LOAN AGREEMENT

                            Dated as of July 21, 1998


         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") and COASTAL OFFICE PRODUCTS,  INC., a Maryland  corporation  having
its principal place of business at 4812 Frankford  Avenue,  Baltimore,  MD 21206
("Coastal"  or a  "Guarantor"),  THE  BANK  OF  NEW  YORK,  a New  York  banking
organization,  having an office at 604 Broad  Hollow  Road,  Melville,  New York
11747  ("BNY"  or  a  "Bank"),  EUROPEAN  AMERICAN  BANK,  a  New  York  banking
organization, having an office at EAB Plaza, Uniondale, New York 11555 ("EAB" or
a "Bank")  and THE BANK OF NEW YORK,  having an office at One Wall  Street,  New
York,  New York 10286,  as agent for the Banks (the  "Agent"),  hereby  agree as
follows:

                               ARTICLE I



         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):

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

         "Adjusted  LIBOR Rate" means,  with respect to any Eurodollar  Loan for
any Interest Period, an interest rate per annum (rounded,

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if not already a whole  multiple of 1/100th of one (.01%) percent to the nearest
1/100th  of one  (.01%)  percent)  determined  by the  Agent  to be equal to the
quotient of (a) the LIBOR Rate divided by (b) a  percentage  equal to 100% minus
the Eurocurrency  Reserve Requirement as determined by the Agent on the date the
Adjusted LIBOR Rate is determined.

         "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 The Bank of New York,  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.

         "Alternate  Base Rate" means,  for any day, an interest  rate per annum
equal to the higher of (i) the Prime Rate in effect on such day (computed on the
basis of the actual  number of days elapsed over a year of 365/366 days) or (ii)
the Federal Funds  Effective Rate in effect on such day plus 1/2 of 1% (computed
on the basis of the actual number of days elapsed over a year of 360 days).  For
purposes of this Agreement any change in the Alternate Base Rate due to a change
in the Prime Rate or the Federal Funds  Effective Rate shall be effective on the
effective  date of such change in the Prime Rate or the Federal Funds  Effective
Rate,  respectively.  If for any reason the Agent shall have  determined  (which
determination  shall be conclusive  absent  manifest error) that it is unable to
ascertain the Federal Funds  Effective Rate for any reason,  including,  without
limitation,  the inability or failure of the Agent to obtain  sufficient bids or
publications in accordance with the terms thereof, the Alternate Base Rate shall
be  determined  without  regard to clause  (ii) of the  first  sentence  of this
definition,  until the  circumstances  giving rise to such  inability  no longer
exist.


                                                     - 2 -

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         "Alternate Base Rate Loan" means a Loan bearing interest at
the Alternate Base Rate.

         "Arranger" means BNY Capital Markets, Inc.

         "Bank" or "Banks"  means one or more, as the context  requires,  of BNY
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.

         "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-A  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.

         "Commitment  Letter" means the letter from BNY to the  Borrower,  dated
January 23, 1998,  pursuant to which BNY agreed to extend  seventy (70%) percent
of a credit  facility as  described  therein to the  Borrower  and the  Arranger
agreed to use its best efforts to arrange,  structure and syndicate  such credit
facility.

         "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

                                                     - 3 -

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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.

         "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

                                                     - 4 -

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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.

         "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

                                                     - 5 -

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treated, with such Person, as a single employer under Section 4001 of ERISA.

         "Eurocurrency  Reserve Requirement" means, with respect to the Adjusted
LIBOR Rate for an Interest Period,  the daily average of the stated maximum rate
(expressed as a decimal) at which reserves (including any marginal, supplemental
or emergency  reserves)  are required to be  maintained at the beginning of such
Interest  Period  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 Person
which is 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 Person which is 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 Person which is the Agent  against (1) any category of
liabilities that includes deposits by reference to which the Adjusted LIBOR Rate
is to be determined;  or (2) any category of extension of credit or other assets
that include loans bearing interest at an Adjusted LIBOR Rate.

         "Eurodollar  Loan" means a Loan bearing interest at a rate based on the
Adjusted LIBOR Rate in accordance with the provisions of Article II hereof.

         "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.

         "Federal Funds  Effective  Rate" means,  for any period,  a fluctuating
interest  rate per annum equal for each day during  such period to the  weighted
average of the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers,  as published for such
day (or, if such day is not a Business Day for the next preceding  Business Day)
by the Federal  Reserve  Bank of New York,  or, if such rate is not so published
for any day which is a Business Day, the average of the  quotations for such day
on such transactions  received by the Agent from three (3) federal funds brokers
of recognized standing selected by it.

         "Funded Debt" means,  as to any Person,  such Debt of such Person which
is (i) all  indebtedness or liability for borrowed money;  (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

                                                     - 6 -

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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.

         "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

                                                     - 7 -

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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 an Alternate Base
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 Alternate Base Rate Loan,
the last Business Day of each month.

         "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) no Interest Period  representing a portion of the principal required to be
paid in accordance with the

                                                     - 8 -

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scheduled  reduction  in  the  Total  Commitment  may  be  selected  unless  the
outstanding  Alternate  Base  Rate  Loans  and  Eurodollar  Loans  for which the
relevant  Interest Periods end on or prior to the date of such payment are in an
aggregate  amount which will be sufficient  to make such payment,  (iv) interest
shall accrue from and  including  the first day of such  Interest  Period to but
excluding the date of payment of such interest,  (v) no Interest Period may have
a  duration  of less than one month and (vi) 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 BNY.

         "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.

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

         "LIBOR Rate" means the rate, as reported by BNY to the Agent, quoted by
BNY to leading banks in the interbank eurodollar market as the rate at which BNY
is offering Dollar deposits in an amount equal  approximately  to the Eurodollar
Loan of BNY to which an Interest  Period  shall apply for a period equal to such
Interest

                                                     - 9 -

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Period, as quoted at approximately  11:00 a.m. (New York City time) two Business
Days prior to the first day of such Interest Period.

         "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  Alternate  Base Rate Loans  and/or one or more  Eurodollar
Loans, as the context requires.

         "Loan  Documents" means this Agreement,  the Note, the Guaranties,  the
L/C  Documents,  the  Commitment  Letter  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 March 31, 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.

         "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:


                                                     - 10 -

<PAGE>



                  (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, 1997;

                  (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.

         "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

                                                     - 11 -

<PAGE>



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 any
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;  (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 prime  commercial  lending  rate of the Person
which is the Agent as publicly announced to be in effect from time to time, each
change in the Prime Rate to be effective on the date such change is announced to
be effective.

         "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.

         "Pro Rata Share" means,  with respect to each Bank,  its pro rata share
of the initial 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

                                                     - 12 -

<PAGE>



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.

         "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".


                                                     - 13 -

<PAGE>



         "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 (i) from the date of this Agreement  until March 31, 2000 will
be  $15,000,000.00;  (ii)  from  April 1,  2000  until  March  31,  2001 will be
$12,500,000.00;  and (iii) from April 1, 2001  until the  Maturity  Date will be
$10,000,000.00.

         "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".

         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.


                                                     - 14 -

<PAGE>



                               ARTICLE II



         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 reduces  from time to time in
accordance  with the definition of "Total  Commitment"  and as it may be further
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 an Alternate Base 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 an Alternate  Base 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 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

                                                     - 15 -

<PAGE>



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.

         (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) an  Alternate  Base 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 an Alternate  Base 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 an Alternate Base 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 an Alternate  Base 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
Alternate Base 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

                                                     - 16 -

<PAGE>



Eurodollar  Loan made when such Loans are not available  shall be deemed to be a
request for an Alternate Base Rate Loan;

                  (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 an Alternate Base 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
Federal Funds  Effective 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  Alternate  Base  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  Alternate  Base Rate Loan so requested
shall exhaust the remaining available Total Commitment, such Alternate Base 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

                                                     - 17 -

<PAGE>



entitled to the benefits and subject to the provisions of this
Agreement.

         (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  Alternate  Base  Rate  Loan,  interest  shall be
payable  at a  rate  per  annum  (computed  as  provided  in the  definition  of
"Alternate  Base Rate") equal to the Alternate Base Rate plus the ABR Applicable
Margin as in effect from time to time.  Such  interest  shall be payable on each
Interest Payment Date, commencing with the first Interest Payment Date after the
date of such Alternate Base 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  Alternate  Base  Rate  or a  change  in the ABR
Applicable  Margin  shall  take  effect  as of the  date of such  change  in the
Alternate Base Rate or ABR Applicable Margin, as applicable.

         (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 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 ABR  Applicable  Margin and the LIBOR  Applicable  Margin shall
each be determined on the basis of the  Borrower's  Funded Debt to EBITDA Ratio,
as calculated based on the Borrower's consolidated

                                                     - 18 -

<PAGE>



financial  statements  for its  most  recent  fiscal  year or  quarter.  The ABR
Applicable  Margin  and the  LIBOR  Applicable  Margin  shall be  determined  as
follows:

                  (i) The  initial  ABR  Applicable  Margin  shall be -0-  basis
         points  and 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, 1998 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, 1998,  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 ABR
         Applicable  Margin shall be -0- basis  points and 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 ABR Applicable Margin shall be -0-
         basis points and 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 ABR Applicable Margin shall be -0-
         basis points and 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 ABR Applicable Margin shall be -0- basis points and 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 ABR  Applicable
Margin  shall be -0- basis points and the LIBOR  Applicable  Margin shall be 150
basis points until the Borrower delivers all required  financial  statements and
certificates at which time the ABR Applicable Margin and the LIBOR

                                                     - 19 -

<PAGE>



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 ABR Applicable  Margin and 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.

         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.


                                                     - 20 -

<PAGE>



         SECTION 2.08. Prepayment.  (a) The Borrower shall have the right at any
time and from time to time to prepay any  Alternate  Base 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.

         (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 Alternate
Base 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 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

                                                     - 21 -

<PAGE>



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);

                  (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


                                                     - 22 -

<PAGE>



                  (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.

         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

                                                     - 23 -

<PAGE>



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:

                  (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 an Alternate Base Rate Loan,  whereupon all of such Eurodollar Loans
         shall be  automatically  converted to an Alternate Base 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.  (a) 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

                                                     - 24 -

<PAGE>



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 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 an  Alternate  Base
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 an Alternate Base 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

                                                     - 25 -

<PAGE>



(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 an Alternate Base Rate Loan made hereunder at the time such required payments
were not made.

         (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 Alternate  Base 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 cumulate
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

                                                     - 26 -

<PAGE>



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.


                                                     - 27 -

<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;

                                                     - 28 -

<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.

                                                     - 29 -

<PAGE>



The Honor Date shall,  in every case,  be not later than five (5) Business  Days
prior to the Maturity Date.

         (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,  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.

         (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

                                                     - 30 -

<PAGE>



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 make 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.

         (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

                                                     - 31 -

<PAGE>



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;

                  (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

                                                     - 32 -

<PAGE>



         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%.


                                                     - 33 -

<PAGE>



                               ARTICLE III



         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.

         (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

                                                     - 34 -

<PAGE>



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  AT&T   Commercial   Finance
Corporation and Deutsche have each released any security interest it may have in
the assets of the  Borrower,  and that  corresponding  Uniform  Commercial  Code
termination statements have been filed in the appropriate filing offices.

         (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) the fees and expenses to be paid pursuant to
this Agreement,  and (y) those other fees, charges and expenses as the Borrower,
the Banks 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

                                                     - 35 -

<PAGE>



or Chief Financial Officer of the Borrower dated the date hereof,
stating that:

                  (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

                                                     - 36 -

<PAGE>



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:

         (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) if requested by the
Agent, copies of all contracts, documents and agreements relating to the pending
Permitted  Acquisition  (the  "Acquisition  Documents"),  and (ii) in all cases,
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.



                                                     - 37 -

<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.

         (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

                                                     - 38 -

<PAGE>



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,
1997,  and for the fiscal  quarter  ended  January 31, 1998 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.

         (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,

                                                     - 39 -

<PAGE>



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.

         (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

                                                     - 40 -

<PAGE>



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.

         (q) Casualties.  Neither the business nor the properties of
the Borrower, any Guarantor or any Subsidiary of the Borrower or a

                                                     - 41 -

<PAGE>



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.

                                                     - 42 -

<PAGE>



                               ARTICLE V



         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 KMPG Peat  Marwick 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.

         (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

                                                     - 43 -

<PAGE>



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.

         (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

                                                     - 44 -

<PAGE>



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.

         (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

                                                     - 45 -

<PAGE>



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;  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 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;


                                                     - 46 -

<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 or permits
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.

         (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

                                                     - 47 -

<PAGE>



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;


                                                     - 48 -

<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;


                                                     - 49 -

<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.

         (g) Transactions With Affiliates.  (i) Except in the ordinary
course of business and pursuant to the reasonable requirements of

                                                     - 50 -

<PAGE>



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.

         (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

                                                     - 51 -

<PAGE>



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
$1,800,000.00 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 (i)  $3,000,000.00  in the aggregate during
the fiscal year ending July 31,  1998 and (ii)  $2,500,000.00  in the  aggregate
during any fiscal year thereafter.

         (c) Quick Asset Ratio.  The Borrower and the Guarantors will
maintain at all times, on a consolidated basis, a Quick Asset Ratio

                                                     - 52 -

<PAGE>



of not less than 1.00 to 1.00, such ratio to be tested at the end of each fiscal
quarter.

         (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.



                                                     - 53 -

<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

         (e) The Borrower,  any Guarantor or any Subsidiary of the Borrower or a
Guarantor shall generally not pay its Debts as such

                                                     - 54 -

<PAGE>



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

         (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

                                                     - 55 -

<PAGE>



(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.

         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

                                                     - 56 -

<PAGE>



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.

                                                     - 57 -

<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.

         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

                                                     - 58 -

<PAGE>



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.

         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 BNY, 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

                                                     - 59 -

<PAGE>



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.

         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

                                                     - 60 -

<PAGE>



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.


                                                     - 61 -

<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.


                                                     - 62 -

<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.

         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

                                                     - 63 -

<PAGE>



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.

                                                     - 64 -

<PAGE>



                               ARTICLE VIII



         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.

         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  Manchester  Equipment  Co.,  Inc.  Account
Officer,  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.  Copies of all notices to the Borrower or any
Guarantor shall be sent to Joel Rothlein, Esq., Kressel,  Rothlein and Roth, 684
Broadway,

                                                     - 65 -

<PAGE>



Massapequa,  New  York  11758.  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.

         SECTION 8.05.  Right of Set-off.  Upon the occurrence and
during the continuance of any Event of Default, the Banks each are

                                                     - 66 -

<PAGE>



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.

         (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

                                                     - 67 -

<PAGE>



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.

         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.

                                                     - 68 -

<PAGE>




         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 provided, however, that to the extent that
the provisions of the Commitment Letter are not inconsistent with the provisions
of this Agreement and the other Loan  Documents but are cumulative  with respect
thereto,  such  provisions of the Commitment  Letter shall survive the execution
and delivery of this Agreement.

         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.


                                                     - 69 -

<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.

THE BANK OF NEW YORK, as Agent                         ELECTROGRAPH SYSTEM, INC.

By:____________________________                        By:______________________
   Name:          Gerard Waters                        Name: Barry R. Steinberg
   Title:  Vice President                             Title: President


THE BANK OF NEW YORK                               COASTAL OFFICE PRODUCTS, INC.

By:____________________________                     By:______________________
   Name:          Gerard Waters                      Name: Barry R. Steinberg
   Title:  Vice President                            Title: President

EUROPEAN AMERICAN BANK

By:____________________________
   Name: Stuart Berman
   Title: Vice President

MANCHESTER EQUIPMENT CO., INC.

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

MANCHESTER INTERNATIONAL LTD.

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

MANTECH COMPUTER SERVICES, INC.

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

MEC LEASING GROUP, LTD.

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

MANCHESTER SOLUTIONS, INC.

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

                                                     - 70 -

<PAGE>



                                  SCHEDULE 1.01

                         Total Commitments of Each Bank

                                            Initial
                                        Dollar Amount             Pro Rata Share

The Bank of New York                 -  $    10,500,000.00              70%

European American Bank               -  $     4,500,000.00              30%







                                                     - 71 -

<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 TO     SHAREHOLDER
                          DO BUSINESS

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



MEC Leasing Group,
Ltd.
160 Oser Avenue
Hauppauge, NY 11788
New York Corporation
doing Business in
State of New York.
Manchester Equipment
Co., Inc. Sole
Shareholder
Manchester
Solutions, Inc.
160 Oser Avenue
Hauppauge, NY 11788
New York Corporation
doing Business in
State of New York.
Manchester Equipment
Co., Inc. Sole
Shareholder
Manchester
International Ltd.
160 Oser Avenue
Hauppauge, NY 11788
New York Corporation
doing Business in
State of New York.
Manchester Equipment
Co., Inc. Sole
Shareholder
Coastal Office
Products, Inc.
4812 Frankford
Avenue
Baltimore, MD 21206
Maryland Corporation
doing Business in
State of Maryland.
Manchester Equipment
Co., Inc. Sole
Shareholder
Electrograph
Systems, Inc.
160 Oser Avenue
Hauppauge, NY 11788
New York Corporation
doing Business in
New York, Maryland,
California, Texas.








Manchester Equipment
Co., Inc. Sole
Shareholder





                                                     - 72 -

<PAGE>



                                SCHEDULE 4.01(g)

                                   Litigation

                             (Borrower as Defendant)

United States District Court, Eastern District of New York
                              97 CV 1504(TCP)(MLD)

Vincent Manngard, Raymond M. Wapner and Kurt Joerger, On Behalf of
Themselves and Others Similarly Situated, Plaintiffs,

         -against-

Manchester Equipment Co., Inc., Barry R. Steinberg, Joel G. Stemple
and Joseph Looney, Defendants.

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

         This  Class  Action  on  behalf of the  Shareholders  has been  settled
pending a final approval of the settlement terms by the Court.

         The Bar date has long passed without any party objecting or opting out.
Accordingly,  there is no  reason  to doubt  that the  Court  will  approve  the
settlement.

                                                     - 73 -

<PAGE>

<TABLE>
<CAPTION>


                                SCHEDULE 4.01(s)

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

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

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

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

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


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

International                 Capital Lease                 $71,667.58                        None
Business                      of AS400-Main                 (Balance)   
Machines                      Frame Computer                
Corporation                   for Manchester
                              Equipment Co.,
                              Inc.          

</TABLE>



                                                     - 74 -

<PAGE>

<TABLE>
<CAPTION>


Creditor                   Nature of                 Amount of    Liens Securing
                           Agreement                 Credit          Credit

<S>                        <C>                      <C>           <C>  


First National            Auto Loan of             $5,164.79        On Title  
Bank                      Coastal Office           (Balance)        
                          Products,                
                          Inc., a       
                          Subsidiary of 
                          Manchester    
                          Equipment Co.,
                          Inc.          

First National            Auto Loan of             $8,334.88        On Title 
Bank                      Coastal Office           (Balance)        
                          Products, Inc.           
                          a Subsidiary  
                          of Manchester 
                          Equipment Co.,
                          Inc.          

GMAC                      Auto Loan of                  $9,918.45   On Title
                          Coastal Office                (Balance) 
                          Products, Inc.                
                          a Subsidiary   
                          of Manchester  
                          Equipment Co., 
                          Inc.           

GMAC                      Auto Loan of                  $10,481.49   On Title 
                          Coastal Office                (Balance)   
                          Products, Inc.                
                          a Subsidiary  
                          of Manchester 
                          Equipment Co.,
                          Inc.          

Ford Motor                Auto Loan of                  $222.04         On Title
Credit                    Coastal Office                (Balance)
                          Products, Inc.                
                          a Subsidiary  
                          of Manchester 
                          Equipment Co.,
                          Inc.          

Ford Motor                Auto Loan of                    $222.04       On Title 
Credit                    Coastal Office                            
                          Products, Inc.
                          a Subsidiary  
                          of Manchester 
                          Equipment Co.,
                          Inc.          


</TABLE>



                                                     - 75 -

<PAGE>







                                SCHEDULE 5.02(a)


Creditor             Amount              Property Subject to Lien



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

                                                     - 76 -

<PAGE>



                                SCHEDULE 5.02(b)



     Creditor                                   Amount


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

                                                     - 77 -

<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.



                                                     - 78 -

<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 The Bank of New York, as
Agent, located at 604 Broad Hollow Road, Melville, New York 11747, 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.

                                                     - 79 -

<PAGE>



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, The Bank of New York,
as  Agent,  The Bank of New  York,  and  European  American  Bank,  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.
         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

                                                     - 80 -

<PAGE>



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:



                                                     - 81 -

<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   

























                                                     - 82 -

<PAGE>



                                    EXHIBIT B

                       ASSIGNMENT AND ASSUMPTION AGREEMENT


                  ASSIGNMENT AND ASSUMPTION  AGREEMENT (the "Assignment")  dated
as   of   __________________   among   ___________________   (the   "Assignor"),
________________  (the  "Assignee")  and THE BANK OF NEW  YORK,  as  Agent  (the
"Agent").

                                   WITNESSETH

                  WHEREAS,   this  Assignment  and  Assumption   Agreement  (the
"Assignment") relates to the Loan Agreement dated July __, 1998 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").

                  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

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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.

                  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

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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  ___________,  19__ (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.



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                  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:


THE BANK OF NEW YORK, as Agent

By:____________________
   Name:
   Title:


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                               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 The Bank of New York, as Agent and The Bank of
New  York,  and  European   American  Bank  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:
                                                         Title:


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