CREDIT AGREEMENT

        THIS AGREEMENT is entered into as of December 15, 
1998, by and between BEI TECHNOLOGIES, INC., a Delaware 
corporation ("BEI"), and BEI SENSORS & SYSTEMS COMPANY, 
INC., a Delaware corporation (individually and collectively, 
"Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION 
("Bank").


RECITAL

        Borrower has requested from Bank the credit 
accommodation described below, and Bank has agreed to 
provide said credit accommodation to Borrower on the terms 
and conditions contained herein. 

        Borrower has entered into a Note Purchase Agreement 
with certain Purchasers dated as of November 16, 1998 
relating to the issuance by Borrower of $35,000,000 6.70% 
Senior Notes due November 16, 2005 (the "Note Purchase 
Agreement").

        NOW, THEREFORE, for valuable consideration, the 
receipt and sufficiency of which are hereby acknowledged, 
Bank and Borrower hereby agree as follows:


                                       ARTICLE I
DEFINED TERMS

"Bank" has the meaning set forth in the introductory 
paragraph.

"Borrower" has the meaning set forth in the introductory 
paragraph.

"Consolidated" as used in this Agreement applies to 
Borrower and its Restricted Subsidiaries.

"Current Ratio" means the ratio of current assets to 
current liabilities, determined in accordance with GAAP. 

"EBITDA" has the meaning ascribed to "Consolidated 
EBITDA" in the Note Purchase Agreement.

"Fixed Charge Coverage Ratio" has the meaning ascribed to 
it in the Note Purchase Agreement.

"Funded Debt" means the outstanding principal balance of 
all interest bearing obligations (inclusive of capitalized 
lease obligations), determined in accordance with GAAP.

"GAAP" means generally accepted accounting principles, 
consistently applied. 

"Investment" has the meaning ascribed to it in the Note 
Purchase Agreement.

"Lien" has the meaning ascribed to it in the Note Purchase 
Agreement.

"Note Purchase Agreement" has the meaning ascribed to it 
in the Recitals.

"Selected Provisions" means Sections 10.6, 10.7, 10.8 and 
10.10 of the Note Purchase Agreement.

"Restricted Payments" has the meaning ascribed to it in 
the Note Purchase Agreement. 

"Restricted Subsidiaries" has the meaning ascribed to it 
in the Note Purchase Agreement.

"Tangible Net Worth" has the meaning ascribed to it in the 
Note Purchase Agreement. 

In the event that, for any reason, the Note Purchase 
Agreement terminates prior to the termination of this 
Agreement, the Selected Provisions (including the 
definitions of all defined terms used therein) and the 
definitions of "Investment", "Lien", "Restricted 
Payments", "Restricted Payments", "Restricted 
Subsidiaries" and "Tangible Net Worth" shall be deemed to 
be incorporated into and made part of this Agreement as 
though fully set forth herein and shall remaining binding 
upon Borrower. 


ARTICLE I
THE CREDIT

         SECTION 1.1.    LINE OF CREDIT.

        (a)     Line of Credit.  Subject to the terms and 
conditions of this Agreement, Bank hereby agrees to make 
advances to Borrower from time to time up to and including 
December 15, 2000, not to exceed at any time the aggregate 
principal amount of Thirteen Million Dollars 
($13,000,000.00) ("Line of Credit"), the proceeds of which 
shall be used to finance working capital requirements, 
capital expenditures and other corporate purposes; provided, 
however, that availability under the Line of Credit shall be 
limited to $12,000,000.00 until such time as Bank has 
received and reviewed BEI's FYE 1999 audited financial 
statement which reflects a ratio of Funded Debt to EBITDA of 
not greater than 3.00 to 1.00 for the fiscal year then 
ended, at which time (assuming no Event of Default then 
exists) availability under the Line of Credit shall be 
increased to $13,000,000.00. Borrower's obligation to repay 
advances under the Line of Credit shall be evidenced by a 
promissory note substantially in the form of Exhibit A 
attached hereto ("Line of Credit Note"), all terms of which 
are incorporated herein by this reference.

        (b)     Letter of Credit Subfeature.  As a subfeature 
under the Line of Credit, Bank agrees from time to time 
during the term thereof to issue commercial or standby 
letters of credit for the account of Borrower to finance 
working capital requirements, capital expenditures and other 
corporate purposes (each, a "Letter of Credit" and 
collectively, "Letters of Credit"); provided however, that 
the form and substance of each Letter of Credit shall be 
subject to approval by Bank, in its sole discretion; and 
provided further, that the aggregate undrawn amount of all 
outstanding Letters of Credit shall not at any time exceed 
Three Million  Dollars ($3,000,000.00).  Each Letter of 
Credit shall be issued for a term not to exceed 365 days, as 
designated by Borrower; provided however, that no Letter of 
Credit shall have an expiration date subsequent to the 
maturity date of the Line of Credit.  The undrawn amount of 
all Letters of Credit shall be reserved under the Line of 
Credit and shall not be available for borrowings thereunder.  
Each Letter of Credit shall be subject to the additional 
terms and conditions of the Letter of Credit Agreement and 
related documents, if any, required by Bank in connection 
with the issuance thereof (each, a "Letter of Credit 
Agreement" and collectively, "Letter of Credit Agreements").  
Each draft paid by Bank under a Letter of Credit shall be 
deemed an advance under the Line of Credit and shall be 
repaid by Borrower in accordance with the terms and 
conditions of this Agreement applicable to such advances; 
provided however, that if advances under the Line of Credit 
are not available, for any reason, at the time any draft is 
paid by Bank, then Borrower shall immediately pay to Bank 
the full amount of such draft, together with interest 
thereon from the date such amount is paid by Bank to the 
date such amount is fully repaid by Borrower, at the rate of 
interest applicable to advances under the Line of Credit.  
In such event Borrower agrees that Bank, in its sole 
discretion, may debit any demand deposit account maintained 
by Borrower with Bank for the amount of any such draft.

        (c)     Borrowing and Repayment.  Borrower may from time 
to time during the term of the Line of Credit borrow, 
partially or wholly repay its outstanding borrowings, and 
reborrow, subject to all of the limitations, terms and 
conditions contained herein or in the Line of Credit Note; 
provided however, that the total outstanding borrowings 
under the Line of Credit shall not at any time exceed the 
maximum principal amount available thereunder, as set forth 
above.

        SECTION 1.2.    INTEREST/FEES.

        (a)     Interest.  The outstanding principal balance of 
the Line of Credit Note shall bear interest at the rate of 
interest set forth in the Line of Credit Note.

        (b)     Letter of Credit Fees.  Borrower shall pay to 
Bank (i) fees upon the issuance of each standby Letter of 
Credit equal to one and one-half percent (1.50%) of the face 
amount thereof, and Borrower shall pay to Bank fees upon the 
issuance of each commercial Letter of Credit, upon the 
payment or negotiation by Bank of each draft under any 
Letter of Credit and upon the occurrence of any other 
activity with respect to any Letter of Credit (including 
without limitation, the transfer, amendment or cancellation 
of any Letter of Credit) determined in accordance with 
Bank's standard fees and charges then in effect for such 
activity.

        (c)     Computation and Payment.  Interest and fees 
(computed on a "per annum" basis) shall be computed on the 
basis of a 360-day year, actual days elapsed.  Interest 
shall be payable at the times and place set forth in the 
Line of Credit Note.

        (d)     Unused Commitment Fee.  Borrower shall pay to 
Bank a fee equal to twelve hundredths percent (0.12%) per 
annum (computed on the basis of a 360-day year, actual days 
elapsed) on the average daily unused amount of the Line of 
Credit, which fee shall be calculated on a monthly basis by 
Bank and shall be due and payable by Borrower in arrears 
within ten (10) days after each billing is sent by Bank.

        SECTION 1.3.    COLLECTION OF PAYMENTS.  Borrower 
authorizes Bank to collect all interest and fees due under 
the Line of Credit by charging Borrower's demand deposit 
account number 4435-786082 with Bank, or any other demand 
deposit account maintained by Borrower with Bank, for the 
full amount thereof.  Should there be insufficient funds in 
any such demand deposit account to pay all such sums when 
due, the full amount of such deficiency shall be immediately 
due and payable by Borrower.


ARTICLE II
REPRESENTATIONS AND WARRANTIES

        Borrower makes the following representations and 
warranties to Bank, which representations and warranties 
shall survive the execution of this Agreement and shall 
continue in full force and effect until the full and final 
payment, and satisfaction and discharge, of all obligations 
of Borrower to Bank subject to this Agreement.

        SECTION 2.1.    LEGAL STATUS.  Borrower is a 
corporation, duly organized and existing and in good 
standing under the laws of the state of Delaware, and is 
qualified or licensed to do business (and is in good 
standing as a foreign corporation, if applicable) in all 
jurisdictions in which such qualification or licensing is 
required or in which the failure to so qualify or to be so 
licensed could, with reasonable likelihood, have a material 
adverse effect on BEI and its Restricted Subsidiaries taken 
as a whole.

        SECTION 2.2.    AUTHORIZATION AND VALIDITY.  This 
Agreement, the Line of Credit Note, and each other document, 
contract and instrument required hereby or at any time 
hereafter delivered to Bank in connection herewith 
(collectively, the "Loan Documents") have been duly 
authorized, and upon their execution and delivery in 
accordance with the provisions hereof will constitute legal, 
valid and binding agreements and obligations of Borrower or 
the party which executes the same, enforceable in accordance 
with their respective terms, except as such enforceability 
may be limited by (i) applicable bankruptcy, insolvency, 
reorganization, moratorium or other similar laws affecting 
the rights of creditors generally, and (ii) general 
principles of equity (regardless of whether such 
enforceability is considered in equity or at law).

        SECTION 2.3.    NO VIOLATION.  The execution, 
delivery and performance by Borrower of each of the Loan 
Documents do not violate any provision of any law or 
regulation, or contravene any provision of the Certificates 
of Incorporation or By-Laws of Borrower, or result in any 
breach of or default under any contract, obligation, 
indenture or other instrument to which Borrower is a party 
or by which Borrower may be bound.

        SECTION 2.4.    LITIGATION.  There are no pending, 
or to the best of Borrower's knowledge, threatened actions, 
claims, investigations, suits or proceedings by or before 
any governmental authority, arbitrator, court or 
administrative agency which could, with reasonable 
likelihood, have a material adverse effect on the financial 
condition or operation of BEI and its Restricted 
Subsidiaries taken as a whole, other than those disclosed by 
Borrower to Bank in writing prior to the date hereof.

        SECTION 2.5.    CORRECTNESS OF FINANCIAL STATEMENT.  
The financial statement of Borrower dated July 4, 1998, a 
true copy of which has been delivered by Borrower to Bank 
prior to the date hereof, (a) is complete and correct and 
presents fairly the Consolidated financial condition of 
Borrower, (b) discloses all liabilities of Borrower that are 
required to be reflected or reserved against under GAAP 
(subject, in the case of any interim financial statements, 
to normal year-end adjustments and normal limited footnote 
disclosure for interim financial statements) except as set 
forth in the notes thereto, and (c) has been prepared in 
accordance with GAAP.  Since the date of such financial 
statement there has been no material adverse change in the 
financial condition of Borrower, nor has Borrower mortgaged, 
pledged, granted a security interest in or otherwise 
encumbered any of its assets or properties except in favor 
of Bank or as otherwise permitted pursuant to Section 10.8 
of the Note Purchase Agreement. 

        SECTION 2.6.    INCOME TAX RETURNS.  Borrower has no 
knowledge of any pending assessments or adjustments of its 
income tax payable with respect to any year including and 
prior to the fiscal year ending September 30, 1995.

        SECTION 2.7.    NO SUBORDINATION.  There is no 
agreement, indenture, contract or instrument to which 
Borrower is a party or by which Borrower may be bound that 
requires the subordination in right of payment of any of 
Borrower's obligations subject to this Agreement to any 
other obligation of Borrower.

        SECTION 2.8.    PERMITS, FRANCHISES.  Borrower 
possesses all permits, consents, approvals, franchises and 
licenses required and rights to all trademarks, trade names, 
patents, and fictitious names, if any, necessary to enable 
it to conduct the business in which it is now engaged in 
compliance with applicable law, except those, which if not 
possessed, have not resulted and could not be reasonably 
expected to result in a material adverse effect on BEI and 
its Restricted Subsidiaries taken as a whole.

        SECTION 2.9.    ERISA.  Borrower is in compliance in 
all material respects with all applicable provisions of the 
Employee Retirement Income Security Act of 1974, as amended 
or recodified from time to time ("ERISA") except for such 
instances of non-compliance as have not resulted and could 
not be reasonably expected to result in a material adverse 
effect on BEI and its Restricted Subsidiaries taken as a 
whole; Borrower has not violated any provision of any 
defined employee pension benefit plan (as defined in ERISA) 
maintained or contributed to by Borrower (each, a "Plan"); 
no Reportable Event as defined in ERISA has occurred and is 
continuing with respect to any Plan initiated by Borrower; 
Borrower has met its minimum funding requirements under 
ERISA with respect to each Plan; and each Plan will be able 
to fulfill its benefit obligations as they come due in 
accordance with the Plan documents and under generally 
accepted accounting principles.

        SECTION 2.10.   OTHER OBLIGATIONS.  Borrower is not 
in default on any obligation for borrowed money, any 
purchase money obligation or any other material lease, 
commitment, contract, instrument or obligation, which 
default could be reasonably expected to have a material 
adverse effect on BEI and its Restricted Subsidiaries taken 
as a whole.

        SECTION 2.11.   ENVIRONMENTAL MATTERS.  Except as 
disclosed by Borrower to Bank in writing prior to the date 
hereof and except as to non-compliance which has not 
resulted and could not be reasonably expected to result in a 
material adverse effect on BEI and its Restricted 
Subsidiaries taken as a whole, Borrower is in compliance in 
all material respects with all applicable federal or state 
environmental, hazardous waste, health and safety statutes, 
and any rules or regulations adopted pursuant thereto, which 
govern or affect any of Borrower's operations and/or 
properties, including without limitation, the Comprehensive 
Environmental Response, Compensation and Liability Act of 
1980, the Superfund Amendments and Reauthorization Act of 
1986, the Federal Resource Conservation and Recovery Act of 
1976, and the Federal Toxic Substances Control Act, as any 
of the same may be amended, modified or supplemented from 
time to time.  To the best of Borrower's knowledge, none of 
the operations of Borrower is the subject of any federal or 
state investigation evaluating whether any remedial action 
involving a material expenditure is needed to respond to a 
release of any toxic or hazardous waste or substance into 
the environment.  To the best of Borrower's knowledge, 
Borrower has no material contingent liability in connection 
with any release of any toxic or hazardous waste or 
substance into the environment.


ARTICLE III
CONDITIONS

        SECTION 3.1.    CONDITIONS OF INITIAL EXTENSION OF 
CREDIT.  The obligation of Bank to extend any credit 
contemplated by this Agreement is subject to the fulfillment 
to Bank's satisfaction of all of the following conditions:

        (a)     Approval of Bank Counsel.  All legal matters 
incidental to the extension of credit by Bank shall be 
satisfactory to Bank's counsel.

        (b)     Documentation.  Bank shall have received, in 
form and substance satisfactory to Bank, each of the 
following, duly executed:

     (i)        This Agreement and the Line of Credit Note.
    (ii)        Corporate Resolution: Borrowing.
   (iii)  Certificate of Incumbency.
    (iv)        Certificates of Incorporation.
        (v)  Note Purchase Agreement.
     (vi)       Such other documents as Bank may reasonably 
require under any other Section of this Agreement.
        (c)     Financial Condition.  There shall have been no 
material adverse change, as determined by Bank, in the 
Consolidated financial condition or business of BEI and its 
Restricted Subsidiaries, nor any material decline, as 
determined by Bank, in the market value of a substantial or 
material portion of the assets of BEI and its Restricted 
Subsidiaries.

        SECTION 3.2.    CONDITIONS OF EACH EXTENSION OF 
CREDIT.  The obligation of Bank to make each extension of 
credit requested by Borrower hereunder shall be subject to 
the fulfillment to Bank's satisfaction of each of the 
following conditions:

        (a)     Compliance.  The representations and warranties 
contained herein and in each of the other Loan Documents 
shall be true in all material respects on and as of the date 
of the signing of this Agreement; and on the date of each 
extension of credit hereunder, no Event of Default as 
defined herein, and no condition, event or act which with 
the giving of notice or the passage of time or both would 
constitute such an Event of Default, shall have occurred and 
be continuing or shall exist.

        (b)     Documentation.  Bank shall have received all 
additional documents which may be reasonably requested in 
connection with such extension of credit.


ARTICLE IV
AFFIRMATIVE COVENANTS

        Borrower covenants that so long as Bank remains 
committed to extend credit to Borrower pursuant hereto, or 
any liabilities (whether direct or contingent, liquidated or 
unliquidated) of Borrower to Bank under any of the Loan 
Documents remain outstanding, and until payment in full of 
all obligations of Borrower subject hereto, BEI shall, and 
shall cause its Restricted Subsidiaries to, unless Bank 
otherwise consents in writing:

        SECTION 4.1.    PUNCTUAL PAYMENTS.  Punctually pay 
all principal, interest, fees or other liabilities due under 
any of the Loan Documents at the times and place and in the 
manner specified therein.

        SECTION 4.2.    ACCOUNTING RECORDS.  Maintain 
adequate books and records in accordance with generally 
accepted accounting principles consistently applied 
(subject, in the case of any interim financial statements, 
to normal year-end adjustments and normal limited footnote 
disclosure for interim financial statements), and permit any 
representative of Bank, at any reasonable time (and, if no 
Event of Default exists, upon reasonable prior notice to 
Borrower), to inspect, audit and examine such books and 
records, to make copies of the same, and to inspect the 
properties of Borrower and the Restricted Subsidiaries.

        SECTION 4.3.    FINANCIAL STATEMENTS.  Provide to 
Bank all of the following, in form and detail satisfactory 
to Bank:

        (a)     not later than 120 days after and as of the end 
of each fiscal year, an audited unqualified Consolidated 
financial statement of BEI, prepared by independent 
certified public accountants of recognized national 
standing, to include balance sheet, income statement, 
statement of cash flows and footnotes;

        (b)     not later than 60 days after and as of the end 
of each fiscal quarter, a Consolidated financial statement 
of Borrower, prepared by Borrower, to include balance sheet, 
income statement and statement of cash flows;   

        (c)     promptly upon their becoming available, one copy 
of all proxy statements, financial statements, reports, and 
notices sent or made available generally by BEI to its 
security holders or to any holders of its debt and all 
regular, periodic and special reports, and all registration 
statements filed with the Securities and Exchange Commission 
or any governmental authority that may be substituted 
therefor, or with any national securities exchange;

        (d)     contemporaneously with each annual financial 
statement of Borrower required hereby, a certificate of the 
president, chief financial officer or treasurer of Borrower 
that said financial statements fairly present, in all 
material respects, the financial position of the companies 
being reported on and their results of operations and cash 
flows, subject to changes resulting from year end 
adjustments, that there exists no Event of Default nor any 
condition, act or event which with the giving of notice or 
the passage of time or both would constitute an Event of 
Default, with such certificate to include calculations 
demonstrating compliance with financial covenants herein and 
in the Note Purchase Agreement;

        (e)     from time to time such other information as Bank 
may reasonably request.

        SECTION 4.4.    COMPLIANCE.  Preserve and maintain 
all licenses, permits, governmental approvals, rights, 
privileges and franchises necessary for the conduct of its 
business; and comply with the provisions of all documents 
pursuant to which Borrower is organized and/or which govern 
Borrower's and the Restricted Subsidiaries' continued 
existence and with the requirements of all laws, rules, 
regulations and orders of any governmental authority 
applicable to Borrower, the Restricted Subsidiaries and/or 
their businesses, in each instance to the extent necessary 
to ensure that non-compliance with such laws, rules, 
regulations and orders or failure to preserve and keep in 
full force and effect such licenses, permits, governmental 
approvals, rights, privileges and franchises could not have 
a material adverse effect on BEI and its Restricted 
Subsidiaries taken as a whole.

        SECTION 4.5.    INSURANCE.  Maintain and keep in 
force insurance of the types and in amounts customarily 
carried in lines of business similar to that of Borrower and 
the Restricted Subsidiaries, including but not limited to 
fire, extended coverage, public liability, property damage 
and workers' compensation, with all such insurance carried 
with companies of generally recognized standing and in 
amounts reasonably satisfactory to Bank, and deliver to Bank 
from time to time at Bank's request schedules setting forth 
all insurance then in effect.

        SECTION 4.6.    FACILITIES.  Keep all properties 
useful or necessary to Borrower's and the Restricted 
Subsidiaries' businesses in good repair and condition 
(ordinary wear and tear excepted), and from time to time 
make necessary repairs, renewals and replacements thereto so 
that such properties shall be fully and efficiently 
preserved and maintained.

        SECTION 4.7.    TAXES AND OTHER LIABILITIES.  Pay 
and discharge when due any and all indebtedness, 
obligations, assessments and taxes, both real or personal, 
including without limitation federal and state income taxes 
and state and local property taxes and assessments, except 
such (a) as Borrower or a Restricted Subsidiary may in good 
faith contest or as to which a bona fide dispute may arise, 
and for which Borrower or such Restricted Subsidiary has 
made provision, to Bank's satisfaction, for eventual payment 
thereof in the event Borrower or such Restricted Subsidiary 
is obligated to make such payment, or (b) as the nonpayment 
of which has not resulted or could not reasonably be 
expected to result in a material adverse effect on BEI and 
its Restricted Subsidiaries taken as a whole.

        SECTION 4.8.    LITIGATION.  Promptly give notice in 
writing to Bank of any litigation pending or threatened 
against Borrower or any Restricted Subsidiary with a claim 
in excess of $2,500,000.00.

        SECTION 4.9.    FINANCIAL CONDITION.  Maintain BEI's 
Consolidated financial condition as follows using generally 
accepted accounting principles consistently applied and used 
consistently with prior practices (except to the extent 
modified by the definitions herein), with compliance 
determined commencing with Borrower's financial statements 
for the period ending ____________, 1998:
        (a) Ratio of Funded Debt to EBITDA not greater than 
3.50 to 1.00, determined as of each fiscal quarter end on a 
trailing four quarter basis.

        (b) Fixed Charge Coverage Ratio not less than 2.00 to 
1.00, determined as of each fiscal quarter end on a trailing 
four quarter basis.

        (c) Current Ratio not less than 1.50 to 1.00, 
determined as of each fiscal quarter end. 

        (d) Tangible Net Worth as required in Section 10.6 of 
the Note Purchase Agreement.

        SECTION 4.10.   NOTICE TO BANK.  Promptly (but in no 
event more than five (5) days after the occurrence of each 
such event or matter) give written notice to Bank in 
reasonable detail of:  (a) the occurrence of any Event of 
Default, or any condition, event or act which with the 
giving of notice or the passage of time or both would 
constitute an Event of Default; (b) any change in the name 
of Borrower or any Restricted Subsidiary; (c) the occurrence 
and nature of any Reportable Event or Prohibited 
Transaction, each as defined in ERISA, or any funding 
deficiency with respect to any Plan; or (d) any termination 
or cancellation of any insurance policy (if not replaced 
within a reasonable period of time) which Borrower or any 
Restricted Subsidiary is required to maintain, or any 
uninsured or partially uninsured loss through liability or 
property damage, or through fire, theft or any other cause 
affecting Borrower's or such Restricted Subsidiary's 
property in excess of an aggregate of $2,500,000.00.

        SECTION 4.11.   YEAR 2000 COMPLIANCE.  Perform all 
acts reasonably necessary to ensure that (a) Borrower and 
any business in which Borrower holds a substantial interest, 
and (b) all customers, suppliers and vendors that are 
material to Borrower's and its Restricted Subsidiaries' 
businesses, become Year 2000 Compliant in a timely manner.  
Such acts shall include, without limitation, performing a 
comprehensive review and assessment of all of Borrower's 
systems and adopting a detailed plan, with itemized budget, 
for the remediation, monitoring and testing of such systems.  
As used herein, "Year 2000 Compliant" shall mean, with 
regard to any entity, that all software, hardware, firmware, 
equipment, goods or systems utilized by or material to the 
business operations or financial condition of such entity, 
will properly perform date sensitive functions before, 
during and after the year 2000.  Borrower shall, promptly 
upon request, provide to Bank such certifications or other 
evidence of compliance with the terms hereof as Bank may 
from time to time require.

        SECTION 4.12.   ERISA.  Comply in all material 
respects with all applicable provisions of the Employee 
Retirement Income Security Act of 1974, as amended or 
recodified from time to time ("ERISA") except for any non-
compliance which has not resulted or could not reasonably be 
expected to result in a material adverse effect on BEI and 
its Restricted Subsidiaries taken as a whole; not violate 
any provision of any Plan; meet its minimum funding 
requirements under ERISA with respect to each Plan; and 
cause each Plan to be able to fulfill its benefit 
obligations as they come due in accordance with the Plan 
documents and under generally accepted accounting 
principles.

        SECTION 4.13.   ENVIRONMENTAL MATTERS.  Except for 
any non-compliance which has not resulted or could not 
reasonably be expected to result in a material adverse 
effect on BEI and its Restricted Subsidiaries taken as a 
whole, comply in all material respects with all applicable 
federal or state environmental, hazardous waste, health and 
safety statutes, and any rules or regulations adopted 
pursuant thereto, which govern or affect any of Borrower's 
operations and/or properties, including without limitation, 
the Comprehensive Environmental Response, Compensation and 
Liability Act of 1980, the Superfund Amendments and 
Reauthorization Act of 1986, the Federal Resource 
Conservation and Recovery Act of 1976, and the Federal Toxic 
Substances Control Act, as any of the same may be amended, 
modified or supplemented from time to time.


ARTICLE V
NEGATIVE COVENANTS

        Borrower further covenants that so long as Bank 
remains committed to extend credit to Borrower pursuant 
hereto, or any liabilities (whether direct or contingent, 
liquidated or unliquidated) of Borrower to Bank under any of 
the Loan Documents remain outstanding, and until payment in 
full of all obligations of Borrower subject hereto, BEI will 
not, and will not Permit its Restricted Subsidiaries to, 
without Bank's prior written consent:

        SECTION 5.1.    USE OF FUNDS.  Use any of the 
proceeds of any credit extended hereunder except for the 
purposes stated in Article I hereof.

        SECTION 5.2.    NATURE OF BUSINESS.  Make any 
substantial change in the nature of BEI's and its Restricted 
Subsidiary's business, taken as a whole, as conducted as of 
the date hereof.

        SECTION 5.3.    TRANSFER OF ASSETS. Transfer any 
assets in violation of Section 10.9 of the Note Purchase 
Agreement.

        SECTION 5.4.    MERGER, CONSOLIDATION.  Merge into 
or consolidate with any other entity nor acquire (i) all or 
substantially all of the assets of any other entity, or (ii) 
all or a controlling interest of the ownership interest of 
any other entity; unless, in the case of a merger or 
consolidation, (w) the surviving entity is solvent and 
organized under the laws of the United States or any state 
thereof or the District of Columbia, (x) the surviving 
entity (if not Borrower) executes an assumption agreement in 
form and content acceptable to Bank and causes to be 
delivered to Bank a legal opinion of nationally recognized 
legal counsel, or other independent counsel reasonably 
acceptable to Bank that the assumption agreement is 
enforceable in accordance with its terms and complies with 
the terms hereof, provided, further, that (y) no single or 
affiliated transaction(s) permitted under this Section 5.4 
shall exceed an aggregate consideration of $15,000,000.00 
(exclusive of consideration consisting of stock in Borrower 
or a Restricted Subsidiary) and (z) all such transactions 
shall not exceed an aggregate consideration of 
$25,000,000.00 (exclusive of consideration consisting of 
stock in Borrower or a Restricted Subsidiary) during the 
term of the Line of Credit.

        SECTION 5.5.    GUARANTIES.  Guarantee or become 
liable in any way as surety, endorser (other than as 
endorser of negotiable instruments for deposit or collection 
in the ordinary course of business), accommodation endorser 
or otherwise for, nor pledge or hypothecate any assets of 
Borrower or Restricted Subsidiary as security for, any 
liabilities or obligations of any other person or entity, 
except any of the foregoing (a) in favor of Bank, (b) which 
are existing as of the date hereof and disclosed to Bank in 
writing prior to the date hereof, including replacements and 
substitutions thereof (but not increases thereof), and (c) 
incurred after the date hereof (including increases of items 
described in clause (b)) in an aggregate amount not to 
exceed $2,500,000.00.  

        SECTION 5.6.    INDEBTEDNESS.   Create, incur, 
assume or permit to exist any indebtedness or liabilities 
resulting from borrowings, loans or advances, whether 
secured or unsecured, matured or unmatured, liquidated or 
unliquidated, joint or several, except (a) the liabilities 
of Borrower under the Note Purchase Agreement, and (b) 
additional liabilities (inclusive of liabilities under this 
Agreement) not to exceed at any time an aggregate 
outstanding principal balance of $12,000,000.00 (increasing 
to $13,000,000.00 if and when the availability under the 
Line of Credit increases to such amount.

        SECTION 5.7.    INVESTMENTS.    Make any 
Investments in violation of Section 10.10 of the Note 
Purchase Agreement.

        SECTION 5.8.    RESTRICTED PAYMENTS.    Make any 
Restricted Payments in violation of the Section 10.7 of the 
Note Purchase Agreement.  

        SECTION 5.9.    LIENS.  Create, incur, assume or 
permit to exist (upon the happening of a contingency or 
otherwise) a Lien in violation of the terms in Section 10.8 
of the Note Purchase Agreement.

        SECTION 5.10.   SELECTED PROVISIONS        Amend, or 
agree to agree to amend (a) any of the Selected Provisions, 
or (b) any of the provisions of the Note Purchase Agreement 
if the effect thereof is to, directly or indirectly, amend 
or delete the Selected Provisions.


ARTICLE VI
EVENTS OF DEFAULT

        SECTION 6.1.    The occurrence of any of the 
following shall constitute an "Event of Default" under this 
Agreement:

        (a)     Borrower shall fail to pay when due any 
principal, or, within 5 days after the applicable due date, 
any interest, fees or other amounts payable under any of the 
Loan Documents.

        (b)     Any financial statement or certificate furnished 
to Bank in connection with, or any representation or 
warranty made by Borrower or any other party under this 
Agreement or any other Loan Document shall prove to be 
incorrect, false or misleading in any material respect when 
furnished or made.

        (c)     Any default in the performance of or compliance 
with any obligation, agreement or other provision contained 
herein or in any other Loan Document (other than those 
referred to in subsections (a) and (b) above), and with 
respect to any such default which by its nature can be 
cured, such default shall continue for a period of thirty 
(30) days from the date Borrower first learned (or, using 
reasonable due diligence, should have first learned) of such 
default.

        (d)     (i) BEI or any Restricted Subsidiary is in 
default (as principal or as guarantor or other surety) in 
the payment of any principal of or premium make-whole amount 
or interest on any Funded debt that is outstanding in an 
aggregate principal amount of at least $2,500,000 beyond any 
period of grace provided with respect thereto, or (ii) BEI 
or any Restricted Subsidiary is in default in the 
performance of or compliance with any term of any evidence 
of any Funded Debt in an aggregate outstanding principal 
amount of at least $2,500,000 or of any mortgage, indenture 
or other agreement relating thereto or any other condition 
exists, and as a consequence of such default or condition 
such Funded Debt has become, or has been declared due and 
payable before its stated maturity or before its regularly 
scheduled dates of payment, or (iii) as a consequence of the 
occurrence or continuation of any event or condition (other 
than the passage of time or the right of holder of Funded 
Debt to convert such Funded Debt into equity interests), BEI 
or any Restricted Subsidiary has become obligated to 
purchase or repay Funded Debt before its regular maturity or 
before its regularly scheduled dates of payment in an 
aggregate outstanding principal amount of at least 
$2,500,000.

        (e)     The filing of a notice of judgment lien against 
Borrower; or the recording of any abstract of judgment 
against Borrower in any county in which Borrower has an 
interest in real property; or the service of a notice of 
levy and/or of a writ of attachment or execution, or other 
like process, against the assets of Borrower; or the entry 
of a final judgment against Borrower; and, with respect to 
any of the foregoing, the amount of such judgement or writ 
exceeds $2,500,000.00, and the proceeding in question shall 
not have been dismissed or nullified within 60 days after 
its filing; provided, however, that Bank shall not be 
obligated to make advances during such 60 day period.

        (f)     Borrower shall become insolvent, or shall suffer 
or consent to or apply for the appointment of a receiver, 
trustee, custodian or liquidator of itself or any of its 
property, or shall generally fail to pay its debts as they 
become due, or shall make a general assignment for the 
benefit of creditors; Borrower shall file a voluntary 
petition in bankruptcy, or seeking reorganization, in order 
to effect a plan or other arrangement with creditors or any 
other relief under the Bankruptcy Reform Act, Title 11 of 
the United States Code, as amended or recodified from time 
to time ("Bankruptcy Code"), or under any state or federal 
law granting relief to debtors, whether now or hereafter in 
effect; or any involuntary petition or proceeding pursuant 
to the Bankruptcy Code or any other applicable state or 
federal law relating to bankruptcy, reorganization or other 
relief for debtors is filed or commenced against Borrower 
(and such involuntary petition or other proceeding shall not 
have been dismissed or nullified within 60 days after its 
filing; provided, however, that Bank shall not be obligated 
to make advances during such 60 day period), or Borrower 
shall file an answer admitting the jurisdiction of the court 
and the material allegations of any involuntary petition; or 
Borrower shall be adjudicated a bankrupt, or an order for 
relief shall be entered against Borrower by any court of 
competent jurisdiction under the Bankruptcy Code or any 
other applicable state or federal law relating to 
bankruptcy, reorganization or other relief for debtors.
        (g)     The dissolution or liquidation of Borrower; or 
Borrower, or any of its directors, stockholders or members, 
shall take action seeking to effect the dissolution or 
liquidation of Borrower. 

        (h)      Any change in ownership during the term of this 
Agreement of an aggregate of twenty-five percent (25%) or 
more of the common stock of Borrower in a single transaction 
or in a series of related transactions.

        SECTION 6.2.    REMEDIES.  Upon the occurrence of 
any Event of Default:  (a) all indebtedness of Borrower 
under each of the Loan Documents, any term thereof to the 
contrary notwithstanding, shall at Bank's option and without 
notice become immediately due and payable without 
presentment, demand, protest or notice of dishonor, all of 
which are hereby expressly waived by each Borrower; (b) the 
obligation, if any, of Bank to extend any further credit 
under any of the Loan Documents shall immediately cease and 
terminate; and (c) Bank shall have all rights, powers and 
remedies available under each of the Loan Documents, or 
accorded by law, including without limitation the right to 
resort to any or all security for any credit accommodation 
from Bank subject hereto and to exercise any or all of the 
rights of a beneficiary or secured party pursuant to 
applicable law.  All rights, powers and remedies of Bank may 
be exercised at any time by Bank and from time to time after 
the occurrence of an Event of Default, are cumulative and 
not exclusive, and shall be in addition to any other rights, 
powers or remedies provided by law or equity.


ARTICLE VII
MISCELLANEOUS

        SECTION 7.1.    NO WAIVER.  No delay, failure or 
discontinuance of Bank in exercising any right, power or 
remedy under any of the Loan Documents shall affect or 
operate as a waiver of such right, power or remedy; nor 
shall any single or partial exercise of any such right, 
power or remedy preclude, waive or otherwise affect any 
other or further exercise thereof or the exercise of any 
other right, power or remedy.  Any waiver, permit, consent 
or approval of any kind by Bank of any breach of or default 
under any of the Loan Documents must be in writing and shall 
be effective only to the extent set forth in such writing.

        SECTION 7.2.    NOTICES.  All notices, requests and 
demands which any party is required or may desire to give to 
any other party under any provision of this Agreement must 
be in writing delivered to each party at the following 
address:

        BORROWER:        BEI Technologies, Inc.
                         1 Post Street, Suite 2500
                   San Francisco, CA 94104 

        BANK:    WELLS FARGO BANK, NATIONAL ASSOCIATION
                         420 Montgomery Street, 9th Floor
                San Francisco, CA 94104  

or to such other address as any party may designate by 
written notice to all other parties.  Each such notice, 
request and demand shall be deemed given or made as follows:  
(a) if sent by hand delivery, upon delivery; (b) if sent by 
mail, upon the earlier of the date of receipt or three (3) 
days after deposit in the U.S. mail, first class and postage 
prepaid; and (c) if sent by telecopy, upon receipt of 
confirmation of transmission.

        SECTION 7.3.    COSTS, EXPENSES AND ATTORNEYS' FEES.  
Borrower shall pay to Bank immediately upon demand the full 
amount of all payments, advances, charges, costs and 
expenses, including reasonable attorneys' fees (to include 
outside counsel fees and all allocated costs of Bank's 
in-house counsel), expended or incurred by Bank in 
connection with (a) the negotiation and preparation of this 
Agreement and the other Loan Documents, Bank's continued 
administration hereof and thereof, and the preparation of 
any amendments and waivers hereto and thereto, (b) the 
enforcement of Bank's rights and/or the collection of any 
amounts which become due to Bank under any of the Loan 
Documents, and (c) the prosecution or defense of any action 
in any way related to any of the Loan Documents, including 
without limitation, any action for declaratory relief, 
whether incurred at the trial or appellate level, in an 
arbitration proceeding or otherwise, and including any of 
the foregoing incurred in connection with any bankruptcy 
proceeding (including without limitation, any adversary 
proceeding, contested matter or motion brought by Bank or 
any other person) relating to any Borrower or any other 
person or entity.

        SECTION 7.4.    SUCCESSORS, ASSIGNMENT.  This 
Agreement shall be binding upon and inure to the benefit of 
the heirs, executors, administrators, legal representatives, 
successors and assigns of the parties; provided however, 
that Borrower may not assign or transfer its interest 
hereunder without Bank's prior written consent.  Bank 
reserves the right to sell, assign, transfer, negotiate or 
grant participations in all or any part of, or any interest 
in, Bank's rights and benefits under each of the Loan 
Documents; provided, however, that in each such instance 
(other than participations), Bank shall provide not less 
that 45 days prior written notice to Borrower.  In 
connection therewith, Bank may disclose all documents and 
information which Bank now has or may hereafter acquire 
relating to any credit extended by Bank to Borrower, 
Borrower or its business, or any collateral required 
hereunder.

        SECTION 7.5.    ENTIRE AGREEMENT; AMENDMENT.  This 
Agreement and the other Loan Documents constitute the entire 
agreement between Borrower and Bank with respect to any 
extension of credit by Bank subject hereto and supersede all 
prior negotiations, communications, discussions and 
correspondence concerning the subject matter hereof.  This 
Agreement may be amended or modified only in writing signed 
by each party hereto.

        SECTION 7.6.    NO THIRD PARTY BENEFICIARIES.  This 
Agreement is made and entered into for the sole protection 
and benefit of the parties hereto and their respective 
permitted successors and assigns, and no other person or 
entity shall be a third party beneficiary of, or have any 
direct or indirect cause of action or claim in connection 
with, this Agreement or any other of the Loan Documents to 
which it is not a party.

        SECTION 7.7.    TIME.  Time is of the essence of 
each and every provision of this Agreement and each other of 
the Loan Documents.

        SECTION 7.8.    SEVERABILITY OF PROVISIONS.  If any 
provision of this Agreement shall be prohibited by or 
invalid under applicable law, such provision shall be 
ineffective only to the extent of such prohibition or 
invalidity without invalidating the remainder of such 
provision or any remaining provisions of this Agreement.

        SECTION 7.9.    COUNTERPARTS.  This Agreement may be 
executed in any number of counterparts, each of which when 
executed and delivered shall be deemed to be an original, 
and all of which when taken together shall constitute one 
and the same Agreement.

        SECTION 7.10.   GOVERNING LAW.  This Agreement shall 
be governed by and construed in accordance with the laws of 
the State of California.

        SECTION 7.11.  ARBITRATION.

        (a)     Arbitration.  Upon the demand of any party, any 
Dispute shall be resolved by binding arbitration (except as 
set forth in (e) below) in accordance with the terms of this 
Agreement.  A "Dispute" shall mean any action, dispute, 
claim or controversy of any kind, whether in contract or 
tort, statutory or common law, legal or equitable, now 
existing or hereafter arising under or in connection with, 
or in any way pertaining to, any of the Loan Documents, or 
any past, present or future extensions of credit and other 
activities, transactions or obligations of any kind related 
directly or indirectly to any of the Loan Documents, 
including without limitation, any of the foregoing arising 
in connection with the exercise of any self-help, ancillary 
or other remedies pursuant to any of the Loan Documents.  
Any party may by summary proceedings bring an action in 
court to compel arbitration of a Dispute.  Any party who 
fails or refuses to submit to arbitration following a lawful 
demand by any other party shall bear all costs and expenses 
incurred by such other party in compelling arbitration of 
any Dispute.

        (b)  Governing Rules.  Arbitration proceedings shall 
be administered by the American Arbitration Association 
("AAA") or such other administrator as the parties shall 
mutually agree upon in accordance with the AAA Commercial 
Arbitration Rules.  All Disputes submitted to arbitration 
shall be resolved in accordance with the Federal Arbitration 
Act (Title 9 of the United States Code), notwithstanding any 
conflicting choice of law provision in any of the Loan 
Documents.  The arbitration shall be conducted at a location 
in California selected by the AAA or other administrator.  
If there is any inconsistency between the terms hereof and 
any such rules, the terms and procedures set forth herein 
shall control.  All statutes of limitation applicable to any 
Dispute shall apply to any arbitration proceeding.  All 
discovery activities shall be expressly limited to matters 
directly relevant to the Dispute being arbitrated.  Judgment 
upon any award rendered in an arbitration may be entered in 
any court having jurisdiction; provided however, that 
nothing contained herein shall be deemed to be a waiver by 
any party that is a bank of the protections afforded to it 
under 12 U.S.C.  91 or any similar applicable state law.

        (c)   No Waiver; Provisional Remedies, Self-Help and 
Foreclosure.  No provision hereof shall limit the right of 
any party to exercise self-help remedies such as setoff, 
foreclosure against or sale of any real or personal property 
collateral or security, or to obtain provisional or 
ancillary remedies, including without limitation injunctive 
relief, sequestration, attachment, garnishment or the 
appointment of a receiver, from a court of competent 
jurisdiction before, after or during the pendency of any 
arbitration or other proceeding.  The exercise of any such 
remedy shall not waive the right of any party to compel 
arbitration or reference hereunder.

        (d)     Arbitrator Qualifications and Powers; Awards.  
Arbitrators must be active members of the California State 
Bar or retired judges of the state or federal judiciary of 
California, with expertise in the substantive laws 
applicable to the subject matter of the Dispute.  
Arbitrators are empowered to resolve Disputes by summary 
rulings in response to motions filed prior to the final 
arbitration hearing.  Arbitrators (i) shall resolve all 
Disputes in accordance with the substantive law of the State 
of California, (ii) may grant any remedy or relief that a 
court of the State of California could order or grant within 
the scope hereof and such ancillary relief as is necessary 
to make effective any award, and (iii) shall have the power 
to award recovery of all costs and fees, to impose sanctions 
and to take such other actions as they deem necessary to the 
same extent a judge could pursuant to the Federal Rules of 
Civil Procedure, the California Rules of Civil Procedure or 
other applicable law.  Any Dispute in which the amount in 
controversy is $5,000,000 or less shall be decided by a 
single arbitrator who shall not render an award of greater 
than $5,000,000 (including damages, costs, fees and 
expenses).  By submission to a single arbitrator, each party 
expressly waives any right or claim to recover more than 
$5,000,000.  Any Dispute in which the amount in controversy 
exceeds $5,000,000 shall be decided by majority vote of a 
panel of three arbitrators; provided however, that all three 
arbitrators must actively participate in all hearings and 
deliberations.  

        (e)  Judicial Review.  Notwithstanding anything herein 
to the contrary, in any arbitration in which the amount in 
controversy exceeds $25,000,000, the arbitrators shall be 
required to make specific, written findings of fact and 
conclusions of law.  In such arbitrations (i) the 
arbitrators shall not have the power to make any award which 
is not supported by substantial evidence or which is based 
on legal error, (ii) an award shall not be binding upon the 
parties unless the findings of fact are supported by 
substantial evidence and the conclusions of law are not 
erroneous under the substantive law of the State of 
California, and (iii) the parties shall have in addition to 
the grounds referred to in the Federal Arbitration Act for 
vacating, modifying or correcting an award the right to 
judicial review of (A) whether the findings of fact rendered 
by the arbitrators are supported by substantial evidence, 
and (B) whether the conclusions of law are erroneous under 
the substantive law of the State of California.  Judgment 
confirming an award in such a proceeding may be entered only 
if a court determines the award is supported by substantial 
evidence and not based on legal error under the substantive 
law of the State of California.

        (f)     Real Property Collateral; Judicial Reference.  
Notwithstanding anything herein to the contrary, no Dispute 
shall be submitted to arbitration if the Dispute concerns 
indebtedness secured directly or indirectly, in whole or in 
part, by any real property unless (i) the holder of the 
mortgage, lien or security interest specifically elects in 
writing to proceed with the arbitration, or (ii) all parties 
to the arbitration waive any rights or benefits that might 
accrue to them by virtue of the single action rule statute 
of California, thereby agreeing that all indebtedness and 
obligations of the parties, and all mortgages, liens and 
security interests securing such indebtedness and 
obligations, shall remain fully valid and enforceable.  If 
any such Dispute is not submitted to arbitration, the 
Dispute shall be referred to a referee in accordance with 
California Code of Civil Procedure Section 638 et seq., and 
this general reference agreement is intended to be 
specifically enforceable in accordance with said Section 
638.  A referee with the qualifications required herein for 
arbitrators shall be selected pursuant to the AAA's 
selection procedures.  Judgment upon the decision rendered 
by a referee shall be entered in the court in which such 
proceeding was commenced in accordance with California Code 
of Civil Procedure Sections 644 and 645.

        (g)     Miscellaneous.  To the maximum extent 
practicable, the AAA, the arbitrators and the parties shall 
take all action required to conclude any arbitration 
proceeding within 180 days of the filing of the Dispute with 
the AAA.  No arbitrator or other party to an arbitration 
proceeding may disclose the existence, content or results 
thereof, except for disclosures of information by a party 
required in the ordinary course of its business, by 
applicable law or regulation, or to the extent necessary to 
exercise any judicial review rights set forth herein.  If 
more than one agreement for arbitration by or between the 
parties potentially applies to a Dispute, the arbitration 
provision most directly related to the Loan Documents or the 
subject matter of the Dispute shall control.  This 
arbitration provision shall survive termination, amendment 
or expiration of any of the Loan Documents or any 
relationship between the parties.

        IN WITNESS WHEREOF, the parties hereto have caused 
this Agreement to be executed as of the day and year first 
written above.
        WELLS FARGO BANK,
BEI TECHNOLOGIES, INC.                  NATIONAL ASSOCIATION


By: ______________________      By: _______________________
                                       Yvonne Perez
Title: ___________________          Relationship Manager


BEI SENSORS & SYSTEMS COMPANY, INC.

By: ______________________

Title: ___________________