Coast

            Loan and Security Agreement

Borrower:   Cyanotech Corporation              Nutrex, Inc.

Address:    73-4460 Queen Kaahumanu Hwy.       73-5574 Maiau Street
            #102                               #1
            Kailua-Kona, HI  96740             Kailua-Kona, HI  96740

Date:       July 28, 1998

THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between COAST
BUSINESS CREDIT(R),  a division of Southern Pacific Bank ("Coast"), a California
corporation,  with offices at 12121 Wilshire Boulevard, Suite 1111, Los Angeles,
California  90025,  and the borrowers  named above (jointly and  severally,  the
"Borrower"),  whose  chief  executive  office is  located  at the above  address
("Borrower's  Address").  The Schedule to this Agreement (the "Schedule")  shall
for all  purposes be deemed to be a part of this  Agreement,  and the same is an
integral  part of this  Agreement.  (Definitions  of certain  terms used in this
Agreement are set forth in Section 1 below.)

     1.   DEFINITIONS.  As used in this Agreement,  the following terms have the
following meanings:

     "Account Debtor" means the obligor on a Receivable or General Intangible.

     "Affiliate"  means,  with  respect  to any  Person,  a  relative,  partner,
shareholder,  director,  officer,  or employee of such Person,  or any parent or
subsidiary  of such Person,  or any Person  controlling,  controlled by or under
common control with such Person.

     "Astaxanthin" means aquacultural feed product processed from microalgae.

     "Audit" means to inspect, audit and copy Borrower's  books  and records and
the Collateral.

     "Borrower" has the meaning set forth in the introduction to this Agreement.

     "Borrower's Address" has the meaning set forth  in the introduction to this
Agreement.

     "Business Day" means a day on which Coast is open for business.

     "Changes  of  Control"  shall be deemed to have  occurred at such time as a
"person" or "group"  (within the meaning of Sections  13(d) and  14(d)(2) of the
Securities  Exchange  Act of  1934)  (other  than  the  current  holders  of the
ownership  interests in any Borrower) becomes the "beneficial owner" (as defined
in  Rule  13d-3  under  the  Securities  Exchange  Act  of  1934),  directly  or
indirectly,  as a result of any single  transaction,  of more than forty percent
(40%) of the  total  voting  power of all  classes  of stock or other  ownership
interests  then  outstanding  of any Borrower  normally  entitled to vote in the
election of directors or analogous governing body.

     "Closing Date" date of the initial funding under this Agreement.

     "Coast"  has  the meaning set forth in the introduction to this Agreement.

     "Code"  means the Uniform  Commercial  Code as adopted and in effect in the
State of California from time to time.

     "Collateral" has the meaning set forth in Section 4 hereof.

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    "Consolidated  Net Worth" means  Borrowers'  stockholders'  combined equity
plus subordinated debt otherwise permitted hereunder prepared in accordance with
GAAP.

     "Credit  Limit" means the maximum  amount of Loans that Coast may make from
time to time to Borrower  pursuant to the amounts and  percentages  shown on the
Schedule.

     "Default"  means any event  which  with  notice or passage of time or both,
would constitute an Event of Default.

     "Deposit Account" has the meaning set forth in Section 9105 of the Code.

     "Dilution"  means all non-cash  reductions,  including,  but not limited to
allowances,  returns,  write-offs,  credit memos, discounts, journal entries and
similar items, in the total amount of Receivables,  expressed as a percentage of
Receivables.

     "Dollars or $" means United States dollars.

     "Early  Termination  Fee" means the amount set forth on the  Schedule  that
Borrower  must pay Coast if this  Agreement is  terminated  by Borrower or Coast
pursuant to Section 9.2 hereof.

     "EBITDA"  means for any period,  the net income for such period of Borrower
determined in accordance  with GAAP (excluding any  extraordinary  income items,
including,  without  limitation,  gain on sale of  assets,  income  relating  to
foreign exchange,  swap or other derivative transactions and changes in GAAP and
excluding only non-cash extraordinary expenses due to changes in GAAP), plus the
following  items,  to the extent  deducted  from the revenues of Borrower in the
calculation  of net  income or loss;  (i)  depreciation,  (ii)  amortization  of
intangibles and any other non-cash items, (iii) cash interest expense (excluding
any interest paid-in-kind) and (iv) tax expenses.

     "Eligible Foreign  Receivables"  means Receivables  arising from Borrower's
customers  located  outside the United  States and Canada which Coast  otherwise
approves for borrowing in its sole and absolute discretion. Without limiting the
foregoing,  Coast will consider the following in determining  the eligibility of
such  receivables:  (i) whether the  Borrower's  goods are shipped  backed by an
irrevocable letter of credit satisfactory to Coast (as to form,  substance,  and
issuer or  domestic  confirming  bank) that has been  delivered  to Coast and is
directly  drawable by Coast, or (ii) whether the Borrower's  customer is a large
or rated company having a verifiable credit history, or (iii) whether Borrower's
customer is a foreign  subsidiary  of a customer  of Borrower  that is a company
that was formed and has its primary place of business  within the United States,
or (iv)  whether  Borrower's  customer is a large  foreign  corporation,  or (v)
whether Borrower's customer is a foreign company with a Dun & Bradstreet rating,
or (vi)  whether  Borrower's  goods are  shipped to an  account  that has credit
insurance.

     "Eligible  Inventory"  means  Inventory  which Coast, in its sole judgment,
deems eligible for  borrowing,  based on such  considerations  as Coast may from
time to time deem appropriate.  Without limiting the fact that the determination
of which Inventory is eligible for borrowing is a matter of Coast's  discretion,
Inventory which does not meet the following  requirements  will not be deemed to
be Eligible Inventory:  Inventory which (i) consists of finished goods, in good,
new and  salable  condition  which is not  perishable,  not  obsolete  or unmer-
chantable,  and is not comprised of raw  materials,  work in process,  packaging
materials or supplies; (ii) meets all applicable  governmental standards;  (iii)
has been  manufactured  in compliance  with the Fair Labor  Standards  Act; (iv)
conforms in all respects to the warranties and representations set forth in this
Agreement; (v) is at all times subject to Coast's duly perfected, first priority
security  interest;  (vi) is situated at a one of the locations set forth on the
Schedule;  and (vii) Spirulina and  Astaxanthin  Products with a remaining shelf
life of six (6) months or more before expiry date.

     "Eligible  Receivables" means Receivables and Eligible Foreign  Receivables
arising in the ordinary course of Borrower's  business from the sale of goods or
rendition of services,  which Coast,  in its sole judgment,  shall deem eligible
for borrowing,  based on such considerations as Coast may from time to time deem
appropriate. Eligible Receivables shall not include the following:

          (a)  Receivables  that the Account  Debtor has failed to pay within 90
days of invoice date or Accounts with selling terms of more than 90 days;

          (b)  Receivables  owed by an Account  Debtor or its  Affiliates  where
twenty-five (25%) percent or more of all Receivables owed by that Account Debtor
(or its 

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<PAGE>

          Affiliates) are deemed ineligible under clause (a) above;

          (c)  Receivables  with  respect  to  which  the  Account  Debtor is an
employee, Affiliate, or agent (other than a distributor) of Borrower;

          (d) Receivables with respect to which goods are placed on consignment,
guaranteed sale, sale or return, sale on approval, bill and hold, or other terms
by reason of which the payment by the Account Debtor may be conditional;

          (e) Receivables, other than Eligible Foreign Receivables, that are not
payable in Dollars or with  respect to which the  Account  Debtor:  (i) does not
maintain  its  chief  executive  office  in the  United  States,  or (ii) is not
organized under the laws of the United States or any State thereof,  or (iii) is
the  government  of any foreign  country or  sovereign  state,  or of any state,
province,  municipality,  or  other  political  subdivision  thereof,  or of any
department, agency, public corporation, or other instrumentality thereof, unless
(y) the Receivable is supported by an irrevocable letter of credit  satisfactory
to Coast (as to form,  substance,  and issuer or domestic  confirming bank) that
has been  delivered  to Coast and is  directly  drawable  by  Coast,  or (z) the
Receivable is covered by credit insurance in form and amount, and by an insurer,
satisfactory to Coast;

          (f) Receivables with respect to which the Account Debtor is either (i)
the United States or any department,  agency, or  instrumentality  of the United
States  (exclusive,  however,  of Accounts  with  respect to which  Borrower has
complied,  to the  satisfaction of Coast,  with the Assignment of Claims Act, 31
U.S.C. ss. 3727), or (ii) any State of the United States (exclusive, however, of
Receivables owed by any State that does not have a statutory  counterpart to the
Assignment of Claims Act);

          (g) Receivables with respect to which the Account Debtor is a creditor
of Borrower,  has or has asserted a right of setoff, has disputed its liability,
or has made any claim  with  respect  to the  Receivables,  except  for  Account
Debtors that have executed "No Offset Letters" acceptable to Coast;

          (h)  Receivables  with  respect  to  an  Account  Debtor  whose  total
obligations  owing to  Borrower  exceed  twenty  percent  (20%) of all  Eligible
Receivables,  to the extent of the  obligations  owing by such Account Debtor in
excess of such percentage;

          (i) Receivables with respect to which the Account Debtor is subject to
any reorganization,  bankruptcy, insolvency, arrangement,  readjustment of debt,
dissolution  or liquidation  proceeding,  or becomes  insolvent,  or goes out of
business;

          (j)  Receivables  the  collection  of which Coast,  in its  reasonable
credit  judgment,  believes to be  doubtful  by reason of the  Account  Debtor's
financial condition;

          (k)  Receivables  with  respect to which the goods giving rise to such
Receivable have not been shipped and billed to the Account Debtor,  the services
giving  rise to such  Receivable  have not been  performed  and  accepted by the
Account Debtor, or the Receivable otherwise does not represent a final sale;

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

          (m)  Receivables  that  represent  progress  payments or other advance
billings that are due prior to the  completion of performance by Borrower of the
subject contract for goods or services.

     "Equipment"  means  all  of  Borrower's   present  and  hereafter  acquired
machinery,  molds, machine tools,  motors,  furniture,  equipment,  furnishings,
fixtures,  trade fixtures,  motor vehicles,  tools, parts, dies, jigs, goods and
other  goods  (other  than  Inventory)  of every  kind and  description  used in
Borrower's  operations  or  owned by  Borrower  and any  interest  in any of the
foregoing,   and  all  attachments,   accessories,   accessions,   replacements,
substitutions,  additions  or  improvements  to any of the  foregoing,  wherever
located.

     "Equipment Acquisition Loans"  means  the Loans described in Section 2.1(d)
of the Schedule.

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     "Event of Default"  means  any  of  the events set forth in Section 10.1 of
this Agreement.

     "GAAP" means  generally  accepted  accounting  principles as in effect from
time to time in the United States, consistently applied.

     "General  Intangibles" means all general  intangibles of Borrower,  whether
now owned or  hereafter  created or acquired  by  Borrower,  including,  without
limitation,  all choses in action, causes of action, corporate or other business
records, Deposit Accounts, investment property,  inventions,  designs, drawings,
blueprints,  patents,  patent  applications,  trademarks and the goodwill of the
business  symbolized  thereby,  names,  trade names,  trade  secrets,  goodwill,
copyrights,  registrations,  licenses, franchises,  customer lists, security and
other deposits,  rights in all litigation presently or hereafter pending for any
cause or claim (whether in contract,  tort or otherwise),  and all judgments now
or hereafter arising therefrom,  all claims of Borrower against Coast, rights to
purchase or sell real or personal property,  rights as a licensor or licensee of
any  kind,  royalties,  telephone  numbers,  proprietary  information,  purchase
orders, and all insurance policies and claims (including without limitation life
insurance, key man insurance,  credit insurance,  liability insurance,  property
insurance  and other  insurance),  tax refunds and  claims,  computer  programs,
discs,  tapes and tape files,  claims under  guaranties,  security  interests or
other security held by or granted to Borrower, all rights to indemnification and
all other intangible property of every kind and nature (other than Receivables).

     "Inventory" means all of Borrower's now owned and hereafter acquired goods,
merchandise or other personal property,  wherever located, to be furnished under
any contract of service or held for sale or lease (including  without limitation
all raw materials,  work in process,  finished  goods and goods in transit,  and
including without limitation all farm products),  and all materials and supplies
of every kind,  nature and description which are or might be used or consumed in
Borrower's  business  or used  in  connection  with  the  manufacture,  packing,
shipping, advertising,  selling or finishing of such goods, merchandise or other
personal  property,  and all  warehouse  receipts,  documents of title and other
documents representing any of the foregoing.

     "Inventory Loans"  means  the  Loans  described  in  Section  2.1(b) of the
Schedule.

     "Investment Property" has the meaning set forth in Section 9115 of the Code
as in effect as of the date hereof.

     "Letter of Credit" has the meaning set forth in Section 2.2 hereof.

     "Letter  of  Credit  Sublimit"  has  the  meaning  set forth in Section 2.2
hereof.

     "Loan Documents" means this Agreement,  the agreements and documents listed
on Section 5 of the Schedule,  and any other  agreement,  instrument or document
executed in connection herewith or therewith.

     "Loans" has the meaning set forth in Section 2.1 hereof.

     "Material  Adverse  Effect"  means a  material  adverse  effect  on (i) the
business,  assets,  condition (financial or otherwise) or resu lts of operations
of  Borrower  or any  subsidiary  of  Borrower  or any  guarantor  of any of the
Obligations,  (ii)  the  ability  of  Borrower  or any  guarantor  of any of the
Obligations to perform its obligations under this Agreement (including,  without
limitation, repayment of the Obligations as they come due) or (iii) the validity
or  enforceability  of this Agreement or any other agreement or document entered
into by any party in  connection  herewith,  or the rights or  remedies of Coast
hereunder or thereunder.

     "Maturity Date"  means  the  date  that  this  Agreement  shall cease to be
effective,  as  set  forth on the Schedule, subject to the provisions of Section
9.1 and 9.2 hereof.

     "Maximum  Dollar  Amount"  has  the  meaning  set forth in Section 2 of the
Schedule.

     "Minimum  Monthly  Interest"  has the meaning set forth in Section 3 of the
Schedule.

     "Obligations"  means  all  present  and  future  Loans,  advances,   debts,
liabilities,  obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Coast, whether evidenced by this Agreement or any note
or other  instrument or document,  whether  arising from an extension of credit,
opening  of  a  letter  of  credit,   banker's   acceptance,   loan,   guaranty,
indemnification  or otherwise,  whether direct or indirect  (including,  without
limitation,  those  acquired by  assignment  and any  participation  by Coast in
Borrower's debts owing to others), absolute or contingent, due or to become due,
including, without limitation, all interest, charges, expenses, fees, 

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<PAGE>
attorneys' fees (including attorneys' fees and expenses incurred in bankruptcy),
expert  witness  fees,  audit  fees,  letter  of  credit  fees, collateral moni-
toring fees,  closing fees,  facility fees,   termination fees, minimum interest
charges and any other  sums  chargeable  to  Borrower  under this  Agreement  or
under any other  present or  future instrument or agreement between Borrower and
Coast.

     "Permitted Liens" means the following:

          (a)  purchase money security interests in specific items of Equipment;

          (b)  leases of specific items of Equipment;

          (c)  liens for taxes not yet payable;

          (d)  additional security interests  and liens  consented to in writing
by Coast, which consent shall not be unreasonably withheld;

          (e)  security  interests being terminated  substantially  concurrently
with this Agreement;

          (f) liens of materialmen, mechanics, warehousemen,  carriers, or other
similar  liens  arising in the  ordinary  course of business or in the course of
construction projects and securing obligations which are not delinquent;

          (g) liens  incurred  in  connection  with the  extension,  renewal  or
refinancing of the indebtedness  secured by liens of the type described above in
clauses (a) or (b) above,  provided that any  extension,  renewal or replacement
lien  is  limited  to the  property  encumbered  by the  existing  lien  and the
principal amount of the indebtedness being extended,  renewed or refinanced does
not increase; or

          (h) liens in favor of customs and  revenue  authorities  which  secure
payment of customs duties in connection with the importation of goods.

Coast  will have the right to  require,  as a  condition  to its  consent  under
subparagraph (d) above,  that the holder of the additional  security interest or
lien sign an intercreditor  agreement on Coast's then standard form, acknowledge
that the security  interest is subordinate to the security  interest in favor of
Coast,  and agree not to take any action to  enforce  its  subordinate  security
interest so long as any Obligations remain outstanding,  and that Borrower agree
that any uncured default in any obligation  secured by the subordinate  security
interest shall also constitute an Event of Default under this Agreement.

     "Person" means any individual,  sole  proprietorship,  general partnership,
limited partnership,  limited liability partnership,  limited liability company,
joint venture, trust,  unincorporated  organization,  association,  corporation,
government, or any agency or political division thereof, or any other entity.

     "Prime Rate" means the actual  "Reference Rate" or the substitute  therefor
of the Bank of America NT & SA, or its successor whether or not that rate is the
lowest  interest rate charged by said bank.  If the Prime Rate,  as defined,  is
unavailable, "Prime Rate" shall mean the highest of the prime rates published in
the Wall Street Journal on the first business day of the  applicable  month,  as
the base rate on corporate loans at large U.S. money center commercial banks.

     "Real Property" means Borrower's real property located in Kailua-Kona, HI.

     "Receivable  Loans"  means  the  Loans  described  in Section 2.1(a) of the
Schedule.

     "Receivables"  means all of  Borrower's  now owned and  hereafter  acquired
accounts  (whether or not earned by  performance),  letters of credit,  contract
rights, chattel paper, instruments,  securities, documents, securities accounts,
security  entitlements,  commodity  contracts,  commodity  accounts,  investment
property and all other forms of obligations  at any time owing to Borrower,  all
guaranties  and  other  security  therefor,   all  merchandise  returned  to  or
repossessed  by  Borrower,  and all rights of  stoppage in transit and all other
rights or remedies of an unpaid vendor, lienor or secured party.

     "Renewal  Date" shall mean the Maturity  Date if this  Agreement is renewed
pursuant  to Section  9.1  hereof,  and each  anniversary  thereafter  that this
Agreement is renewed pursuant to Section 9.1 hereof.

     "Renewal  Fee" means the fee that  Borrower  must pay Coast upon renewal of
this  Agreement  pursuant to Section 9.1 hereof,  in the amount set forth on the
Schedule.

     "Solvent"  means,  with respect to any Person on a particular date, that on
such  date (a) at fair  valuations,  all of the  properties  and  assets of such
Person are greater than the 

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sum of the debts,  including  contingent  liabilities,  of such Person,  (b) the
present  fair salable value of the properties and assets  of such  Person is not
less than the  amount  that will be required  to pay the probable  liability  of
such  Person on its debts as they become absolute  and matured,  (c) such Person
is able to realize upon its  properties and assets and pay  its  debts and other
liabilities, contingent obligations and other commitments  as they mature in the
normal  course of  business,  (d) such  Person does not intend to,  and does not
believe  that it will,  incur debts beyond such  Person's ability to pay as such
debts mature, and (e) such Person is not engaged in  business or a  transaction,
and is not about to engage in business or a transaction, for which such Person's
properties and assets would constitute unreasonably  small capital  after giving
due  consideration  to the  prevailing practices  in the  industry in which such
Person is engaged.  In computing the amount of  contingent  liabilities  at  any
time, it is intended that such liabilities  will be computed at the amount that,
in light of all the facts and  circumstances  existing at such time,  represents
the  amount  that  reasonably  can be  expected  to become  an actual or matured
liability.

     "Spirulina" means nutritional supplement processed from microalgae.

     "Term Loan" means the Loans described in Section 2.1 (c) of the Schedule.

     "Total Debt Service  Coverage  Ratio" means the quotient of (x) EBITDA less
all capital expenditures except that portion which is financed,  less taxes paid
during such period, divided by (y) the sum of all principal,  interest and other
payments  made or required to be made by  Borrower on  indebtedness  during each
period,  including any fees and charges owed by Borrower in connection  with any
such indebtedness.

     "Year 2000  Problem"  means the risk that  computer  systems,  software and
applications  used by a Person may be unable to recognize  and perform  properly
date-sensitive  functions  involving  certain dates prior to and any dates after
December 31, 1999.

     "Other  Terms."  All  accounting  terms  used  in  this  Agreement,  unless
otherwise  indicated,  shall have the meanings given to such terms in accordance
with  GAAP.  All other  terms  contained  in this  Agreement,  unless  otherwise
indicated,  shall have the  meanings  provided  by the Code,  to the extent such
terms are defined therein.

2.   CREDIT FACILITIES.

     2.1  Loans.  Coast  will  from  time to time make  loans to  Borrower  (the
"Loans"),  in amounts and in  percentages  to be determined by Coast in its good
faith  discretion,  up to the Credit  Limit as  provided  in Section  2.1 of the
Schedule,  provided  no  Default  or  Event  of  Default  has  occurred  and  is
continuing. In addition, Coast may create reserves against or reduce its advance
rates based upon Eligible  Receivables or Eligible Inventory without declaring a
Default  or an Event of  Default  if it  determines  that  there has  occurred a
Material Adverse Effect.

     2.2  Letters  of Credit.  At the  request of  Borrower,  Coast may,  in its
sole discretion, arrange for the  issuance  of letters of credit for the account
of Borrower (collectively, "Letters of  Credit"), by issuing  guarantees  to the

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<PAGE>

issuer of the letter of credit or by other means. All Letters of Credit shall be
in form  and  substance  satisfactory  to  Coast  in its  sole  discretion.  The
aggregate  face  amount of all  outstanding  Letters of Credit from time to time
shall not  exceed  the  amount  shown on the  Schedule  (the  "Letter  of Credit
Sublimit"),  and shall be  reserved  against  Loans  which  would  otherwise  be
available  hereunder.  Borrower  shall pay all bank  charges for the issuance of
Letters of Credit.  Any payment by Coast under or in connection with a Letter of
Credit shall  constitute a Loan hereunder on the date such payment is made. Each
Letter of Credit  shall have an expiry date no later than thirty (30) days prior
to the Maturity Date. Borrower hereby agrees to indemnify,  save, and hold Coast
harmless from any loss, cost, expense, or liability,  including payments made by
Coast, expenses, and reasonable attorneys' fees incurred by Coast arising out of
or in connection with any Letters of Credit.  Borrower agrees to be bound by the
regulations  and  interpretations  of  the  issuer  of  any  Letters  of  Credit
guarantied   by  Coast  and  opened  for   Borrower's   account  or  by  Coast's
interpretations of any Letter of Credit issued by Coast for Borrower's  account,
and  Borrower  understands  and agrees  that  Coast  shall not be liable for any
error, negligence,  or mistake, whether of omission or commission,  in following
Borrower's  instructions  or those  contained  in the  Letters  of Credit or any
modifications,  amendments,  or supplements  thereto.  Borrower understands that
Letters of Credit may require  Coast to  indemnify  the issuing bank for certain
costs or  liabilities  arising out of claims by Borrower  against  such  issuing
bank.  Borrower  hereby agrees to indemnify and hold Coast harmless with respect
to any loss, cost,  expense,  or liability incurred by Coast under any Letter of
Credit as a result of Coast's  indemnification  of any such  issuing  bank.  The
provisions of this Agreement, as it pertains to Letters of Credit, and any other
present or future documents or agreements between Borrower and Coast relating to
Letters of Credit are cumulative.

3.   INTEREST AND FEES.

     3.1  Interest.  All Loans and all other  monetary  Obligations  shall  bear
interest at the rate shown on the Schedule,  except where expressly set forth to
the contrary in this Agreement.  Interest shall be payable monthly,  on the last
day of the month. Interest may, in Coast's discretion,  be charged to Borrower's
loan account,  and the same shall  thereafter  bear interest at the same rate as
the other Loans. Regardless of the amount of Obligations that may be outstanding
from time to time,  Borrower shall pay Coast Minimum Monthly Interest during the
term of this Agreement  with respect to the  Receivable  Loans and the Inventory
Loans in the amount set forth on the Schedule.

     3.2 Fees. Borrower shall pay Coast the fee(s) shown on the Schedule,  which
are in addition to all  interest  and other sums payable to Coast and are deemed
fully earned and are nonrefundable.

4.   SECURITY INTEREST.

     To secure the payment and performance of all of the  Obligations  when due,
Borrower  hereby  grants  to  Coast a  security  interest  in all of  Borrower's
interest in the following, whether now owned or hereafter acquired, and wherever
located: All Receivables, Inventory, Equipment, Investment Property, and General
Intangibles,  including, without limitation, all of Borrower's Deposit Accounts,
and all  money,  and all  property  now or at any time in the  future in Coast's
possession  (including claims and credit  balances),  and all proceeds of any of
the  foregoing  (including  proceeds  of any  insurance  policies,  proceeds  of
proceeds,  and  claims  against  third  parties),  all  products  of  any of the
foregoing, and all books and records related to any of the foregoing (all of the
foregoing,  together  with all other  property  in which Coast may now or in the
future  be  granted  a  lien  or  security  interest,  is  referred  to  herein,
collectively, as the "Collateral")

5.   CONDITIONS PRECEDENT.

     The  obligation of Coast to make the Loans is subject to the  satisfaction,
in the sole  discretion  of  Coast,  at or prior to the first  advance  of funds
hereunder, of each, every and all of the following conditions:

     5.1 Status of  Accounts at Closing.  No accounts  payable  shall be due and
unpaid ninety (90) days past its due date except for such accounts payable being
contested  in good  faith in  appropriate  proceedings  and for  which  adequate
reserves have been provided.

     5.2  Minimum Availability.  Borrower  shall have minimum availability imme-
diately following the initial funding in the amount set forth on the Schedule.

     5.3  Landlord Waiver.  Coast shall have received duly executed

      (a)  landlord  waivers  and  access   agreements  in  form  and  substance
satisfactory to Coast, in Coast's sole and absolute discretion, and, when deemed
appropriate by Coast, in form for recording in the appropriate recording office,
with respect to all leased  locations where Borrower  maintains any inventory or
equipment.

      (b) warehouse  waivers in form and  substance  satisfactory  to Coast,  in
Coast's sole and absolute  discretion,  and when deemed appropriate by Coast, in
form for  recording in the  appropriate  recording  office,  with respect to all
warehouse locations where Borrower maintains any inventory or equipment.

     5.4 Real Property. Coast shall have received duly executed mortgages and/or
deeds of trust in form and substance  satisfactory to Coast, in Coast's sole and
absolute discretion,  in form for recording in the appropriate recording office,
with respect to the Real Property.

     5.5  Executed  Agreement.  Coast shall have received  this  Agreement  duly
executed  and in form  and  substance  satisfactory  to  Coast  in its  sole and
absolute discretion.

     5.6  Opinion of Borrower's Counsel.  Coast  shall  have received an opinion
of  Borrower's counsel, in form and substance  satisfactory to Coast in its sole
and absolute discretion.


                                       7
<PAGE>

     
     5.7 Priority of Coast's Liens. Coast shall have received the results of "of
record"  searches  satisfactory  to Coast in its sole and  absolute  discretion,
reflecting its Uniform Commercial Code filings against Borrower  indicating that
Coast has a perfected,  first  priority lien in and upon all of the  Collateral,
subject only to Permitted Liens.

     5.8 Insurance. Coast shall have received copies of the insurance binders or
certificates evidencing Borrower's compliance with Section 8.2 hereof, including
lender's loss payee endorsements.

     5.9 Borrower's  Existence.  Coast shall have received  copies of Borrower's
articles of incorporation and all amendments thereto,  and a Certificate of Good
Standing,  each  certified by the  Secretary of State of the state of Borrower's
organization, and dated a recent date prior to the Closing Date, and Coast shall
have  received  Certificates  of Foreign  Qualification  for  Borrower  from the
Secretary of State of each state  wherein the failure to be so  qualified  could
have a Material Adverse Effect.

     5.10  Organizational  Documents.   Coast  shall  have  received  copies  of
Borrower's  By-laws and all  amendments  thereto,  and Coast shall have received
copies of the resolutions of the board of directors of Borrower, authorizing the
execution and delivery of this  Agreement and the other  documents  contemplated
hereby, and authorizing the transactions  contemplated hereunder and thereunder,
and authorizing  specific  officers of Borrower to execute the same on behalf of
Borrower, in each case certified by the Secretary or other acceptable officer of
Borrower as of the Closing Date.

     5.11 Taxes.  Coast shall have received evidence from Borrower that Borrower
has complied with all tax withholding and Internal Revenue Service  regulations,
in form and substance satisfactory to Coast in its sole and absolute discretion.

     5.12 Year 2000 Problem Assessment Certificate.  Coast shall have received a
certificate  from the relevant  officer of Borrower to the effect  that,  as the
result of a  comprehensive  assessment  undertaken  by  Borrower  of  Borrower's
computer  systems,  software  and  applications  and after due  inquiry  made to
Borrower's material suppliers, vendors and customers, Borrower knows of no facts
that would cause Borrower to reasonably  believe that the Year 2000 Problem will
cause a Material Adverse Effect.

     5.13 Due  Diligence.  Coast shall have  completed  its due  diligence  with
respect to Borrower.

     5.14 Other Documents and  Agreements.  Coast shall have received such other
agreements,  instruments  and documents as Coast may require in connection  with
the transactions  contemplated hereby, all in form and substance satisfactory to
Coast in Coast's  sole and  absolute  discretion,  and in form for filing in the
appropriate filing office, including, but not limited to, those documents listed
in Section 5 of the Schedule.

6.   REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.

     In order to induce  Coast to enter into this  Agreement  and to make Loans,
Borrower  represents  and warrants to Coast as follows,  and Borrower  covenants
that the following  representations  will continue to be true, and that Borrower
will at all times comply with all of the following covenants:

     6.1  Existence  and  Authority.  Borrower is and will  continue to be, duly
organized,  validly  existing  and  in  good  standing  under  the  laws  of the
jurisdiction of its organization.  Borrower is and will continue to be qualified
and licensed to do business in all  jurisdictions  in which any failure to do so
would have a Material Adverse Effect. The execution, delivery and performance by
Borrower of this Agreement, and all other documents contemplated hereby (a) have
been  duly  and  validly  authorized,   (b)  are  enforceable  against  Borrower
inaccordance with their terms (except as enforcement may be limited by equitable
principles and by bankruptcy, insolvency, reorganization,  moratorium or similar
laws relating to creditors' rights generally), and (c) do not violate Borrower's
articles of  incorporation,  or Borrower's  by-laws,  or any law or any material
agreement or instrument which is binding upon Borrower or its property,  and (d)
do not  constitute  grounds for  acceleration  of any material  indebtedness  or
obligation  under any  material  agreement or  instrument  which is binding upon
Borrower or its property.

     6.2 Name;  Trade  Names and Styles.  The name of Borrower  set forth in the
heading to this  Agreement is its correct  name.  Listed on the Schedule are all
prior names of Borrower  and all of  Borrower's  present and prior trade  names.
Borrower shall give Coast thirty (30) days' prior written notice before changing
its name or doing business under any other name. Borrower has complied, and will
in the future comply,  with all laws relating to the conduct of 

                                       8
<PAGE>
business under a fictitious business name.

     6.3 Place of Business; Location of Collateral. The address set forth in the
heading to this Agreement is Borrower's  chief  executive  office.  In addition,
Borrower has places of business and  Collateral is located only at the locations
set forth on the  Schedule.  Borrower will give Coast at least thirty (30) days'
prior written notice before opening any additional  place of business,  changing
its chief executive  office, or moving any of the Collateral to a location other
than Borrower's Address or one of the locations set forth on the Schedule.

     6.4 Title to Collateral;  Permitted Liens. Borrower is now, and will at all
times in the future be, the sole owner of all the  Collateral,  except for items
of Equipment which are leased by Borrower. The Collateral now is and will remain
free and clear of any and all liens, charges,  security interests,  encumbrances
and adverse claims, except for Permitted Liens. Coast now has, and will continue
to have, a first-priority  perfected and enforceable security interest in all of
the Collateral,  subject only to the Permitted  Liens,  and Borrower will at all
times defend Coast and the Collateral  against all claims of others.  Except for
underground  electrical and water pipes and other leasehold improvements located
at 73-4460 Queen Kaahumanu Highway,  Suite 102, Kailua-Kona,  Hawaii 96740, none
of the  Collateral  now is or will be  affixed  to any real  property  in such a
manner,  or with such intent,  as to become a fixture.  Borrower is not and will
not become a lessee under any real property  lease  pursuant to which the lessor
may obtain any rights in any of the  Collateral and no such lease now prohibits,
restrains,  impairs or will  prohibit,  restrain or impair  Borrower's  right to
remove any  Collateral  from the leased  premises.  Whenever any  Collateral  is
located  upon  premises  in which any third  party has an  interest  (whether as
owner,  mortgagee,  beneficiary  under a deed  of  trust,  lien  or  otherwise),
Borrower shall,  whenever requested by Coast, use its best efforts to cause such
third party to execute and deliver to Coast, in form  acceptable to Coast,  such
waivers and subordinations as Coast shall specify,  so as to ensure that Coast's
rights in the Collateral are, and will continue to be, superior to the rights of
any such third  party.  Borrower  will keep in full force and  effect,  and will
comply  with all the  terms  of,  any  lease of real  property  where any of the
Collateral now or in the future may be located.

     6.5  Maintenance  of  Collateral.  Borrower will maintain the Collateral in
good working  condition,  except for normal wear and tear and Borrower  will not
use the Collateral for any unlawful  purpose.  Borrower will immediately  advise
Coast in writing of any material loss or damage to the Collateral.

     6.6 Books  and  Records.  Borrower  has  maintained  and will  maintain  at
Borrower's  Address  complete and  accurate  books and  records,  comprising  an
accounting system in accordance with GAAP.

     6.7 Financial  Condition,  Statements and Reports. All financial statements
now or in the future  delivered  to Coast have been,  and will be,  prepared  in
conformity with GAAP (except, in the case of unaudited financial statements, for
the absence of footnotes and subject to normal year-end adjustments) and now and
in the future will fairly  reflect the financial  condition of Borrower,  at the
times and for the periods therein  stated.  Between the last date covered by any
such statement provided to Coast and the date hereof, there has been no Material
Adverse Effect. Borrower is now and will continue to be Solvent.

     6.8 Tax Returns and Payments;  Pension  Contributions.  Borrower has timely
filed,  and will timely file,  all tax returns and reports  required by foreign,
federal, state and local law, and Borrower has timely paid, and will timely pay,
all  foreign,  federal,  state  and  local  taxes,  assessments,   deposits  and
contributions  now or in the future owed by  Borrower.  Borrower  may,  however,
defer payment of any contested  taxes,  provided that Borrower (i) in good faith
contests  Borrower's  obligation  to pay the  taxes by  appropriate  proceedings
promptly and diligently instituted and conducted, (ii) notifies Coast in writing
of the  commencement of, and any material  development in, the proceedings,  and
(iii) posts bonds or takes any other steps required to keep the contested  taxes
from becoming a lien upon any of the Collateral. As of the date hereof, Borrower
is unaware of any claims or adjustments proposed for any of Borrower's prior tax
years  which  could  result in  additional  taxes  becoming  due and  payable by
Borrower.  Borrower has paid, and shall continue to pay all amounts necessary to
fund all present and future  pension,  profit sharing and deferred  compensation
plans in accordance with their terms, and Borrower has not and will not withdraw
from participation in, permit partial or complete  termination of, or permit the
occurrence  of any other event with respect to, any such plan which could result
in any liability of Borrower,  including  any  liability to the Pension  Benefit
Guaranty  Corporation  or its  successors  or  any  other  governmental  agency.
Borrower shall, at all times, utilize the services of an outside payroll service
providing for the automatic deposit of all payroll

                                       9
<PAGE>
taxes payable by Borrower.

     6.9 Compliance  with Law.  Borrower has complied,  and will comply,  in all
material respects,  with all provisions of all material foreign,  federal, state
and local laws and regulations relating to Borrower,  including, but not limited
to, the Fair Labor Standards Act, and those relating to Borrower's  ownership of
real or personal property, the conduct and licensing of Borrower's business, and
environmental matters.

     6.10  Litigation.  Except as disclosed in the Schedule,  there is no claim,
suit, litigation,  proceeding or investigation pending or (to best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or before
any  governmental  agency (or any basis  therefor  known to Borrower)  which may
result,  either  separately or in the aggregate,  in a Material  Adverse Effect.
Borrower  will  promptly  inform  Coast in  writing  of any  claim,  proceeding,
litigation or investigation in the future threatened or instituted by or against
Borrower involving an amount set forth on the Schedule.

     6.11 Use of  Proceeds.  All  proceeds of all Loans shall be used solely for
lawful  business  purposes.  Borrower is not  purchasing or carrying any "margin
stock" (as  defined in  Regulation  G of the Board of  Governors  of the Federal
Reserve System) and no part of the proceeds of any Loan 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."

     6.12 Year 2000  Compliance.  As the  result of a  comprehensive  review and
assessment  undertaken by Borrower of Borrower's computer systems,  software and
applications  and after  due  inquiry  made of  Borrower's  material  suppliers,
vendors  and  customers  Borrower  represents  and  warrants  that the Year 2000
problem will not result in a Material Adverse Effect.

7.   RECEIVABLES.

     7.1  Representations  Relating  to  Receivables.  Borrower  represents  and
warrants to Coast as follows:  Each  Receivable  with respect to which Loans are
requested  by  Borrower  shall,  on the date  each Loan is  requested  and made,
represent an  undisputed  bona fide  existing  unconditional  obligation  of the
Account  Debtor  created by the sale,  delivery and  acceptance  of goods or the
rendition of services in the ordinary course of Borrower's business.

     7.2  Representations  Relating to Documents and Legal Compliance.  Borrower
represents and warrants to Coast as follows:  All statements made and all unpaid
balances appearing in all invoices,  instruments and other documents  evidencing
the Receivables  are and shall be true and correct in all material  respects and
all such invoices,  instruments and other documents and all of Borrower's  books
and records are and shall be genuine and in all  respects  what they  purport to
be.  All  sales  and  other  transactions  underlying  or  giving  rise  to each
Receivable shall fully comply in all material  respects with all applicable laws
and governmental  rules and regulations.  All signatures and indorsements on all
documents, instruments, and agreements relating to all Receivables are and shall
be genuine, and all such documents,  instruments and agreements are and shall be
legally enforceable in accordance with their terms.

     7.3 Schedules and Documents relating to Receivables. Borrower shall deliver
to Coast via facsimile,  unless  otherwise  directed by Coast, at such locations
and at such  intervals  as  Coast  may  request,  transaction  reports  and loan
requests, schedules of Receivables, and schedules of collections, all on Coast's
standard  forms;  provided,  however,  that  Borrower's  failure to execute  and
deliver the same shall not affect or limit Coast's  security  interest and other
rights in all of Borrower's Receivables, nor shall Coast's failure to advance or
lend against a specific Receivable affect or limit Coast's security interest and
other  rights  therein.  Loan  requests  received  after 10:30 A.M. Los Angeles,
California  time,  will not be  considered by Coast until the next Business Day.
Together with each such schedule, or later if requested by Coast, Borrower shall
furnish Coast with copies (or, at Coast's request,  originals) of all contracts,
orders,  invoices,  and  other  similar  documents,  and all  original  shipping
instructions,  delivery  receipts,  bills  of  lading,  and  other  evidence  of
delivery,  for any  goods  the sale or  disposition  of which  gave rise to such
Receivables,  and Borrower  warrants the  genuineness  of all of the  foregoing.
Borrower shall also furnish to Coast an aged accounts eceivable trial balance in
such form and at such intervals as Coast shall reasonably  request. In addition,
Borrower shall deliver to Coast the originals of all instruments, chattel paper,
security  agreements,  guarantees and other documents and property evidencing or
securing any Receivables, upon receipt thereof and in the same form as received,
with all necessary indorsements,  all of which shall be with recourse.  Borrower
shall also provide  Coast with copies of all credit memos as and when  requested
by Coast.


                                       10
<PAGE>


     7.4 Collection of Receivables. Borrower shall have the right to collect all
Receivables,  unless and until an Event of Default has occurred.  Borrower shall
hold all  payments  on, and proceeds  of,  Receivables  in trust for Coast,  and
Borrower  shall  deliver all such  payments and proceeds to Coast within one (1)
Business Day after receipt by Borrower, in their original form, duly endorsed to
Coast, to be applied to the Obligations in such order as Coast shall  determine.
Coast may,  in its  discretion,  require  that all  proceeds  of  Collateral  be
deposited by Borrower into a lockbox account, or such other "blocked account" as
Coast may specify, pursuant to a blocked account agreement in such form as Coast
may specify. Coast or its designee may, at any time, notify Account Debtors that
Coast has been granted a security interest in the Receivables.

     7.5 Remittance of Proceeds.  All proceeds  arising from the  disposition of
any Collateral  shall be sent to Coast within one (1) Business Day after receipt
by Borrower,  by over night service,  in their  original form,  duly endorsed to
Coast, to be applied to the Obligations in such order as Coast shall  determine.
Borrower  agrees that it will not commingle  proceeds of Collateral  with any of
Borrower's  other funds or property,  but will hold such  proceeds  separate and
apart  from such other  funds and  property  and in an express  trust for Coast.
Nothing in this Section limits the restrictions on disposition of Collateral set
forth elsewhere in this Agreement.

     7.6  Disputes.  Borrower  shall  notify  Coast  promptly of all disputes or
claims  relating  to  Receivables.  Borrower  shall not forgive  (completely  or
partially),  compromise or settle any  Receivable for less than payment in full,
or agree to do any of the  foregoing,  except that Borrower may do so,  provided
that: (a) Borrower does so in good faith, in a commercially  reasonable  manner,
in the ordinary course of business, and in arm's length transactions,  which are
reported to Coast on the regular  reports  provided to Coast;  (b) no Default or
Event of Default has occurred and is continuing; and (c) taking into account all
such discounts settlements and forgiveness, the total outstanding Loans will not
exceed the Credit Limit. Coast may, at any time after the occurrence of an Event
of Default,  settle or adjust  disputes or claims  directly with Account Debtors
for amounts and upon terms which Coast  considers  advisable  in its  reasonable
credit  judgment and, in all cases,  Coast shall credit  Borrower's Loan account
with only the net amounts received by Coast in payment of any Receivables.

     7.7 Returns.  Provided no Event of Default has occurred and is  continuing,
if any Account Debtor  returns any Inventory to Borrower in the ordinary  course
of its business,  Borrower shall  promptly  determine the reason for such return
and promptly issue a credit  memorandum to the Account Debtor in the appropriate
amount.  In the event any attempted  return  occurs after the  occurrence of any
Event of Default,  Borrower  shall (a) hold the returned  Inventory in trust for
Coast,  (b)  segregate  all  returned  Inventory  from all of  Borrower's  other
property,  (c) conspicuously  label the returned Inventory as subject to Coast's
security  interest,  and (d)  immediately  notify  Coast  of the  return  of any
Inventory,  specifying the reason for such return, the location and condition of
the returned  Inventory,  and on Coast's request deliver such returned Inventory
to Coast.

     7.8  Verification.  Coast may, from time to time,  verify directly with the
respective  Account Debtors the validity,  amount and other matters  relating to
the Receivables, by means of mail, telephone or otherwise, either in the name of
Borrower or Coast or such other name as Coast may choose.

     7.9 No Liability. Coast shall not under any circumstances be responsible or
liable for any shortage or discrepancy in, damage to, or loss or destruction of,
any goods, the sale or other disposition of which gives rise to a Receivable, or
for any error,  act,  omission or delay of any kind occurring in the settlement,
failure to settle,  collection  or failure  to collect  any  Receivable,  or for
settling any Receivable in good faith for less than the full amount thereof, nor
shall Coast be deemed to be responsible for any of Borrower's  obligations under
any contract or agreement  giving rise to a  Receivable.  Nothing  herein shall,
however,  relieve Coast from  liability for its own gross  negligence or willful
misconduct.

8.   ADDITIONAL DUTIES OF THE BORROWER.

     8.1  Financial and Other Covenants. Borrower shall at all times comply with
the financial and other covenants set forth in the Schedule.

     8.2  Insurance.  Borrower  shall,  at all times  insure all of the tangible
personal  property  Collateral  and carry such other  business  insurance,  with
insurers  reasonably  acceptable to Coast, in such form and amounts as Coast may
reasonably  require,  and Borrower  shall provide  evidence of such insurance to
Coast,  so that Coast is satisfied that such insurance is, at all times, in full
force and effect. All liability  insurance policies of Borrower shall name Coast
as an  

                                       11
<PAGE>

additional  insured, and all property  casualty  and related  insurance policies
of Borrower shall name Coast as a loss payee thereon and Borrower shall  cause a
lender's loss payee endorsement  in form  reasonably  acceptable to Coast.  Upon
receipt of the proceeds of any such  insurance,  Coast shall apply such proceeds
in reduction of the Obligations as Coast shall determine in its sole discretion,
except that, provided no Default or Event of Default has occurred and is  conti-
nuing, Coast shall release to Borrower insurance proceeds  ith respect to Equip-
ment totaling less than the amount set forth in Section 8 of the Schedule, which
shall be utilized by Borrower for the replacement of the Equipment  with respect
to  which  the  insurance  proceeds  were  paid.  Coast  may  require reasonable
assurance  that the insurance proceeds so released will be so used.  If Borrower
fails to provide or pay for any  insurance,  Coast may, but is not obligated to,
obtain the same at Borrower's expense.  Borrower shall promptly deliver to Coast
copies of all reports made to insurance companies.

     8.3 Reports. Borrower, at its expense, shall provide Coast with the written
reports set forth in Section 8 of the Schedule,  and such other written  reports
with respect to Borrower (including budgets, sales projections,  operating plans
and other financial documentation),  as Coast shall from time to time reasonably
specify.

     8.4 Access to Collateral,  Books and Records.  At reasonable  times but not
less frequently  than quarterly and on one (1) Business Day's notice,  Coast, or
its  agents,  shall have the right to perform  Audits.  Coast shall use its best
effort  and take all  reasonable  steps to keep and  maintain  confidential  all
confidential  information  (including trade secrets)  obtained in any Audit, but
Coast shall have the right to disclose  any such  information  to its  auditors,
regulatory agencies, and attorneys,  and pursuant to any subpoena or other legal
process. The Audits shall be at Borrower's expense and the charge for the Audits
shall be Seven Hundred  Fifty Dollars  ($750) per person per day (or such higher
amount as shall  represent  Coast's then current  standard charge for the same),
plus  reasonable  out-of-pocket  expenses.  Borrower  will  not  enter  into any
agreement  with any  accounting  firm,  service  bureau or third  party to store
Borrower's  books or records at any  location  other  than  Borrower's  Address,
without first  notifying  Coast of the same and obtaining the written  agreement
from such accounting firm, service bureau or other third party to give Coast the
same  rights with  respect to access to books and records and related  rights as
Coast has under this Loan  Agreement.  Borrower  shall  also take all  necessary
steps to  assure  that  this  material  accounting  and  software,  systems  and
applications,  and those of its  accounting  firm,  service  bureau or any other
third  party  vendor  or  supplier,  will,  on a timely  basis,  adequately  and
completely address the Year 2000 Problem in all material respects.


     8.5  Negative Covenants.  Borrower shall not, without Coast's prior written
consent  which  consent  shall  not  be  unreasonably  withheld,  do  any of the
following:

          (a) merge or consolidate with another entity,  except in a transaction
in which (i) the owners of the Borrower hold at least fifty percent (50%) of the
ownership  interest in the  surviving  entity  immediately  after such merger or
consolidation, and (ii) the Borrower is the surviving entity;

          (b) acquire any assets, except (i) in the ordinary course of business,
or (ii) in a transaction or a series of  transactions  not involving the payment
of an  aggregate  amount in excess of the amount set forth in Section 8.5 of the
Schedule;

          (c)  enter into any other transaction outside the  ordinary  course of
business;

          (d) sell or transfer any  Collateral,  except for the sale of finished
Inventory in the ordinary course of Borrower's business, and except for the sale
of obsolete or unneeded Equipment in the ordinary course of business;

          (e) store any Inventory or other  Collateral with any  warehouseman or
other third party  except  where there is a warehouse  agreement  acceptable  to
Coast;

          (f)  sell any Inventory on a sale-or-return, guaranteed sale, consign-
ment, or other contingent basis;

          (g) make any loans of any money or other  assets,  except (i) advances
to  customers or  suppliers  in the  ordinary  course of  business,  (ii) travel
advances, employee relocation loans and other employee loans and advances in the
ordinary  course  of  business,  and  (iii)  loans to  employees,  officers  and
directors for the purpose of purchasing equity securities of the Borrower;

          (h)  incur any debts,  outside the ordinary course of business,  which
would have a Material Adverse Effect;


                                       12
<PAGE>

          (i)  guarantee  or  otherwise become liable in a material respect with
respect to the obligations of another party or entity;

          (j) pay or declare any  dividends or  distributions  on the  ownership
interests in Borrower (except for dividends or  distributions  payable solely in
stock form of ownership interests in Borrower);

          (k)  make any change in Borrower's capital structure which  would have
a Material Adverse Effect; or

          (l)   dissolve or elect to dissolve.
      Transactions  permitted by the  foregoing  provisions  of this Section are
only permitted if no Default or Event of Default is continuing or would occur as
a result of such transaction.

     8.6 Litigation  Cooperation.  Should any third-party  suit or proceeding be
instituted  by or against  Coast with respect to any  Collateral  or relating to
Borrower,  Borrower shall, without expense to Coast, make available Borrower and
its officers,  employees  and agents and  Borrower's  books and records,  to the
extent that Coast may deem them  reasonably  necessary  in order to prosecute or
defend any such suit or proceeding.

     8.7 Further  Assurances.  Borrower  agrees,  at its expense,  on request by
Coast,  to  execute  all  documents  and take all  actions,  as Coast,  may deem
reasonably  necessary  or  useful  in  order to  perfect  and  maintain  Coast's
perfected security interest in the Collateral,  and in order to fully consummate
the transactions contemplated by this Agreement.

9.   TERM.

     9.1  Maturity  Date.  This  Agreement  shall  continue in effect  until the
Maturity Date;  provided that the Maturity Date shall automatically be extended,
and this Agreement shall  automatically  and continuously  renew, for successive
additional terms of one year each,  unless one party gives written notice to the
other, not less than One Hundred Twenty (120) days prior to the Maturity Date or
the next  Renewal  Date,  that such party  elects to  terminate  this  Agreement
effective on the Maturity Date or such next Renewal  Date. If this  Agreement is
renewed under this Section 9.1, Borrower shall pay to Coast a Renewal Fee in the
amount  shown in Section 3 of the  Schedule.  The  Renewal  Fee shall be due and
payable on the Renewal Date and  thereafter  shall bear interest at a rate equal
to the rate applicable to the Receivable Loans.

     9.2  Early  Termination.  This  Agreement  may be  terminated  prior to the
Maturity  Date as follows:  (a) by Borrower,  effective  three (3) Business Days
after written notice of  termination  is given to Coast;  or (b) by Coast at any
time after the  occurrence  of an Event of Default,  without  notice,  effective
immediately.  If this Agreement is terminated by Borrower or by Coast under this
Section 9.2,  Borrower shall pay to Coast an Early Termination Fee in the amount
shown in Section 3 of the Schedule.  The Early  Termination Fee shall be due and
payable on the effective date of termination and thereafter  shall bear interest
at a rate equal to the rate applicable to the Receivable Loans.

     9.3  Payment  of  Obligations.  On the  Maturity  Date  or on  any  earlier
effective  date of  termination,  Borrower  shall  pay and  perform  in full all
Obligations, whether evidenced by installment notes or otherwise, and whether or
not all or any part of such  Obligations  are  otherwise  then due and  payable.
Without  limiting the generality of the foregoing,  if on the Maturity Date, the
Renewal Date, or on any earlier  effective  date of  termination,  there are any
outstanding  Letters of Credit issued by Coast or issued by another  institution
based upon an application, guarantee, indemnity or similar agreement on the part
of Coast,  then on such date Borrower shall provide to Coast cash  collateral in
an amount  equal to the face  amount  of all such  Letters  of  Credit  plus all
interest, fees and costs due or to become due in connection therewith, to secure
all of the Obligations  relating to said Letters of Credit,  pursuant to Coast's
then standard form cash pledge  agreement.  Notwithstanding  any  termination of
this Agreement,  all of Coast's security  interests in all of the Collateral and
all of the terms and provisions of this  Agreement  shall continue in full force
and effect until all Obligations have been paid and performed in full;  provided
that,  without  limiting  the fact that Loans are subject to the  discretion  of
Coast, Coast may, in its sole discretion, refuse to make any further Loans after
termination.  No  termination  shall in any way  affect or  impair  any right or
remedy  of  Coast,  nor  shall  any such  termination  relieve  Borrower  of any
Obligation to Coast,  until all of the Obligations  have been paid and performed
in  full.  Upon  payment  and  performance  in full of all the  Obligations  and
termination  of  this  Agreement,  Coast  shall  promptly  deliver  to  Borrower
termination  statements,  requests for reconveyances and such other documents as
may be required to fully terminate Coast's security interests.

                                       13
<PAGE>

10.  EVENTS OF DEFAULT AND REMEDIES.

     10.1 Events of Default. The occurrence of any of the following events shall
constitute an "Event of Default" under this  Agreement,  and Borrower shall give
Coast immediate written notice thereof:

          (a) Any warranty,  representation,  statement,  report or  certificate
made or delivered to Coast by Borrower or any of Borrower's officers,  employees
or agents, now or in the future,  shall be untrue or misleading and results in a
Material Adverse Effect; or

          (b)  Borrower  shall  fail  to  pay  when due any Loan or any interest
thereon or any other monetary Obligation; or

          (c)  the  total  Loans  and  other Obligations outstanding at any time
shall exceed the Credit Limit; or

          (d) Borrower shall fail to deliver the proceeds of Collateral to Coast
as  provided  in Section  7.5 above,  or shall fail to give Coast  access to its
books and records or  Collateral  as  provided  in Section  8.4 above,  or shall
breach any negative covenant set forth in Section 8.5 above; or

          (e) Borrower  shall fail to comply with the  financial  covenants  (if
any) set forth in the  Schedule or shall fail to perform any other  non-monetary
Obligation which by its nature cannot be cured; or

          (f) Borrower shall fail to perform any other non-monetary  Obligation,
which failure is not cured within five (5) Business Days after the date due; or

          (g) Any levy,  assessment,  attachment,  seizure,  lien or encumbrance
(other than a Permitted Lien) is made on all or any part of the Collateral which
is not cured within ten (10) days after the occurrence of the same and resulting
in a Material Adverse Effect; or

          (h) any  default  or event of  default  occurs  under  any  obligation
secured by a  Permitted  Lien,  which is not cured  within any  applicable  cure
period or waived in writing by the holder of the Permitted Lien and resulting in
a Material Adverse Effect; or

          (i)  Borrower  breaches any material contract or obligation, which has
or may reasonably be expected to have a Material Adverse Effect; or

          (j)  Dissolution,  termination  of  existence,  insolvency or business
failure of Borrower or any guarantor of any of the  Obligations;  or appointment
of a receiver,  trustee or  custodian,  for all or any part of the  property of,
assignment  for  the  benefit  of  creditors  by,  or  the  commencement  of any
proceeding  by Borrower or any  guarantor  of any of the  Obligations  under any
reorganization,  bankruptcy,  insolvency,  arrangement,  readjustment  of  debt,
dissolution or  liquidation  law or statute of any  jurisdiction,  now or in the
future in effect; or

          (k)  the  commencement  of  any  proceeding  against  Borrower  or any
guarantor  of any of  the  Obligations  under  any  reorganization,  bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any  jurisdiction,  now or in the future in effect,  which is (i) not
timely  controverted,  or (ii) not cured by the dismissal  thereof within thirty
(30) days after the date commenced; or

          (l) revocation or termination of, or limitation or denial of liability
upon, any guaranty of the Obligations or any attempt to do any of the foregoing,
or commencement of proceedings by any guarantor of any of the Obligations  under
any bankruptcy or insolvency law; or

          (m) revocation or termination of, or limitation or denial of liability
upon, any pledge of any certificate of deposit,  securities or other property or
asset  of any kind  pledged  by any  third  party  to  secure  any or all of the
Obligations,  or any  attempt to do any of the  foregoing,  or  commencement  of
proceedings  by or  against  any  such  third  party  under  any  bankruptcy  or
insolvency law; or

          (n)  Borrower or any  guarantor  of any of the  Obligations  makes any
payment on account of any indebtedness or obligation which has been subordinated
to the  Obligations,  other than as  permitted in the  applicable  subordination
agreement,   or  if  any  Person  who  has  subordinated  such  indebtedness  or
obligations terminates or in any way limits his subordination agreement; or

          (o) Except as permitted under Section 8.5(a), Borrower shall suffer or
experience any Change of Control  without Coast's prior written  consent,  which
consent shall be in the  discretion  of Coast in the exercise of its  reasonable
business judgment; or

          (o) Borrower shall generally not pay its debts 

                                       14
<PAGE>

as they become due,  or  Borrower shall conceal,  remove or transfer any part of
its property, with intent to hinder,  delay or defraud its creditors, or make or
suffer any transfer of any of its property which  may be  fraudulent  under  any
bankruptcy,  fraudulent conveyance or similar law; or

          (p) there shall be any Material Adverse Effect.

Coast may cease making any Loans or extending any credit hereunder during any of
the above cure periods.

     10.2 Remedies.  Upon the  occurrence,  and during the  continuance,  of any
Event of Default, Coast, at its option, and without notice or demand of any kind
(all of which are hereby expressly  waived by Borrower),  may do any one or more
of the following:

          (a)  Cease  making  Loans  or  otherwise  extending credit to Borrower
under this Agreement or any other document or agreement;

          (b)  Accelerate  and declare all or any part of the  Obligations to be
immediately  due,  payable  and  performable,  notwithstanding  any  deferred or
installment  payments  allowed by any  instrument  evidencing or relating to any
Obligation;

          (c) Take possession of any or all of the Collateral wherever it may be
found,  and for that purpose  Borrower hereby  authorizes Coast without judicial
process to enter onto any of Borrower's premises without  interference to search
for, take possession of, keep, store or remove any of the Collateral, and remain
on the  premises or cause a  custodian  to remain on the  premises in  exclusive
control  thereof,  without  charge  for so long as  Coast  deems  it  reasonably
necessary  in order  to  complete  the  enforcement  of its  rights  under  this
Agreement or any other agreement;  provided,  however, that should Coast seek to
take  possession of any of the  Collateral  by Court  process,  Borrower  hereby
irrevocably waives:

               (i) any bond and any surety or security relating thereto required
by any statute, court rule or otherwise as an incident to such possession;

              (ii) any demand for possession  prior to the  commencement  of any
suit or action to recover possession thereof; and

             (iii) any  requirement  that Coast  retain  possession  of, and not
dispose of, any such Collateral until after trial or final judgment;

          (d) Require Borrower to assemble any or all of the Collateral and make
it  available  to Coast at  places  designated  by Coast  which  are  reasonably
convenient to Coast and Borrower, and to remove the Collateral to such locations
as Coast may deem advisable;

          (e) Complete the processing, manufacturing or repair of any Collateral
prior to a  disposition  thereof  and,  for such  purpose and for the purpose of
removal,  Coast  shall  have the  right to use  Borrower's  premises,  vehicles,
hoists, lifts, cranes, equipment and all other property without charge. Coast is
hereby  granted a license  or other  right to use,  without  charge,  Borrower's
labels,  patents,  copyrights,  rights of use of any name, trade secrets,  trade
names,  trademarks,  service marks, and advertising matter, or any property of a
similar nature, as it pertains to the Collateral,  in completing  production of,
advertising for sale, and selling any Collateral and Borrower's rights under all
licenses and all franchise agreements shall inure to Coast's benefit;

          (f) Sell, lease or otherwise dispose of any of the Collateral,  in its
condition  at  the  time  Coast  obtains  possession  of  it  or  after  further
manufacturing, processing or repair, at one or more public and/or private sales,
in lots or in bulk, for cash,  exchange or other property,  or on credit, and to
adjourn  any  such  sale  from  time to time  without  notice  other  than  oral
announcement  at the time  scheduled  for sale.  Coast  shall  have the right to
conduct such disposition on Borrower's premises without charge, for such time or
times as Coast deems reasonable,  or on Coast's  premises,  or elsewhere and the
Collateral need not be located at the place of  disposition.  Coast may directly
or through any affiliated  company  purchase or lease any Collateral at any such
public  disposition,  and if permissible  under  applicable  law, at any private
disposition.  Any sale or other  disposition  of  Collateral  shall not  relieve
Borrower of any liability Borrower may have if any Collateral is defective as to
title or physical condition or otherwise at the time of sale;

          (g) Demand  payment  of,  and  collect  any  Receivables  and  General
Intangibles  comprising  Collateral  and,  in  connection  therewith,   Borrower
irrevocably  authorizes  Coast  to  endorse  or  sign  Borrower's  name  on  all
collections,  receipts,  instruments and other documents,  to take possession of
and open mail  addressed to Borrower  and remove  therefrom  payments  made with
respect to any item of the Collateral or proceeds thereof,  and, in Coast's sole


                                       15
<PAGE>

discretion,  to grant  extensions of time to pay,  compromise  claims and settle
Receivables and the like for less than face value; and

          (h) Demand and receive  possession  of any of  Borrower's  federal and
state income tax returns and the books and records  utilized in the  preparation
thereof or referring thereto.

      All  attorneys'  fees,  expenses,   costs,   liabilities  and  obligations
reasonably incurred by Coast (including attorneys' fees and expenses incurred in
connection with  bankruptcy) with respect to the foregoing shall be due from the
Borrower  to Coast on  demand.  Coast may  charge  the same to  Borrower's  loan
account,  and the same shall  thereafter  bear  interest  at the same rate as is
applicable to the Receivable  Loans.  Without limiting any of Coast's rights and
remedies,  from and after the  occurrence of any Event of Default,  the interest
rate  applicable to the  Obligations  shall be increased by an additional  three
percent per annum.

     10.3  Standards for  Determining  Commercial  Reasonableness.  Borrower and
Coast  agree  that a sale or other  disposition  (collectively,  "sale")  of any
Collateral  which  complies with the following  standards will  conclusively  be
deemed to be commercially reasonable:

          (a) Notice of the sale is given to  Borrower  at least  seven (7) days
prior to the  sale,  and,  in the case of a public  sale,  notice of the sale is
published  at least  seven (7) days  before the sale in a  newspaper  of general
circulation  in the county where the sale is to be conducted with a copy of such
published notice provided to Borrower;

          (b)  Notice  of  the  sale describes the  collateral in general,  non-
specific terms;

          (c)  The  sale  is conducted at a place  designated by Coast,  with or
without the Collateral being present;

          (d)  The  sale  commences  at any time between 8:00 a.m. and 6:00 p.m.
Hawaii Standard Time;

          (e)  Payment  of  the  purchase price in cash or by cashier's check or
wire transfer is required; and

          (f) With respect to any sale of any of the Collateral,  Coast may (but
is not obligated to) direct any prospective purchaser to ascertain directly from
Borrower any and all information concerning the same.

      Coast shall be free to employ  other  methods of noticing  and selling the
Collateral, in its discretion, if they are commercially reasonable.

     10.4 Power of Attorney.  Borrower  grants to Coast an irrevocable  power of
attorney  coupled with an interest,  authorizing  and  permitting  Coast (acting
through any of its  employees,  attorneys or agents) at any time, at its option,
but without obligation, with or without notice to Borrower (however, Coast shall
use its best efforts to  immediately  provide  notice to Borrower by facsimile),
and at Borrower's expense, to do any or all of the following, in Borrower's name
or  otherwise,   but  Coast  agrees  to  exercise  the  following  powers  in  a
commercially reasonable manner:

          (a) Execute on behalf of Borrower any documents that Coast may, in its
sole  discretion,  deem  advisable  in order to  perfect  and  maintain  Coast's
security interest in the Collateral, or in order to exercise a right of Borrower
or Coast,  or in order to fully  consummate  all the  transactions  contemplated
under this Agreement, and all other present and future agreements;

          (b)  Execute  on  behalf  of   Borrower   any   document   exercising,
transferring or assigning any option to purchase,  sell or otherwise  dispose of
or to lease (as lessor or lessee) any real or personal property which is part of
Coast's Collateral or in which Coast has an interest;

          (c)  Execute  on behalf of  Borrower,  any  invoices  relating  to any
Receivable,  any draft against any Account  Debtor and any notice to any Account
Debtor,  any  proof  of claim  in  bankruptcy,  any  Notice  of  Lien,  claim of
mechanic's,  materialman's  or other lien,  or  assignment  or  satisfaction  of
mechanic's, materialman's or other lien;
          (d)  Take  control  in any  manner  of any cash or  non-cash  items of
payment  or  proceeds  of  Collateral;  endorse  the name of  Borrower  upon any
instruments, or documents,  evidence of payment or Collateral that may come into
Coast's possession;

          (e)  Endorse  all  checks  and  other forms of remittances received by
Coast;

          (f) Pay,  contest or settle any lien,  charge,  encumbrance,  security
interest and adverse claim in or to any of the Collateral, or any judgment based
thereon, or otherwise take any action to terminate or discharge the same;

                                       16
<PAGE>

          (g) Grant  extensions  of time to pay,  compromise  claims  and settle
Receivables  and  General  Intangibles  for less than face value and execute all
releases and other documents in connection therewith;

          (h)  Pay any sums required on account of Borrower's taxes or to secure
the release of any liens therefor, or both;

          (i)  Settle and adjust, and give releases of, any insurance claim that
relates to any of the Collateral and obtain payment therefor;

          (j) Instruct any third party having custody or control of any books or
records  belonging to, or relating to, Borrower to give Coast the same rights of
access and other rights with respect  thereto as Coast has under this Agreement;
and

          (k) Take any action or pay any sum  required of  Borrower  pursuant to
this Agreement and any other present or future agreements.

      Any and all  sums  paid  and any  and all  costs,  expenses,  liabilities,
obligations and attorneys' fees incurred by Coast (including attorneys' fees and
expenses incurred pursuant to bankruptcy) with respect to the foregoing shall be
added to and  become  part of the  Obligations,  and shall be payable on demand.
Coast may charge the  foregoing to  Borrower's  loan  account and the  foregoing
shall  thereafter  bear interest at the same rate  applicable to the  Receivable
Loans. In no event shall Coast's rights under the foregoing power of attorney or
any of Coast's  other  rights under this  Agreement  be deemed to indicate  that
Coast is in control of the  business,  management  or  properties  of  Borrower.
Borrower shall pay, indemnify,  defend, and hold Coast and each of its officers,
directors,   employees,   counsel,   agents,  and  attorneys-in-fact  (each,  an
"Indemnified Person") harmless (to the fullest extent permitted by law) from and
against  any  and  all  claims,   demands,   suits,   actions,   investigations,
proceedings,  and damages,  and all attorneys fees and  disbursements  and other
costs and expenses actually and reasonably incurred in connection  therewith (as
and when they are incurred and irrespective of whether suit is brought),  at any
time  asserted  against,  imposed upon, or incurred by any of them in connection
with or as a result  of or  related  to the  execution,  delivery,  enforcement,
performance,  and  administration of this Agreement and any other Loan Documents
or the transactions  contemplated herein, and with respect to any investigation,
litigation, or proceeding related to this Agreement, any other Loan Document, or
the use of the  proceeds  of the  credit  provided  hereunder  (irrespective  of
whether any Indemnified Person is a party thereto), or any act, omission,  event
or circumstance in any manner related thereto (all the foregoing,  collectively,
the  "Indemnified  Liabilities").  Borrower  shall  have  no  obligation  to any
Indemnified  Person  hereunder with respect to any Indemnified  Liability that a
court of competent  jurisdiction  finally  determines  to have resulted from the
gross  negligence  or  willful  misconduct  of  such  Indemnified  Person.  This
provision  shall survive the  termination of this Agreement and the repayment of
the Obligations.

     10.5  Application of Proceeds.  All proceeds  realized as the result of any
sale of the Collateral  shall be applied by Coast first to the costs,  expenses,
liabilities,  obligations  and attorneys' fees incurred by Coast in the exercise
of its rights under this  Agreement,  second to the interest due upon any of the
Obligations,  and third to the  principal of the  Obligations,  in such order as
Coast shall  determine  in its sole  discretion.  Any  surplus  shall be paid to
Borrower or other persons legally entitled thereto; Borrower shall remain liable
to Coast for any  deficiency.  If, Coast,  in its sole  discretion,  directly or
indirectly  enters into a deferred payment or other credit  transaction with any
purchaser at any sale of Collateral, Coast shall have the option, exercisable at
any time, in its sole  discretion,  of either  reducing the  Obligations  by the
principal amount of purchase price or deferring the reduction of the Obligations
until the actual receipt by Coast of the cash therefor.

     10.6 Remedies Cumulative.  In addition to the rights and remedies set forth
in this Agreement, Coast shall have all the other rights and remedies accorded a
secured party in equity,  under the Code, and under all other  applicable  laws,
and under any other  instrument or agreement  now or in the future  entered into
between Coast and Borrower,  and all of such rights and remedies are  cumulative
and none is exclusive.  Exercise or partial  exercise by Coast of one or more of
its  rights or  remedies  shall not be deemed an  election,  nor bar Coast  from
subsequent  exercise or partial  exercise of any other rights or  remedies.  The
failure or delay of Coast to exercise  any rights or remedies  shall not operate
as a waiver  thereof,  but all rights and remedies  shall continue in full force
and  effect  until  all of the  Obligations  have  been  indefeasibly  paid  and
performed.

                                       17
<PAGE>

11.  GENERAL PROVISIONS.

     11.1 Interest  Computation.  In computing interest on the Obligations,  all
checks,  wire transfers and other items of payment  received by Coast (including
proceeds of Receivables  and payment of the Obligations in full) shall be deemed
applied by Coast on  account  of the  Obligations  two (2)  Business  Days after
receipt by Coast of  immediately  available  funds,  and,  for  purposes  of the
foregoing, any such funds received after 10:30 AM Los Angeles,  California time,
on any day shall be deemed  received on the next  Business  Day.  Coast shall be
entitled  to  charge  Borrower's  account  for  such  two (2)  Business  Days of
"clearance"  or "float" at the rate(s) set forth in Section 3 of the Schedule on
all checks,  wire  transfers  and other items  received by Coast,  regardless of
whether such two (2) Business Days of "clearance" or "float" actually occur, and
shall be  deemed to be the  equivalent  of  charging  two (2)  Business  Days of
interest  on  such  collections.  This  across-the-board  two (2)  Business  Day
clearance or float charge on all  collections is  acknowledged by the parties to
constitute an integral  aspect of the pricing of Coast's  financing of Borrower.
Coast  shall not,  however,  be required  to credit  Borrower's  account for the
amount  of any  item of  payment  which is  unsatisfactory  to Coast in its sole
discretion,  and Coast may charge  Borrower's loan account for the amount of any
item of payment which is returned to Coast unpaid.

     11.2 Application of Payments.  Subject to Section 7.5 hereof,  all payments
with respect to the Obligations  may be applied,  and in Coast's sole discretion
reversed and re-applied,  to the Obligations,  in such order and manner as Coast
shall determine in its sole discretion.

     11.3  Charges to  Accounts.  Coast may,  in its  discretion,  require  that
Borrower pay monetary Obligations in cash to Coast, or charge them to Borrower's
Loan  account,  in which event they will bear  interest from the date due to the
date paid at the same rate applicable to the Loans.

     11.4 Monthly  Accountings.  Coast shall  provide  Borrower  monthly with an
account of  advances,  charges,  expenses  and  payments  made  pursuant to this
Agreement.  Such  account  shall be deemed  correct,  accurate  and  binding  on
Borrower  and an account  stated  (except for  reverses  and  reapplications  of
payments made and  corrections of errors  discovered by Coast),  unless Borrower
notifies  Coast in writing to the  contrary  within  thirty (30) days after each
account is rendered, describing the nature of any alleged errors or omissions.

     11.5  Notices.  All  notices to be given under this  Agreement  shall be in
writing and shall be given either  personally or by reputable  private  delivery
service or by regular  first-class  mail,  facsimile  or  certified  mail return
receipt requested,  addressed to Coast or Borrower at the addresses shown in the
heading to this Agreement,  or at any other address designated in writing by one
party to the other party.  Notices to Coast shall be directed to the  Commercial
Finance  Division,  to the  attention  of the  Division  Manager or the Division
Credit Manager.  All notices shall be deemed to have been given upon delivery in
the case of notices  personally  delivered,  faxed (at time of  confirmation  of
transmission),  or at the expiration of two (2) Business Day following  delivery
to the private  delivery  service,  or three (3)  Business  Days  following  the
deposit thereof in the United States mail, with postage prepaid.

     11.6  Severability.  Should any provision of this  Agreement be held by any
court of competent  jurisdiction to be void or unenforceable,  such defect shall
not affect the remainder of this  Agreement,  which shall continue in full force
and effect.

     11.7  Integration.  This  Agreement  and  such  other  written  agreements,
documents  and  instruments  as may be executed in  connection  herewith are the
final,  entire and complete  agreement  between Borrower and Coast and supersede
all  prior  and  contemporaneous   negotiations  and  oral  representations  and
agreements,  all of which are merged and integrated in this Agreement. There are
no oral understandings,  representations or agreements between the parties which
are not set forth in this Agreement or in other written agreements signed by the
parties in connection herewith.

     11.8 Waivers. The failure of Coast at any time or times to require Borrower
to strictly  comply with any of the  provisions  of this  Agreement or any other
present  or future  agreement  between  Borrower  and  Coast  shall not waive or
diminish  any  right of Coast  later to demand  and  receive  strict  compliance
therewith.  Any  waiver of any  Default  shall  not  waive or  affect  any other
Default,  whether prior or subsequent,  and whether or not similar.  None of the
provisions  of  this  Agreement  or any  other  agreement  now or in the  future
executed by Borrower and  delivered to Coast shall be deemed to have been waived
by any act or  knowledge  of Coast or its  agents  or  employees,  but only by a
specific  written waiver signed by an authorized  officer of Coast and delivered
to Borrower.  Borrower waives demand, 

                                       18
<PAGE>
protest, notice of protest and notice of default or dishonor,  notice of payment
and  nonpayment,  release,  compromise, settlement,  extension or renewal of any
commercial paper, instrument, account, General Intangible, document or  guaranty
at any time held by Coast on which Borrower is or may in any way be liable,  and
notice  of  any  action  taken  by  Coast,  unless  expressly  required  by this
Agreement.

     11.9 No Liability for Ordinary  Negligence.  Neither Coast,  nor any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing  Coast shall be liable for any claims,  demands,  losses or
damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower
or any other  party  through the  ordinary  negligence  of Coast,  or any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or  representing  Coast,  but  nothing  herein  shall  relieve  Coast  from
liability for its own gross negligence or willful misconduct.

     11.10  Amendment.  The terms and  provisions  of this  Agreement may not be
waived  or  amended,  except  in a  writing  executed  by  Borrower  and a  duly
authorized officer of Coast.

     11.11 Time  of  Essence.  Time is  of the  essence  in the  performance  by
Borrower of each and every obligation under this Agreement.

     11.12 Attorneys Fees, Costs and Charges. Borrower shall reimburse Coast for
all reasonable  attorneys' fees (including attorneys' fees and expenses incurred
pursuant to bankruptcy)  and all filing,  recording,  search,  title  insurance,
appraisal,  audit, and other costs reasonably incurred by Coast, pursuant to, or
in connection  with, or relating to this Agreement  (whether or not a lawsuit is
filed),  including, but not limited to, any attorneys' fees and costs (including
attorneys' fees and expenses  incurred  pursuant to bankruptcy)  Coast incurs in
order  to do the  following:  prepare  and  negotiate  this  Agreement  and  the
documents  relating to this  Agreement;  obtain legal advice in connection  with
this  Agreement or  Borrower;  enforce,  or seek to enforce,  any of its rights;
prosecute  actions  against,  or defend actions by, Account  Debtors;  commence,
intervene in, or defend any action or  proceeding;  initiate any complaint to be
relieved of the  automatic  stay in  bankruptcy;  file or prosecute  any probate
claim,  bankruptcy claim,  third-party  claim, or other claim;  examine,  audit,
copy, and inspect any of the Collateral or any of Borrower's  books and records;
protect,  obtain possession of, lease,  dispose of, or otherwise enforce Coast's
security  interest in, the  Collateral;  and  otherwise  represent  Coast in any
litigation  relating to Borrower.  If either Coast or Borrower files any lawsuit
against the other predicated on a breach of this Agreement, the prevailing party
in such action shall be entitled to recover its reasonable  costs and attorneys'
fees (including  attorneys' fees and expenses  incurred pursuant to bankruptcy),
including  (but not  limited  to)  attorneys'  fees and  costs  incurred  in the
enforcement  of,  execution  upon or  defense  of any  order,  decree,  award or
judgment.  Borrower shall also pay Coast's  standard charges for returned checks
and for wire transfers,  in effect from time to time. All attorneys' fees, costs
and  charges  (including  attorneys'  fees and  expenses  incurred  pursuant  to
bankruptcy)  and other  fees,  costs and  charges to which Coast may be entitled
pursuant to this  Agreement may be charged by Coast to  Borrower's  loan account
and shall thereafter bear interest at the same rate as the Receivable Loans.

     11.13  Benefit of Agreement.  The  provisions  of this  Agreement  shall be
binding  upon and inure to the benefit of the  respective  successors,  assigns,
heirs,  beneficiaries  and  representatives  of  Borrower  and Coast;  provided,
however,  that  Borrower may not assign or transfer any of its rights under this
Agreement  without  the  prior  written  consent  of Coast,  and any  prohibited
assignment  shall be void. No consent by Coast to any  assignment  shall release
Borrower from its liability for the Obligations. Coast may assign its rights and
delegate its duties hereunder without consent of Borrower,  however,  Coast will
immediately fax notice of such assignment to Borrower.  Coast reserves the right
to  syndicate  all or a portion  of the  transaction  created  herein,  or sell,
assign,  transfer,  negotiate, or grant participations in all or any part of, or
any interest in Coast's rights and benefits  hereunder.  In connection  with any
such syndication,  assignment or participation, Coast may disclose all documents
and  information  which Coast now or hereafter  may have relating to Borrower or
Borrower's  business,  subject to an agreement to maintain all such  information
confidential  provided  there is no Event of  Default.  To the extent that Coast
assigns its rights and obligations hereunder to a third Person, Coast thereafter
shall be released from such assigned obligations to Borrower.

     11.14  Publicity.  Coast and Borrower each are hereby  authorize,  at their
expense,  to issue  appropriate press releases and/or to cause a tombstone to be
published  announcing the  consummation  of this  transaction  and the aggregate
amount thereof.

                                       19
<PAGE>

     11.15 Paragraph Headings; Construction. Paragraph headings are only used in
this Agreement for convenience. Borrower and Coast acknowledge that the headings
may not describe completely the subject matter of the applicable paragraph,  and
the  headings  shall not be used in any  manner to  construe,  limit,  define or
interpret  any  term or  provision  of this  Agreement.  The  term  "including",
whenever used in this  Agreement,  shall mean  "including (but not limited to)".
This Agreement has been fully reviewed and negotiated between the parties and no
uncertainty  or ambiguity in any term or  provision of this  Agreement  shall be
construed  strictly  against Coast or Borrower under any rule of construction or
otherwise.

     11.16 Governing Law;  Jurisdiction;  Venue. This Agreement and all acts and
transactions  hereunder  and all rights and  obligations  of Coast and  Borrower
shall be  governed  by the  internal  laws of the State of  California,  without
regard  to  its  conflicts  of  law  principles.  As  a  material  part  of  the
consideration  to Coast to enter into this  Agreement,  Borrower (a) agrees that
all actions and  proceedings  relating  directly or indirectly to this Agreement
shall, at Coast's option, be litigated in courts located within California,  and
that the exclusive venue therefor shall be Los Angeles  County;  (b) consents to
the  jurisdiction and venue of any such court and consents to service of process
in any such  action or  proceeding  by  personal  delivery  or any other  method
permitted by law; and (c) waives any and all rights  Borrower may have to object
to the jurisdiction of any such court, or to transfer or change the venue of any
such action or proceeding.

     11.17 Mutual Waiver of Jury Trial. BORROWER AND COAST EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING  BASED UPON,  ARISING OUT OF,
OR IN ANY WAY  RELATING  TO,  THIS  AGREEMENT  OR ANY  OTHER  PRESENT  OR FUTURE
INSTRUMENT  OR AGREEMENT  BETWEEN COAST AND  BORROWER,  OR ANY CONDUCT,  ACTS OR
OMISSIONS OF COAST OR BORROWER OR ANY OF THEIR DIRECTORS,  OFFICERS,  EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH COAST OR BORROWER, IN ALL
OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.


BORROWER:

CYANOTECH CORPORATION



By        /s/Gerald R. Cysewski
          -----------------------------------
             Gerald R. Cysewski
Title:       Chairman & President



By        /s/Ronald P. Scott
          -----------------------------------
             Ronald P. Scott
Title:       Executive Vice President

NUTREX, INC.



By        /s/Larry L. Line
          -----------------------------------
             Larry L. Line
Title:       President



By        /s/Ronald P. Scott
          -----------------------------------
             Ronald P. Scott
Title:       Executive Vice President

COAST:

COAST BUSINESS CREDIT(R),
a division of Southern Pacific
Bank



By        /s/Robert D. Peters
          -----------------------------------
             Robert D. Peters
Title:       Vice President

                                       20