointment, or is appointed, as trustee or administrator of
any "plan", as defined in ERISA, and with respect to this
sub-paragraph (h) such event or condition (x) remains uncured
for a period of thirty (30) days from date of occurrence and
(y) could, in the reasonable opinion of CITBC, subject the
Company to any tax, penalty or other liability material to the
business, operations or financial condition of the Company;
(h)     without the prior written consent of CITBC, the Company shall
(x) amend or modify the Senior Secured Notes, provided that
the Company may amend the Senior Secured Notes to decrease
interest rates, extend the due date of any payment date, or
release any security interest of the Trustee thereunder, or
(y) make any payment on account of the Senior Secured Notes
except in the ordinary course of business of the Company and
the Senior Secured Notes as required in the Senior Secured
Notes (i.e. semiannual payments of interest at 9.5% and
principal commencing in 2005 [provided that the Company may
prepay principal from the net proceeds of any initial public
offering of its common stock] and absent acceleration or
prepayment of any kind);
(j)     the occurrence of any default or event of default (after
giving effect to any applicable grace or cure periods) under
any instrument or agreement evidencing (x) or (y) any other
Indebtedness of the Company having a principal amount in
excess of $250,000; or
(k)     the stock of the Company presently held (directly or
indirectly) by TPG is sold or transferred so that TPG does not
own and control 51% or more of the voting stock of the
Company.
 
10.2  Upon the occurrence of a Default and/or an Event of Default
which has not been waived in writing by CITBC, at the option of CITBC, all
loans, advances and extensions of credit provided for in Sections 3, 4 and
5 of this Financing Agreement shall be thereafter in CITBC's sole discretion
and the obligation of CITBC to make Revolving Loans, open Letters of Credit
and/or make CAPEX Term Loans shall cease unless such Default or Event of
Default is waived in writing by CITBC or cured to CITBC's satisfaction, and
at the option of CITBC upon the occurrence of an Event of Default: (a) all
Obligations shall become immediately due and payable; (b) CITBC may charge
the Company the Default Rate of Interest on all then outstanding or
thereafter incurred Obligations in lieu of the interest provided for in
Section 8 of this Financing Agreement, provided that, with respect to this
clause "(b)" (i) CITBC has given the Company written notice of the Event of
Default, provided, however, that no notice is required if the Event of
Default is the Event listed in  Paragraph 10.1(c) of this Section 10, and
(ii) the Company has failed to cure the Event of Default within ten (10)
days after (x) CITBC deposited such notice in the United States mail or (y)
the occurrence of the Event of Default listed in paragraph 10.1 (c) of this
Section 10; and (c) CITBC may immediately terminate this Financing Agreement
upon notice to the Company, provided, however, that no notice of termination
is required if the Event of Default is the Event listed in  Paragraph
10.1(c) of this Section 10.   The exercise of any option is not exclusive
of any other option which may be exercised at any time by CITBC.
 
10.3  Immediately upon the occurrence of any Event of Default which
is not waived in writing by CITBC, CITBC may to the extent permitted by law:
(a) remove from any premises where same may be located any and all books
and records, software, documents, instruments, files and records, and any
receptacles or cabinets containing same, relating to the Accounts, or CITBC
may use, at the Company's expense, such of the Company's personnel, supplies
or space at the Company's places of business or otherwise, as may be
necessary to properly administer and control the Accounts or the handling
of collections and realizations thereon; (b) bring suit, in the name of the
Company or CITBC, and generally shall have all other rights respecting said
Accounts, including without limitation the right to:  accelerate or extend
the time of payment, settle, compromise, release in whole or in part any
amounts owing on any Accounts and issue credits in the name of the Company
or CITBC; (c) sell, assign and deliver the Collateral and any returned,
reclaimed or repossessed merchandise, with or without advertisement, at
public or private sale, for cash, on credit or otherwise, at CITBC's sole
option and discretion, and CITBC may bid or become a purchaser at any such
sale, free from any right of redemption, which right is hereby expressly
waived by the Company; (d) foreclose the security interests in the
Collateral created herein or by the Loan Documents by any available judicial
procedure, or to take possession of any or all of the Collateral, including
any Inventory, Equipment and/or Other Collateral without judicial process,
and to enter any premises where any Inventory and Equipment and/or Other
Collateral may be located for the purpose of taking possession of or
removing the same and (e) exercise any other rights and remedies provided
in law, in equity, by contract or otherwise.   CITBC shall have the right,
without notice or advertisement, to sell, lease, or otherwise dispose of all
or any part of the Collateral whether in its then condition or after further
preparation or processing, in the name of the Company or CITBC, or in the
name of such other party as CITBC may designate, either at public or private
sale or at any broker's board, in lots or in bulk, for cash or for credit,
with or without warranties or representations, and upon such other terms and
conditions as CITBC in its sole discretion may deem advisable, and CITBC
shall have the right to purchase at any such sale.   If any Inventory and
Equipment shall require rebuilding, repairing, maintenance or preparation,
CITBC shall have the right, at its option, to do such of the aforesaid as
is necessary, for the purpose of putting the Inventory and Equipment in such
saleable form as CITBC shall deem appropriate.   The Company agrees, at the
request of CITBC, to assemble the Inventory and Equipment and to make it
available to CITBC at premises of the Company or elsewhere and to make
available to CITBC the premises and facilities of the Company for the
purpose of CITBC's taking possession of, removing or putting the Inventory
and Equipment in saleable form.   However, if notice of intended disposition
of any Collateral is required by law, it is agreed that ten (10) days notice
shall constitute reasonable notification and full compliance with the law.
 The net cash proceeds resulting from CITBC's exercise of any of the
foregoing rights, (after deducting all charges, costs and expenses,
including reasonable attorneys' fees) shall be applied by CITBC to the
payment of the Company's Obligations, whether due or to become due, in such
order as CITBC may elect, and the Company shall remain liable to CITBC for
any deficiencies, and CITBC in turn agrees to remit to the Company or its
successors or assigns, any surplus resulting therefrom.   The enumeration
of the foregoing rights is not intended to be exhaustive and the exercise
of any right shall not preclude the exercise of any other rights, all of
which shall be cumulative.   The Company hereby indemnifies CITBC and holds
CITBC harmless from any and all costs, expenses, claims, liabilities, Out-
of-Pocket Expenses or otherwise, incurred or imposed on CITBC by reason of
exercise of any of its rights, remedies and interests hereunder, including
without limitation from any sale or transfer of Collateral, preserving,
maintaining or securing the Collateral, defending its interests in
Collateral (including pursuant to any claims brought by the Company, the
Company as debtor-in-possession, any secured or unsecured creditors of the
Company, any trustee or receiver in bankruptcy, or otherwise), and the
Company hereby agrees to so indemnify and hold CITBC harmless, absent
CITBC's gross negligence or willful misconduct as finally determined by a
court of competent jurisdiction.   The foregoing indemnification shall
survive termination of this Financing Agreement until such time as all
Obligations (including the foregoing) have been finally and indefeasible
paid in full.   In furtherance thereof CITBC may establish such reserves for
Obligations hereunder (including any contingent Obligations) as it may deem
advisable in its reasonable business judgement.  Any applicable mortgage(s),
deed(s) of trust or assignment(s) issued to CITBC on the Real Estate shall
govern the rights and remedies of CITBC thereto.
 
SECTION  11.   Termination
 
Except as otherwise permitted herein, CITBC may terminate this
Financing Agreement and the Line of Credit only as of the initial or any
subsequent Anniversary Date and then only by giving the other at least
ninety (90) days prior written notice of termination.   Notwithstanding the
foregoing CITBC may terminate the Financing Agreement immediately upon the
occurrence of an Event of Default, provided, however, that if the Event of
Default is an event listed in  Paragraph 10.1(c) of Section 10 of this
Financing Agreement, CITBC may regard the Financing Agreement as terminated
and notice to that effect is not required.   This Financing Agreement,
unless terminated as herein provided, shall automatically continue from
Anniversary Date to Anniversary Date. Notwithstanding the foregoing, the
Company may terminate this Financing Agreement, the Line of Credit,
Revolving Line of Credit and the CAPEX Term Loan Line of Credit prior to any
applicable Anniversary Date upon sixty (60) days' prior written notice to
CITBC.  The Company shall pay to CITBC immediately, the Early Termination
Fee on any Early Termination Date.   All Obligations shall become due and
payable as of any termination hereunder or under Section 10 hereof and,
pending a final accounting, CITBC may withhold any balances in the Company's
account (unless supplied with an indemnity satisfactory to CITBC) to cover
all of the Company's Obligations, whether absolute or contingent.   All of
CITBC's rights, liens and security interests shall continue after any
termination until all Obligations have been paid and satisfied in full.
 
SECTION  12.   Miscellaneous
 
12.1  Except as otherwise specifically set forth herein, the Company
hereby waives diligence, notice of intent to accelerate, notice of
acceleration, demand, presentment and protest and any notices thereof as
well as notice of nonpayment.   No delay or omission of CITBC or the Company
to exercise any right or remedy hereunder, whether before or after the
happening of any Event of Default, shall impair any such right or shall
operate as a waiver thereof or as a waiver of any such Event of Default.
  No single or partial exercise by CITBC of any right or remedy precludes
any other or further exercise thereof, or precludes any other right or
remedy.
 
12.2  This Financing Agreement and the documents executed and
delivered in connection therewith constitute the entire agreement between
the Company and CITBC;  supersede any prior agreements; can be changed only
by a writing signed by both the Company and CITBC; and shall bind and
benefit the Company and CITBC and their respective successors and assigns.
 
12.3  In no event shall the Company, upon demand by CITBC for payment
of any indebtedness relating hereto, by acceleration of the maturity
thereof, or otherwise, be obligated to pay interest and fees in excess of
the amount permitted by law.   Regardless of any provision herein or in any
agreement made in connection herewith, CITBC shall never be entitled to
receive, charge or apply, as interest on any indebtedness relating hereto,
any amount in excess of the maximum amount of interest permissible under
applicable law.   If CITBC ever receives, collects or applies any such
excess, it shall be deemed a partial repayment of principal and treated as
such; and if principal is paid in full, any remaining excess shall be
refunded to the Company.   This paragraph shall control every other
provision hereof, the Loan Documents and of any other agreement made in
connection herewith.
 
12.4  If any provision hereof or of any other agreement made in
connection herewith is held to be illegal or unenforceable, such provision
shall be fully severable, and the remaining provisions of the applicable
agreement shall remain in full force and effect and shall not be affected
by such provision's severance.   Furthermore, in lieu of any such provision,
there shall be added automatically as a part of the applicable agreement a
legal and enforceable provision as similar in terms to the severed provision
as may be possible.
 
12.5  THE COMPANY AND CITBC EACH HEREBY WAIVE ANY RIGHT TO A  TRIAL
BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF  THIS FINANCING
AGREEMENT.   THE COMPANY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF
PROCESS AND CONSENTS TO  SERVICE OF PROCESS BY CERTIFIED OR REGISTERED MAIL,
RETURN  RECEIPT REQUESTED.
 
12.6  Except as otherwise herein provided, any notice or other
communication required hereunder shall be in writing, and shall be deemed
to have been validly served, given or delivered when hand delivered or sent
by telegram or telex, or three days after deposit in the United State mails,
with proper first class postage prepaid and addressed to the party to be
notified as follows:
 
(A) if to CITBC, at:
 
    The CIT Group/Business Credit, Inc.
    300 South Grand Avenue
    Los Angeles, CA  90071
    Attn: Regional Manager
    Fax No.: 213-613-2588
 
(B) if to the Company at:
 
    Zilog, Inc.
    910 East Hamilton Avenue
    Campbell, CA  95008
    Attn: David Krolik
    Fax No.: (408) 558-8590
 
(C) with a courtesy copy to:
 
    Zilog, Inc.
    910 East Hamilton Avenue
    Campbell, CA  95008
    Attn: Richard R. Pickard,
    Senior Vice President and General Counsel
    Fax No.: 408-558-8432
 
or to such other address as any party may designate for itself by like
notice.  Failure to provide the foregoing courtesy copy shall not be deemed
to be a breach of the terms hereof nor give rise to any liability therefor.
 
12.7  THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
FINANCING AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY THE
LAWS OF THE  STATE OF CALIFORNIA, EXCEPT TO THE EXTENT THAT ANY OTHER LOAN
DOCUMENT INCLUDES AN EXPRESS ELECTION TO BE GOVERNED BY THE LAWS OF ANOTHER
JURISDICTION.
 
 
IN WITNESS WHEREOF, the parties hereto have caused this Financing
Agreement to be executed and delivered by their proper and duly authorized
officers as of the date set forth above. This Financing Agreement shall take
effect as of the date set forth above after being accepted below by an
officer of CITBC after which, CITBC shall forward to the Company a fully
executed original for its files.
 
                                     Very truly yours,
 
                                     THE CIT GROUP/BUSINESS
                                     CREDIT, INC.
 
                                     By /s/   Frank Brown
 
                                     Vice President
 
Read and Agreed to:
 
ZILOG, INC.
 
 
By  /s/ James M. Thorburn            By:   /s/ Curtis J. Crawford
    ----------------------                ---------------------------
 Title: Senior Vice President        Title:  President and Chief  Executive
        Chief Financial Officer              Officer
 
 
                                      Executed and Accepted at
                                      Los Angeles, California
 
                                      THE CIT GROUP/BUSINESS
                                      CREDIT, INC.
 
 
                                     By /s/   Frank Brown
 
                                     Vice President
 
 
 
 
 
<PAGE>
 
 
 
 
 
                                      EXHIBIT A
 
                                  REVOLVING CREDIT NOTE
 
                                                          December __, 1998
 
                                                             $25,000,000
 
FOR VALUE RECEIVED, the undersigned, ZILOG, INC., a Delaware corporation
(the "Company"), hereby absolutely and unconditionally promises to pay to
the order of THE CIT GROUP/BUSINESS CREDIT, INC., (herein "CITBC"), with
offices located at 300 South Grand Avenue, Los Angeles, CA  90071, in lawful
money of the United States of America and in immediately available funds,
the principal amount of Twenty Five Million Dollars ($25,000,000), or such
other principal amount advanced pursuant to Section 3, paragraph 3.1 and
Section 5, paragraph 5.1 of the Financing Agreement (as herein defined),
such Revolving Loan advances shall be repaid on a daily basis as a result
of the application of the proceeds of collections of the Accounts and the
making of additional Revolving Loans as described in Section 3.   The
Revolving Loans may be borrowed, repaid and reborrowed by the Company.   A
final balloon payment in an amount equal to the outstanding aggregate
balance of principal and interest remaining unpaid, if any, under this Note
as shown on the books and records of CITBC shall be due and payable on the
termination of the Financing Agreement, as set forth in Section 11 thereof.
 
The Company further absolutely and unconditionally promises to pay to the
order of CITBC at said office, interest, in like money, on the unpaid
principal amount owing hereunder from time to time from the date hereof on
the dates and at the rates specified in Section 8, of the Financing
Agreement.
 
If any payment on this Note becomes due and payable on a day other than a
business day, the maturity thereof shall be extended to the next succeeding
business day, and with respect to payments of principal, interest thereon
shall be payable at the then applicable rate during such extension.
 
This Note is one of the Promissory Notes referred to in the Financing
Agreement, dated as of the date hereof, as the same may be amended and
restated and in effect from time to time, among the Company and CITBC, the
parties thereto (the "Financing Agreement"), and is subject to, and entitled
to, all of the terms, provisions and benefits thereof and is subject to
optional and mandatory prepayment, in whole or in part, as provided therein.
 All capitalized terms used herein shall have the meaning provided therefor
in the Financing Agreement, unless otherwise defined herein.
 
The date and amount of the advance(s) made hereunder may be recorded on the
grid page or pages which are attached hereto and hereby made part of this
Note or the separate ledgers maintained by CITBC.   The aggregate unpaid
principal amount of all advances made pursuant hereto may be set forth in
the balance column on said grid page or such ledgers maintained by CITBC.
  All such advances, whether or not so recorded, shall be due as part of
this Note.
 
 
The Company confirms that any amount received by or paid to CITBC in
connection with the Financing Agreement and/or any balances standing to its
credit on any of its accounts on CITBC's books under the Financing Agreement
may in accordance with the terms of the Financing Agreement be applied in
reduction of this Note, but no balance or amounts shall be deemed to effect
payment in whole or in part of this Note unless CITBC shall have actually
charged such account or accounts for the purposes of such reduction or
payment of this Note.
 
Upon the occurrence of any one or more of the Events of Default specified
in the Financing Agreement or upon termination of the Financing Agreement,
all amounts then remaining unpaid on this Note may become, or be declared
to be, immediately due and payable as provided in the Financing Agreement.
 
Attest:                                         ZILOG, INC.
 
 
    /s/ James M. Thorburn       By:    /s/ Curtis J. Crawford
                                Title:   President
 
 
 
<PAGE>
 
 
 
                                    SCHEDULE TO GRID
 
 
Date               Loan                        Payment               Balance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
<PAGE>
 
 
 
 
 
                                  EXHIBIT B
 
                                   FORM OF
 
                          CAPEX TERM LOAN PROMISSORY NOTE
 
 
                                             ______________________, 199___
 
                                                            $
 
 
FOR VALUE RECEIVED, the undersigned, ZILOG, INC., a Delaware corporation
(the "Company"), promises to pay to the order of THE CIT GROUP/BUSINESS
CREDIT, INC.  (herein "CITBC") at its office located at 300 South Grand
Avenue, Los Angeles, CA  90071, in lawful money of the United States of
America and in immediately available funds, the principal amount of
                     ($             .00) as follows: _________ (   ) equal
monthly principal installments of $             .00 each, whereof the first
such installment shall be due and payable on               , 199    and
subsequent installments shall be due and payable on the first Business Day
of each month thereafter until this Note is paid in full.   Notwithstanding
the foregoing, this Note shall be payable in full upon any termination of
the Financing Agreement.
 
The Company further agrees to pay interest at said office, in like money,
on the unpaid principal amount owing hereunder from time to time from the
date hereof on the date and at the rate specified in Paragraph 8.2  of
Section 8 of the Financing Agreement dated  November ___, 1998 between the
Company and CITBC (the "Financing Agreement").   Capitalized terms used
herein and defined in the Financing Agreement shall have the same meanings
as set forth therein unless otherwise specifically defined herein.
 
If any payment on this Note becomes due and payable on a day other than a
Business Day, the maturity thereof shall be extended to the next succeeding
Business Day, and with respect to payments of principal, interest thereon
shall be payable at the then applicable rate during such extension.
 
This Note is a CAPEX Term Loan Promissory Note referred to in the Financing
Agreement, evidences a CAPEX Term Loan thereunder, and is subject to, and
entitled to, all provisions and benefits thereof and is subject to optional
and mandatory prepayment, in whole or in part, as provided therein.
 
 
Upon the occurrence of any one or more of the Events of Default specified
in the Financing Agreement or upon termination of the Financing Agreement,
all amounts then remaining unpaid on this Note may become, or be declared
to be, at the sole election of CITBC, immediately due and payable as
provided in the Financing Agreement.
 
 
 
 
                                                        ZILOG, INC.
 
 
 ______________________                               By:
 Secretary                                            Title:
 
 
 
<PAGE>
 
 
 
            Schedule 1 - Existing Liens as of the Closing Date
           [to be provided by the Company and Company's counsel]
 
 
                                Secured         Filing     Filing
Location        Debtor          Party           Number      Date   Collateral
 
 
 
 
 
<PAGE>
 
                       Schedule 2 - Collateral Information
                [to be provided by the Company and Company's counsel]
 
 
Chief Executive Office
 
 
 
 
 
Collateral Locations
 
 
 
Tradenames
 
 
 
Patents
 
 
 
Trademarks
 
 
Copyrights
 
 
Monthly Rent and Other Charges