LOAN AGREEMENT

                            Dated as of June 25, 1999




- 89 -
         MANCHESTER  EQUIPMENT  CO.,  INC.,  a New York  corporation  having its
principal place of business at 160 Oser Avenue,  Hauppauge,  New York 11788 (the
"Borrower"),  MANCHESTER  INTERNATIONAL  LTD., a New York corporation having its
principal  place of  business  at 160 Oser  Avenue,  Hauppauge,  New York  11788
("International" or a "Guarantor"),  MANTECH COMPUTER SERVICES, INC., a New York
corporation  having  its  principal  place  of  business  at  160  Oser  Avenue,
Hauppauge, New York 11788 ("ManTech" or a "Guarantor"), MEC LEASING GROUP, LTD.,
a New York  corporation  having  its  principal  place of  business  at 160 Oser
Avenue,  Hauppauge,  New  York  11788  ("MEC"  or  a  "Guarantor"),   MANCHESTER
SOLUTIONS,  INC., a New York corporation  having its principal place of business
at 160 Oser Avenue,  Hauppauge,  New York 11788  ("Solutions" or a "Guarantor"),
ELECTROGRAPH SYSTEMS, INC., a New York corporation having its principal place of
business at 160 Oser  Avenue,  Hauppauge,  New York 11788  ("Electrograph"  or a
"Guarantor"),  COASTAL OFFICE PRODUCTS,  INC., a Maryland corporation having its
principal  place of  business  at 4812  Frankford  Avenue,  Baltimore,  MD 21206
("Coastal" or a "Guarantor"), MEC SUPPORT SERVICES, INC., a New York corporation
having its principal place of business at 160 Oser Avenue,  Hauppauge,  New York
11788 ("MSS" or a "Guarantor"),  CLOSE OUTS 4U.COM, INC., a New York corporation
having its principal place of business at 160 Oser Avenue,  Hauppauge,  New York
11788 ("Close Outs" or a "Guarantor"),  MEC INTERNET SERVICES,  INC., a New York
corporation  having  its  principal  place  of  business  at  160  Oser  Avenue,
Hauppauge,  New York 11788 ("MEC" or a "Guarantor"),  47 COMPUTERS.COM,  INC., a
New York corporation  having its principal place of business at 160 Oser Avenue,
Hauppauge,  New York 11788 ("47 Computers" or a "Guarantor") MARKETPLACE 4U.COM,
INC., a New York corporation  having its principal place of business at 160 Oser
Avenue,  Hauppauge,  New York 11788  ("Marketplace"  or a "Guarantor"),  4U.COM,
INC., a New York corporation  having its principal place of business at 160 Oser
Avenue,  Hauppauge,  New York 11788 ("4U" or a "Guarantor"),  ALMOST NEW 4U.COM,
INC., a New York corporation  having its principal place of business at 160 Oser
Avenue,  Hauppauge,  New York 11788  ("Almost New" or a  "Guarantor"),  ODD LOTS
4U.COM,  INC., a New York corporation  having its principal place of business at
160 Oser  Avenue,  Hauppauge,  New York  11788  ("Odd  Lots" or a  "Guarantor"),
EUROPEAN AMERICAN BANK, a New York banking organization, having an office at 730
Veterans  Memorial  Highway,  Hauppauge,  New York  11788  ("EAB" or a  "Bank"),
KEYBANK NATIONAL ASSOCIATION,  a national banking association,  having an office
at 1377 Motor Parkway, Islandia, New York 11788 ("Key" or a "Bank") and EUROPEAN
AMERICAN BANK, as agent for the Banks (the "Agent"), hereby agree as follows:
<PAGE>
                                    ARTICLE I

                        DEFINITIONS AND ACCOUNTING TERMS

         SECTION 1.01.  Certain Defined Terms.  As used in this  Agreement,  the
following  terms shall have the following  meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):

         "Affiliate"  means,  as to any Person,  (i) a Person which  directly or
indirectly controls,  or is controlled by, or is under common control with, such
Person;  (ii) a Person which directly or indirectly  beneficially  owns or holds
five (5%)  percent or more of any class of voting stock of, or five (5%) percent
or more of the equity  interest  in,  such  Person;  or (iii) a Person five (5%)
percent or more of the voting stock of which, or five (5%) or more of the equity
interest in which, is directly or indirectly  beneficially owned or held by such
Person. The term "control" means the possession,  directly or indirectly, of the
power to direct or cause the  direction  of the  management  and  policies  of a
Person,  whether  through the ownership of voting  securities,  by contract,  or
otherwise.

         "Agent" means European American Bank, or any bank which succeeds to the
position of Agent, as provided in this Agreement.

         "Aggregate  Outstandings"  means, at any time, the aggregate of (i) the
principal  amount  of  outstanding  Revolving  Credit  Loans  and  (ii)  the L/C
Exposure.

         "Agreement"  means this Loan  Agreement,  as amended,  supplemented  or
modified from time to time.

         "Bank" or "Banks" means one or more, as the context  requires,  of EAB,
Key and each other lender which is, or becomes, a party to this Agreement.

     "Board of  Governors"  means the Board of Governors of the Federal  Reserve
System of the United States of America.



<PAGE>



         "Business  Day" means a day of the year on which banks are not required
or  authorized  to close in New York City,  provided  that,  if the relevant day
relates to a Eurodollar  Loan, an Interest  Period,  or notice with respect to a
Eurodollar  Loan,  the term "Business Day" shall mean a day on which dealings in
Dollar deposits are also carried on in the London interbank market and banks are
open for business in London.

         "Capital  Lease"  means  a  lease  which  has  been or  should  be,  in
accordance with GAAP, capitalized on the books of the lessee.

         "Commitment"   means,   with  respect  to  each  Bank,   the  aggregate
obligations  of such Bank to (i) make  Revolving  Credit  Loans to the  Borrower
pursuant to the terms and conditions of this  Agreement and (ii)  participate in
Letters of Credit issued pursuant to the terms and conditions of this Agreement,
in each case in the  aggregate  Dollar  amount  and Pro Rata  Share set forth in
Schedule  1.01  annexed  hereto,  as  modified  by any  reductions  in the Total
Commitment or by any assignments of all or any part of such Bank's Commitment.

         "Consolidated  Affiliates" means, as to any Person, those Affiliates of
such Person which are consolidated with such Person in the financial  statements
delivered pursuant to Section 5.01(b) of this Agreement.

         "Consolidated  Capital  Expenditures"  means,  as to  any  Person,  the
aggregate amount of any expenditures  (including purchase money Debt or purchase
money  Liens)  by  such  Person  and  its  Consolidated  Affiliates  for  assets
(including  fixed assets acquired under Capital Leases) which it is contemplated
will be used or usable in fiscal years  subsequent  to the year of  acquisition,
computed and consolidated in accordance with GAAP.

         "Consolidated  Current  Liabilities"  means,  as  to  any  Person,  the
aggregate  amount  of all  liabilities  of  such  Person  and  its  Consolidated
Affiliates  (including  tax and other proper  accruals)  which would be properly
classified as current liabilities,  computed and consolidated in accordance with
GAAP.

         "Consolidated  Funded Debt" means,  as to any Person,  the aggregate of
the Funded Debt of such Person and its  Consolidated  Affiliates,  computed  and
consolidated in accordance with GAAP.

         "Consolidated  Tangible Net Worth" means, as to any Person,  the excess
of (i) such Person's  Consolidated  Total  Assets,  less all  intangible  assets
properly  classified as such in  accordance  with GAAP,  including,  but without
limitation,   patents,  patent  rights,  trademarks,  trade  names,  franchises,
copyrights,  licenses,  permits and goodwill (whether representing the excess of
cost of tangible assets  acquired over book value or otherwise),  over (ii) such
Person's Consolidated Total Liabilities.



<PAGE>



         "Consolidated  Total Assets" means, as to any Person, the aggregate net
book value of the assets of such Person and its  Consolidated  Affiliates  after
all  appropriate  adjustments  in  accordance  with  GAAP  (including,   without
limitation,  reserves for doubtful receivables,  obsolescence,  depreciation and
amortization  and  excluding  the amount of any write-up or  revaluation  of any
asset), computed and consolidated in accordance with GAAP.

         "Consolidated  Total  Liabilities"  means, as to any Person, all of the
liabilities of such Person and its Consolidated Affiliates,  including all items
which,  in accordance  with GAAP,  would be included on the liability  side of a
balance sheet (other than capital stock, capital surplus and retained earnings),
computed and consolidated in accordance with GAAP.

         "Debt" means,  as to any Person,  all (i)  indebtedness or liability of
such  Person  for  borrowed  money;  (ii)  indebtedness  of such  Person for the
deferred purchase price of property or services  (including trade  obligations);
(iii) obligations of such Person as a lessee under Capital Leases;  (iv) current
liabilities  of such Person in respect of  unfunded  vested  benefits  under any
Plan; (v)  obligations of such Person in respect of letters of credit issued for
the account of or upon the application of such Person;  (vi) obligations of such
Person  arising under  acceptance  facilities;  (vii)  guaranties,  endorsements
(other than for  collection  or deposit in the ordinary  course of business) and
other  contingent  obligations  to purchase,  to provide  funds for payment,  to
supply  funds to invest in any other  Person,  or otherwise to assure a creditor
against loss; (viii)  obligations  secured by any Lien on property owned by such
Person whether or not the  obligations  have been assumed;  (ix)  liabilities of
such Person  under any  preferred  stock or other  preferred  equity  instrument
which, at the option of the holder or upon the occurrence of one or more events,
is  redeemable  by such  holder,  or  which,  at the  option  of such  holder is
convertible  into Debt; (x) indebtedness of any partnership of which such Person
is a general partner;  and (xi) all other liabilities recorded as such, or which
should be recorded as such, on such Person's financial  statements in accordance
with GAAP.

         "Default"  means any of the events  specified  in Section  6.01 of this
Agreement,  whether  or not any  requirement  for notice or lapse of time or any
other condition has been satisfied.

         "Deutsche" means Deutsche Financial Services Corporation.

         "Deutsche  Agreement" means the Agreement for Wholesale Financing dated
as of August 25, 1997,  between the Borrower and Deutsche,  as it may be amended
or modified  from time to time and shall  include the Terms  Letter,  as defined
therein.

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



<PAGE>



         "EBIT" means,  as to the Borrower and its  Consolidated  Affiliates for
any  period,  the sum of (i)  net  income  (excluding  extraordinary  gains  and
including extraordinary losses), plus (ii) interest expense, plus (iii) federal,
state and local income taxes accrued, in each case measured for the Borrower and
its Consolidated  Affiliates on a consolidated  basis for such period,  computed
and consolidated in accordance with GAAP.

         "EBITDA" means, as to the Borrower and its Consolidated  Affiliates for
any  period,  the sum of (i)  net  income  (excluding  extraordinary  gains  and
including   extraordinary  losses),  plus  (ii)  interest  expense,  plus  (iii)
depreciation  expense,  plus (iv)  amortization  of  intangible  assets plus (v)
federal,  state and local income taxes  accrued,  in each case  measured for the
Borrower  and its  Consolidated  Affiliates  on a  consolidated  basis  for such
period, computed and consolidated in accordance with GAAP.

         "ERISA" means the Employee  Retirement  Income Security Act of 1974, as
amended  from  time to time,  the  regulations  promulgated  thereunder  and the
published interpretations thereof as in effect from time to time.

         "ERISA   Affiliate"  means  any  trade  or  business  (whether  or  not
incorporated)  which together with any other Person would be treated,  with such
Person, as a single employer under Section 4001 of ERISA.

         "Eurocurrency  Reserve  Requirement" means, with respect to the Reserve
Adjusted LIBOR Rate for an Interest Period, the aggregate (without  duplication)
daily  average  of the  rates  (expressed  as a  decimal  fraction)  of  reserve
requirements  in  effect  on such day  (including,  without  limitation,  basic,
marginal,  supplemental or emergency reserves) under any regulation  (including,
but without limitation,  Regulation D) promulgated by the Board of Governors (or
any successor thereto or other governmental  authority having  jurisdiction over
the Agent) by the Agent against "Eurocurrency liabilities" (as such term is used
in Regulation  D), but without  benefit or credit for  proration,  exemptions or
offsets  that might  otherwise be available to the Agent from time to time under
Regulation D. Without  limiting the effect of the  foregoing,  the  Eurocurrency
Reserve  Requirement  shall reflect any other reserves required to be maintained
by the Agent against (1) any category of liabilities  that includes  deposits by
reference to which the Reserve  Adjusted LIBOR Rate is to be determined;  or (2)
any category of extension of credit or other assets that include loans bearing a
Reserve Adjusted LIBOR Rate.

         "Eurodollar  Loan" means a Loan  bearing  interest at an interest  rate
determined with reference to the Reserve  Adjusted LIBOR Rate in accordance with
the provisions of Article II hereof.


<PAGE>



         "Event of Default" means any of the events specified in Section 6.01 of
this Agreement, provided that any requirement for notice or lapse of time or any
other condition has been satisfied.

         "Funded Debt" means,  as to any Person,  such Debt of such Person which
is (i) all  indebtedness  or liability  for borrowed  money  (including  but not
limited to any interest bearing indebtedness to Deutsche); (ii) all indebtedness
or  liability  for the  deferred  purchase  price of property  (excluding  trade
obligations);  (iii) all obligations as a lessee under Capital Leases;  (iv) all
obligations to reimburse the Issuing Bank for the amount of all unmatured drafts
accepted or deferred payment  obligations  incurred under Letters of Credit, and
(v) all  liabilities  of such Person under any  preferred  stock  which,  at the
option of the holder or upon the  occurrence of one or more certain  events,  is
redeemable by such holder, or which, at the option of such holder is convertible
into Debt.

         "Funded  Debt  to  EBITDA  Ratio"  means,  as to the  Borrower  and its
Consolidated  Affiliates for any period,  the ratio of (i)  Consolidated  Funded
Debt (as of the last day of such  period) to (ii)  EBITDA for such  period.  The
Funded  Debt to EBITDA  Ratio  shall be  measured  and tested at the end of each
fiscal  quarter and, in the case of EBITDA,  for a period  covering the four (4)
fiscal quarters then ended.

         "GAAP" means Generally Accepted Accounting Principles.

         "Generally  Accepted  Accounting   Principles"  means  those  generally
accepted accounting principles and practices which are recognized as such by the
American  Institute of Certified Public Accountants acting through the Financial
Accounting  Standards  Board  ("FASB") or through  other  appropriate  boards or
committees  thereof and which are consistently  applied for all periods so as to
properly reflect the financial condition, operations and cash flows of a Person,
except that any accounting  principle or practice  required to be changed by the
FASB (or other  appropriate board or committee of the FASB) in order to continue
as a generally accepted accounting  principle or practice may be so changed. Any
dispute or  disagreement  between  the  Borrower  and the Agent  relating to the
determination of Generally Accepted Accounting  Principles shall, in the absence
of manifest  error,  be  conclusively  resolved for all  purposes  hereof by the
written opinion with respect thereto, delivered to the Agent, of the independent
accountants  selected by the  Borrower and approved by the Agent for the purpose
of auditing the periodic financial statements of the Borrower.



<PAGE>



         "Guarantor"  or  Guarantors"   means  one  or  more  of  those  Persons
identified as Guarantors in the preamble to this Agreement, and any other Person
required to guarantee the obligations of the Borrower in accordance with Section
5.01(k) of this Agreement.

         "Guaranty" or  "Guaranties"  means the guaranty or guaranties  executed
and delivered by the Guarantors  pursuant to Section  3.01(h) or Section 5.01(k)
of this Agreement.

         "Hazardous  Materials"  includes,  without  limitation,  any  flammable
explosives,   radioactive  materials,  hazardous  materials,  hazardous  wastes,
hazardous or toxic substances, or related materials defined in the Comprehensive
Environmental Response,  Compensation, and Liability Act of 1980, as amended (42
U.S.C.  Sections 9601, et seq.), the Hazardous Materials  Transportation Act, as
amended (49 U.S.C. Section 1801 et seq.), the Resource Conservation and Recovery
Act,  as  amended  (42 U.S.C.  Sections  9601 et seq.),  and in the  regulations
adopted and publications  promulgated  pursuant  thereto,  or any other federal,
state or local environmental law, ordinance, rule or regulation.

         "Intercreditor  Agreement" means an agreement  between Deutsche and the
Agent  pursuant to which they agree that if any security  interest in the assets
of the  Borrower is  obtained by Deutsche  and the Agent (for the benefit of the
Banks),  notwithstanding  the priority of such  security  interests,  as between
Deutsche  and the  Agent  (i)  Deutsche  shall  have a first  priority  security
interest in the Borrower's  inventory  financed  through the Deutsche  Agreement
(but not in the proceeds of such  inventory) and (ii) the Agent (for the benefit
of the  Banks)  shall  have a first  priority  security  interest  in all  other
personal property of the Borrower.

         "Interest   Coverage   Ratio"  means,   as  to  the  Borrower  and  its
Consolidated Affiliates for any period, the ratio of (i) EBIT for such period to
(ii)  interest  expense for such period.  The Interest  Coverage  Ratio shall be
measured and tested at the end of each fiscal quarter for a period  covering the
four (4) fiscal quarters then ended.

         "Interest Determination Date" means the date on which a Prime Rate Loan
is  converted to a Eurodollar  Loan and, in the case of a Eurodollar  Loan,  the
last day of the applicable Interest Period.

         "Interest  Payment Date" means (i) as to each  Eurodollar  Loan, (a) in
the case of  Eurodollar  Loans  with  Interest  Periods  of less than  three (3)
months,  the last day of such Interest  Period and (b) in the case of Eurodollar
Loans with Interest  Periods of three (3) months or more,  the last Business Day
of each calendar quarter during the applicable  Interest Period and the last day
of the applicable  Interest Period and (ii) as to each Prime Rate Loan, the last
Business Day of each month.



<PAGE>



         "Interest   Period"  means  as  to  any  Eurodollar  Loan,  the  period
commencing  on the date of such  Eurodollar  Loan and ending on the  numerically
corresponding  day in the calendar  month that is one, two,  three or six months
thereafter,  as  the  Borrower  may  elect  (or,  if  there  is  no  numerically
corresponding day, on the last Business Day of such month);  provided,  however,
(i) that no Interest  Period shall end later than the Maturity Date, (ii) if any
Interest  Period  would end on a day which  shall not be a  Business  Day,  such
Interest  Period  shall be extended to the next  succeeding  Business Day unless
such next  succeeding  Business Day would fall in the next  calendar  month,  in
which case such Interest  Period shall end on the next  preceding  Business Day,
(iii)  interest  shall accrue from and  including the first day of such Interest
Period to but excluding the date of payment of such  interest,  (iv) no Interest
Period may have a duration of less than one month, and (v) no Interest Period of
particular duration may be selected by the Borrower if the Agent determines,  in
its  sole  discretion,  that  Eurodollar  Loans  with  such  maturities  are not
generally available.

         "Investment" means any stock, evidence of Debt or other security of any
Person,  any loan,  advance,  contribution  of capital,  extension  of credit or
commitment therefor,  including without limitation the guaranty of loans made to
others (except for current trade and customer  accounts  receivable for services
rendered in the  ordinary  course of business  and  payable in  accordance  with
customary  trade terms in the ordinary  course of business)  and any purchase of
(i) any security of another  Person or (ii) any business or  undertaking  of any
Person  or any  commitment  or option  to make any such  purchase,  or any other
investment.

         "Issuing Bank" means EAB.

         "Letters  of Credit"  means  standby  letters  of credit  issued by the
Issuing  Bank  for  the  account  of the  Borrower  pursuant  to the  terms  and
conditions of this Agreement.

         "L/C  Documents"  means  all  documents  required  to be  executed  and
delivered by the Borrower in  connection  with the issuance of Letters of Credit
in accordance with the usual and customary practices of the Issuing Bank.

         "L/C  Exposure"  means,  at any time,  the  aggregate of (i) the amount
available to be drawn on all  outstanding  Letters of Credit and (ii) the amount
of any  payments  made by the Issuing Bank under any Letters of Credit that have
not been reimbursed by the Borrower.

         "L/C Sublimit" means One Million ($1,000,000.00) Dollars.



<PAGE>



     "LIBOR Applicable Margin" has the meaning set forth in Section 2.04 of this
Agreement.

     "LIBOR  Rate" means the rate per annum  identified  as the LIBOR Rate for a
requested  Interest  Period as published on page 3750 of the Dow Jones  Telerate
service.

         "Lien" means any mortgage,  deed of trust,  pledge,  security interest,
hypothecation,  assignment, deposit arrangement, encumbrance, lien (statutory or
other),  or preference,  priority,  or other security  agreement or preferential
arrangement, charge, or encumbrance of any kind or nature whatsoever, including,
without limitation, any conditional sale or other title retention agreement, any
financing  lease having  substantially  the same  economic  effect as any of the
foregoing,  and  the  filing  of  any  financing  statement  under  the  Uniform
Commercial  Code or comparable  law of any  jurisdiction  to evidence any of the
foregoing.

         "Loan" or  "Loans"  means one or more  Revolving  Credit  Loans and may
refer to one or more Prime Rate Loans and/or one or more  Eurodollar  Loans,  as
the context requires.

         "Loan Documents" means this Agreement,  the Notes, the Guaranties,  the
L/C  Documents  and any other  document  executed or delivered  pursuant to this
Agreement.

         "Material  Adverse  Change"  means,  as to any  Person,  (i) a material
adverse change in the financial  condition,  business,  operations,  properties,
prospects  or  results  of  operations  of such  Person  or (ii)  any  event  or
occurrence  which is reasonably  likely to have a material adverse effect on the
ability of such Person to perform its obligations under the Loan Documents.

         "Maturity Date" means April 2, 2002.

     "Multiemployer  Plan" means a Plan described in Section 4001(a)(3) of ERISA
which covers employees of the Borrower or any ERISA Affiliate.

     "Note" or "Notes"  means one or more of the  Revolving  Credit Notes as the
context requires.

         "PBGC" means the Pension  Benefit  Guaranty  Corporation  or any entity
succeeding to any or all of its functions under ERISA.



<PAGE>



         "Permitted  Acquisition"  means an  acquisition  by the Borrower or any
Subsidiary  of the  Borrower  by merger,  consolidation  or purchase of a voting
majority of the stock of another Person or the purchase of all or  substantially
all of the  assets  of  another  Person  (or of a  division  or other  operating
component  of  another  Person)  (an  "Acquisition")  if all  of  the  following
conditions are met:

               (i) Such  Acquisition is identified as a "Permitted  Acquisition"
          by the Borrower in writing to the Agent;

                  (ii) The  Person  to be  acquired  is  domiciled  in,  has the
         majority of its assets  located in, and  generates  the majority of its
         revenues from sources within, the United States;

                  (iii) The majority of such Person's  revenue is derived from a
         line or  lines of  business  similar  to the line or lines of  business
         engaged in by the Borrower as of the date of this Agreement, as are set
         forth and  described  in the  Borrower's  Form 10-K for its fiscal year
         ended July 31, 1998;

                  (iv) If the  aggregate  consideration  paid  for  the  subject
         Acquisition and all other Permitted Acquisitions since the date of this
         Agreement  exceeds  $1,500,000.00,  the Agent and the Banks  shall have
         received,  at least ten (10) Business Days prior to the closing of such
         Acquisition,  a  certificate  signed  by the  president  or  the  chief
         financial  officer of the  Borrower to the effect  that (and  including
         calculations  indicating that) on a pro forma basis after giving effect
         to such Acquisition:  (a) all representations and warranties  contained
         in the Loan  Documents  will remain true and correct,  (b) the Borrower
         will remain in  compliance  with all  covenants  contained  in the Loan
         Documents,  and (c) no Default or Event of Default has  occurred and is
         continuing  or will  occur  as a  result  of the  consummation  of such
         Acquisition; and

                  (v)  If the  aggregate  consideration  paid  for  the  subject
         Acquisition and all other Permitted Acquisitions since the date of this
         Agreement  exceeds  $1,500,000.00,  the Agent and the Banks  shall have
         received,  at least ten (10) Business Days prior to the closing of such
         Acquisition,  (i) at  least  two  (2)  years  of  historical  financial
         statements of such Person, and (ii) a set of projections (prepared on a
         consolidated  and  consolidating  basis),  setting  forth in reasonable
         detail the pro forma effect of such Acquisition and showing  compliance
         by the Borrower  with all  covenants  set forth in Section 5.03 of this
         Agreement  for  the  remainder  of the  term  of  this  Agreement.  The
         projections  to be delivered  hereunder  shall  include and specify the
         assumptions used to prepare such projections.

         "Permitted   Acquisition  Loans"  means  Revolving  Credit  Loans,  the
proceeds of which are used to fund Permitted Acquisitions.



<PAGE>


     "Permitted   Acquisition  Sublimit"  means  Ten  Million   ($10,000,000.00)
Dollars.

         "Permitted  Investments"  means,  (i) direct  obligations of the United
States of America or any governmental agency thereof, or obligations  guaranteed
by the United States of America,  provided that such  obligations  mature within
one year from the date of acquisition thereof; (ii) time certificates of deposit
having a maturity of one year or less issued by EAB or any other commercial bank
organized and existing  under the laws of the United States or any state thereof
and having aggregate capital and surplus in excess of  $1,000,000,000.00;  (iii)
money market mutual funds having assets in excess of  $2,500,000,000,  including
but not limited to the Merrill Lynch Premier  Institutional Fund and the Merrill
Lynch  Institutional  Tax Exempt Fund; (iv) commercial paper rated not less than
P-1 or A-1 or their equivalent by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P"),  respectively;  (v) tax exempt securities
rated  Prime 2 or better by  Moody's  or A-1 or  better  by S&P;  (vi)  loans or
advances to Guarantors  permitted by Section  5.02(g) of this  Agreement;  (vii)
Investments  in  connection   with  Permitted   Acquisitions   (subject  to  the
limitations  of Section  5.02(d)  hereof) and (viii) any  Investment in a Person
which  thereupon  becomes  a  Guarantor  pursuant  to  Section  5.01(k)  of this
Agreement.

         "Person" means an  individual,  partnership,  corporation  (including a
business  trust),  limited  liability  company,  joint  stock  company,   trust,
unincorporated association, joint venture or other entity or a federal, state or
local  government,  or a  political  subdivision  thereof  or any agency of such
government or subdivision.

         "Plan" means any employee benefit plan established,  maintained,  or to
which contributions have been made by the Borrower or any ERISA Affiliate.

         "Prime  Rate" means the rate of interest  stated by EAB to be its prime
rate as in effect from time to time; each change in said rate shall be effective
as of the date of such change.

         "Prime Rate Loan"  means a Loan  bearing  interest at an interest  rate
determined with reference to the Prime Rate.

     "Prohibited  Transaction" means any transaction set forth in Section 406 of
ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended from time
to time.



<PAGE>



         "Pro Rata Share" means,  with respect to each Bank,  its pro rata share
of the Total  Commitment,  as set forth in Schedule  1.01 annexed  hereto as the
same  may be  modified  by any  assignment  of all or any  part of  such  Bank's
Commitment.

         "Quick Asset  Ratio"  means,  as to the  Borrower and its  Consolidated
Affiliates,  as of any date,  the ratio of (i) the sum of (a) cash on hand or on
deposit in banks, (b) readily marketable securities issued by the United States,
(c) readily marketable  commercial paper rated "A-2" or better by S&P (or having
a similar rating by any similar  organization which rates commercial paper), (d)
certificates of deposit or banker's  acceptances  issued by commercial  banks of
recognized  standing operating in the United States, and (e) accounts receivable
to (ii) the sum of (a)  Consolidated  Current  Liabilities and (b) to the extent
not included in Consolidated  Current  Liabilities,  the  outstanding  Revolving
Credit Loans.

         "Regulation  D" means  Regulation D of the Board of  Governors,  as the
same may be amended and in effect from time to time.

         "Regulation  G" means  Regulation G of the Board of  Governors,  as the
same may be amended and in effect from time to time.

         "Regulation  T" means  Regulation T of the Board of  Governors,  as the
same may be amended and in effect from time to time.

         "Regulation  U" means  Regulation U of the Board of  Governors,  as the
same may be amended and in effect from time to time.

         "Regulation  X" means  Regulation X of the Board of  Governors,  as the
same may be amended and in effect from time to time.

     "Reportable  Event"  means any of the events  set forth in Section  4043 of
ERISA.

         "Required  Banks"  means,  (i) at any time  while  there are  Revolving
Credit Loans  outstanding,  those Banks having,  in the aggregate,  seventy-five
(75%) percent of such Revolving Credit Loans or (ii) at any time while there are
no Revolving  Credit Loans  outstanding  but the Total  Commitment is available,
those Banks having,  in the aggregate,  seventy-five  (75%) percent of the Total
Commitment.

         "Reserve  Adjusted  LIBOR Rate" means,  with respect to any  Eurodollar
Loan for any Interest Period, an interest rate per annum determined by the Agent
to be equal to the  quotient of (a) the LIBOR Rate divided by (b) a number equal
to 1.00 minus the Eurocurrency  Reserve Requirement as determined by the Bank on
the date the Reserve Adjusted LIBOR Rate is determined.



<PAGE>



         "Revolving  Credit Loan" or "Revolving Credit Loans" means one or more,
as the context  requires of the revolving  credit loans made by the Banks to the
Borrower pursuant to the terms and conditions of this Agreement.

         "Revolving  Credit Note" or "Revolving Credit Notes" means one or more,
as the context requires,  of the promissory notes of the Borrower payable to the
order of each of the  Banks,  in  substantially  the form of  Exhibit  A annexed
hereto,  evidencing the indebtedness of the Borrower to each such Bank resulting
from Revolving  Credit Loans made by such Bank to the Borrower  pursuant to this
Agreement.

     "S&P"  shall  have  the  meaning  given  such  term  in the  definition  of
"Permitted Investments".

         "Subsidiary"  means, as to any Person,  any  corporation,  partnership,
limited liability company, joint venture or other Person whether now existing or
hereafter  organized or acquired:  (i) in the case of a corporation,  of which a
majority of the  securities  having  ordinary  voting  power for the election of
directors  (other  than  securities  having  such  power  only by  reason of the
happening of a  contingency)  are at the time owned by such Person and/or one or
more  Subsidiaries of such Person or (ii) in the case of a partnership,  limited
liability  company,  joint venture or similar entity, of which a majority of the
partnership,  membership or other  ownership  interests are at the time owned by
such Person and/or one or more of its Subsidiaries.

         "Total  Commitment"  means the aggregate of the  Commitments of each of
the  Banks,   which,  on  the  date  of  this  Agreement,   is  Fifteen  Million
($15,000,000.00) Dollars.

         "Unused Facility Fee" means the fee payable pursuant to Section 2.06 of
this Agreement.

         "Year 2000 Issue" means the failure of computer software,  hardware and
firmware systems and equipment  containing  embedded  computer chips to properly
receive, transmit, process, manipulate,  store, retrieve,  re-transmit or in any
other way utilize data and information due to the occurrence of the year 2000 or
the inclusion of dates on or after January 1, 2000.

         SECTION 1.02.  Computation  of Time Periods.  In this  Agreement in the
computation of periods of time from a specified date to a later  specified date,
the word "from" means "from and  including"  and the words "to" and "until" each
means "to and including".



<PAGE>



     SECTION 1.03.  Accounting  Terms.  Except as otherwise herein  specifically
provided, each accounting term used herein shall
have the meaning given to it under GAAP.


<PAGE>

                               ARTICLE II

                          AMOUNT AND TERMS OF THE LOANS

         SECTION  2.01.  The  Revolving  Credit  Loans.  (a)  The  Banks  agree,
severally  but not jointly,  on the terms and subject to the  conditions of this
Agreement,  and in  reliance  upon the  representations  and  warranties  of the
Borrower and the  Guarantors set forth in this  Agreement,  that the Banks will,
until the Maturity Date, lend to the Borrower such Revolving Credit Loans as the
Borrower may request from time to time, which Loans may be borrowed,  repaid and
reborrowed,  provided,  however, that (x) the Aggregate  Outstandings at any one
time shall not  exceed the Total  Commitment  as it may be reduced  pursuant  to
Section 2.07 hereof and (y) each Bank's Pro Rata Share of Revolving Credit Loans
and L/C Exposure shall not exceed its Pro Rata Share of the Total Commitment.

         (b)  Each  Revolving  Credit  Loan  shall  be a  Prime  Rate  Loan or a
Eurodollar  Loan (or a combination  thereof) as the Borrower may request subject
to and in accordance  with Section 2.02 hereof.  Any Bank may at its option make
any Eurodollar  Loan by causing a foreign branch or affiliate to make such Loan,
provided that any exercise of such option shall not affect the obligation of the
Borrower  to  repay  such  Loan in  accordance  with the  terms  of such  Bank's
Revolving  Credit  Note.  Subject  to the other  provisions  of this  Agreement,
Revolving Credit Loans of more than one type may be outstanding at the same time
provided,  however,  that  not  more  than  five  (5)  Eurodollar  Loans  may be
outstanding at the same time.

                 SECTION 2.02. Notice of Revolving Credit Loans.

         (a) The  Borrower  shall  give the Agent  irrevocable  written,  telex,
telephonic  (immediately  confirmed in writing) or facsimile notice (i) at least
three (3) Business Days prior to each  Revolving  Credit Loan comprised in whole
or in part of one or more Eurodollar  Loans (subject to  availability)  and (ii)
prior to 11:00 a.m. on the day of each Revolving  Credit Loan consisting  solely
of a Prime Rate Loan.  Upon  receipt of such  notice,  the Agent shall  promptly
notify  each Bank of the  contents  thereof  and of the  amount,  type and other
relevant information regarding the Loan requested.  Thereupon,  each Bank shall,
not later than 2:00 p.m. (New York time),  transfer immediately  available funds
equal to such  Bank's pro rata share of the  requested  borrowing  to the Agent,
which,  provided the conditions of Sections 3.01 and 3.02 of this Agreement have
been met,  and  provided  the Banks have made such  transfers,  shall  thereupon
transfer  immediately  available  funds equal to the requested  borrowing to the
Borrower's  account with the Agent.  If a notice of borrowing is received by the
Agent after 11:00 a.m. on a Business  Day,  such notice  shall be deemed to have
been given on the next  succeeding  Business Day. Any Bank's failure to make any
requested  Loan shall not relieve any other Bank of its  obligation to make such
Loan, but such other Bank shall not be liable for such failure of the first Bank
nor obligated to advance the first Bank's share of such Loan.
<PAGE>

         (b) Each notice given  pursuant to this Section 2.02 shall  specify the
date of such  borrowing,  the amount  thereof and whether such Loan is to be (or
what  portion or portions  thereof are to be) a Prime Rate Loan or a  Eurodollar
Loan and,  if such Loan or any  portion  thereof  is to  consist  of one or more
Eurodollar  Loans, the principal amounts thereof and Interest Period or Interest
Periods with respect  thereto.  If no election as to a type of Loan is specified
in such  notice,  such  Loan (or  portion  thereof  as to which no  election  is
specified)  shall be a Prime Rate Loan. If no election as to the Interest Period
is specified in such notice with respect to any  Eurodollar  Loan,  the Borrower
shall be deemed to have selected an Interest Period of one month's  duration and
if a  Eurodollar  Loan is  requested  when  such  Loans are not  available,  the
Borrower shall be deemed to have requested a Prime Rate Loan.

         (c) The Borrower  shall have the right,  on such notice to the Agent as
is required  pursuant to (a) above,  (x) to continue  any  Eurodollar  Loan or a
portion thereof into a subsequent  Interest Period (subject to availability) and
(y)  to  convert  a  Prime  Rate  Loan  into  a  Eurodollar   Loan  (subject  to
availability) subject to the following:

                  (i) if a Default  or an Event of Default  shall have  occurred
and be continuing at the time of any proposed  conversion or  continuation  only
Prime Rate Loans shall be available;

                  (ii) in the case of a continuation or conversion of fewer than
all Loans,  the aggregate  principal amount of each Eurodollar Loan continued or
into  which a Loan is  converted  shall be in the  minimum  principal  amount of
$250,000.00 and in increased integral multiples of $100,000.00;

                  (iii) each  continuation  or  conversion  shall be effected by
each Bank applying the proceeds of the new Loan to the Loan (or portion thereof)
being continued or converted;

                  (iv) if the new Loan  made as a result  of a  continuation  or
conversion  shall be a Eurodollar  Loan, the first Interest  Period with respect
thereto shall commence on the date of continuation or conversion;

                  (v) each  request  for a  Eurodollar  Loan which shall fail to
state an  applicable  Interest  Period  shall be deemed  to be a request  for an
Interest  Period of one month and each request for a  Eurodollar  Loan made when
such Loans are not  available  shall be deemed to be a request  for a Prime Rate
Loan;


<PAGE>



                  (vi) in the event that the  Borrower  shall not give notice to
continue a Eurodollar Loan as provided above,  such Loan shall  automatically be
converted into a Prime Rate Loan at the expiration of the then current  Interest
Period.

         (d) Unless the Agent  shall have  received  notice from a Bank prior to
2:00 p.m.  (New York time) on the requested  date,  that such Bank will not make
available to the Agent the Loan requested to be made on such date, the Agent may
assume that such Bank has made such Loan  available to the Agent on such date in
accordance with Section 2.02(a) hereof and the Agent in its sole discretion may,
in reliance upon such assumption,  make available to the Borrower on such date a
corresponding  amount on behalf of such  Bank.  If and to the  extent  such Bank
shall not have so made  available to the Agent the Loan  requested to be made on
such  date  and the  Agent  shall  have  so made  available  to the  Borrower  a
corresponding  amount on behalf of such Bank, such Bank shall, on demand, pay to
the Agent such corresponding amount together with interest thereon, at the Prime
Rate plus two (2%)  percent,  for each day from the date such amount  shall have
been so made  available by the Agent to the Borrower  until the date such amount
shall  have  been  repaid  to  the  Agent.  If  such  Bank  does  not  pay  such
corresponding amount promptly upon the Agent's demand therefor,  the Agent shall
promptly  notify the  Borrower and the  Borrower  shall,  not later than one (1)
Business Day following such notice, repay such corresponding amount to the Agent
together with accrued  interest thereon at the applicable rate or rates provided
(i) in  Section  2.04  hereof  or (ii)  if the  Borrower  fails  to  repay  such
corresponding  amount  within  three (3)  Business  Days after such  notice,  in
Section 2.16 hereof.

         SECTION 2.03.  Revolving  Credit Notes.  (a) Each Revolving Credit Loan
shall be (i) in the case of each Prime Rate Loan in the minimum principal amount
of $100,000.00,  and in increased  integral multiples of $100,000.00 and (ii) in
the case of each Eurodollar Loan in the minimum  principal amount of $250,000.00
and in increased  integral  multiples of  $100,000.00  (except that, if any such
Prime  Rate Loan so  requested  shall  exhaust  the  remaining  available  Total
Commitment,  such Prime Rate Loan may be in an amount equal to the amount of the
remaining  available  Total  Commitment).  Each  Revolving  Credit Loan shall be
evidenced by the Revolving  Credit Notes.  Each  Revolving  Credit Note shall be
dated the date  hereof  and be in the  principal  amount  set forth  next to the
applicable  Bank's  name on Schedule  1.01  annexed  hereto,  as modified by any
assignment of all or any part of such Bank's Commitment, and shall mature on the
Maturity Date, at which time the entire  outstanding  principal  balance and all
interest  thereon shall be due and payable.  Each Revolving Credit Note shall be
entitled to the benefits and subject to the provisions of this Agreement.



<PAGE>



         (b) At the time of the making of each Revolving  Credit Loan and at the
time of each payment of principal thereon, each Bank is hereby authorized by the
Borrower to make a notation on the schedule annexed to its Revolving Credit Note
of the date and amount, and the type and Interest Period, if applicable,  of the
Revolving Credit Loan or payment, as the case may be. Failure to make a notation
with respect to any  Revolving  Credit Loan shall not limit or otherwise  affect
the  obligation  of the  Borrower  hereunder or under the  applicable  Revolving
Credit Note,  and any payment of principal by the Borrower shall not be affected
by the failure to make a notation thereof on said schedule.

         SECTION 2.04.  Payment of Interest on the Revolving Credit Notes.

         (a) In the case of an Prime Rate Loan,  interest  shall be payable at a
rate per annum equal to the Prime Rate.  Such interest  shall be payable on each
Interest Payment Date, commencing with the first Interest Payment Date after the
date of such Prime Rate Loan,  on each  Interest  Determination  Date and on the
Maturity Date. Any change in the rate of interest on the Revolving  Credit Notes
due to a change  in the  Prime  Rate  shall  take  effect as of the date of such
change in the Prime Rate.

         (b) In the case of a Eurodollar  Loan,  interest  shall be payable at a
rate per annum  (computed on the basis of the actual number of days elapsed over
a year of 360 days)  equal to the  Reserve  Adjusted  LIBOR  Rate plus the LIBOR
Applicable  Margin as in effect on the first day of the Interest Period for such
Eurodollar  Loan. Such interest shall be payable on each Interest  Payment Date,
commencing  with  the  first  Interest  Payment  Date  after  the  date  of such
Eurodollar  Loan and on the Maturity  Date.  In the event  Eurodollar  Loans are
available,  the Agent shall  determine  the rate of interest  applicable to each
requested  Eurodollar Loan for each Interest Period at 11:00 a.m., New York City
time, or as soon as practicable  thereafter,  two (2) Business Days prior to the
commencement  of such  Interest  Period and shall use its best efforts to notify
the  Borrower  and  the  Banks  of the  rate of  interest  so  determined.  Such
determination shall be conclusive absent manifest error.

         (c) The LIBOR Applicable Margin shall be determined on the basis of the
Borrower's  Funded Debt to EBITDA Ratio,  as calculated  based on the Borrower's
consolidated  financial  statements  for its most recent fiscal year or quarter.
The LIBOR Applicable Margin shall be determined as follows:



<PAGE>



                  (i) The  initial  LIBOR  Applicable  Margin  shall be 75 basis
         points,  and  shall be  applicable  until  delivery  of the  Borrower's
         consolidated  financial  statements for its fiscal quarter ending April
         30, 1999 pursuant to Section 5.01(b) hereof (subject to increase in the
         event that the Borrower  fails to deliver such  statements  as required
         below).

         Beginning  with  delivery  of  the  Borrower's  consolidated  financial
statements  for the fiscal  quarter  ending April 30, 1999,  and for each fiscal
year or quarter thereafter:

                  (ii) If the  Borrower's  Funded Debt to EBITDA Ratio as of the
         end of such fiscal year or quarter is less than 0.50 to 1.00, the LIBOR
         Applicable Margin shall be 75 basis points.

                  (iii) If the Borrower's  Funded Debt to EBITDA Ratio as of the
         end of such fiscal year or quarter is equal to or greater  than 0.50 to
         1.00 but less than 1.50 to 1.00, the LIBOR  Applicable  Margin shall be
         100 basis points.

                  (iv) If the  Borrower's  Funded Debt to EBITDA Ratio as of the
         end of such fiscal year or quarter is equal to or greater  than 1.50 to
         1.00 but less than 2.00 to 1.00, the LIBOR  Applicable  Margin shall be
         125 basis points.

                  (v) If the  Borrower's  Funded Debt to EBITDA  Ratio as of the
         end of such fiscal year or quarter is equal to or greater  than 2.00 to
         1.00, the LIBOR Applicable Margin shall be 150 basis points.

         The Applicable  Margin for any  Eurodollar  Loan shall remain in effect
for the term of the  Interest  Period  for such  Eurodollar  Loan and  shall not
change during such term as a result of this Section 2.04.

         In  the  event  that  the  Borrower  fails  to  deliver  any  financial
statements  and the  related  certificate  within  five (5) days of the due date
therefor set forth in Section  5.01(b)(i),  (ii), (iv) or (v) hereof,  unless an
Event of Default is declared as a result of such failure,  the LIBOR  Applicable
Margin  shall be 150 basis  points  until the  Borrower  delivers  all  required
financial  statements and certificates at which time the LIBOR Applicable Margin
shall be redetermined as provided for in this Section 2.04.

         Upon the occurrence and during the continuance of a Default or an Event
of  Default,  the LIBOR  Applicable  Margin  may,  as a result of changes in the
Borrower's Funded Debt to EBITDA Ratio, increase but will not decrease.

         (d) All interest  shall be paid to the Agent for pro rata  distribution
to the Banks.



<PAGE>



         SECTION 2.05. Use of Proceeds. (a) The proceeds of the Revolving Credit
Loans shall be used by the Borrower (i) to finance working capital, (ii) subject
to the Permitted Acquisition Sublimit,  to finance Permitted  Acquisitions,  and
(iii) for general corporate purposes. No part of the proceeds of any Loan may be
used for any purpose that  directly or  indirectly  violates or is  inconsistent
with the provisions of Regulation G, T, U or X.

         (b) Letters of Credit  shall,  subject to the L/C  Sublimit,  be issued
exclusively  to finance trade  transactions  and other  commercial  transactions
related to the working capital needs of the Borrower.

         SECTION 2.06.  Fees. (a) The Borrower  agrees to pay to the Agent,  for
pro rata  distribution to the Banks,  from the date of this Agreement and for so
long as the Total Commitment remains in effect, on the last Business Day of each
calendar  quarter,  and on any day that  the  Total  Commitment  is  reduced  or
terminated,  an Unused  Facility Fee computed at a rate per annum equal to 0.25%
(computed  on the basis of the actual  number of days  elapsed over 360 days) on
the average daily unused amount of the Total  Commitment,  such Unused  Facility
Fee being  payable for the calendar  quarter,  or part  thereof,  preceding  the
payment date.

         (b) The Borrower agrees to pay to the Agent,  for its services as Agent
hereunder,  those fees,  charges and  expenses as the Borrower and the Agent may
mutually agree.

         SECTION 2.07. Reduction of Commitment. Upon at least three (3) Business
Days' prior written notice to the Agent,  the Borrower may irrevocably  elect to
have  the  unused  Total  Commitment  terminated  in whole  or  reduced  in part
provided,  however, that any such partial reduction shall be in a minimum amount
of  $1,000,000.00,  or whole  multiples  thereof.  The  Total  Commitment,  once
terminated  or reduced,  shall not be  reinstated  without  the express  written
approval of the Agent and the Banks. Any reduction to the Total Commitment shall
be applied pro rata to the respective Commitments of each Bank.

         SECTION 2.08. Prepayment.  (a) The Borrower shall have the right at any
time and from time to time to prepay any Prime  Rate Loan,  in whole or in part,
without premium or penalty on one (1) Business Day's prior  irrevocable  written
notice to the Agent provided,  however,  that each such prepayment shall be on a
Business  Day and  shall be in an  aggregate  principal  amount  which is in the
minimum  amount  of  $100,000.00   and  in  increased   integral   multiples  of
$100,000.00.



<PAGE>



         (b) The  Borrower  shall  have the  right at any time and from  time to
time,  subject  to the  provisions  of this  Agreement,  including  but  without
limitation  Section 2.13 hereof,  to prepay any Eurodollar  Loan, in whole or in
part, on three (3) Business Days' prior irrevocable written notice to the Agent,
provided,  however,  that each such  prepayment  shall be on a Business  Day and
shall be in an  aggregate  principal  amount  which is in the minimum  amount of
$250,000.00 and in increased integral multiples of $100,000.00.

         (c) The notice of  prepayment  under this  Section 2.08 shall set forth
the prepayment date and the principal amount of the Loan being prepaid and shall
be  irrevocable  and shall commit the Borrower to prepay such Loan by the amount
and on the date stated therein.  All prepayments shall be accompanied by accrued
interest on the principal  amount being prepaid to the date of prepayment.  Each
prepayment  under  this  Section  2.08  shall be applied  first  towards  unpaid
interest on the amount being  prepaid and then towards the principal in whole or
partial prepayment of Loans as specified by the Borrower. In the absence of such
specification,  amounts  being  prepaid shall be applied first to any Prime Rate
Loan then  outstanding and then to Eurodollar  Loans in the order of the nearest
expiration of their Interest Periods.

         SECTION 2.09.  Eurocurrency Reserve Requirement.  It is understood that
the cost to the Banks of making or maintaining Eurodollar Loans may fluctuate as
a result of the  applicability  of,  or  change  in,  the  Eurocurrency  Reserve
Requirement. The Borrower agrees to pay to the Agent on behalf of the Banks from
time to time,  as  provided  in Section  2.10  below,  such  amounts as shall be
necessary  to  compensate  each  Bank for the  portion  of the cost of making or
maintaining  any  Eurodollar  Loans made by it resulting  from any change in the
Eurocurrency Reserve Requirement, it being understood that the rates of interest
applicable to Eurodollar  Loans  hereunder have been  determined on the basis of
the Eurocurrency  Reserve  Requirement in effect at the time of determination of
the Reserve Adjusted LIBOR Rate and that such rates do not reflect costs imposed
on  each  Bank  in  connection  with  any  change  to the  Eurocurrency  Reserve
Requirement.  It is agreed that for purposes of this  paragraph  the  Eurodollar
Loans made hereunder shall be deemed to constitute  Eurocurrency  Liabilities as
defined  in  Regulation  D and to be  subject  to the  reserve  requirements  of
Regulation D without benefit or credit of proration, exemptions or offsets which
might otherwise be available to each Bank from time to time under Regulation D.

         SECTION 2.10.  Increased  Costs.  If, after the date of this Agreement,
the  adoption  of, or any change in, any  applicable  law,  regulation,  rule or
directive,  or any  interpretation  thereof by any  authority  charged  with the
administration or interpretation thereof:

                  (i)  subjects  any  Bank or the  Issuing  Bank to any tax with
respect to its Commitment,  the Loans, its Note, the Letters of Credit or on any
amount paid or to be paid under or pursuant to this  Agreement,  the Loans,  the
Notes or the Letters of Credit (other than any tax measured by or based upon the
overall net income of such Bank or the Issuing Bank);


<PAGE>



                  (ii)  changes the basis of taxation of payments to any Bank or
the Issuing Bank of any amounts payable  hereunder  (other than any tax measured
by or based upon the overall net income of such Bank or the Issuing Bank);

                  (iii)  imposes,  modifies  or deems  applicable  any  reserve,
capital  adequacy or deposit  requirements  against any assets held by, deposits
with or for the account of, or loans made by, any Bank or the Issuing Bank; or

                  (iv)  imposes on the Agent,  any Bank or the Issuing  Bank any
other condition  affecting its Commitment,  the Loans,  its Note, the Letters of
Credit or this Agreement;

                  and the result of any of the foregoing is to increase the cost
to the Agent,  a Bank or the Issuing Bank of  maintaining  this Agreement or its
Commitment,  making  the Loans or  issuing or  participating  in the  Letters of
Credit,  or to reduce the amount of any payment (whether of principal,  interest
or  otherwise)  receivable  by the  Agent,  any Bank or the  Issuing  Bank or to
require  the  Agent,  any Bank or the  Issuing  Bank to make any  payment  on or
calculated by reference to the gross amount of any sum received by them, in each
case by an amount which the Agent,  such Bank or the Issuing  Bank,  as the case
may be, in its sole,  reasonable  judgment deems material,  then and in any such
case:

                  (a) the Agent,  the Bank or the Issuing Bank which is affected
         by any of the conditions  described in (i),  (ii),  (iii) or (iv) above
         shall notify the  Borrower,  and any such  affected Bank or the Issuing
         Bank  shall  notify  the Agent of such  event,  together  with the date
         thereof,  the amount of such increased cost or reduction or payment and
         the way in which such amount has been calculated; and

                  (b) the Borrower shall pay to the Agent, such affected Bank or
         the Issuing  Bank,  as the case may be,  within ten (10) days after the
         advice  referred to in subsection  (a)  hereinabove,  such an amount or
         amounts as will compensate the Agent, such affected Bank or the Issuing
         Bank for such additional cost,  reduction or payment for so long as the
         same shall remain in effect.

                  The  determination  of the  Agent,  any  affected  Bank or the
Issuing  Bank as to  additional  amounts  payable  pursuant to this Section 2.10
shall  be  conclusive  evidence  of such  amounts  absent  manifest  error.  The
provisions of this Section 2.10 shall survive the  termination of this Agreement
and the payment of the Loans, any unreimbursed draws on any Letter of Credit and
all other amounts due hereunder.



<PAGE>



         SECTION 2.11.  Capital Adequacy.  If the Agent, any Bank or the Issuing
Bank shall have reasonably  determined that,  subsequent to the date hereof, any
change in the  applicability of any law, rule,  regulation or guideline,  or the
adoption after the date hereof of any other law,  rule,  regulation or guideline
regarding  capital  adequacy,  or any change in any of the  foregoing  or in the
interpretation  or  administration  of any of the foregoing by any  governmental
authority,  central bank or comparable agency charged with the interpretation or
administration  thereof,  or compliance by such Bank or the Issuing Bank (or any
lending  office of such Bank or the Issuing  Bank) or such Bank's or the Issuing
Bank's holding company with any 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 such Bank's or the Issuing Bank's capital or on the capital of such Bank's or
the Issuing Bank's holding company,  if any, as a consequence of its obligations
hereunder  to a level  below that which  such Bank or the  Issuing  Bank or such
Bank's or the Issuing  Bank's  holding  company could have achieved but for such
adoption,  change or compliance  (taking into  consideration  such Bank's or the
Issuing  Bank's  policies and the policies of such Bank's or the Issuing  Bank's
holding  company with respect to capital  adequacy) by an amount  deemed by such
Bank or the Issuing Bank to be material, then from time to time:

         (a) the Agent, the Bank or the Issuing Bank which is affected by any of
the conditions described above shall notify the Borrower,  and any such affected
Bank or the Issuing Bank shall notify the Agent of such event, together with the
date  thereof,  the amount of such  reduced  rate of return and the way in which
such amount has been calculated; and

         (b) the  Borrower  shall pay to the  Agent,  the  affected  Bank or the
Issuing Bank, as the case may be, within ten (10) days after the advice referred
to in subsection (a)  hereinabove,  such an amount or amounts as will compensate
the Agent,  such  affected  Bank or the Issuing  Bank for such  reduced  rate of
return for so long as such reduction shall remain in effect.

         SECTION 2.12. Change in Legality.  (a) Notwithstanding  anything to the
contrary  contained  elsewhere in this  Agreement,  if any change after the date
hereof in law, rule,  regulation,  guideline or order, or in the  interpretation
thereof by any governmental  authority charged with the administration  thereof,
shall make it unlawful for any of the Banks to make or maintain  any  Eurodollar
Loan or to give effect to its obligations as contemplated hereby with respect to
a Eurodollar  Loan,  then, any such affected Bank shall notify the Agent of same
and, by written notice to the Borrower, the Agent, on behalf of such Bank shall:



<PAGE>

                  (i) declare that Eurodollar  Loans will not thereafter be made
         by such Bank hereunder, whereupon the Borrower shall be prohibited from
         requesting  Eurodollar  Loans  from such  Bank  hereunder  unless  such
         declaration is subsequently withdrawn; and

                  (ii) require that,  subject to the  provisions of Section 2.13
         hereof, all outstanding Eurodollar Loans made by such Bank be converted
         to a Prime Rate Loan,  whereupon all of such Eurodollar  Loans shall be
         automatically  converted to a Prime Rate Loan as of the effective  date
         of such notice as provided in paragraph (b) below.

         (b) For purposes of this Section  2.12, a notice to the Borrower by the
Agent  pursuant to paragraph (a) above shall be  effective,  for the purposes of
paragraph  (a)  above,  if lawful,  and if any  Eurodollar  Loans  shall then be
outstanding,  on the last day of the then current  Interest  Period;  otherwise,
such notice shall be effective on the date of receipt by the Borrower.

         SECTION 2.13.  Funding  Losses.  The Borrower agrees to compensate each
Bank  for any  loss or  expense  which  such  Bank  may  sustain  or  incur as a
consequence of (a) default by the Borrower in payment or prepayment  when due of
the principal  amount of or interest on any Eurodollar  Loan, (b) default by the
Borrower in making a borrowing of, conversion into or continuation of Eurodollar
Loans after the Borrower has given a notice  requesting  the same in  accordance
with the provisions of this Agreement, (c) default by the Borrower in making any
prepayment  after the Borrower has given a notice thereof in accordance with the
provisions of this  Agreement or (d) the making of a prepayment or conversion of
Eurodollar  Loans on a day which is not the last day of an Interest  Period with
respect  thereto,  including,  without  limitation,  in each case, any such loss
(including,  without  limitation,  loss of margin) or expense  arising  from the
reemployment  of funds  obtained by it or from  amounts  payable by such Bank to
lenders of funds  obtained by it in order to make or maintain  such Loans.  Such
compensation  may  include an amount  equal to the  excess,  if any,  of (i) the
amount of  interest  which  would  have  accrued  on the  amount so  prepaid  or
converted, or not so borrowed,  converted or continued,  for the period from the
date of such  prepayment or conversion or of such failure to borrow,  convert or
continue to the last day of such  Interest  Period (or, in the case of a failure
to borrow, convert or continue, the Interest Period that would have commenced on
the date of such  failure) in each case at the  applicable  rate of interest for
such Loans provided for herein,  including the LIBOR Applicable  Margin included
therein,  over (ii) the amount of interest  (as  reasonably  determined  by such
Bank)  which  would  have  accrued to such Bank on such  amount by placing  such
amount on deposit for a comparable  period with leading  banks in the  interbank
eurodollar market. This covenant shall survive the termination of this Agreement
<PAGE>

and the  payment  of the Loans and all other  amounts  payable  hereunder.  When
claiming  under this  Section  2.13,  the  claiming  Bank  shall  provide to the
Borrower a statement,  signed by an officer of such Bank,  explaining the amount
of any such loss or expense  (including the  calculation of such amount),  which
statement shall, in the absence of manifest error, be conclusive with respect to
the parties hereto.

         SECTION 2.14. Change in LIBOR; Availability of Rates. In the event, and
on each occasion,  that, on the day the interest rate for any Eurodollar Loan is
to be determined,  the Agent shall have determined (which determination,  absent
manifest  error,  shall be conclusive and binding upon the Borrower) that Dollar
deposits in the amount of the principal amount of the requested  Eurodollar Loan
are not generally available in the interbank eurodollar market, or that the rate
at which such Dollar  deposits are being offered will not  adequately and fairly
reflect the cost to the Banks of making or maintaining  the principal  amount of
such Eurodollar Loan during such Interest Period,  such Eurodollar Loan shall be
unavailable.  The Agent shall, as soon as practicable thereafter,  give written,
telex or  telephonic  notice  of such  determination  of  unavailability  to the
Borrower  and  the  Banks.  Any  request  by the  Borrower  for  an  unavailable
Eurodollar  Loan  shall be deemed to have been a request  for a Prime Rate Loan.
After such notice shall have been given and until the Agent shall have  notified
the Borrower that the circumstances giving rise to such unavailability no longer
exist,  each  subsequent  request for an  unavailable  Eurodollar  Loan shall be
deemed to be a request for a Prime Rate Loan.

         SECTION 2.15.  Authorization to Debit Borrower's Account.  The Agent is
hereby authorized to debit the Borrower's  account maintained with the Agent for
(i) all scheduled  payments due from the Borrower of principal  and/or  interest
and/or  commissions  or fees under the Notes or this  Agreement or in respect of
the Letters of Credit,  (ii) the Agent's fees, (iii) the Unused Facility Fee and
(iv) all other  amounts  due  hereunder;  all such debits to be made on the days
such payments are due in accordance with the terms hereof.

         SECTION 2.16. Late Charges, Default Interest. (a) If the Borrower shall
default in the payment of any principal  installment of or interest on any Loan,
or any  amount due in  respect  of any  Letter of  Credit,  or any other  amount
becoming  due  hereunder,  the  Borrower  shall  pay to the  Agent  for pro rata
distribution to the Banks or the Issuing Bank, as applicable,  interest,  to the
extent  permitted  by law,  on such  defaulted  amount  up to the date of actual
payment (after as well as before  judgment) at a rate per annum (computed on the
basis of the actual number of days elapsed over a year of 360 days) equal to two
(2%) percent  plus the interest  rate which would then be in effect with respect
to a Prime Rate Loan made hereunder at the time such required  payments were not
made.



<PAGE>



         (b) Upon the  occurrence  and  during the  continuation  of an Event of
Default,  the Borrower shall pay to the Agent, for pro rata  distribution to the
Banks,  interest on all Revolving  Credit Loans and on all amounts  described in
clauses  (ii) and  (iii) of the  definition  of L/C  Exposure  (after as well as
before judgment) at a rate per annum (computed on the basis of the actual number
of days  elapsed  over a year of 360 days)  equal to two (2%)  percent  plus the
interest rate which would then be in effect with respect to Prime Rate Loans.

         SECTION 2.17. Payments.  All payments by the Borrower hereunder,  under
the Notes or in  respect of the  Letters  of Credit  shall be made in Dollars in
immediately  available  funds at the office of the Agent by 12:00 noon, New York
City  time,  on the date on which such  payment  shall be due.  The Agent  shall
promptly pay to each of the Banks such amount of such payment to which such Bank
is entitled, as determined by the Agent, subject to manifest error.

         SECTION  2.18.  Interest  Adjustments.  (a) If the  provisions  of this
Agreement,  the Notes or the L/C Documents  would at any time otherwise  require
payment  by the  Borrower  to any  Bank or the  Issuing  Bank of any  amount  of
interest in excess of the maximum  amount then  permitted by applicable  law the
interest  payments shall be reduced to the extent necessary so that such Bank or
the Issuing Bank shall not receive interest in excess of such maximum amount. To
the extent that,  pursuant to the  foregoing  sentence,  the Agent shall receive
interest  payments on behalf of the Banks or the Issuing Bank  hereunder,  under
the Notes or under the L/C Documents in an amount less than the amount otherwise
provided,   such  deficit  (hereinafter  called  the  "Interest  Deficit")  will
accumulate and will be carried forward (without  interest) until the termination
of this Agreement. Interest otherwise payable by the Borrower to any Bank or the
Issuing  Bank  hereunder,  under the Notes or under  the L/C  Documents  for any
subsequent  period shall be  increased  by such  maximum  amount of the Interest
Deficit  that may be so added  without  causing such Bank or the Issuing Bank to
receive  interest in excess of the maximum  amount then  permitted by applicable
law.

         (b) The amount of the Interest  Deficit at the  Maturity  Date shall be
cancelled and not paid.


<PAGE>



                                   ARTICLE IIA

                              THE LETTERS OF CREDIT
                              ---------------------

         SECTION 2A.01.  Letters of Credit.  (a) On the terms and conditions set
forth herein, (i) the Issuing Bank agrees, from time to time on any Business Day
during the period from the date of this  Agreement  to the day which is five (5)
days prior to the  Maturity  Date to issue  Letters of Credit for the account of
the Borrower and (ii) the Banks  severally  agree to  participate  in Letters of
Credit issued for the account of the Borrower.  Within the foregoing limits, and
subject to the other terms and  conditions  hereof,  the  Borrower's  ability to
obtain  Letters  of  Credit  shall be fully  revolving,  and,  accordingly,  the
Borrower may, during the foregoing  period,  obtain Letters of Credit to replace
Letters  of  Credit  which  have  expired  or which  have  been  drawn  upon and
reimbursed.

                  (b) The Issuing Bank has no  obligation to issue any Letter of
Credit if:

                  (i)  any  order,   judgment  or  decree  of  any  governmental
         authority or arbitrator purports by its terms to enjoin or restrain the
         Issuing Bank from issuing such Letter of Credit or any  requirement  of
         law applicable to the Issuing Bank or any request or directive (whether
         or not having the force of law) from any  governmental  authority  with
         jurisdiction  over the Issuing  Bank  prohibits,  or requests  that the
         Issuing Bank refrain  from,  the issuance of standby  letters of credit
         generally  or such Letter of Credit in  particular  or imposes upon the
         Issuing  Bank with  respect to such  Letter of Credit any  restriction,
         reserve  or capital  requirement  (for  which the  Issuing  Bank is not
         otherwise  compensated  hereunder)  not in  effect  on the date of this
         Agreement, or imposes upon the Issuing Bank any unreimbursed loss, cost
         or expense which was not  applicable on the date of this  Agreement and
         which the Issuing Bank in good faith deems material to it;

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

                  (iii) the expiry date of any requested Letter of Credit is (x)
         more than one (1) year from its date of issuance or (y) later than five
         (5) Business Days prior to the Maturity Date;

                  (iv) the  Aggregate  Outstandings,  after giving effect to the
         requested Letter of Credit, shall exceed the Total Commitment;


<PAGE>



                  (v) the aggregate  L/C  Exposure,  after giving effect to such
         Letter of Credit, shall exceed the L/C Sublimit; or

                  (vi)  such  Letter  of  Credit  is not in form  and  substance
         acceptable  to the  Issuing  Bank,  or the  issuance  of such Letter of
         Credit violates any applicable policies of the Issuing Bank.

         SECTION  2A.02.  Issuance  of Letters of Credit.  Each Letter of Credit
shall be issued upon the request of the Borrower  (which  request may be revoked
only at such time and in  sufficient  time as will  enable the  Issuing  Bank to
prevent the issuance of such Letter of Credit),  received by the Issuing Bank in
accordance  with  arrangements  between  the  Issuing  Bank and the  Borrower to
provide  the Issuing  Bank  electronically  or  otherwise  with the  information
necessary to issue, amend or renew Letters of Credit.  The arrangements  between
the Borrower and the Issuing Bank are set forth in the L/C Documents (other than
the Letters of Credit) between the Issuing Bank and the Borrower.  To the extent
any term in any such L/C  Documents  (other  than a Letter of Credit)  conflicts
with or is  inconsistent  with  the  terms  of this  Agreement,  the  term  most
favorable to the Issuing Bank shall apply, and the Issuing Bank may exercise its
rights  under  either such L/C  Document or this  Agreement,  but subject in any
event to the provisions herein with respect to sharing and notification.  If any
such  inconsistency  exists, the Agent and the Banks shall not be deemed to have
waived any rights hereunder, nor shall the Issuing Bank be deemed to have waived
any rights under such L/C Document, by reason of such inconsistency.

         SECTION  2A.03.  Participations  of  Banks.  (a)  Immediately  upon the
issuance  of each  Letter of  Credit,  each Bank  shall be deemed to, and hereby
irrevocably  unconditionally  agrees  to,  purchase  from  the  Issuing  Bank  a
participation in such Letter of Credit and each drawing thereunder in any amount
equal in each case to the product of (i) the Pro Rata Share of such Bank,  times
(ii) the maximum  amount  available  to be drawn under such Letter of Credit and
the amount of such  drawing,  respectively.  Each issuance of a Letter of Credit
shall be deemed to utilize the Commitment of each Bank by an amount equal to the
amount of such Pro Rata Share.

         (b) The Issuing Bank will  promptly  notify the Borrower of any drawing
under a Letter of Credit.  The Borrower shall reimburse the Issuing Bank on each
date that any  amount is paid by the  Issuing  Bank  under any  Letter of Credit
(each  such date,  an "Honor  Date") at such  time(s) as are agreed  upon by the
Borrower and the Issuing  Bank,  in an amount equal to the amount so paid by the
Issuing Bank.  If the Borrower  fails to reimburse the Issuing Bank for the full
amount of any drawing under any Letter of Credit at such agreed upon time on the
Honor Date,  the Issuing Bank will promptly  notify the Agent and the Agent will
promptly  notify each Bank thereof.  The Honor Date shall, in every case, be not
later than five (5) Business Days prior to the Maturity Date.
<PAGE>
         (c) Upon  receipt  of any notice  from the Agent of any  failure by the
Borrower to reimburse  the Issuing Bank,  each Bank shall make  available to the
Agent for the  account  of the  Issuing  Bank such  Bank's Pro Rata Share of the
amount of such  reimbursement.  If, after receipt of such notice, any Bank fails
to transfer its Pro Rata Share of the amount of such reimbursement to the Agent,
interest  shall accrue on such Bank's  obligation  to make such payment from the
Honor Date to the date such Bank makes such  payment,  at a rate per annum equal
to the  Federal  Funds  Effective  Rate in effect  from time to time during such
period. Any failure of the Agent to give notice to the Banks on an Honor Date or
in sufficient  time to enable any Bank to effect such payment on such date shall
not relieve such Bank from its obligations under this subsection (c).

         (d) Each  Bank's  payment  to the  Issuing  Bank  pursuant  to  Section
2A.03(c) hereof shall be deemed payment in respect of and in satisfaction of its
participation in such Letter of Credit.

         (e)  Each  Bank's   obligation  to  make  payment  in  respect  of  its
participation  in Letters of Credit  shall be  absolute  and  unconditional  and
without  recourse  to  the  Issuing  Bank  and  shall  not  be  affected  by any
circumstance,  including (i) any setoff,  counterclaim,  recoupment,  defense or
other right which such Bank may have against the Issuing  Bank,  the Borrower or
any other Person for any reason  whatsoever;  (ii) the occurrence or continuance
of a Default or any Event of Default; or (iii) any other circumstance, happening
or event whatsoever,  whether or not similar to any of the foregoing;  provided,
however, that the provisions of this Section 2A.03(e) shall not be read to cause
any Bank to waive any defense to such  payment if such  defense is the result of
the Issuing Bank's gross negligence or willful misconduct.

         SECTION  2A.04.  Repayment of  Participations.  (a) Upon receipt by the
Issuing Bank of (i) reimbursement  from the Borrower for any payment made by the
Issuing  Bank under a Letter of Credit  with  respect to which any Bank has paid
for its  participation  in such  Letter of Credit or (ii)  payment  of  interest
thereon or related fees  thereto,  the Issuing Bank will pay such amounts to the
Agent in the same funds as those  received by the Issuing Bank.  The Agent shall
promptly distribute to each Bank its Pro Rata Share thereof.



<PAGE>



         (b) If the Agent or the Issuing  Bank is required at any time to return
to the  Borrower,  or to a  trustee,  receiver,  liquidator,  custodian,  or any
official in any insolvency  proceeding,  any portion of the payments made by the
Borrower to the Agent or to the Issuing Bank pursuant to Section 2A.03(a) hereof
in  reimbursement of a payment made under a Letter of Credit or interest thereon
or fees relating thereto or as a result of a setoff,  each Bank shall, on demand
of the Agent or the Issuing  Bank, as the case may be,  forthwith  return to the
Agent or the Issuing  Bank, as the case may be, the amount of its Pro Rata Share
of any  amounts  so  returned  by the Agent or the  Issuing  Bank plus  interest
thereon  from the date such demand is made to the date such amounts are returned
by such Bank to the Agent or the Issuing  Bank, at a rate per annum equal to the
Federal Funds Effective Rate in effect from time to time.

         (c)  If any  event  described  in  subsection  (b)  above  occurs,  the
obligation  of the  Borrower in respect of the payment or setoff  required to be
returned  shall be  revived  and  continued  in full force and effect as if such
payment had not been made or such setoff had not been effected.

         SECTION 2A.05 Role of the Issuing Bank.  (a) The Issuing Bank shall not
have any  responsibility  to obtain any document in  connection  with paying any
draw under a Letter of Credit  (other  than any  required  sight or time  draft,
certificate and other documents  expressly required by such Letter of Credit) or
to ascertain  or inquire as to the validity or accuracy of any such  document or
the authority of the Person executing or delivering any such document.

         (b) Neither the Issuing Bank nor any of its correspondents or assignees
shall be liable to any Bank for: (i) any action  taken or omitted in  connection
herewith  at the  request  or with the  approval  of the  Banks  (including  the
Required Banks, as applicable);  (ii) any action taken or omitted in the absence
of  gross  negligence  or  willful  misconduct;  or  (iii)  the  due  execution,
effectiveness, validity or enforceability of any L/C Document.



<PAGE>



         (c) The Borrower  hereby  assumes all risks of the acts or omissions of
any  beneficiary or transferee  with respect to its use of any Letter of Credit;
provided,  however,  that this  assumption  is not  intended  to, and shall not,
preclude the Borrower's pursuing such rights and remedies as it may have against
the beneficiary or transferee at law or under any other  agreement.  Neither the
Agent, nor the Issuing Bank or any Bank, nor any of their  respective  officers,
directors or employees, nor any of the respective  correspondents,  participants
or assignees of the Issuing Bank,  shall be liable or responsible for any of the
matters  described  in  clauses  (i)  through  (vii) of  Section  2A.06  hereof;
provided,  however, that the Borrower may have a claim against the Issuing Bank,
and the Issuing Bank may be liable to the Borrower, to the extent of any direct,
as opposed to consequential or exemplary, damages suffered by the Borrower which
the Borrower  proves were caused by the Issuing  Bank's  willful  misconduct  or
gross  negligence or the Issuing Bank's willful  failure to pay under any Letter
of Credit after the presentation to it by the beneficiary of a required sight or
time draft and  certificate(s)  strictly complying with the terms and conditions
of a Letter of Credit,  unless such failure is due to  compliance by the Issuing
Bank with an order of a court or other legal process.  In furtherance and not in
limitation  of the  foregoing:  (i) the Issuing Bank may accept  documents  that
appear  on  their  face  to be in  order,  without  responsibility  for  further
investigation, regardless of any notice or information to the contrary; and (ii)
the Issuing Bank shall not be responsible for the validity or sufficiency of any
instrument  transferring  or  assigning  or  purporting  to transfer or assign a
Letter of Credit or the rights or benefits  thereunder or proceeds  thereof,  in
whole or in part, which may prove to be invalid or ineffective for any reasons.

         SECTION 2A.06.  Obligations  Absolute.  The obligations of the Borrower
under this  Agreement  and any L/C Documents to reimburse the Issuing Bank for a
drawing under a Letter of Credit shall be  unconditional  and  irrevocable,  and
shall be paid  strictly in accordance  with the terms of this  Agreement and the
L/C Documents under all circumstances, including the following:

               (i) any lack of validity or  enforceability  of this Agreement or
          any L/C Document;

                  (ii) any change in the time, manner or place of payment of, or
         in any other term of, all or any of the  obligations of the Borrower in
         respect of any Letter of Credit or any other  amendment or waiver of or
         any consent to departure from all or any of the L/C Documents;

                  (iii) the  existence  of any claim,  setoff,  defense or other
         right that the Borrower may have at any time against any beneficiary or
         any transferee of any Letter of Credit (or any Person for whom any such
         beneficiary or any such transferee may be acting),  the Issuing Bank or
         any other  Person,  whether  in  connection  with this  Agreement,  the
         transactions  contemplated  hereby  or by  the  L/C  Documents  or  any
         unrelated transaction;

                  (iv)  any  draft,   demand,   certificate  or  other  document
         presented under any Letter of Credit proving to be forged,  fraudulent,
         invalid or insufficient  in any respect or any statement  therein being
         untrue  or  inaccurate  in any  respect;  or any  loss or  delay in the
         transmission  or otherwise of any document  required in order to make a
         drawing under any Letter of Credit;



<PAGE>



                  (v) any payment by the  Issuing  Bank under a Letter of Credit
         against  presentation of a draft or certificate  that does not strictly
         comply with the terms of any Letter of Credit;  or any payment  made by
         the Issuing Bank under any Letter of Credit to any Person purporting to
         be a trustee  in  bankruptcy,  debtor-in-possession,  assignee  for the
         benefit of creditors,  liquidator,  receiver or other representative of
         or  successor to any  beneficiary  or any  transferee  of any Letter of
         Credit,  including  any  arising  in  connection  with  any  insolvency
         proceeding;

                  (vi)  any   exchange,   release  or   non-perfection   of  any
         collateral,  or any  release  or  amendment  or waiver of or consent to
         departure from any other  guarantee,  for all or any of the obligations
         of the Borrower in respect of any Letter of Credit; or

                  (vii) any other circumstance or happening whatsoever,  whether
         or  not  similar  to  any  of  the   foregoing,   including  any  other
         circumstance that might otherwise constitute a defense available to, or
         a discharge of, the Borrower.

         SECTION 2A.07.  Uniform Customs and Practices.  The Uniform Customs and
Practice for Documentary Credits as most recently published by the International
Chamber  of  Commerce  at the time of  issuance  of any  Letter of Credit  shall
(unless  otherwise  expressly  provided in such Letter of Credit)  apply to such
Letter of Credit.

         SECTION 2A.08. Fees and Commissions.  (a) The Borrower shall pay to the
Agent,  for pro rata  distribution  to the  Banks,  a per annum fee equal to the
LIBOR Applicable  Margin,  as in effect from time to time, on the average amount
available  to be drawn on Letters of Credit  (computed on the basis of a year of
360 days for actual days elapsed), payable quarterly in arrears. The Agent shall
promptly pay to each Bank its Pro Rata Share of such fee.

         (b) The Borrower  shall pay to the Issuing Bank its usual and customary
letter of  credit  fees as  established  from  time to time,  including  without
limitation,  fees,  commissions  and charges for issuance,  payment,  processing
amendment and  expiration and a fronting fee on the average  outstanding  amount
available  to be drawn on Letters  of Credit  calculated  at an annual  rate per
annum of 0.125%.


<PAGE>



                                   ARTICLE III

                              CONDITIONS OF LENDING

         SECTION  3.01.  Conditions  Precedent  to the  Making  of  the  Initial
Revolving  Credit  Loan and the  Issuing of the  Initial  Letter of Credit.  The
obligation of the Banks to make the initial Revolving Credit Loans  contemplated
by this  Agreement  and the  obligation of the Issuing Bank to issue the initial
Letter  of  Credit  issued  on or  after  the  date  of this  Agreement,  all as
contemplated by this Agreement, are each subject to the condition precedent that
the Agent,  the Banks and the Issuing Bank shall have received from the Borrower
and the Guarantors on or before the date of this  Agreement the following,  each
dated such day, in form and substance satisfactory to the Agent and its counsel:

         (a)  Revolving  Credit  Notes,  each duly  executed by the Borrower and
payable to the order of each of the Banks.

         (b)  Certified  (as  of the  date  of  this  Agreement)  copies  of the
resolutions of the Board of Directors of the Borrower  authorizing the Loans and
the Letters of Credit and authorizing and approving this Agreement and the other
Loan Documents to which the Borrower is a party and the execution,  delivery and
performance  thereof and  certified  copies of all  documents  evidencing  other
necessary corporate action and governmental  approvals,  if any, with respect to
this Agreement and the other Loan Documents.

         (c)  Certified  (as  of the  date  of  this  Agreement)  copies  of the
resolutions  of the  Boards of  Directors  and the  shareholders  of each of the
Guarantors,  authorizing and approving this Agreement,  their Guaranties and any
other Loan Document  applicable to the Guarantors,  and the execution,  delivery
and performance  thereof and certified copies of all documents  evidencing other
necessary corporate action and governmental  approvals,  if any, with respect to
this Agreement, their Guaranties and the other Loan Documents.

         (d) A certificate of the Secretary or an Assistant  Secretary (attested
to by  another  officer)  of the  Borrower  certifying:  (i) the  names and true
signatures  of the officer or officers of the Borrower  authorized  to sign this
Agreement,  the Notes and the other Loan Documents to be delivered  hereunder on
behalf of the Borrower;  and (ii) a copy of the  Borrower's  by-laws as complete
and correct on the date of this Agreement.



<PAGE>



         (e) A Certificate of the Secretary or an Assistant  Secretary (attested
to by another  officer) of each of the  Guarantors  certifying (i) the names and
true signatures of the officer or officers of the Guarantors  authorized to sign
this  Agreement,  their  Guaranties and any other Loan Documents to be delivered
hereunder on behalf of the  Guarantors;  (ii) a copy of each of the  Guarantors'
by-laws as  complete  and correct on the date of this  Agreement;  and (iii) the
stock ownership of each Guarantor.

         (f)  Copies of the  certificate  of  incorporation  and all  amendments
thereto  of the  Borrower  and the  Guarantors  certified  in  each  case by the
Secretary of State (or equivalent officer) of the state of incorporation of each
of the Borrower  and the  Guarantors  and a  certificate  of existence  and good
standing with respect to the Borrower and the  Guarantors  from the Secretary of
State (or equivalent  officer) of the state of incorporation of the Borrower and
the Guarantors  and from the Secretary of State (or  equivalent  officer) of any
state in which the Borrower or the Guarantors are authorized to do business.

         (g) An opinion of Kressel,  Rothlein and Roth, counsel for the Borrower
and the Guarantors as to certain matters referred to in Article IV hereof and as
to such other matters as the Agent or its counsel may reasonably request.

         (h) From each of the Guarantors, an executed Guaranty.

         (i)  From  the  Borrower,  a true  and  correct  copy  of the  Deutsche
Agreement,  which  shall be  satisfactory  to the Agent and its  counsel  in all
material respects.

         (j) From the Borrower, evidence that its revolving credit facility from
EAB and The Bank of New York has been terminated.

         (k) From Deutsche, the Intercreditor Agreement.

         (l)  From  the  Borrower  and  each  Guarantor,  copies  of  all of the
Borrower's and such Guarantor's credit agreements, loan agreements,  indentures,
mortgages and other documents relating to the extension of credit.

         (m) From the Borrower,  (x) a commitment  fee equal to  $13,125.00  (of
which  $6,250.00  shall be for the account of Key and $6,875.00 shall be for the
account  of  EAB),  (y)  the  fees  and  expenses  to be paid  pursuant  to this
Agreement,  and (z) those other fees,  charges and  expenses as the Borrower and
the Agent may mutually agree.

         (n) Evidence  that the Agent and the Banks shall,  prior to the date of
this Agreement,  have completed their due diligence reviews of the Borrower, the
results of which shall be  satisfactory to the Agent and the Banks in their sole
discretion.

         (o) Evidence that the following  statements shall be true and the Agent
shall have  received a certificate  signed by the  President or Chief  Financial
Officer of the Borrower dated the date hereof, stating that:


<PAGE>

                  (i) The representations and warranties contained in Article IV
of this Agreement and in the other Loan Documents are true and correct on and as
of such date; and

                  (ii) No  Default  or  Event of  Default  has  occurred  and is
continuing,  or would  result  from the making of the initial  Revolving  Credit
Loans or the issuance of the initial Letter of Credit, as applicable.

         (p) Evidence that all schedules,  documents, exhibits, certificates and
other  information  provided  to  the  Agent  or  the  Banks  pursuant  to or in
connection  with  this  Agreement  shall be  satisfactory  to the  Agent and its
counsel in all respects.

         (q) Evidence that all legal matters  incident to this Agreement and the
transactions  contemplated  hereby shall be  satisfactory  to Cullen and Dykman,
counsel to the Agent.

         (r) Such other  approvals,  opinions or  documents  as the Agent or its
counsel may reasonably request.

         SECTION 3.02.  Conditions  Precedent to all Revolving  Credit Loans and
all Letters of Credit. The obligation of the Banks to make each Revolving Credit
Loan  (including  the initial  Revolving  Credit Loan) and the obligation of the
Issuing  Bank to issue each Letter of Credit  (including  the initial  Letter of
Credit),  shall each be subject to the further  condition  precedent that on the
date of such Revolving Credit Loan or Letter of Credit:

         (a) The  following  statements  shall be true and  each  request  for a
Revolving  Credit Loan or Letter of Credit shall be deemed to be a certification
by the Borrower that:

                  (i) The representations and warranties contained in Article IV
of this Agreement and in the other Loan  Documents  shall be true and correct in
all material respects on and as of such date as though made on and as such date;
and

                  (ii) No Default or Event of Default shall have occurred and be
continuing, or would result from such Revolving Credit Loan or Letter of Credit.

         (b) The Agent shall have  received  such other  approvals,  opinions or
documents as the Agent or its counsel may reasonably request.

         SECTION  3.03.   Conditions   Precedent  to  the  Making  of  Permitted
Acquisition  Loans.  The obligation of the Banks to make each  Revolving  Credit
Loan which is a  Permitted  Acquisition  Loan  shall be  subject to the  further
conditions precedent that on the date of such Revolving Credit Loan:


<PAGE>

         (a) The Agent  and the Banks  shall  have  received,  at least ten (10)
Business  Days  prior  to such  request,  (i) the  certificate  and  information
required  under  the  definition  of  "Permitted  Acquisition  or  (ii)  if  the
consideration  for the  Permitted  Acquisition  is such that the Borrower is not
required to provide the  information  described  in clauses  (iv) and (v) of the
definition of "Permitted Acquisition",  the Borrower shall have delivered to the
Agent  and  the  Banks a  certificate  evidencing  pro  forma  compliance  (with
supporting  documentation)  by the  Borrower  with  Section  5.03 hereof for the
remainder of the term of this Agreement.

         (b) The Agent and the  Banks  shall  have  received  (i)  copies of all
contracts,   documents  and  agreements   relating  to  the  pending   Permitted
Acquisition (the "Acquisition Documents"), and (ii) evidence that except for the
payment of that  portion of the  purchase  price to be funded by the proceeds of
such Permitted  Acquisition  Loan, the pending  Permitted  Acquisition  has been
completed in accordance with the terms of the Acquisition  Documents and that no
material condition or material  obligation on the part of the acquired Person or
any Affiliate of the acquired Person has been waived.



<PAGE>

                                   ARTICLE IV

                         REPRESENTATIONS AND WARRANTIES

         SECTION  4.01.  Representations  and  Warranties.  On the  date of this
Agreement and on each date that the Borrower requests a Revolving Credit Loan or
a Letter of  Credit,  the  Borrower  and each of the  Guarantors  represent  and
warrant as follows:

         (a)  Subsidiaries.  On the date hereof,  the only  Subsidiaries  of the
Borrower or a Guarantor are those set forth on Schedule  4.01(a) annexed hereto,
which Schedule  accurately sets forth with respect to each such Subsidiary,  its
name and address,  any other addresses at which it conducts business,  its state
of  incorporation  and each other  jurisdiction  in which it is  qualified to do
business and the identity and share holdings of its stockholders.  Except as set
forth on said Schedule 4.01(a), all of the issued and outstanding shares of each
Subsidiary  which  are owned by the  Borrower  or a  Guarantor  are owned by the
Borrower  or such  Guarantor  free and clear of any  mortgage,  pledge,  lien or
encumbrance.  Except  as set  forth  on said  Schedule  4.01(a),  there  are not
outstanding  any  warrants,  options,  contracts  or  commitments  of  any  kind
entitling  any Person to purchase or  otherwise  acquire any shares of common or
capital  stock or other equity  interest of the Borrower or any Guarantor or any
Subsidiary  of the  Borrower  or a  Guarantor,  nor are  there  outstanding  any
securities  which are  convertible  into or  exchangeable  for any shares of the
common or capital  stock of the Borrower or any  Guarantor or any  Subsidiary of
the Borrower or a Guarantor.

         (b) Good Standing. The Borrower and the Guarantors, and each Subsidiary
of the  Borrower or any  Guarantor,  are each  corporations  duly  incorporated,
validly  existing  and in good  standing  under the laws of the  States of their
respective  incorporation  and each has the corporate  power to own or lease its
assets and to transact the business in which it is presently engaged and is duly
qualified and is in good standing in such other  jurisdictions  where the nature
or extent of its business requires such qualification.



<PAGE>



         (c) Due Execution, Etc. The execution,  delivery and performance by the
Borrower and each  Guarantor of the Loan Documents to which they are a party are
within the Borrower's  and the  Guarantors'  corporate  power and have been duly
authorized by all necessary corporate action and do not and will not (i) require
any consent or approval of the stockholders of the Borrower or Guarantors;  (ii)
contravene  the   Borrower's  or  any  of  the   Guarantors'   certificates   of
incorporation,  charters or by-laws;  (iii)  violate any  provision  of any law,
rule, regulation, contractual restriction, order, writ, judgment, injunction, or
decree,  determination  or award  binding on or  affecting  the  Borrower or any
Guarantor;  (iv)  result  in a breach  of or  constitute  a  default  under  any
indenture  or loan  or  credit  agreement,  or any  other  agreement,  lease  or
instrument  to which the Borrower or any  Guarantor is a party or by which it or
its  properties  may be bound or  affected;  or (v) result in, or  require,  the
creation or imposition  of any Lien (other than the Lien of the Loan  Documents)
upon or with respect to any of the properties now owned or hereafter acquired by
the Borrower or any Guarantor.

         (d) No Consents Required.  No authorization or approval or other action
by, and no notice to or filing with,  any  governmental  authority or regulatory
body is required for the due execution, delivery and performance by the Borrower
or  any  Guarantor  of  any  Loan  Document  to  which  it  is a  party,  except
authorizations, approvals, actions, notices or filings which have been obtained,
taken or made, as the case may be.

         (e) Validity and  Enforceability.  The Loan  Documents  when  delivered
hereunder  will have been duly  executed and delivered on behalf of the Borrower
and each  Guarantor,  as the case may be, and will be legal,  valid and  binding
obligations of the Borrower and each Guarantor,  as the case may be, enforceable
against the  Borrower or such  Guarantor  in  accordance  with their  respective
terms.

         (f) Financial Statements.  The consolidated financial statements of the
Borrower  and its  Consolidated  Affiliates  for the fiscal  year ended July 31,
1998,  and for the fiscal  quarter ended January 31, 1999,  copies of which have
been  furnished  to the Agent and the Banks,  fairly  present  the  consolidated
financial  condition of the Borrower and its Consolidated  Affiliates as at such
dates  and the  results  of  operations  of the  Borrower  and its  Consolidated
Affiliates for the periods ended on such dates, all in accordance with GAAP, and
since such dates  there has been (i) no material  increase  in the  consolidated
liabilities of the Borrower and its Consolidated Affiliates and (ii) no Material
Adverse Change in the Borrower, any of its Consolidated Affiliates or any of the
Guarantors.

         (g) No  Litigation.  Except as set forth on  Schedule  4.01(g)  annexed
hereto, there is no pending or, to the Borrower's or any Guarantor's  knowledge,
threatened  action,  proceeding or  investigation  affecting  the Borrower,  any
Guarantor or any  Subsidiary  of the Borrower or a Guarantor,  before any court,
governmental  agency  or  arbitrator,  which  may  either  in one case or in the
aggregate,  result in the Material Adverse Change in the Borrower, any Guarantor
or any such Subsidiary or which relates to any Loan Document.



<PAGE>

         (h) Taxes.  The Borrower,  each  Guarantor  and each  Subsidiary of the
Borrower  or a  Guarantor  have filed all  federal,  state and local tax returns
required  to be filed  and have paid all  taxes,  assessments  and  governmental
charges and levies  thereon to be due,  including  interest and  penalties.  The
federal  income tax  liability of the  Borrower,  each  Guarantor  and each such
Subsidiary has been finally determined and satisfied for all taxable years up to
and including the taxable year ended July 31, 1994.

         (i) Licenses,  etc. The Borrower, each Guarantor and each Subsidiary of
the Borrower or a Guarantor possess all licenses, permits, franchises,  patents,
copyrights,  trademarks  and trade names,  or rights  thereto,  to conduct their
respective  businesses  substantially as now conducted and as presently proposed
to be  conducted,  no Person,  to the best  knowledge  of the  Borrower and each
Guarantor, is infringing on any patent,  trademark or copyright owned or used by
the Borrower,  any Guarantor or any such  Subsidiary,  and neither the Borrower,
any Guarantor nor any such  Subsidiary are in violation of any similar rights of
others.

         (j)  Burdensome  Agreements.  Neither  the  Borrower  nor  any  of  the
Guarantors  nor any  Subsidiary of the Borrower or a Guarantor is a party to any
indenture, loan or credit agreement or any other agreement,  lease or instrument
or subject to any charter,  corporate  or  partnership  restriction  which could
result in a Material  Adverse  Change in the Borrower,  any of the Guarantors or
any  such  Subsidiary.  Neither  the  Borrower  nor any  Guarantor  nor any such
Subsidiary  is in default  in any  respect in the  performance,  observance,  or
fulfillment of any of the obligations or covenants contained in any agreement or
instrument material to its business.

         (k) Margin  Stock.  The  Borrower  is not  engaged in the  business  of
extending  credit for the purpose of purchasing or carrying margin stock (within
the meaning of  Regulation  G, T, U or X), and no  proceeds of any Loan,  and no
Letter of  Credit,  will be used to  purchase  or carry any  margin  stock or to
extend  credit to others for the purpose of  purchasing  or carrying  any margin
stock or in any  other  way  which  will  cause  the  Borrower  to  violate  the
provisions of Regulation G, T, U or X.

         (l)  Compliance  With  Laws.  The  Borrower,  each  Guarantor  and each
Subsidiary  of the  Borrower  or a  Guarantor  are in all  material  respects in
compliance with all federal and state laws and regulations in all  jurisdictions
where the  failure to comply  with such laws or  regulations  could  result in a
Material  Adverse  Change in the  Borrower,  any of the  Guarantors  or any such
Subsidiary.



<PAGE>



         (m)  ERISA.  The  Borrower,  each  Guarantor,  each  Subsidiary  of the
Borrower  or a  Guarantor  and each ERISA  Affiliate  are in  compliance  in all
material respects with all applicable  provisions of ERISA. Neither a Reportable
Event nor a Prohibited  Transaction  has occurred and is continuing with respect
to any Plan;  no notice of intent to terminate a Plan has been filed nor has any
Plan been  terminated;  no circumstances  exist which  constitute  grounds under
Section 4042 of ERISA entitling the PBGC to institute  proceedings to terminate,
or appoint a trustee to  administrate,  a Plan, nor has the PBGC  instituted any
such  proceedings;  neither the Borrower,  any Guarantor,  any Subsidiary of the
Borrower or a Guarantor,  nor any ERISA  Affiliate  has  completely or partially
withdrawn  under Section 4201 or 4204 of ERISA from a  Multiemployer  Plan;  the
Borrower,  each  Guarantor,  each  Subsidiary of the Borrower or a Guarantor and
each ERISA  Affiliate have met their minimum  funding  requirements  under ERISA
with respect to all of their Plans and the present fair market value of all Plan
assets  exceeds the present  value of all vested  benefits  under each Plan,  as
determined on the most recent valuation date of such Plan in accordance with the
provisions of ERISA for calculating the potential liability of the Borrower, any
Guarantor, any such Subsidiary or any ERISA Affiliate to PBGC or such Plan under
Title IV of ERISA; and neither the Borrower, any Guarantor,  any such Subsidiary
nor any ERISA Affiliate has incurred any liability to the PBGC under ERISA.

         (n)  Hazardous  Materials.   The  Borrower,  each  Guarantor  and  each
Subsidiary of the Borrower or a Guarantor  are in  compliance  with all federal,
state or local  laws,  ordinances,  rules,  regulations  or  policies  governing
Hazardous  Materials  and  neither  the  Borrower,  any  Guarantor  nor any such
Subsidiary has used Hazardous  Materials on, from, or affecting any property now
owned or occupied or hereafter owned or occupied by the Borrower,  any Guarantor
or any such  Subsidiary  in any manner which  violates  federal,  state or local
laws,  ordinances,  rules,  regulations or policies  governing the use, storage,
treatment,  transportation,  manufacture,  refinement,  handling,  production or
disposal  of  Hazardous  Materials,  and to the  best  of  the  Borrower's,  the
Guarantors'  and  such  Subsidiaries'  knowledge,  no  prior  owner  of any such
property or any tenant,  subtenant,  prior tenant or prior  subtenant  have used
Hazardous  Materials  on, from or  affecting  such  property in any manner which
violates  federal,  state or local  laws,  ordinances,  rules,  regulations,  or
policies  governing the use, storage,  treatment,  transportation,  manufacture,
refinement, handling, production or disposal of Hazardous Materials.

         (o) Use of Proceeds.  The proceeds of the Revolving  Credit Loans shall
be  used  exclusively  for  the  purposes  set  forth  in  Section  2.05 of this
Agreement.  Letters of Credit  shall be used  exclusively  for the  purposes set
forth in Section 2.05 of this Agreement.

         (p)  Title  to  Property;  No  Liens.  Each of the  Borrower  and  each
Guarantor has good and marketable title to all of its properties and assets. The
properties and assets of the Borrower, the Guarantors and each Subsidiary of the
Borrower or a Guarantor  are not subject to any Lien other than those  described
in Section 5.02(a) hereof.



<PAGE>



         (q)  Casualties.  Neither  the  business  nor  the  properties  of  the
Borrower,  any  Guarantor or any  Subsidiary  of the Borrower or a Guarantor are
affected by any fire, explosion,  accident,  strike, hail, earthquake,  embargo,
act of God or of the public enemy, or other casualty  (whether or not covered by
insurance),  which could result in a Material  Adverse Change in the Borrower or
any of the Guarantors.

         (r)  Advantage to  Guarantors.  The  Guarantors  acknowledge  they have
derived or expect to derive a financial  or other  advantage  from the Loans and
other extensions of credit obtained by the Borrower from the Banks hereunder.

         (s) Credit  Agreements.  Schedule  4.01(s) annexed hereto is a complete
and  correct  list of all credit  agreements,  indentures,  purchase  agreements
(other than  purchase  orders for the  purchase of goods  issued in the ordinary
cause  of  business),   guaranties,   Capital  Leases,  and  other  investments,
agreements  and  arrangements  presently in effect  providing for or relating to
extensions of credit (including  agreements and arrangements for the issuance of
letters of credit or for acceptance  financing) in respect of which the Borrower
or any Guarantor is in any manner  directly or contingently  obligated,  and the
maximum  principal or face amounts of the credit in question,  outstanding or to
be  outstanding,  are  correctly  stated,  and all Liens of any nature  given or
agreed to be given as security therefor are correctly  described or indicated in
such  Schedule  and neither the  Borrower  nor any  Guarantor is in default with
respect to its obligations thereunder.

         (t) Vendor  Finance  Agreements.  The  Deutsche  Agreement  is the only
agreement to which the Borrower is a party which  provides for the  financing of
the  Borrower's  purchase of inventory and (i) the Borrower is not in default of
the Deutsche  Agreement and (ii) the Borrower's  obligations  under the Deutsche
Agreement are unsecured.

         (u) Year 2000 Issue.  The Borrower,  the Guarantors and each Subsidiary
of the Borrower or a Guarantor  have  reviewed the effect of the Year 2000 Issue
on the computer software, hardware and firmware systems and equipment containing
embedded microchips owned or operated by or for the Borrower,  the Guarantors or
such  Subsidiaries  or used or  relied  upon in the  conduct  of their  business
(including  systems and equipment supplied by others or with which such computer
systems of the Borrower,  the Guarantors or such  Subsidiaries  interface).  The
costs to the Borrower, the Guarantors and such Subsidiaries of any reprogramming
required as a result of the Year 2000 Issue to permit the proper  functioning of
such systems and equipment and the proper processing of data, and the testing of
such reprogramming,  and of the reasonably foreseeable  consequences of the Year
2000 Issue to the  Borrower,  the  Guarantors  or such  Subsidiaries  (including
reprogramming errors and the failure of systems or equipment supplied by others)
are not  reasonably  expected  to result in a Default  or Event of Default or to
result in a Material Adverse Change in the Borrower,  any Guarantors or any such
Subsidiaries.


<PAGE>

                                    ARTICLE V

                            COVENANTS OF THE BORROWER

         SECTION  5.01.  Affirmative  Covenants.  So long as (i) any part of the
Total  Commitment shall be in effect,  (ii) any amount shall remain  outstanding
under any of the  Notes,  or (iii) any  Letter  of  Credit  or L/C  Exposure  is
outstanding,  the Borrower and each of the Guarantors will, unless the Agent and
the Required Banks shall otherwise consent in writing:

         (a) Compliance with Laws, Etc. Comply, and cause each Subsidiary of the
Borrower or a Guarantor to comply,  in all material respects with all applicable
laws, rules, regulations and orders, where the failure to so comply could result
in a  Material  Adverse  Change  in  the  Borrower,  a  Guarantor  or  any  such
Subsidiary.

         (b) Reporting Requirements. Furnish to the Agent and each of the Banks:

         (i) Annual Financial Statements.  As soon as available and in any event
within ninety (90) days after the end of each fiscal year of the Borrower, (1) a
copy of the audited  consolidated  financial  statements of the Borrower and its
Consolidated  Affiliates for such year, including a balance sheet with a related
statement of income and retained  earnings and  statement of cash flows,  all in
reasonable  detail and setting forth in  comparative  form the figures as of the
end of and for the previous fiscal year,  together with an unqualified  opinion,
prepared by KPMG, LLP or such other  independent  certified  public  accountants
selected by the  Borrower and  reasonably  satisfactory  to the Agent,  all such
financial  statements to be prepared in accordance  with GAAP; and (2) copies of
the consolidating schedules to such consolidated financial statements.

         (ii) Quarterly  Financial  Statements.  As soon as available and in any
event  within  forty-five  (45) days  after  the end of each of the first  three
fiscal quarters of each fiscal year of the Borrower,  a copy of the consolidated
and  consolidating  financial  statements  of the Borrower and its  Consolidated
Affiliates for such quarter and for the year to date,  including  balance sheets
with related  statements of income and retained  earnings and statements of cash
flows,  all in  reasonable  detail and  setting  forth in  comparative  form the
figures for the comparable  quarter and  comparable  year to date period for the
previous fiscal year, all such financial statements to be prepared by management
of the Borrower in accordance with GAAP.



<PAGE>



         (iii) Management Letters.  Promptly upon receipt thereof, copies of any
reports  submitted to the Borrower or any  Guarantor  by  independent  certified
public   accountants  in  connection  with  any  examination  of  the  financial
statements of the Borrower and each Guarantor made by such accountants.

         (iv) Certificate of No Default. Simultaneously with the delivery of the
financial  statements  referred  to in Section  5.01(b)(i)  and (ii)  hereof,  a
certificate of the President or the Chief Financial Officer of the Borrower, (1)
certifying  that no Default or Event of Default has occurred and is  continuing,
or if a Default or Event of Default has occurred and is continuing,  a statement
as to the nature  thereof  and the  action  which is  proposed  to be taken with
respect  thereto and (2) with  computations  demonstrating  compliance  with the
covenants contained in Section 5.03 hereof.

         (v) Accountant's  Certificate.  Simultaneously with the delivery of the
annual  consolidated  financial  statements  referred  to in Section  5.01(b)(i)
hereof,  a certificate  of the  independent  certified  public  accountants  who
audited such statements to the effect that, in making the examination  necessary
for the  audit of such  statements,  they  have  obtained  no  knowledge  of any
condition or event which  constitutes a Default or Event of Default,  or if such
accountants  shall  have  obtained  knowledge  of any such  condition  or event,
specifying in such  certificate  each such condition or event of which they have
knowledge and the nature and status thereof.

         (vi) Notice of  Litigation.  Promptly after the  commencement  thereof,
notice of all actions,  suits and  proceedings  before any court or governmental
department,  commission, board, bureau, agency, or instrumentality,  domestic or
foreign, affecting the Borrower, any Guarantor or any Subsidiary of the Borrower
or a  Guarantor  which (1)  relates to any Loan  Document  or (2) if  determined
adversely to the Borrower,  any Guarantor or any such Subsidiary could result in
a Material Adverse Change in the Borrower, any Guarantor or any such Subsidiary.

         (vii) Notice of Defaults and Events of Default. As soon as possible and
in any event within ten (10) days after the  occurrence of each Default or Event
of Default,  a written notice setting forth the details of such Default or Event
of Default and the action which is proposed to be taken with respect thereto.



<PAGE>



         (viii) ERISA Reports.  Promptly after the filing or receiving  thereof,
copies of all reports, including annual reports, and notices which the Borrower,
any Guarantor or any  Subsidiary  of the Borrower or a Guarantor,  files with or
receives from the PBGC or the U.S.  Department of Labor under ERISA; and as soon
as possible after the Borrower,  any Guarantor or any such  Subsidiary  knows or
has  reason to know that any  Reportable  Event or  Prohibited  Transaction  has
occurred  with  respect  to any  Plan or that  the  PBGC  or the  Borrower,  any
Guarantor or any such  Subsidiary has  instituted or will institute  proceedings
under Title IV of ERISA to terminate  any Plan,  the Borrower or such  Guarantor
will deliver to the Agent and the Banks a  certificate  of the  president or the
chief financial  officer of the Borrower or such Guarantor setting forth details
as to such Reportable  Event or Prohibited  Transaction or Plan  termination and
the action the Borrower or such Guarantor proposes to take with respect thereto.

         (ix) Reports to Other Creditors. Promptly after the furnishing thereof,
copies of any statement or report  furnished to any other party  pursuant to the
terms of any indenture,  loan, or credit or similar  agreement and not otherwise
required  to be  furnished  to the Agent  pursuant  to any other  clause of this
Section 5.01(b).

         (x)  Proxy  Statements,  Etc.  Promptly  after  the  sending  or filing
thereof, copies of all proxy statements,  financial statements and reports which
the Borrower,  any Guarantor or any  Subsidiary of the Borrower or any Guarantor
sends to its public  stockholders,  and  copies of all  regular,  periodic,  and
special  reports,  and all  registration  statements  which  the  Borrower,  any
Guarantor  or any  such  Subsidiary  files  with  the  Securities  and  Exchange
Commission or any governmental  authority which may be substituted  therefor, or
with any national securities exchange.

         (xi)  Notice of  Affiliates.  Promptly  after  any  Person  becomes  an
Affiliate of the Borrower or any Guarantor, notice to the Agent and the Banks of
such Affiliate.

         (xii)  General  Information.  Such  other  information  respecting  the
condition or operations,  financial or otherwise, of the Borrower, any Guarantor
or any  Subsidiary  of the Borrower or a Guarantor as the Agent may from time to
time reasonably request.
         (c) Taxes.  Pay and discharge,  and cause its  Subsidiaries  to pay and
discharge,  all taxes, assessments and governmental charges upon it or them, its
or their income or its or their properties prior to the dates on which penalties
are attached thereto, unless and only to the extent that (i) such taxes shall be
contested in good faith and by  appropriate  proceedings  by the  Borrower,  any
Guarantor  or any  such  Subsidiary,  as the case may be,  (ii)  there  shall be
adequate  reserves  therefor in accordance with GAAP entered on the books of the
Borrower,  any  Guarantor  or any  such  Subsidiary  and  (iii)  no  enforcement
proceedings  against the Borrower,  such Guarantor or such Subsidiary shall have
been commenced.



<PAGE>



         (d) Corporate  Existence.  Except as permitted by clause (i) of Section
5.02(d) hereof,  preserve and maintain,  and cause its  Subsidiaries to preserve
and maintain, their corporate existence and good standing in the jurisdiction of
their  incorporation and the rights,  privileges and franchises of the Borrower,
each  Guarantor  and each such  Subsidiary  in each  case  where  failure  to so
preserve or maintain could result in a Material  Adverse Change in the Borrower,
any of the Guarantors or any such Subsidiary.

         (e)  Maintenance of Properties  and Insurance.  (i) Keep, and cause any
Subsidiaries  to keep,  their  respective  properties  and assets  (tangible  or
intangible) that are useful and necessary in its business, in good working order
and condition,  reasonable wear and tear excepted  (including but not limited to
all  internet  web sites  owned  and/or  operated  by the  Borrower  and/or  the
Guarantors);  and  (ii)  maintain,  and  cause  any  Subsidiaries  to  maintain,
insurance  with  financially   sound  and  reputable   insurance   companies  or
associations  in such amounts and covering such risks as are usually  carried by
companies engaged in similar  businesses and owning properties doing business in
the same  general  areas in which  the  Borrower,  any  Guarantors  and any such
Subsidiaries  operate.  The  policies  shall  provide for thirty (30) days prior
written notice to the Agent of cancellation or change.

         (f) Books of Record and Account.  Keep, and cause any  Subsidiaries  to
keep,  adequate records and proper books of record and account in which complete
entries  will be  made in a  manner  to  enable  the  preparation  of  financial
statements in accordance with GAAP, reflecting all financial transactions of the
Borrower, the Guarantors, and any such Subsidiaries.

         (g) Visitation.  At any reasonable time and upon reasonable notice, and
from  time to time,  permit  the  Agent or any of the  Banks  or any  agents  or
representatives  thereof,  to examine and make copies of and abstracts  from the
books and records of, and visit the properties  of, the Borrower,  any Guarantor
or any  Subsidiary  of the Borrower or any Guarantor and to discuss the affairs,
finances and accounts of the Borrower, any Guarantor or any such Subsidiary with
any of the  respective  officers or directors of the Borrower,  such  Guarantor,
such  Subsidiary  or the  Borrower's,  such  Guarantor's  or  such  Subsidiary's
independent accountants.

         (h)  Performance  and  Compliance  with Other  Agreements.  Perform and
comply and cause each Subsidiary of the Borrower or any Guarantor to perform and
comply,  with each of the provisions of each and every  agreement the failure to
perform or comply with which could  result in a Material  Adverse  Change in the
Borrower, any Guarantor or any such Subsidiary.

         (i) Pension  Funding.  Comply with the  following  and cause each ERISA
Affiliate of the Borrower,  any Guarantor or any Subsidiary of the Borrower or a
Guarantor to comply with the following:

                  (i) engage solely in transactions  which would not subject any
         of such entities to either a civil penalty assessed pursuant to Section
         502(i)  of ERISA  or a tax  imposed  by  Section  4975 of the  Internal
         Revenue Code of 1986, as amended, in either case in an amount in excess
         of $100,000.00;


<PAGE>



                  (ii) make full  payment when due of all amounts  which,  under
         the provisions of any Plan or ERISA, the Borrower,  any Guarantor,  any
         such  Subsidiary  or any ERISA  Affiliate of any of same is required to
         pay as contributions thereto;

                  (iii) all applicable  provisions of the Internal  Revenue Code
         of  1986,  as  amended  and  the  regulations  promulgated  thereunder,
         including  but not limited to Section 412 thereof,  and all  applicable
         rules,  regulations and  interpretations  of the Accounting  Principles
         Board and the Financial Accounting Standards Board;

                  (iv) not  fail to make any  payments  in an  aggregate  amount
         greater than $100,000.00 to any  Multiemployer  Plan that the Borrower,
         any  Guarantor,  any such  Subsidiary  or any  ERISA  Affiliate  may be
         required to make under any  agreement  relating  to such  Multiemployer
         Plan, or any law pertaining thereto; or

               (v) not take any action  regarding any Plan which could result in
         the occurrence of a Prohibited Transaction.

         (j) Licenses.  Maintain at all times,  and cause each Subsidiary of the
Borrower or any  Guarantor to maintain at all times,  all  licenses,  permits or
registrations  necessary to the conduct of its business or as may be required by
any governmental agency or instrumentality thereof.

         (k)  New  Affiliates.  Cause  any  Affiliate  of  the  Borrower  or any
Guarantor  which is (i) formed after the date of this Agreement and (ii) engaged
or is to be engaged in the same,  a similar or related  line of  business as the
Borrower or any Guarantor,  to (x) become a guarantor of all  obligations of the
Borrower  under this  Agreement  and the other Loan  Documents  and (y) become a
party to this Agreement.

         (l)  Agent's   Administrative   Fee.   Pay  to  the  Agent  the  annual
administrative fees as mutually agreed between the Borrower and the Agent.



<PAGE>



         (m) Vendor  Finance  Agreement.  Notify the Agent and each of the Banks
(i) of any default by the Borrower  under the terms of the  Deutsche  Agreement,
(ii) not less than ten (10) days  prior to the  execution  of any  amendment  or
modification to the Deutsche Agreement,  or any replacement thereof, and provide
copies to the Agent and the Banks of any such proposed  amendment,  modification
or  replacement,  and (iii) of any event  which would  cause,  or result in, the
Borrower's  obligations  to Deutsche  (or any  successor  to Deutsche  under the
Deutsche Agreement or any replacement  agreement) becoming secured. In the event
that the Borrower's  obligations to Deutsche (or such successor) become secured,
Borrower  shall (i) grant to the Agent for the benefit of the Banks,  a security
interest  in all  personal  property  of the  Borrower  and (ii) enter into such
security agreements, Uniform Commercial Code financing statements and such other
documents as the Agent may request.

         (n) Year 2000 Issue.  The Borrower and each  Guarantor  shall take, and
shall cause each of their Subsidiaries to take, all necessary action to complete
in all material  respects by September 30, 1999, the  reprogramming  of computer
software,  hardware  and  firmware  systems and  equipment  containing  embedded
microchips owned or operated by or for the Borrower,  each of the Guarantors and
their  Subsidiaries  or used or relied  upon in the  conduct  of their  business
(including  systems and equipment  supplied by others or with which such systems
of the  Borrower,  each of the  Guarantors  and  their  Subsidiaries  interface)
required as a result of the Year 2000 Issue to permit the proper  functioning of
such  computer  systems  and other  equipment  and  testing of such  systems and
equipment,  as so reprogrammed.  At the request of the Agent, the Borrower shall
provide to the Agent  reasonable  assurance of its compliance with the preceding
sentence.

         SECTION 5.02. Negative Covenants.  So long as (i) any part of the Total
Commitment shall be in effect,  (ii) any amount shall remain  outstanding  under
any of the Notes,  or (iii) any Letter of Credit or L/C Exposure is outstanding,
neither  the  Borrower  nor  any of the  Guarantors  nor any  Subsidiary  of the
Borrower or a Guarantor  will,  without the written consent of the Agent and the
Required Banks:

         (a) Liens, Etc. Create,  incur, assume or suffer to exist any Lien upon
or with  respect  to any of its  properties,  now owned or  hereafter  acquired,
except:

                  (i)  Liens  in  favor of the  Banks  securing  Debt  permitted
by  Section 5.02(b)(i) hereof;

                  (ii)  Liens  for  taxes or  assessments  or  other  government
charges or levies if not yet due and  payable or if due and  payable if they are
being  contested  in  good  faith  by  appropriate  proceedings  and  for  which
appropriate reserves in accordance with GAAP are maintained;

                  (iii) Liens imposed by law, such as mechanics', materialmen's,
landlords',  warehousemen's,  and  carriers'  Liens,  and other  similar  Liens,
securing  obligations  incurred in the ordinary course of business which are not
past due more than  forty  five (45) days or which are being  contested  in good
faith  by  appropriate   proceedings  and  for  which  appropriate  reserves  in
accordance with GAAP have been established;

                  (iv)   Liens   under   workers'   compensation,   unemployment
insurance, Social Security, or similar legislation;



<PAGE>



                  (v) Liens,  deposits,  or pledges to secure the performance of
bids, tenders, contracts (other than contracts for the payment of money), leases
(permitted under the terms of this Agreement),  public or statutory obligations,
surety,  stay, appeal,  indemnity,  performance or other similar bonds, or other
similar obligations arising in the ordinary course of business;

                  (vi) Liens described in Schedule 5.02(a) hereto, provided that
no such Liens shall be  renewed,  extended  or refinanced;

                  (vii)  Judgment and other  similar Liens arising in connection
with court  proceedings  (other than those described in Section 6.01(f) hereof),
provided the execution or other enforcement of such Liens is effectively  stayed
and the claims secured thereby are being actively contested in good faith and by
appropriate proceedings;

                  (viii)  Easements,  rights-of-way,   restrictions,  and  other
similar  encumbrances which, in the aggregate,  do not materially interfere with
the Borrower's or a Guarantor's occupation, use and enjoyment of the property or
assets  encumbered  thereby in the normal  course of its business or  materially
impair the value of the property subject thereto; and

                  (ix) Purchase money Liens on any property  hereafter  acquired
or the  assumption  of any  Lien  on  property  existing  at the  time  of  such
acquisition, or a Lien incurred in connection with any conditional sale or other
title retention agreement or a Capital Lease, provided that:

     (1)  Any  property  subject  to any of the  foregoing  is  acquired  by the
Borrower or any Guarantor in the ordinary course of its respective  business and
the  Lien  on  any  such  property  is  created   contemporaneously   with  such
acquisition;

     (2) The  obligation  secured by any Lien so created,  assumed,  or existing
shall not exceed 100% of lesser of the cost or fair market value of the property
acquired as of the time of the Borrower or any Guarantor acquiring the same;

     (3) Each such Lien shall  attach only to the property so acquired and fixed
improvements thereon;

     (4) The Borrower and the Guarantors shall not incur, in the aggregate, more
than $2,000,000.00 of Debt secured by Liens described in this clause (ix) during
any fiscal year; and

     (5) The  obligation  secured by such Lien is permitted by the provisions of
Section  5.02(b)  hereof  and  the  related  expenditure  is  permitted  by  the
provisions of Section 5.03(b) hereof;



<PAGE>



     (b) Debt. Create, incur, assume, or suffer to exist any Debt, except:

          (i) Debt of the Borrower under this Agreement, the Notes or in respect
     of the Letters of Credit;

          (ii) Debt described in Schedule 5.02(b) hereto,  provided that no such
     Debt shall be renewed, extended or refinanced;

          (iii)  Accounts  payable to trade  creditors for goods or services and
     current operating liabilities (other than for borrowed money), in each case
     incurred in the ordinary  course of business and paid within the  specified
     time; and

          (iv) Debt secured by Liens permitted under Section 5.02(a)(ix) hereof.

     (c)  Lease  Obligations.  Create,  incur,  assume,  or  suffer to exist any
obligation  as lessee for the rental or hire of any real or  personal  property,
except (i) Capital  Leases  permitted  by Section  5.02(a)  hereof;  (ii) leases
existing on the date of this Agreement and any  extensions or renewals  thereof;
and (iii)  leases  (other than  Capital  Leases)  which do not in the  aggregate
require  the  Borrower  or any  Guarantor  to make  payments  (including  taxes,
insurance, maintenance, and similar expenses which the Borrower or any Guarantor
is required to pay under the terms of any lease) in any fiscal year in excess of
$750,000.00.

         (d) Merger.  Merge into,  or  consolidate  with or into, or have merged
into it, any Person (for the purpose of this  subsection (d), the acquisition or
sale by the Borrower or any Guarantor by lease, purchase or otherwise of all, or
substantially  all,  of the  common  stock or the  assets of any Person or of it
shall be deemed a merger of such  Person  with the  Borrower  or any  Guarantor)
other than (i) a merger of a  Subsidiary  into its parent  corporation,  or (ii)
Permitted Acquisitions,  provided that the total aggregate consideration for all
Permitted  Acquisitions  (including all Permitted  Acquisition  Loans) shall not
exceed $10,000,000.00 in the aggregate during the term of this Agreement.

         (e) Sale of Assets,  Etc. Sell,  assign,  transfer,  lease or otherwise
dispose of any of its assets  (including a sale/leaseback  transaction)  with or
without recourse, except for (i) inventory disposed of in the ordinary course of
business  and (ii) the sale or other  disposition  of assets  no longer  used or
useful in the conduct of its business.

     (f) Investments, Etc. Make any Investment other than Permitted Investments.



<PAGE>



         (g) Transactions With Affiliates.  (i) Except in the ordinary course of
business  and  pursuant to the  reasonable  requirements  of the business of the
Borrower,  a Guarantor or a Subsidiary  of the Borrower or a Guarantor  and upon
fair and reasonable  terms no less favorable to the Borrower,  or such Guarantor
or  such  Subsidiary  than  would  be  obtained  in a  comparable  arm's  length
transaction with a Person not an Affiliate,  enter into any  transaction,  other
than loans or advances of money,  including,  without limitation,  the purchase,
sale,  or  exchange  of  property  or the  rendering  of any  service,  with any
Affiliate; or (ii) enter into any transaction involving the lending or advancing
of money to any Affiliate,  provided,  however, that the Borrower may lend up to
$4,000,000.00 in the aggregate to the Guarantors  provided further that any such
loans or advances  shall be evidenced by one or more notes or other  evidence of
such Debt which shall be,  pursuant to a pledge  agreement  satisfactory  to the
Agent,  pledged  to the Agent,  for the  benefit  of the  Banks,  as  collateral
security for the  Aggregate  Outstandings  and all other  amounts due under this
Agreement or any other Loan Documents.

         (h)  Prepayment  of  Outstanding  Debt.  Pay, in whole or in part,  any
outstanding  Debt (other than the Loans) of the Borrower or any Guarantor or any
Subsidiary of the Borrower or any  Guarantor  which by its terms is not then due
and payable (other than the Loans).

         (i)  Guarantees.  Guaranty,  or in any other  way  become  directly  or
contingently  obligated  for  any  Debt  of  any  other  Person  (including  any
agreements  relating to working  capital  maintenance,  take or pay contracts or
similar  arrangements)  other than (i) the  Guaranties;  (ii) the endorsement of
negotiable  instruments  for deposit in the ordinary  course of business;  (iii)
guarantees existing on the date hereof and set forth in Schedule 5.02(i) annexed
hereto; and (iv) guarantees of Debt permitted hereunder.

         (j) Change of Business. Materially alter the nature of its business.

         (k) Fiscal  Year.  Change the ending  date of its fiscal year from July
31.

         (l) Losses. Incur a net loss for any fiscal year.

         (m)  Accounting  Policies.  Change any accounting  policies,  except as
permitted by GAAP.

         (n)  Change  of Tax  Status.  Change  its tax  reporting  status as a C
corporation.



<PAGE>



         (o) Dividends,  Etc.  Declare or pay any dividends,  purchase,  redeem,
retire or otherwise  acquire for value any of its capital stock now or hereafter
outstanding,  or make any  distribution  of assets to its  stockholders as such,
whether in cash, assets, or in obligations of the Borrower or any Guarantor;  or
allocate  or  otherwise  set apart any sum for the  payment of any  dividend  or
distribution on, or for the purchase,  redemption or retirement of any shares of
its capital  stock;  or make any other  distribution  by reduction of capital or
otherwise in respect of any share of its capital stock; provided,  however, that
as long as no Default or Event of Default then exists or would result therefrom,
the Borrower may repurchase,  during the term of this  Agreement,  not more than
$2,000,000.00 of its outstanding common stock in open market transactions.

         (p) Hazardous Material.  Cause or permit any property owned or occupied
by the  Borrower,  any  Guarantor  or any  Subsidiary  of  the  Borrower  or any
Guarantor to be used to generate, manufacture,  refine, transport, treat, store,
handle, dispose of, transfer, produce or process Hazardous Materials,  except in
compliance with all applicable federal, state and local laws or regulations;  or
cause or permit, as a result of any intentional or unintentional act or omission
on the part of the Borrower,  any Guarantor or any such Subsidiary or any tenant
or  subtenant,  a release of  Hazardous  Materials  onto any  property  owned or
occupied by the Borrower, any Guarantor or any such Subsidiary or onto any other
property;  or fail in all  material  respects  to  comply  with  all  applicable
federal,  state and local  laws,  ordinances,  rules and  regulations  governing
Hazardous Materials,  whenever and by whomever triggered;  or fail to obtain and
comply with any and all approvals, registrations or permits required thereunder.
The Borrower  and the  Guarantors  shall  execute any  documentation  reasonably
required by the Agent in connection  with the  representations,  warranties  and
covenants contained in this paragraph and Section 4.01 of this Agreement.

         SECTION 5.03.  Financial  Requirements.  So long as (i) any part of the
Total  Commitment shall be in effect,  (ii) any amount shall remain  outstanding
under any of the  Notes,  or (iii) any  Letter  of  Credit  or L/C  Exposure  is
outstanding:

         (a) Minimum  Consolidated  Tangible  Net Worth.  The  Borrower  and its
Consolidated  Affiliates will maintain at all times a Consolidated  Tangible Net
Worth of not less than  $22,000,000.00,  to be tested at the end of each  fiscal
quarter.

         (b) Consolidated Capital Expenditures. The Borrower, the Guarantors and
their respective  Subsidiaries will not make Consolidated  Capital  Expenditures
(exclusive  of  amounts  allocated  to capital  assets  acquired  pursuant  to a
Permitted  Acquisition) in excess of  $2,500,000.00  in the aggregate during any
fiscal year.

         (c) Quick Asset Ratio. The Borrower and the Guarantors will maintain at
all times, on a consolidated basis, a Quick Asset Ratio of not less than 1.00 to
1.00, such ratio to be tested at the end of each fiscal quarter.



<PAGE>



         (d) Funded Debt to EBITDA  Ratio.  The  Borrower  and  Guarantors  will
maintain at all times on a consolidated basis, a Funded Debt to EBITDA Ratio, of
not greater than 3.00 to 1.00, to be tested at the end of each fiscal quarter.

         (e) Interest  Coverage Ratio. The Borrower and Guarantors will maintain
at all times, on a consolidated  basis,  an Interest  Coverage Ratio of not less
than 2.50 to 1.00, such ratio to be tested at the end of each fiscal quarter.



<PAGE>



                                   ARTICLE VI

                                EVENTS OF DEFAULT

     SECTION 6.01. Events of Default. If any of the following events ("Events of
Default") shall occur and be continuing:

         (a) The Borrower shall fail to pay any  installment of principal of, or
interest  on, any of the Notes when due,  or any fees or other  amounts  owed in
connection  with this  Agreement  or the Borrower  shall fail to  reimburse  the
Issuing Bank for any draw,  accepted draft,  deferred payment obligations or any
other amounts owed in connection with any Letters of Credit when due; or

         (b) Any  representation or warranty made or deemed made by the Borrower
or any Guarantor  herein or in the other Loan Documents or which is contained in
any certificate, document, opinion, or financial or other statement furnished at
any time under or in connection  with any Loan Document shall prove to have been
incorrect in any material respect when made or deemed made; or

         (c) The Borrower or any Guarantor  shall fail to perform or observe (i)
any    term,     covenant     or     agreement     contained     in     Sections
5.01(a),(c),(d),(e),(f),(g),(h),(i)  or (j) hereof within twenty (20) days after
such  performance  or  observation  is  required  or (ii)  the  Borrower  or any
Guarantor shall fail to perform or observe any other term, covenant or agreement
contained in this Agreement or in any other Loan Document (other than the Notes)
on its part to be performed or observed; or

         (d) The Borrower, any Guarantor, or any Subsidiary of the Borrower or a
Guarantor  shall fail to pay any Debt in the  principal  amount of $50,000.00 or
more  (excluding  Debt evidenced by the Notes or any other Loan Document) of the
Borrower,  any  Guarantor  or any such  Subsidiary  (as the case may be), or any
installment  thereof,  or any interest or premium thereon,  when due (whether by
scheduled maturity, required prepayment,  acceleration, demand or otherwise) and
such failure shall continue after the applicable grace period, if any, specified
in the agreement or instrument relating to such Debt; or any other default under
any agreement or instrument relating to any such Debt, or any other event, shall
occur and shall continue after the applicable grace period, if any, specified in
such  agreement  or  instrument,  if the  effect of such  default or event is to
accelerate,  or to permit the acceleration of, the maturity of such Debt; or any
such Debt shall be  declared  to be due and  payable,  or required to be prepaid
(other than by a regularly scheduled required  prepayment),  prior to the stated
maturity thereof; or



<PAGE>

         (e) The Borrower,  any Guarantor or any Subsidiary of the Borrower or a
Guarantor  shall  generally not pay its Debts as such Debts become due, or shall
admit in  writing  its  inability  to pay its Debts  generally,  or shall make a
general  assignment  for the benefit of creditors;  or any  proceeding  shall be
instituted  by or against the  Borrower,  any  Guarantor or any such  Subsidiary
seeking  to  adjudicate  it a bankrupt  or  insolvent,  or seeking  liquidation,
winding up,  reorganization,  arrangement,  adjustment,  protection,  relief, or
composition of it or its Debts under any law relating to bankruptcy,  insolvency
or reorganization or the relief of debtors, or seeking the entry of an order for
relief or the appointment of a receiver,  trustee, or other similar official for
it or for any  substantial  part of its property and if  instituted  against the
Borrower,  any Guarantor or any such Subsidiary  shall remain  undismissed for a
period of 30 days; or the Borrower,  any Guarantor or any such Subsidiary  shall
take  any  action  to  authorize  any of the  actions  set  forth  above in this
subsection (e); or

         (f) Any judgment or order or combination of judgments or orders for the
payment of money, in excess of $250,000.00 in the aggregate, which sum shall not
be subject to full,  complete,  effective and acknowledged  insurance  coverage,
shall be rendered  against the Borrower,  any Guarantor or any Subsidiary of the
Borrower or a Guarantor and either (i) enforcement  proceedings  shall have been
commenced by any creditor upon such judgment or order or (ii) there shall be any
period  of 30  consecutive  days  during  which  a stay of  enforcement  of such
judgment or order,  by reason of a pending appeal or otherwise,  shall not be in
effect; or

         (g) Any  Guarantor  shall  fail  to  perform  or  observe  any  term or
provision  of its  Guaranty  or  any  representation  or  warranty  made  by any
Guarantor  (or  any of  its  officers  or  partners)  in  connection  with  such
Guarantor's  Guaranty shall prove to have been incorrect in any material respect
when made; or



<PAGE>



         (h) Any of the  following  events  shall occur or exist with respect to
the Borrower, any Guarantor,  any Subsidiary of the Borrower or a Guarantor,  or
any ERISA Affiliate: (i) any Prohibited Transaction involving any Plan; (ii) any
Reportable  Event with respect to any Plan;  (iii) the filing under Section 4041
of ERISA of a notice of intent to terminate any Plan or the  termination  of any
Plan; (iv) any event or circumstance that might constitute grounds entitling the
PBGC to institute  proceedings  under Section 4042 of ERISA for the  termination
of,  or for the  appointment  of a  trustee  to  administer,  any  Plan,  or the
institution  by the  PBGC of any  such  proceedings;  (v)  complete  or  partial
withdrawal under Section 4201 or 4204 of ERISA from a Multiemployer  Plan or the
reorganization insolvency, or termination of any Multiemployer Plan; and in each
case  above,  such  event or  condition,  together  with  all  other  events  or
conditions,  if any, could in the opinion of the Agent subject the Borrower, any
Guarantor,  any such Subsidiary or any ERISA Affiliate to any tax,  penalty,  or
other liability to a Plan, a Multiemployer  Plan, the PBGC, or otherwise (or any
combination  thereof) which in the aggregate exceeds or may exceed  $250,000.00;
or

         (i) This  Agreement or any other Loan  Document,  at any time after its
execution and delivery and for any reason, ceases to be in full force and effect
in all  material  respects  or shall be  declared  to be null and  void,  or the
validity or enforceability of any document or instrument  delivered  pursuant to
this Agreement shall be contested by the Borrower, any Guarantor or any party to
such document or instrument or the Borrower,  any Guarantor or any party to such
document  or  instrument  shall  deny that it has any or  further  liability  or
obligation under any such document or instrument; or

         (j)  Barry  Steinberg  shall,  during  his  lifetime,  fail or cease to
maintain the ownership,  directly or indirectly, of an amount of voting stock of
the Borrower which is equal to the greater of (i)  twenty-five  (25%) percent of
such voting stock or (ii) more of such voting stock than is owned or  controlled
by any other Person; or

         (k) Barry Steinberg  shall not be retained in a reasonably  active full
time capacity in the management of the Borrower and the Guarantors,  unless such
failure is due to his death or permanent disability; or

         (l) An event of default  specified in any Loan Document other than this
Agreement shall have occurred and be continuing.



<PAGE>



         SECTION 6.02. Remedies on Default.  Upon the occurrence and continuance
of an Event of Default the Agent may, and at the request of the  Required  Banks
shall, by notice to the Borrower take any or all of the following  actions:  (i)
terminate the Total Commitment, (ii) declare the Notes, all interest thereon and
all other amounts  payable under this Agreement to be forthwith due and payable,
and (iii) demand that the Borrower provide the Issuing Bank with cash collateral
for any undrawn  Letters of Credit and any accepted  drafts or deferred  payment
obligations under any Letters of Credit, whereupon the Total Commitment shall be
terminated,  and the Notes, all such interest,  all such cash collateral and all
such other  amounts  shall  become and be  forthwith  due and  payable,  without
presentment,  demand,  protest or further  notice of any kind,  all of which are
hereby  expressly waived by the Borrower and (iv) proceed to enforce its and the
Banks'  rights  whether  by suit in  equity or by  action  at law,  whether  for
specific performance of any covenant or agreement contained in this Agreement or
any other  Loan  Document,  or in aid of the  exercise  of any power  granted in
either this Agreement or any Loan Document or proceed to obtain  judgment or any
other relief  whatsoever  appropriate  to the  enforcement of its and the Banks'
rights, or proceed to enforce any other legal or equitable right which the Agent
or the  Banks  may have by reason  of the  occurrence  of any  Event of  Default
hereunder  or  under  any  other  Loan  Document,  provided,  however,  upon the
occurrence of an Event of Default  referred to in Section  6.01(e)  hereof,  the
Total  Commitment shall be immediately  terminated,  and the Notes, all interest
thereon,  all such cash  collateral  and all other  amounts  payable  under this
Agreement  shall be immediately  due and payable  without  presentment,  demand,
protest or further notice of any kind, all of which are hereby  expressly waived
by the  Borrower.  Any amounts  collected  pursuant  to action  taken under this
Section 6.02 shall be applied to the payment of,  first,  any costs  incurred by
the Agent in taking such action,  including  but without  limitation  attorneys'
fees and expenses,  second,  to provide cash  collateral to the Issuing Bank for
any undrawn Letters of Credit,  accepted drafts or deferred payment obligations,
third, to payment of the accrued interest on the Notes and fourth, to payment of
the unpaid principal of the Notes.

         SECTION 6.03. Remedies Cumulative. No remedy conferred upon or reserved
to the Agent or the Banks hereunder or in any other Loan Document is intended to
be exclusive of any other available remedy, but each and every such remedy shall
be cumulative  and in addition to every other remedy given under this  Agreement
or any other Loan Document or now or hereafter  existing at law or in equity. No
delay or  omission  to exercise  any right or power  accruing  upon any Event of
Default  shall  impair  any such  right or power or shall be  construed  to be a
waiver thereof,  but any such right and power may be exercised from time to time
and as often as may be deemed  expedient.  In order to entitle  the Agent or the
Banks to  exercise  any  remedy  reserved  in this  Article  VI, it shall not be
necessary to give any notice,  other than such notice as may be herein expressly
required in this Agreement or in any other Loan Document.


<PAGE>




                                   ARTICLE VII

                  THE AGENT; RELATIONS AMONG BANKS AND BORROWER

         SECTION 7.01.  Appointment,  Powers and Immunities of Agent.  Each Bank
hereby  irrevocably  appoints  and  authorizes  the  Agent  to act as its  agent
hereunder and under any other Loan Document with such powers as are specifically
delegated  to the  Agent  by the  terms of this  Agreement  and any  other  Loan
Document,  together with such other powers as are reasonably incidental thereto.
The Agent shall have no duties or  responsibilities  except those  expressly set
forth in this Agreement and any other Loan Document,  and shall not by reason of
this  Agreement be a trustee or fiduciary  for any Bank.  The Agent shall not be
responsible  to the  Banks  for any  recitals,  statements,  representations  or
warranties made by the Borrower or the Guarantors, or any officer or official of
the Borrower or  Guarantors,  or any of them,  or any other Person  contained in
this  Agreement  or any other  Loan  Document,  or in any  certificate  or other
document or  instrument  referred  to or provided  for in, or received by any of
them  under,  this  Agreement  or any other  Loan  Document,  or for the  value,
legality, validity, effectiveness, genuineness, enforceability or sufficiency of
this  Agreement or any other Loan  Document or any other  document or instrument
referred to or provided  for herein or therein,  except as  explicitly  provided
herein,  or for the failure by the Borrower,  the Guarantors,  or any of them to
perform any of their or its respective obligations hereunder or thereunder.  The
Agent may employ  agents  and  attorneys-in-fact  and shall not be  responsible,
except as to money or securities  received by it or its authorized  agents,  for
the negligence or misconduct of any such agents or attorneys-in-fact selected by
it with reasonable care. Except as otherwise explicitly provided herein, neither
the Agent  nor any of its  directors,  officers,  employees  or agents  shall be
liable or responsible to any Bank for any action taken or omitted to be taken by
it or them hereunder or under any other Loan Document or in connection  herewith
or therewith, except for its or their own gross negligence or wilful misconduct.
The  Borrower  shall pay any fee  agreed to by the  Borrower  and the Agent with
respect to the Agent's services hereunder.



<PAGE>



         SECTION  7.02.  Reliance by Agent.  The Agent shall be entitled to rely
upon any certification,  notice or other communication (including any thereof by
telephone,  telex,  telegram or cable)  believed by it to be genuine and correct
and to have been signed or sent by or on behalf of the proper Person or Persons,
and upon advice and statements of legal  counsel,  independent  accountants  and
other experts selected by the Agent with reasonable care. The Agent may deem and
treat each Bank as the holder of the Loans  made by it for all  purposes  hereof
unless and until a notice of the permitted transfer thereof  satisfactory to the
Agent and  signed by such Bank shall  have been  furnished  to the Agent but the
Agent  shall  not be  required  to deal  with  any  Person  who has  acquired  a
participation in any Loan from a Bank. As to any matters not expressly  provided
for by this Agreement or any other Loan  Document,  the Agent shall in all cases
be fully  protected  in acting,  or in  refraining  from  acting,  hereunder  in
accordance with instructions signed by the Required Banks, and such instructions
of the Required  Banks and any action  taken or failure to act pursuant  thereto
shall be binding on all of the Banks and any other  holder of all or any portion
of any Loan.

         SECTION 7.03. Defaults. The Agent shall not be deemed to have knowledge
of the occurrence of a Default or Event of Default  (other than the  non-payment
of  principal  of or  interest  on the  Loans  or the  non-payment  of fees  due
hereunder)  unless the Agent has actual  knowledge  of such  Default or Event of
Default or has  received  notice  from a Bank or the  Borrower  specifying  such
Default  or Event of  Default  and  stating  that such  notice  is a "Notice  of
Default."  In the event that the Agent  receives  such a notice of, or otherwise
has actual  knowledge of the occurrence  of, a Default or Event of Default,  the
Agent  shall give prompt  notice  thereof to the Banks (and shall give each Bank
prompt  notice of each such  non-payment).  The Agent shall  (subject to Section
7.08 and Section  8.01  hereof) take such action with respect to such Default or
Event of Default which is continuing as shall be directed by the Required Banks;
provided that,  unless and until the Agent shall have received such  directions,
the Agent may take such action, or refrain from taking such action, with respect
to such  Default  or Event of Default  as it shall  deem  advisable  in the best
interest of the Banks; and provided further that the Agent shall not be required
to take any such action which it determines to be contrary to law.



<PAGE>



         SECTION 7.04. Rights of Agent as a Bank. With respect to the Loans made
by it, any Person which is the Agent in its capacity as a Bank  hereunder  shall
have the same rights and powers hereunder as any other Bank and may exercise the
same as though it were not acting as the Agent,  and the term  "Bank" or "Banks"
shall, unless the context otherwise  indicates,  include any Person which is the
Agent in its  capacity  as a Bank.  The Agent or any Bank and  their  respective
Affiliates may (without  having to account  therefor to any other Bank except as
otherwise expressly provided in this Agreement) accept deposits from, lend money
to (on a  secured  or  unsecured  basis),  and  generally  engage in any kind of
banking,  trust or other business  with, the Borrower,  the Guarantors or any of
them (and any of their  Affiliates);  provided  that no payment or lien priority
shall be given to the Agent or to any Bank for any other transaction without the
express  written  approval of all of the other Banks. In the case of EAB, it may
do so as if it were not acting as the Agent,  and the Agent may accept  fees and
other  consideration  from  the  Borrower,  the  Guarantors  or any of them  for
services in  connection  with this  Agreement  or  otherwise  without  having to
account for the same to the Banks.  Although the Agent or a Bank or any of their
respective  Affiliates may in the course of such relationships and relationships
with other Persons acquire information about the Borrower, the Guarantors, their
Affiliates  and such other  Persons,  neither the Agent nor such Bank shall have
any duty to the other Banks or the Agent to  disclose  such  information  to the
other Banks or the Agent except as otherwise provided herein with respect to the
occurrence of an Event of Default.

         SECTION 7.05.  Indemnification  of Agent.  The Banks agree to indemnify
the Agent (to the extent not  reimbursed  under Section 8.04 hereof or under the
applicable  provisions  of any other Loan  Document,  but without  limiting  the
obligations  of the Borrower and  Guarantors  under  Section 8.04 hereof or such
provisions),  ratably  in  accordance  with  their Pro Rata  Shares of the Total
Commitment  (without giving effect to any participation in all or any portion of
the  Total  Commitment  sold  by  them  to any  other  Person),  for any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs,  expenses or disbursements of any kind and nature whatsoever which may be
imposed on, incurred by or asserted  against the Agent in any way relating to or
arising out of this  Agreement,  any other Loan Document or any other  documents
contemplated by or referred to herein or the transactions contemplated hereby or
thereby  (including,  without  limitation,  the  costs  and  expenses  which the
Borrower and  Guarantors are obligated to pay under Section 8.04 hereof or under
the  applicable  provisions of any other Loan Document but  excluding,  unless a
Default  or Event of  Default  has  occurred,  normal  administrative  costs and
expenses  incidental to the  performance of its agency duties  hereunder) or the
enforcement of any of the terms hereof or thereof or of any such other documents
or  instruments;  provided that no Bank shall be liable for any of the foregoing
to the extent they arise from the gross  negligence or wilful  misconduct of the
Agent.

         SECTION 7.06.  Documents.  It is the  responsibility of the Borrower to
forward to each Bank,  on or before  the due dates set forth  herein,  a copy of
each report,  notice or other  document  required by this Agreement or any other
Loan  Document to be delivered to the Agent.  The Agent is not  responsible  for
forwarding such information to the Banks.



<PAGE>



         SECTION 7.07.  Non-Reliance on Agent and Other Banks.  Each Bank agrees
that it has,  independently and without reliance on the Agent or any other Bank,
and based on such documents and information as it has deemed  appropriate,  made
its own credit analysis of the Borrower,  the Guarantors and their  Subsidiaries
and decision to enter into this  Agreement and that it will,  independently  and
without  reliance upon the Agent or any other Bank,  and based on such documents
and information as it shall deem  appropriate at the time,  continue to make its
own analysis and decisions in taking or not taking  action under this  Agreement
or any other Loan  Document.  The Agent  shall not be  required  to keep  itself
informed as to the  performance  or  observance by the Borrower or Guarantors of
this Agreement or any other Loan Document or any other  document  referred to or
provided  for herein or therein or to  inspect  the  properties  or books of the
Borrower,  the  Guarantors or any  Subsidiary of the Borrower or any  Guarantor.
Except for  notices,  reports  and other  documents  and  information  expressly
required to be  furnished to the Banks by the Agent  hereunder,  the Agent shall
not have any duty or  responsibility  to any other Bank to provide any Bank with
any credit or other information  concerning the affairs,  financial condition or
business of the  Borrower,  the  Guarantors or any  Subsidiary  (or any of their
Affiliates)  which  may  come  into  the  possession  of  the  Agent  or of  its
Affiliates.  The Agent shall not be required to file this  Agreement,  any other
Loan  Document or any document or instrument  referred to herein or therein,  or
record or give notice of this Agreement, any other Loan Document or any document
or instrument referred to herein or therein, to any Person.

         SECTION  7.08.  Failure of Agent to Act.  Except  for action  expressly
required of the Agent hereunder, the Agent shall in all cases be fully justified
in failing or refusing to act hereunder  unless it shall have  received  further
assurances   (which  may  include  cash   collateral)  of  the   indemnification
obligations  of the Banks  under  Section  7.05 hereof in respect of any and all
liability  and  expense  which  may be  incurred  by it by  reason  of taking or
continuing to take any such action.

         SECTION 7.09.  Resignation  of Agent.  Subject to the  appointment  and
acceptance of a successor Agent as provided  below,  the Agent may resign at any
time by giving written  notice  thereof to the Banks and the Borrower.  Upon any
such resignation, the Required Banks shall have the right to appoint a successor
Agent.  If no successor Agent shall have been so appointed by the Required Banks
and shall have  accepted  such  appointment  within 30 days  after the  retiring
Agent's giving of notice of resignation,  then the retiring Agent may, on behalf
of the Banks,  appoint a  successor  Agent,  which  shall be a bank which has an
office in New York, New York. The Required Banks or the retiring  Agent,  as the
case may be, shall upon the  appointment of a Successor Agent promptly so notify
the Borrower,  the  Guarantors  and the other Banks.  Upon the acceptance of any
appointment as Agent hereunder by a successor Agent,  such successor Agent shall
thereupon succeed to and become vested with all the rights,  powers,  privileges
and duties of the retiring  Agent,  and the retiring  Agent shall be  discharged
from  its  duties  and  obligations   hereunder.   After  any  retiring  Agent's
resignation as Agent,  the provisions of this Article 7 shall continue in effect
for its  benefit in respect  of any  actions  taken or omitted to be taken by it
while it was acting as the Agent.



<PAGE>



         SECTION 7.10.  Amendments  Concerning Agency Function.  The Agent shall
not be  bound by any  waiver,  amendment,  supplement  or  modification  of this
Agreement  or any  other  Loan  Document  which  affects  its  rights  or duties
hereunder or  thereunder  unless it shall have given its prior  written  consent
thereto.

         SECTION  7.11.  Liability  of  Agent.  The  Agent  shall  not  have any
liabilities or responsibilities  to the Borrower,  the Guarantors or any of them
on account of the failure of any Bank to perform its obligations hereunder or to
any Bank on account of the failure of the  Borrower,  the  Guarantors  or any of
them to  perform  their or its  obligations  hereunder  or under any other  Loan
Document.

         SECTION 7.12.  Transfer of Agency Function.  Without the consent of the
Borrower,  the Guarantors or any Bank, the Agent may at any time or from time to
time  transfer its functions as Agent  hereunder to any of its offices  wherever
located,  provided  that the Agent  shall  promptly  notify  the  Borrower,  the
Guarantors and the Banks thereof.

         SECTION  7.13.  Withholding  Taxes.  Each  Bank  represents  that it is
entitled  to  receive  any  payments  to be made  to it  hereunder  without  the
withholding of any tax and will furnish to the Agent such forms, certifications,
statements  and other  documents  as the Agent may request  from time to time to
evidence such Bank's  exemption  from the  withholding of any tax imposed by any
jurisdiction  or to  enable  the  Agent to comply  with any  applicable  laws or
regulations relating thereto.  Without limiting the effect of the foregoing,  if
any Bank is not  created or  organized  under the laws of the  United  States of
America or any state  thereof,  in the event that the payment of interest by the
Borrower is treated for U.S.  income tax purposes as derived in whole or in part
from sources from within the United States,  such Bank will furnish to the Agent
Form 4224 or Form 1001 of the  Internal  Revenue  Service,  or such other forms,
certifications,  statements  or  documents,  duly executed and completed by such
Bank as evidence of such Bank's  exemption from the withholding of United States
tax with respect thereto.  The Agent shall not be obligated to make any payments
hereunder  to such  Bank in  respect  of any Loan  until  such Bank  shall  have
furnished to the Agent the requested form, certification, statement or document.

         SECTION 7.14.  Several  Obligations and Rights of Banks. The failure of
any Bank to make any Loan to be made by it on the date specified  therefor shall
not relieve any other Bank of its  obligation to make its Loan on such date, but
no Bank shall be responsible for the failure of any other Bank to make a Loan to
be made by such other Bank.



<PAGE>



         SECTION 7.15.  Pro Rata Treatment of Loans,  Etc.  Except to the extent
otherwise  provided,  each prepayment and payment of principal of or interest on
Loans of a particular type and a particular  Interest  Period,  if any, shall be
made to the Agent for the  account of the Banks  holding  Loans of such type and
Interest  Period,  if any, pro rata in  accordance  with the  respective  unpaid
principal amounts for such Loans of such Interest Period held by such Banks.

         SECTION 7.16.  Sharing of Payments Among Banks.  If a Bank shall obtain
payment of any principal of or interest on any Loan, any fee due hereunder or on
any L/C  Exposure,  made by it  through  the  exercise  of any right of  setoff,
banker's  lien,  counterclaim,  or any other means,  it shall share such payment
with the other Banks and the amount of such  payment  shall be applied to reduce
the Loans of all the Banks pro rata in accordance  with the unpaid  principal on
the Loans  held by each of them,  and make such other  adjustments  from time to
time as shall be equitable to the end that all the Banks shall share the benefit
of such  payment  (net of any  expenses  which may be  incurred  by such Bank in
obtaining or preserving  such  benefit) pro rata in  accordance  with the unpaid
principal  and interest on the Loans held by each of them. To such end the Banks
shall make appropriate adjustments among themselves if such payment is rescinded
or must otherwise be restored. The Borrower agrees that any Bank so purchasing a
participation  (or direct  interest)  in the Loans  made by the other  Banks may
exercise all rights of set off,  banker's lien,  counterclaim  or similar rights
with  respect to such  participation  (or direct  interest).  Nothing  contained
herein  shall  require any Bank to exercise  any such right or shall  affect the
right of any Bank to exercise,  and retain the benefits of exercising,  any such
right with respect to any other  indebtedness  of the Borrower.  Notwithstanding
the foregoing or any other  provision of this  Agreement,  no right or remedy of
any Bank  relating  to any  assets of the  Borrower  (including  real  property,
improvements  or  fixtures)  not  covered  by this  Agreement  or the other Loan
Documents  shall in any way be  affected by this  Agreement  or  otherwise  with
respect to any other indebtedness of the Borrower to any of the Banks.



<PAGE>



         SECTION  7.17.  Nonreceipt  of Funds by Agent;  Payments to Banks.  (a)
Unless the Agent shall have received  notice from the Borrower prior to the date
on which any payment is due to the Banks  hereunder  that the Borrower  will not
make such payment in full,  the Agent may assume that the Borrower has made such
payment  in full to the Agent on such date and the Agent in its sole  discretion
may, but shall not be obligated to, in reliance upon such  assumption,  cause to
be  distributed to each Bank on such due date an amount equal to the amount then
due such Bank.  If and to the extent  that the  Borrower  shall not have so made
such  payment  in full to the Agent,  such Bank  agrees to repay to the Agent on
demand such amount and if for any reason the Agent does not receive  such amount
from such Bank on the day of such  demand,  if such  demand is made  before 2:00
p.m. on such day, or on the next  Business Day if demand is made after 2:00 p.m.
on such day, such Bank shall repay to the Agent  forthwith on demand such amount
distributed to such Bank together with interest  thereon,  for each day from the
date such  amount is  distributed  to such Bank until the date such Bank  repays
such  amount  to the  Agent,  at the  customary  rate set by the  Agent  for the
correction of errors among banks for three (3) Business  Days and  thereafter at
the Prime Rate.

         (b) If the Agent shall fail to pay any amounts  owing by the Agent to a
Bank as promptly as may be  required by this  Agreement,  the Agent shall pay to
such Bank, on its demand,  interest on such  delinquent  amount at the customary
rate set by the Agent for the  correction  of errors  among  banks for three (3)
Business Days and thereafter at the Prime Rate.


<PAGE>



                               ARTICLE VIII

                               MISCELLANEOUS

         SECTION 8.01.  Amendments.  Etc. Except as otherwise expressly provided
in this  Agreement,  any provision of this  Agreement may be amended or modified
only by an instrument in writing  signed by the Borrower,  the  Guarantors,  the
Agent and the Required Banks,  and any provision of this Agreement may be waived
by the  Borrower (if such  provision  requires  performance  by the Agent or the
Banks) or by the Agent  acting with the consent of the  Required  Banks (if such
provision  requires  performance by the  Borrower);  provided that no amendment,
modification or waiver shall, unless by an instrument signed by all of the Banks
or by the Agent  acting  with the consent of all of the Banks:  (a)  increase or
extend the term of the  Commitment  or the Loans,  (b) extend the date fixed for
the payment of  principal  of or interest on any Loan,  (c) reduce the amount of
any  payment  of  principal  thereof  or the rate at which  interest  is payable
thereon or any fee payable hereunder,  (d) alter the terms of this Section 8.01,
(e) amend the  definition  of the term  "Required  Banks",  (f)  change the fees
payable to any Bank except as otherwise provided herein, (g) permit the Borrower
to transfer or assign any of its  obligations  hereunder or under the other Loan
Documents,  (h) amend the  provisions of Article 7 hereof,  (i) give any payment
priority  to any  Person  (including  any  of the  Banks)  over  amounts  due in
connection  with the Loans or the Letters of Credit,  (j) release any Collateral
(other than as permitted by a security  agreement) or (k) amend any provision of
this  Agreement  or any other Loan  Document  which  requires  the action of all
Banks. No failure on the part of the Agent or any Bank to exercise, and no delay
in exercising, any right hereunder shall operate as a waiver thereof or preclude
any other or further  exercise  thereof or the exercise of any other right.  The
remedies  herein  provided  are  cumulative  and not  exclusive  of any remedies
provided by law.



<PAGE>



         SECTION  8.02.  Notices,  Etc.  All  notices  and other  communications
provided for hereunder shall be in writing (including telegraphic communication)
and mailed via certified mail, return receipt  requested,  telegraphed,  sent by
overnight  mail  delivery  service,  sent by facsimile or  delivered,  if to the
Borrower or any Guarantor,  at the address of the Borrower or Guarantor,  as the
case may be, set forth at the beginning of this Agreement and if to the Agent or
any Bank, at the address of the Agent or such Bank set forth at the beginning of
this Agreement to the attention of , in the case of EAB, Jeanne  Virzera,  A.T.,
and in the case of Key,  Tamra  Lofaro,  or,  as to each  party,  at such  other
address as shall be designated by such party in a written notice complying as to
delivery  with the terms of this  Section  8.02 to the other  parties.  Courtesy
copies of all  notices to the  Borrower or any  Guarantor  shall be sent to Joel
Rothlein, Esq., Kressel, Rothlein and Roth, 684 Broadway,  Massapequa,  New York
11758,  provided,  however,  that the failure of the Agent to send such courtesy
copies  shall not affect the Agent's or any Bank's  rights  hereunder.  All such
notices and  communications  shall be  effective  when  mailed,  telegraphed  or
delivered,  except  that  notices to the Agent or any of the Banks  shall not be
effective until received by the Agent or such Bank.

         SECTION 8.03. No Waiver,  Remedies. No failure on the part of the Agent
or any Bank to exercise, and no delay in exercising,  any right, power or remedy
under any Loan Document shall operate as a waiver thereof;  nor shall any single
or partial  exercise of any right under any Loan Document  preclude any other or
further  exercise  thereof or the  exercise  of any other  right.  The  remedies
provided in the Loan  Documents are cumulative and not exclusive of any remedies
provided by law.

         SECTION 8.04. Costs,  Expenses and Taxes. The Borrower agrees to pay on
demand all costs and expenses of the Agent in connection  with the  preparation,
execution, delivery and administration of this Agreement, the Notes, the Letters
of Credit and any other  Loan  Documents,  including,  without  limitation,  the
reasonable  fees and expenses of counsel for the Agent with respect  thereto and
with  respect  to  advising  the  Banks  as  to  their  respective   rights  and
responsibilities  under  this  Agreement,  and all  costs and  expenses,  if any
(including reasonable counsel fees and expenses),  of the Agent and the Banks in
connection  with the enforcement of this  Agreement,  the Notes,  the Letters of
Credit and any other Loan  Documents.  The Borrower  shall at all times protect,
indemnify, defend and save harmless the Agent and the Banks from and against any
and all claims,  actions,  suits and other legal  proceedings,  and liabilities,
obligations,   losses,  damages,   penalties,   judgments,  costs,  expenses  or
disbursements which the Agent or the Banks may, at any time, sustain or incur by
reason of or in  consequence  of or arising out of the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby. The
Borrower  acknowledges  that it is the intention of the parties hereto that this
Agreement  shall be construed and applied to protect and indemnify the Agent and
the Banks  against any and all risks  involved in the  execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby, all
of  which  risks  are  hereby  assumed  by  the  Borrower,   including,  without
limitation,  any and all risks of the acts or  omissions,  whether  rightful  or
wrongful,  of  any  present  or  future  de  jure  or  de  facto  government  or
governmental  authority,  provided that the Borrower shall not be liable for any
portion of such liabilities,  obligations,  losses, damages, penalties, actions,
judgments,  suits, costs, expenses or disbursements  resulting from the Agent or
any Bank's  gross  negligence  or willful  misconduct.  The  provisions  of this
Section 8.04 shall survive the payment of the Notes and the  termination of this
Agreement.


<PAGE>



         SECTION  8.05.  Right of Set-off.  Upon the  occurrence  and during the
continuance of any Event of Default, the Banks each are hereby authorized at any
time and from time to time, to the fullest  extent  permitted by law, to set off
and apply any and all deposits (general or special, time or demand,  provisional
or final) at any time held and other indebtedness at any time owing by the Banks
or any  Affiliates  of the  Banks to or for the  credit  or the  account  of the
Borrower or any Guarantor against any and all of the obligations of the Borrower
or any Guarantor now or hereafter  existing  under this Agreement and the Notes,
irrespective of whether or not the Agent or the Banks shall have made any demand
under  this  Agreement  or  the  Notes  and  although  such  obligations  may be
unmatured.  The rights of the Banks  under this  Section  are in addition to all
other  rights and  remedies  (including,  without  limitation,  other  rights of
set-off) which the Agent and the Banks may have.

     SECTION 8.06. Binding Effect. This Agreement shall become effective when it
shall have been executed by the Borrower, the
Guarantors, the Agent and the Banks.

         SECTION  8.07.  Successors  and  Assigns.  (a) The  provisions  of this
Agreement  shall be binding upon and inure to the benefit of the parties  hereto
and their  respective  successors and assigns,  except that the Borrower may not
assign or  otherwise  transfer  any of its  rights  or  obligations  under  this
Agreement without the prior written consent of all Banks.



<PAGE>



         (b) Any  Bank  may at any  time  grant  to one or more  banks  or other
institutions (each a "Participant") participating interests in its Commitment or
any or all of its Loans and interests in Letters of Credit.  In the event of any
such grant by a Bank of a  participating  interest to a Participant,  whether or
not  upon  notice  to the  Borrower  and  the  Agent,  such  Bank  shall  remain
responsible for the performance of its obligations  hereunder,  and the Borrower
and the Agent  shall  continue  to deal  solely and  directly  with such Bank in
connection  with such Bank's rights and obligations  under this  Agreement.  Any
agreement  pursuant  to which any Bank may grant such a  participating  interest
shall provide that such Bank shall retain the sole right and  responsibility  to
enforce the obligations of the Borrower hereunder including, without limitation,
the right to approve any amendment,  modification  or waiver of any provision of
this Agreement; provided that such participation agreement may provide that such
Bank will not agree to any  modification,  amendment or waiver of this Agreement
described in clauses (a) through (i) of Section 8.01 hereof  without the consent
of such  Participant.  The Borrower agrees that each  Participant  shall, to the
extent provided in its participation  agreement,  be entitled to the benefits of
this  Article  VIII and  Article III hereof  with  respect to its  participating
interest.  An assignment or other  transfer which is not permitted by subsection
(c) or (d) below shall be given  effect for purposes of this  Agreement  only to
the  extent  of  a  participating  interest  granted  in  accordance  with  this
subsection (b).

         (c) (i) Any Bank may at any time  assign to one or more  banks or other
institutions (each an "Assignee") all, or a proportionate part (equivalent to an
initial  Commitment  of not less than  $2,000,000.00)  of all, of its rights and
obligations  under this Agreement and the Notes,  and such Assignee shall assume
such rights and obligations,  pursuant to an Assignment and Assumption Agreement
in substantially the form of Exhibit B hereto executed by such Assignee and such
transferor  Bank, with the subscribed  consent of the Agent,  which shall not be
unreasonably  withheld  and with,  so long as no Default or Event of Default has
occurred  and is  continuing  (and  subject  to) the  subscribed  consent of the
Borrower, which shall not be unreasonably withheld; provided that if an Assignee
is an affiliate of such transferor Bank, no such consent shall be required. Upon
execution and delivery of such  instrument  and payment by such Assignee to such
transferor  Bank of an amount  equal to the purchase  price agreed  between such
transferor  bank and such Assignee,  such Assignee shall be a Bank party to this
Agreement  and  shall  have all the  rights  and  obligations  of a Bank  with a
Commitment as set forth in such  instrument of  assumption,  and the  transferor
Bank shall be released from its obligations hereunder to a corresponding extent,
and no further consent or action by any party shall be required.

                  (ii) Upon the consummation of any assignment  pursuant to this
subsection  (c), the  transferor  Bank,  the Agent and the  Borrower  shall make
appropriate  arrangements  so that,  if  required,  a new Note is  issued to the
Assignee. In connection with any such assignment,  the transferor Bank shall pay
to the Agent an administrative  fee for processing such assignment in the amount
of $3,500.00.  If an Assignee is not  incorporated  under the laws of the United
States of America or a state  thereof,  it shall deliver to the Borrower and the
Agent  certification as to exemption from deduction or withholding of any United
States federal income taxes in accordance with Section 7.13 hereof.

         (d) Any Bank may at any time  assign  all or any  portion of its rights
under this Agreement and its Note to a Federal  Reserve Bank. No such assignment
shall release the transferor Bank from its obligations hereunder.



<PAGE>



         SECTION 8.08. Further Assurances. The Borrower and each Guarantor agree
at any time and from time to time at its expense, upon request of the Agent, the
Banks or their respective  counsel,  to promptly execute,  deliver, or obtain or
cause to be executed,  delivered or obtained any and all further instruments and
documents  and to take or cause to be taken all such  other  action the Agent or
any Bank may deem  desirable in obtaining the full benefits of this Agreement or
any other Loan Document.

         SECTION 8.09. Section Headings, Severability, Entire Agreement. Section
and subsection headings have been inserted herein for convenience only and shall
not be construed as part of this  Agreement.  Every  provision of this Agreement
and each  other  Loan  Document  is  intended  to be  severable;  if any term or
provision of this  Agreement,  any other Loan  Document,  or any other  document
delivered  in  connection  herewith or  therewith  shall be invalid,  illegal or
unenforceable   for  any  reason   whatsoever,   the   validity,   legality  and
enforceability  of the remaining  provisions  hereof or thereof shall not in any
way be  affected  or  impaired  thereby.  All  exhibits  and  schedules  to this
Agreement  shall  be  annexed  hereto  and  shall be  deemed  to be part of this
Agreement.  This Agreement and the exhibits and schedules attached hereto embody
the entire agreement and understanding between the Borrower, the Guarantors, the
Agent and the Banks  and  supersede  all  prior  agreements  and  understandings
relating to the subject matter hereof.

     SECTION 8.10.  Governing Law. This Agreement,  the Notes and all other Loan
Documents  shall be governed by, and construed in accordance  with,  the laws of
the State of New York.

         SECTION 8.11. Waiver of Jury Trial. The Borrower,  each Guarantor,  the
Agent  and the Banks  waive  all  rights to trial by jury on any cause of action
directly or  indirectly  involving  the terms,  covenants or  conditions of this
Agreement or any Loan Document.

         SECTION 8.12. Execution in Counterparts. This Agreement may be executed
in any  number of  counterparts  and by  different  parties  hereto in  separate
counterparts,  each of which when so executed  shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.


<PAGE>


         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized,  as of the date
first above written.

EUROPEAN AMERICAN BANK, as Agent            ELECTROGRAPH SYSTEM, INC.

By:____________________________             By:______________________
   Name: Stuart N. Berman                           Barry R. Steinberg
   Title:  Vice President                      President

KEYBANK NATIONAL ASSOCIATION                COASTAL OFFICE PRODUCTS,
INC.

By:____________________________             By:______________________
   Name:                                                Barry R. Steinberg
   Title:                                      President

EUROPEAN AMERICAN BANK                               MEC SUPPORT SERVICES, INC.

By:____________________________             By:______________________
   Name: Stuart N. Berman                      Barry R. Steinberg
   Title: Vice President                                President

MANCHESTER EQUIPMENT CO., INC.          CLOSE OUTS 4U.COM., INC.
By:____________________________             By:______________________
   Name: Barry R. Steinberg                             Barry R. Steinberg
   Title: President                                              President

MANCHESTER INTERNATIONAL LTD.                        MEC INTERNET SERVICES, INC.

By:____________________________             By:______________________
   Name: Barry R. Steinberg                             Barry R. Steinberg
   Title: President                                     President

MANTECH COMPUTER SERVICES, INC.             47 COMPUTERS.COM, INC.

By:____________________________             By:______________________
   Name: Barry R. Steinberg                             Barry R. Steinberg
   Title: President                                     President

MEC LEASING GROUP, LTD.                              MARKETPLACE 4U.COM, INC.

By:____________________________             By:______________________
   Name: Barry R. Steinberg                Barry R. Steinberg
   Title: President                                     President

MANCHESTER SOLUTIONS, INC.                  ALMOST NEW 4U.COM, INC.

By:____________________________             By:______________________
   Name: Barry R. Steinberg                             Barry R. Steinberg
   Title: President                                              President


<PAGE>



ODD LOTS 4U.COM, INC.

By:_________________________
   Barry R. Steinberg
   President



<PAGE>



                                  SCHEDULE 1.01

                         Total Commitments of Each Bank

                                               Initial
                                            Dollar Amount     Pro Rata Share

European American Bank              -  $     10,000,000.00         66.67%

KeyBank National Association        -  $      5,000,000.00         33.33%







<PAGE>



                                SCHEDULE 4.01(a)


SUBSIDIARY'S NAME        STATE OF                      IDENTITY  AND
 AND ADDRESS             INCORPORATION AND             PERCENTAGE OF
-----------------        EACH STATE IN WHICH           OWNERSHIP OF EACH
                         IT IS QUALIFIED               SHAREHOLDER
                         TO DO BUSINESS                -----------------
                         --------------

ManTech Computer         New York Corporation          Manchester Equipment
 Services, Inc.          doing Business in             Co., Inc.   Sole
160 Oser Avenue          State of New York.            Shareholder
Hauppauge, NY 11788

MEC Leasing Group        New York Corporation          Manchester Equipment
 Ltd.                    doing Business in             Co., Inc.   Sole
160 Oser Avenue          State of New York.            Shareholder
Hauppauge, NY 11788

Manchester               New York Corporation          Manchester Equipment
Solutionss, Inc.         doing Business in             Co., Inc.   Sole
160 Oser Avenue          State of New York.            Shareholder
Hauppauge, NY 11788

Manchester               New York Corporation          Manchester Equipment
International Ltd.       doing Business in             Co., Inc.   Sole
160 Oser Avenue          State of New York.            Shareholder
Hauppauge, NY 11788

Coastal Office           Maryland Corporation          Manchester Equipment
 Services, Inc.          doing Business in             Co., Inc.   Sole
4812 Frankford Avenue    State of Maryland.            Shareholder
Baltimore, MD 11788

Electrograph             New York Corporation          Manchester Equipment
 Systems, Inc.           doing Business in             Co., Inc.   Sole
160 Oser Avenue          New York, Maryland,           Shareholder
Hauppauge, NY 11788      California, Texas

MEC Support              New York Corporation          Manchester Equipment
 Services, Inc.          doing Business in             Co., Inc.   Sole
160 Oser Avenue          State of New York.            Shareholder
Hauppauge, NY 11788

Close Outs 4U.Com        New York Corporation          Manchester Equipment
  Inc.                   doing Business in             Co., Inc.   Sole
160 Oser Avenue          State of New York.            Shareholder
Hauppauge, NY 11788



<PAGE>
SCHEDULE 4.01(a)


SUBSIDIARY'S NAME        STATE OF                      IDENTITY  AND
 AND ADDRESS             INCORPORATION AND             PERCENTAGE OF
-----------------        EACH STATE IN WHICH           OWNERSHIP OF EACH
                         IT IS QUALIFIED               SHAREHOLDER
                         TO DO BUSINESS                -----------------
                         --------------

MEC Internet             New York Corporation          Manchester Equipment
 Services, Inc.          doing Business in             Co., Inc.   Sole
160 Oser Avenue          State of New York.            Shareholder
Hauppauge, NY 11788

47 Computers.Com         New York Corporation          Manchester Equipment
 Inc.                    doing Business in             Co., Inc.   Sole
160 Oser Avenue          State of New York.            Shareholder
Hauppauge, NY 11788

Marketplace 4U.Com,      New York Corporation          Manchester Equipment
 Inc.                    doing Business in             Co., Inc.   Sole
160 Oser Avenue          State of New York.            Shareholder
Hauppauge, NY 11788

4U.Com, Inc.             New York Corporation          Manchester Equipment
160 Oser Avenue          doing Business in             Co., Inc.   Sole
Hauppauge, NY 11788      State of New York             Shareholder

Almost New 4U.Com        New York Corporation          Manchester Equipment
  Inc.                   doing Business in             Co., Inc.   Sole
160 Oser Avenue          State of New York.            Shareholder
Hauppauge, NY 11788

Odd Lots 4U.Com,         New York Corporation          Manchester Equipment
  Inc.                   doing Business in             Co., Inc.   Sole
160 Oser Avenue          New York, Maryland,           Shareholder
Hauppauge, NY 11788      California, Texas





<PAGE>

                                SCHEDULE 4.01(g)
                                ----------------

                                   Litigation
                                   ----------

                             (Borrower as Defendant)

                                      None


<PAGE>



                                SCHEDULE 4.01(s)
                                ----------------
<TABLE>
<CAPTION>

Creditor             Nature of           Amount of   Liens Securing
--------             Agreement            Credit         Credit
                     ---------            ------         ------
<S>                  <C>                 <C>            <C>


Mitsubishi          Guarantee of             No Limits      None
Electronics         Electrograph
 America, Inc.      Systems,  Inc.,
                    a Subsidiary
                    of Manchester
                    Equipment Co., Inc.


Fujitsu General       Guarantee of             No Limits      None
 America, Inc.        Electrograph
                      Systems,  Inc.,
                      a Subsidiary
                      of Manchester
                      Equipment Co., Inc.


Matsushita            Guaranty of             No Limits      None
Electric              Electrograph
Corporation of        Systems,  Inc.,
America               a Subsidiary
                      of Manchester
                      Equipment Co., Inc.

Tech Data             Guaranty of             No Limits      None
 Corporation          Coastal Office
                      Produxts, Inc.,
                      a Subsidiary
                      of Manchester
                      Equipment Co., Inc.

Deutsche              Credit Agreement         $10 Million    None
 Corporation          of Manchester
                      Equipment Co., Inc.,

International         Capital Lease           $92,574.00     None
 Business Machines    of AS400-Main            (Balance)
 Corporation          Frame Computer
                      for Manchester
                      Equipment Co., Inc.

</TABLE>



<PAGE>



                                SCHEDULE 5.02(a)


Creditor             Amount              Property Subject to Lien
--------             ------              ------------------------



Except as disclosed in Schedule 4.01(s), none.


<PAGE>



                                SCHEDULE 5.02(b)



     Creditor                                   Amount
     ---------                                  ------


         Except as disclosed in Schedule 4.01(s), none.


<PAGE>



                                SCHEDULE 5.02(i)
                                ----------------



     Description of All Guaranties of Borrower:


Mitsubishi Electronics America, Inc. Guarantee of Electrograph Systems, Inc.

Fujitsu General America, Inc. Guarantee of Electrograph Systems, Inc.

Matsushita  Electric  Corporation of America  Guaranty of Electrograph  Systems,
Inc.

Deutsche Financial Services, Inc. Guarantee of Costal Office Products, Inc.



<PAGE>



                                    EXHIBIT A
                                    ---------

                              REVOLVING CREDIT NOTE

$_________________                                      Garden City, New York
-------------------
                                                                __________, 199_
                                                                -----------


         FOR VALUE  RECEIVED,  on the Maturity Date,  MANCHESTER  EQUIPMENT CO.,
INC., a ___________  corporation,  having its principal place of business at 160
Oser  Avenue,  Hauppauge,  New York 11788  ("Borrower"),  promises to pay to the
order of __________________ ("Bank") at the office of European American Bank, as
Agent, located at 730 Veterans Memorial Highway,  Hauppauge, New York 11788, the
principal sum of the lesser of: (a) ________________  ($___________) DOLLARS; or
(b) the aggregate  unpaid principal amount of all Revolving Credit Loans made by
Bank to Borrower pursuant to the Agreement (as defined below).

         Borrower  shall pay  interest on the unpaid  principal  balance of this
Note from time to time outstanding, at said office, at the rates of interest, at
the times and for the periods set forth in the Agreement.

         All payments including prepayments on this Note shall be made in lawful
money of the United States of America in immediately  available funds. Except as
otherwise  provided in the Agreement,  if a payment 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 interest shall be payable thereon at the rate
herein specified during such extension.

         Borrower  hereby  authorizes Bank to enter from time to time the amount
of each  Loan  to  Borrower  and the  amount  of each  payment  on a Loan on the
schedule  annexed hereto and made a part hereof.  Failure of Bank to record such
information  on such  schedule  shall not in any way  effect the  obligation  of
Borrower to pay any amount due under this Note.

         This Note is one of the  Revolving  Credit  Notes  referred  to in that
certain Loan Agreement among Borrower,  certain  Guarantors,  European  American
Bank, as Agent, European American Bank and KeyBank National Association, of even
date herewith (the  "Agreement"),  as such Agreement may be amended from time to
time, and is subject to prepayment  and its maturity is subject to  acceleration
upon the terms contained in said Agreement.  All capitalized  terms used in this
Note and not defined herein shall have the meanings given them in the Agreement.


<PAGE>



         If any  action or  proceeding  be  commenced  to  collect  this Note or
enforce  any of its  provisions,  Borrower  further  agrees to pay all costs and
expenses  of such  action  or  proceeding  and  reasonable  attorneys'  fees and
expenses  and  further  expressly  waives any and every right to  interpose  any
counterclaim  in any such action or proceeding.  Borrower  hereby submits to the
jurisdiction  of the Supreme Court of the State of New York and agrees with Bank
that personal  jurisdiction  over Borrower  shall rest with the Supreme Court of
the State of New York for purposes of any action on or related to this Note, the
liabilities,  or the  enforcement of either or all of the same.  Borrower hereby
waives  personal  service by manual  delivery and agrees that service of process
may be made  by  certified  mail,  return  receipt  requested,  directed  to the
Borrower at the  Borrower's  address set forth above or at such other address as
may be designated in writing by the Borrower to Bank in accordance  with Section
8.02 of the Agreement,  and that upon mailing of such process such service shall
be effective with the same effect as though personally  served.  Borrower hereby
expressly  waives  any and  every  right to a trial by jury in any  action on or
related to this Note, the liabilities  hereunder or the enforcement of either or
all of the same.  Subject to the provisions of the Agreement,  Bank may transfer
this Note to a transferee or transferees, who shall thereupon become vested with
all the powers and rights above given to Bank in respect thereto, and Bank shall
thereafter  be forever  relieved  and fully  discharged  from any  liability  or
responsibility  with  respect to any  matters  occurring  after the date of such
transfer.  The  failure  of any  holder  of this  Note  to  insist  upon  strict
performance of each and/or all of the terms and  conditions  hereof shall not be
construed or deemed to be a waiver of any such term or condition.

      Borrower and all endorsers and guarantors  hereof waive presentment and
demand for payment, notice of non-payment, protest, and notice of protest.

     This Note shall be construed in accordance with and governed by the laws of
the State of New York.

                                            MANCHESTER EQUIPMENT CO., INC.


                                           By:
                                           Name:
                                           Title:



<PAGE>




                       Schedule of Revolving Credit Loans
                       ----------------------------------



                            Amount of
                            Principal    Unpaid       Name of
Making  Amount of  Type of   Paid or    Principal  Person Making
 Date     Loan      Loan     Prepaid     Balance      Notation
 ----     ----      ----     -------     -------      --------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------




<PAGE>



                                    EXHIBIT B

                       ASSIGNMENT AND ASSUMPTION AGREEMENT


                  ASSIGNMENT AND ASSUMPTION  AGREEMENT (the "Assignment")  dated
as   of   __________________   among   ___________________   (the   "Assignor"),
________________  (the  "Assignee")  and EUROPEAN  AMERICAN  BANK, as Agent (the
"Agent").

                                   WITNESSETH

                  WHEREAS,   this  Assignment  and  Assumption   Agreement  (the
"Assignment") relates to the Loan Agreement dated June __, 1999 among Manchester
Equipment Co. Inc., certain Guarantors, the Assignor as a Bank and the Agent (as
amended, the "Agreement"); and

                  WHEREAS,  as provided  under the  Agreement,  the Assignor has
heretofore  made Loans to the Borrower and has, or may have,  participations  in
Letters of Credit; and

                  WHEREAS,  the Assignor  proposes to assign to the Assignee all
of the rights of the Assignor under the Agreement in respect of all or a portion
of its Commitment,  the Loans and the L/C Exposure and the Assignee  proposes to
accept assignment of such rights and assume the  corresponding  obligations from
the Assignor on such terms;

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

     SECTION 1. Definitions.  All capitalized terms not otherwise defined herein
shall have the respective meanings set
forth in the Agreement.

                  SECTION 2.  Assignment.  The Assignor hereby sells and assigns
to the Assignee, without recourse, and the Assignee hereby purchases and assumes
from the Assignor,  a ____% interest in and to all of the Assignor's  rights and
obligations  as a Bank under the Agreement as of the Effective  Date (as defined
below)  including,  without  limitation,  such  percentage  interest  in (w) the
Assignor's  Commitment,  (x)  the  Revolving  Credit  Loans  owing  to  Assignor
outstanding  on the Effective  Date,  (y) the Revolving  Credit Note held by the
Assignor under the Agreement, together with the rights to interest accruing from
the Effective  Date and (z) the Assignor's  participation  in Letters of Credit,
drawings thereunder,  unmatured drafts accepted and deferred payment obligations
incurred under Letters of Credit ("L/C Exposure").



<PAGE>



                  SECTION  3.   Assignor   Representations.   The  Assignor  (i)
represents  and  warrants  that  as of the  date  hereof,  (x)  its  Commitment,
unreduced by any  assignments  thereof which have not yet become  effective,  is
$_____________,  (y) the  outstanding  balance of its  Revolving  Credit  Loans,
unreduced by any  assignments  thereof which have not yet become  effective,  is
$___________ and (z) its L/C Exposure,  unreduced by any assignments  which have
not yet  become  effective,  is  $__________;  (ii) makes no  representation  or
warranty  and  assumes  no  responsibility   with  respect  to  any  statements,
warranties or representations made in or in connection with the Agreement or any
other Loan  Document  or any other  instrument  or document  furnished  pursuant
thereto  or the  execution,  legality,  validity,  enforceability,  genuineness,
sufficiency  or value of the  Agreement,  any other Loan  Document  or any other
instrument or document  furnished  pursuant  thereto,  other than that it is the
legal and  beneficial  owner of the interest  being assigned by it hereunder and
that such  interest is free and clear of any adverse  claim created by it; (iii)
makes no representation  or warranty and assumes no responsibility  with respect
to the solvency or financial condition of the Borrower or the Guarantors, or the
performance  or  observance  by the Borrower or the  Guarantors  of any of their
obligations under the Agreement, any other Loan Document or any other instrument
or document  furnished  pursuant  thereto;  and (iv) confirms that its Revolving
Credit Note shall be exchanged as of the Effective Date for two Revolving Credit
Notes,  each dated the  Effective  Date, to be delivered to the Assignor and the
Assignee,  in an aggregate  principal amount of  $____________  and $__________,
respectively.

                  SECTION  4.   Assignee   Representations.   The  Assignee  (i)
represents  and  warrants  that it is  legally  authorized  to enter  into  this
Assignment and Assumption  Agreement;  (ii) confirms that it has received copies
of the  Agreement  and the other Loan  Documents,  together  with copies of such
other  documents and  information  as it has deemed  appropriate to make its own
credit  analysis  and  decision  to enter into this  Assignment  and  Assumption
Agreement;  (iii) attaches the forms  prescribed by the Internal Revenue Service
of the United  States  certifying  as to the  Assignee's  status for purposes of
determining  exemption from United States  withholding taxes with respect to all
payments to be made to the Assignee  under the  Agreement  and the Notes or such
other  documents as are necessary to indicate that all such payments are subject
to such rates at a rate reduced by an applicable tax treaty; (iv) agrees that it
will,  independently  and without  reliance upon the Agent,  the Assignor or any
other  Bank and  based  on such  documents  and  information  as it  shall  deem
appropriate at the time,  continue to make its own credit decisions in taking or
not taking  action under the  Agreement  and the other Loan  Documents;  and (v)
agrees that it will perform in accordance  with their terms all the  obligations
which by the terms of the  Agreement  are  required to be  performed  by it as a
Bank.



<PAGE>



                  SECTION 5. Payments.  As consideration  for the assignment and
sale contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on
the date hereof in federal funds an amount equal to the outstanding principal of
the Revolving  Credit Loans and any outstanding  Letter of Credit  reimbursement
obligations  assigned  hereunder.  Each of the Assignor and the Assignee  hereby
agrees that if either of them  receives  any amount  under the  Agreement or any
other Loan Document which is for the account of the other,  it shall receive the
same for the  account  of such other  party to the extent of such other  party's
interest  herein and shall  promptly pay the same to the Agent on behalf of such
other party.

                  SECTION 6. Effectiveness.  Subject to the remaining provisions
of this  Section  6,  the  effective  date for this  Assignment  and  Assumption
Agreement  shall be  ___________,  ____ (the  "Effective  Date").  Following the
execution of this Assignment and Assumption  Agreement,  it will be delivered by
the Assignor to the Agent for  acknowledgment  and  recording by the Agent.  The
Assignor  agrees to pay to the Agent,  on or prior to the  Effective  Date,  the
$3,500.00  assignment  fee  required  by  Section  8.07 of the  Agreement.  This
Assignment and Assumption Agreement shall become effective,  as of the Effective
Date,  upon (i) its  execution by the Agent and (ii) if required by Section 8.07
of the Agreement, the consent of the Borrower.

                  SECTION 7. Effect of  Assignment.  On and after the  Effective
Date,  (i) the  Assignee  shall be a party to the  Agreement  and the other Loan
Documents  to which each Bank is a party and,  to the  extent  provided  in this
Assignment and Assumption Agreement,  shall have the rights and obligations of a
Bank and (ii) the Assignor  shall, to the extent provided in this Assignment and
Assumption Agreement, relinquish its rights and be released from its obligations
under the Agreement and the other Loan Documents to which it is a party.

                  SECTION 8.  Payments.  From and after the Effective  Date, the
Agent  shall  make all  payments  in  respect of the  interest  assigned  hereby
(including payments of principal, interest and other amounts) to the Assignee.

     SECTION 9. Governing Law. This Assignment and Assumption Agreement shall be
governed by and construed in accordance with the laws of the State of New York.

                  SECTION  10.  Counterparts.  This  Assignment  and  Assumption
Agreement may be signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were upon
the same instrument.



<PAGE>



                  IN WITNESS WHEREOF,  the parties have caused this Agreement to
be executed and delivered by their duly authorized officers as of the date first
above written.

[ASSIGNOR]

By:_____________________
   Name:
   Title:


[ASSIGNEE]

By:_____________________
   Name:
   Title:


EUROPEAN AMERICAN BANK, as Agent

By:____________________
   Name:
   Title:


<PAGE>



                               CONSENT OF BORROWER



                  Manchester  Equipment  Co.,  Inc.,  the  Borrower  under  that
certain Loan Agreement dated as of ____________, 199_ among Manchester Equipment
Co. Inc.,  certain  Guarantors and European  American  Bank, as Agent,  European
American Bank and KeyBank  National  Association as lending banks, as amended or
supplemented  from  time to  time  (the  "Agreement"),  hereby  consents  to the
attached Assignment and Assumption  Agreement and the transactions  contemplated
thereby.


Date:_______________                             MANCHESTER EQUIPMENT CO., INC.

                                               By:_________________________
                                                      Name: Barry Steinberg
                                                     Title: