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                                   $75,000,000


                                CREDIT AGREEMENT


                                   dated as of


                                February 7, 1997


                                      among


                               KOMAG, INCORPORATED

                                   as Borrower


               THE INSTITUTIONAL LENDERS WHICH ARE PARTIES HERETO

                                   as Lenders


                                       and


                     THE INDUSTRIAL BANK OF JAPAN, LIMITED,
                              SAN FRANCISCO AGENCY

                              as Agent for Lenders


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


<PAGE>

                                TABLE OF CONTENTS

                                                                           Page
                                                                           ----

ARTICLE I

DEFINITIONS.................................................................  1
         Section 1.1       Definitions......................................  1
         Section 1.2       Accounting Terms and Determinations..............  7
         Section 1.3       Computation of Time Periods......................  7
         Section 1.4       Construction.....................................  7
         Section 1.5       Exhibits and Schedules...........................  8
         Section 1.6       No Presumption Against Any Party.................  8
         Section 1.7       Independence of Provisions.......................  8

ARTICLE II

THE CREDITS.................................................................  8
         Section 2.1       Borrowing........................................  8
         Section 2.2       Maturity of Loans................................  9
         Section 2.3       Notes............................................  9
         Section 2.4       Interest Rates...................................  9
         Section 2.5       Fees.............................................  9
         Section 2.6       Optional Prepayments.............................  9
         Section 2.7       General Provisions as to Payments................ 10
         Section 2.8       Funding Losses................................... 10
         Section 2.9       Computation of Interest and Fees................. 10
         Section 2.10      Maximum Interest Rate............................ 10
         Section 2.11      Reduced Return................................... 11
         Section 2.12      Requirements of Law.............................. 11
         Section 2.13      Lender Withholding Certificates.................. 12

ARTICLE III

CONDITIONS PRECEDENT........................................................ 13
         Section 3.1       Effectiveness.................................... 13
         Section 3.2       Borrowing........................................ 13

ARTICLE IV

REPRESENTATIONS AND WARRANTIES.............................................. 14
         Section 4.1       Organization..................................... 14
         Section 4.2       Authorization.................................... 14
         Section 4.3       Governmental Consents............................ 15


<PAGE>

         Section 4.4       Validity......................................... 15
         Section 4.5       Financial Condition.............................. 15
         Section 4.6       Litigation....................................... 15
         Section 4.7       ERISA Plans...................................... 15
         Section 4.8       Disclosure....................................... 15
         Section 4.9       Margin Stock..................................... 16
         Section 4.10      Environmental Matters............................ 16
         Section 4.11      Not an Investment Company........................ 17
         Section 4.12      Margin Regulations............................... 17
         Section 4.13      Events of Default................................ 17
         Section 4.14      Employee Matters................................. 17

ARTICLE V

COVENANTS................................................................... 17
         Section 5.1       Information...................................... 17
         Section 5.2       Financial Condition.............................. 19
         Section 5.3       Corporate Existence, Etc......................... 19
         Section 5.4       Payment of Taxes and Claims...................... 19
         Section 5.5       Maintenance of Properties; Insurance............. 20
         Section 5.6       Inspection....................................... 20
         Section 5.7       Compliance with Laws, Etc........................ 20
         Section 5.8       Liens, Etc....................................... 20
         Section 5.9       Dividends, Etc................................... 21
         Section 5.10      Consolidation, Merger, or Acquisition............ 21
         Section 5.11      Loans, Investments, and Secondary Liabilities.... 21
         Section 5.12      Asset Sales...................................... 22

ARTICLE VI

DEFAULTS.................................................................... 23
         Section 6.1       Defaults......................................... 23
         Section 6.2       Notice of Default................................ 26

ARTICLE VII

AGENT AND LENDERS........................................................... 26
         Section 7.1       Appointment and Authorization.................... 26
         Section 7.2       Agent and Affiliates............................. 26
         Section 7.3       Action by Agent.................................. 26
         Section 7.4       Consultation with Experts........................ 27
         Section 7.5       Liability of Agent............................... 27
         Section 7.6       Indemnification.................................. 27
         Section 7.7       Credit Decision.................................. 27

                                      ii.
<PAGE>

         Section 7.8       Successor Agent.................................. 27
         Section 7.9       Collateral....................................... 28
         Section 7.10      Agent/Borrower Relationship...................... 28

ARTICLE VIII

MISCELLANEOUS............................................................... 28
         Section 8.1       Notices.......................................... 28
         Section 8.2       No Waivers; Rights and Remedies Cumulative....... 29
         Section 8.3       Expenses and Indemnity........................... 29
         Section 8.4       Offset; Sharing of Recoveries.................... 30
         Section 8.5       Amendments and Waivers........................... 31
         Section 8.6       Successors and Assigns; Participations........... 32
         Section 8.7       Obligations of Lenders are Several............... 34
         Section 8.8       Governing Law; Jurisdiction and Venue............ 34
         Section 8.9       Counterparts; Facsimile Signatures.  ............ 35
         Section 8.10      Confidentiality.................................. 35
         Section 8.11      Entire Agreement................................. 35


                                    SCHEDULES

Schedule 1        Schedule of Subsidiaries
Schedule 2        Schedule of Permitted Liens


                                    EXHIBITS

Exhibit A                  Assignment and Acceptance Agreement
Exhibit B                  Compliance Certificate
Exhibit C                  Note
Exhibit D                  Non-Disclosure Agreement


                                      iii.

<PAGE>

                                CREDIT AGREEMENT


                  This CREDIT AGREEMENT,  dated as of February 7, 1997, is among
KOMAG,  INCORPORATED,  a Delaware  corporation,  as Borrower,  the institutional
lenders which are parties hereto, as Lenders,  and THE INDUSTRIAL BANK OF JAPAN,
LIMITED, SAN FRANCISCO AGENCY, as Agent for Lenders.

                  In  consideration  of  the  covenants  contained  herein,  the
parties hereto hereby agree as follows:

                                  I ARTICLE I

                                   DEFINITIONS

                  Definitions.  As used  herein,  the  following  terms have the
following meanings (the following  definitions being applicable in both singular
and plural forms):


                  "Affiliate"  means as to any  Person  directly  or  indirectly
controlling  or  controlled by or under direct or indirect  common  control with
such Person.

                  "Agent"  means  IBJ in  its  capacity  as  agent  for  Lenders
hereunder, and its successors in such capacity.

                  "Agent's Funding Office" means the office of Agent (or account
maintained by or on behalf of Agent with a depository institution) designated as
its funding office on the signature pages of this Agreement or such other office
of Agent as Agent  may from  time to time  hereafter  designate  as its  funding
office upon notice to Borrower and Lenders.

                  "Agreement" means this Credit Agreement.

                  "Assignee" has the meaning set forth in Section 8.6(c).

                  "Assignment and Acceptance" means an agreement,  substantially
in the form of Exhibit A,  under  which an  interest  of a Lender  hereunder  is
transferred to an Assignee pursuant to Section 8.6(c).

                  "Base  Financials"  means the  consolidated  balance  sheet of
Borrower and the related consolidated statements of income, shareholders' equity
and cash flows for the fiscal year then ended as of December 29, 1996.

                  "Borrower" means Komag, Incorporated, a Delaware corporation.

                                       1.
<PAGE>

                  "Borrowing  Date" means the second  Business Day following the
Closing Date.

                  "Business  Day" means any day except a  Saturday,  Sunday,  or
other day on which  commercial banks in San Francisco or New York are authorized
by law to close.

                  "Capital Lease" means, as applied to any Person,  any lease of
any property  (whether  real,  personal or mixed) by that Person as lessee which
would,  in  accordance  with GAAP,  be required to be accounted for as a capital
lease on the balance sheet of that Person.

                  "Closing Date" means the date this Agreement becomes effective
pursuant to Section 3.1.

                  "Compliance  Certificate"  means a certificate  in the form of
Exhibit B with such changes as Agent shall approve,  together with the schedules
to be attached thereto, which schedules shall be in form satisfactory to Agent.

                  "Consolidated  Subsidiary"  means  any  corporation  or  other
Person more than 50% of the outstanding  voting stock of which shall at the time
be owned by Borrower or another  Consolidated  Subsidiary,  excluding  from this
definition Asahi Komag Co., Ltd., a Japanese corporation.

                  "Consolidated  Tangible  Net Worth"  means the excess of total
assets  over   consolidated   liabilities  of  Borrower  and  its   Consolidated
Subsidiaries  determined on a consolidated  basis,  excluding,  however from the
determination  of total assets (i) all  intangible  assets,  including,  without
limitation,  goodwill  (whether  representing the excess cost over book value of
assets acquired or otherwise),  patents,  trademarks,  trade names,  copyrights,
franchises,  and deferred charges (including,  without  limitation,  unamortized
debt  discount and expense,  organization  and research and product  development
costs but excluding deferred income taxes),  (ii) treasury stock, (iii) cash set
apart and held in a sinking or other analogous fund  established for the purpose
of redemption or other  retirement of capital stock,  and (iv) to the extent not
already  deducted  from total  assets,  reserves  for  depreciation,  depletion,
obsolescence,  and/or  amortization  of  properties  and all other  reserves  or
appropriation  of retained  earnings which,  in accordance with GAAP,  should be
established  in  connection   with  the  business   conducted  by  the  relevant
corporation.

                  "Convertible  Debt"  means Debt  subordinated  to the Loans on
terms  reasonably  acceptable  to the Required  Lenders and  convertible  at the
option of Borrower to equity securities of Borrower.

                  "Dastek(M)" means Dastek(M) SDN BHD, a Malaysian corporation.

                  "Credit  Documents"  means this Agreement,  the Notes, and any
Assignment and Acceptance.


                                       2.
<PAGE>

                  "Debt" means, as applied to any Person,  (i) all  indebtedness
for borrowed  money,  (ii) that portion of  obligations  with respect to Capital
Leases  which is  property  classified  as a  liability  on a  balance  sheet in
conformity  with GAAP,  (iii)  notes  payable and drafts  accepted  representing
extensions of credit whether or not representing obligations for borrowed money,
(iv) any obligation  owed for all or any part of the deferred  purchase price of
property or services  which  purchase price is (A) due more than six months from
the date of incurrence of the obligation in respect  thereof or (B) evidenced by
a note or similar written  instruments,  and (v) all indebtedness secured by any
Lien on any property or asset owned or held by that Person regardless of whether
the  indebtedness  secured  thereby shall have been assumed by that Person or is
non-recourse to the credit of that Person.

                  "Default"  means any condition or event which  constitutes  an
Event of  Default  or which  with the  giving of notice or lapse of time or both
would, unless cured or waived, become an Event of Default.

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

                  "Employee  Benefit Plan" means any Pension Plan,  any employee
welfare  benefit plan or any other  employee  benefit plan which is described in
Section 3(3) of ERISA and which is  maintained  for employees of Borrower or any
ERISA Affiliate of Borrower.

                  "ERISA" means the Employee  Retirement  Income Security Act of
1974, as amended from time to time, and any successor statute.

                  "ERISA Affiliate"  means, as applied to any Person,  any trade
or business (whether or not incorporated)  which is a member of a group of which
that Person is a member and which is under common  control within the meaning of
Section  414(b) or (c) of the IRC, but excluding any  Subsidiary or other Person
that is not a Consolidated Subsidiary.

                  "Event of Default" has the meaning set forth in Section 6.1.

                  "Federal  Funds Rate"  means,  for any day, the rate per annum
(rounded  upwards,  if  necessary,  to the  nearest  1/100th of 1%) equal to the
weighted  average of the rates of  overnight  federal  funds  transactions  with
members of the  Federal  Reserve  System  arranged by federal  funds  brokers as
published  for  such  day (or if such day is not a  Business  Day,  for the next
preceding Business Day) by the Federal Reserve Bank of New York, or if such rate
is not so  published  for any day which is a Business  Day,  the  average of the
quotations  for such day on such  transactions  received  by  Agent  from  three
federal funds brokers of recognized standing selected by Agent.

                  "Fixed Rate" means a rate of 7.40 percent per annum.

                  "GAAP" means  generally  accepted  accounting  principles  set
forth in the opinions and  pronouncements of the Accounting  Principles Board of
the American  Institute of  



                                       3.
<PAGE>

Certified Public  Accountants and statements and pronouncements of the Financial
Accounting  Standards Board or in such other  statements by such other entity as
may be approved by a significant segment of the accounting profession, as may be
in effect from time to time.

                  "IBJ"  means  The  Industrial  Bank  of  Japan,  Limited,  San
Francisco Agency.

                  "Initial Lender" means IBJ.

                  "Initial Loan" means a single loan in the principal  amount of
$75,000,000 to be made to Borrower by Initial Lender pursuant to Section 2.1.

                  "Interest  Payment  Date" means the day  corresponding  to the
Borrowing  Date in the third month (or, if there is no such  corresponding  day,
then the last day of such month) of each successive  three calendar month period
after the Borrowing Date.

                  "IRC" means the Internal Revenue Code of 1986, as amended from
time to time, and any successor statute.

                  "Lender"  means (a) Initial Lender and (b) each Assignee which
becomes a "Lender" for purposes hereof pursuant to Section 8.6(c).

                  "Lending Office" means, as to each Lender,  its office located
at its  address  set forth on the  signature  pages  hereof or in the case of an
Assignee,  as set forth on the signature  pages of the relevant  Assignment  and
Acceptance  (or  identified  on the  signature  pages  hereof or  thereof as its
Lending  Office) or such other office as such Lender may hereafter  designate as
its Lending Office by notice to Borrower and Agent.

                  "Lien"  means  any  lien,  mortgage,  deed of  trust,  pledge,
security interest, charge, or encumbrance of any kind (including any conditional
sale or other title retention  agreement,  any lease in the nature thereof,  and
any agreement to give any security interest).

                  "Loan"  means  (a) the  Initial  Loan  and (b)  each  division
(including  successive divisions) of the Initial Loan by virtue of an assignment
to an Assignee pursuant to Section 8.6(c).

                  "Margin  Regulations"  means  Regulations G, T, U and X of the
Board of  Governors  of the Federal  Reserve  System,  as in effect from time to
time.

                  "Material  Adverse Change" means a material  adverse change in
(a) the  financial  condition or  operations  of Borrower  and its  Consolidated
Subsidiaries,  taken  as a whole,  or (b)  Borrower's  ability  to  perform  its
obligations  under the Credit  Documents,  having regard for its other financial
obligations.  Each  determination  of  whether a  Material  Adverse  Change  has
occurred  shall be made in good  faith by the  Person  or  Persons  making  such
determination  


                                       4.
<PAGE>

and shall take into account all relevant facts and circumstances  existing as of
the date of determination.

                  "Maturity Date" means March 6, 2002.

                  "Multiemployer  Plan" means "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA which is maintained for employees of Borrower or any
ERISA Affiliate of Borrower.

                  "Note" means a promissory note of Borrower,  substantially  in
the form of Exhibit  C,  payable  to the order of a Lender  and  evidencing  the
obligation  of  Borrower to repay the Loans made to it by such  Lender.  "Notes"
means all of the Notes.

                  "Participant" has the meaning set forth in Section 8.6(b).

                  "Pension  Plan"  means any  employee  plan which is subject to
Section 412 of the IRC and which is maintained  for employees of Borrower or any
ERISA Affiliate of Borrower, other than a Multiemployer Plan.

                  "Permitted  Liens" means (a) any Lien for taxes,  assessments,
charges,  or claims of Borrower  either not yet due or being  contested  in good
faith by appropriate  proceedings,  (b) Liens arising out of judgments or awards
against  Borrower  with respect to which an appeal or other  proceeding is being
prosecuted in good faith and with respect to which there shall have been secured
a stay of execution  pending such appeal or  proceedings  or which is vacated or
discharged within 30 days after the termination of such stay, (c) materialmen's,
mechanics',  workers',  repairmen's,  employee's, or other like liens arising in
the  ordinary  course  of  business  for  amounts  either  not yet due or  being
contested  in good  faith by  appropriate  proceedings,  (d)  Liens  granted  by
Borrower to secure the Loans,  (e) liens,  deposits,  or pledges  made to secure
statutory obligations,  workers' compensation claims, surety or appeal bonds, or
bonds for the release of attachments or for stay of execution,  or to secure the
performance of bids,  lenders  contracts (other than for the payment of borrowed
money),  leases or for purposes of like general nature in the ordinary course of
Borrower's  business,   (f)  purchase  money  security  interests  for  property
acquired,  conditional sale agreements, or other title retention agreements with
respect  to  property  acquired,  provided  that no such  security  interest  or
agreement shall extend to any property other than such  after-acquired  property
and proceeds, (g) refunding,  refinancing, or extension of the liens or security
interests  permitted in the foregoing  clause not exceeding the principal amount
of  indebtedness  so  refunded,  refinanced,  or  extended  at the  time  of the
refunding,  refinancing,  or extension  thereof,  and applying  only to the same
property  theretofore  subject  to such  lien or  security  interest,  (h) liens
existing on the date hereof and identified in the Schedule of Permitted Liens or
incurred with any refunding,  refinancing, or extension of any such indebtedness
secured by such liens,  provided that such  refinancing,  refunding or extension
shall not increase the amount, as of the date of such refinancing, refunding, or
extension,  secured  by any such lien or  security  interest,  (i)  other  liens
securing   indebtedness,   the  



                                       5.
<PAGE>

principal amount of which shall not exceed $2,000,000;  (j) liens in property of
Asahi Komag Co., Ltd., a Japanese  corporation;  and (k) liens taken by Borrower
on its Subsidiaries.

                  "Person"  means  an  individual,   partnership,   corporation,
limited  liability  company,   business  trust,  joint  stock  company,   trust,
unincorporated  association,  joint venture,  governmental  authority,  or other
entity of whatever nature.

                  "Prime  Rate" means on any day,  the higher of (a) the rate of
interest most recently announced by The Industrial Bank of Japan, Limited at its
New York branch as its "Prime  Rate" ("IBJ Prime  Rate") for loans in Dollars in
the  United  States  and (b) the  Federal  Funds  Rate plus a margin of 50 basis
points.  The IBJ Prime Rate is one of The  Industrial  Bank of Japan,  Limited's
base rates and serves as the basis upon which  effective  rates of interest  are
calculated  for those  loans  making  reference  thereto.  The IBJ Prime Rate is
evidenced by the  recording  thereof  after its  announcement  in such  internal
publication  or  publications  as The  Industrial  Bank of  Japan,  Limited  may
designate  and may not be the lowest of The  Industrial  Bank of Japan,  Limited
base  rates.  Any  change  in any of the  interest  rates  chargeable  hereunder
resulting  from a change in IBJ Prime Rate shall  become  effective  as of 12:01
a.m.  (San  Francisco  time) on the Business Day on which each change in the IBJ
Prime Rate is announced by The  Industrial  Bank of Japan,  Limited:  (a) on the
Business  Day on which  each  change in the IBJ Prime Rate is  announced  by The
Industrial  Bank of Japan,  Limited,  if such change is announced prior to 11:00
a.m. (San Francisco time) on such day, and (b) on the Business Day following the
Domestic Business Day on which each change in the IBJ Prime Rate is announced if
such change is announced  at or after 11:00 a.m.  (San  Francisco  time) on such
day.

                  "Required  Lenders"  means at any time Lenders having at least
51% of the aggregate unpaid principal amount of the Loans.

                  "Responsible  Officer"  means  Borrower's  president and chief
financial officer.

                  "Schedule of Permitted Liens" means Schedule 2.

                  "Schedule of Subsidiaries" means Schedule 1.

                  "Subsidiary"  means, a corporation or other Person of which at
least fifty percent (50%) of the  outstanding  voting stock or profit  interests
shall at the time be owned by Borrower or another Subsidiary.

                  "Termination  Event" means: (i) a "Reportable Event" described
in Section 4043 of ERISA and the  regulations  issued  thereunder  (other than a
"Reportable Event" not subject to the provision for 30-day notice to the Pension
Benefit Guaranty Corporation under such regulations),  or (ii) the withdrawal of
Borrower or any of its ERISA  Affiliates  from a Pension Plan during a plan year
in which it was a  "substantial  employer" as defined in Section  4001(1)(2)  or
4068(f)  of ERISA,  or (iii) the  filing  of a notice of intent to  terminate  a
Pension 



                                       6.
<PAGE>

Plan or the treatment of a Pension Plan amendment as a termination under Section
4041 of ERISA,  or (iv) the  institution  of  proceedings to terminate a Pension
Plan by the  Pension  Benefit  Guaranty  Corporation  (v)  any  other  event  or
condition which might constitute  grounds under ERISA for the termination of, or
the  appointment  by the Pension  Benefit  Guaranty  Corporation of a trustee to
administer,  any Pension  Plan,  or (vi) the  imposition  of a lien  pursuant to
Section 412(n) of the Internal Revenue Code.

                  "Transferee" has the meaning set forth in Section 8.6(e).

                  Section  1.2  Accounting  Terms  and  Determinations.   Unless
otherwise   specified  herein,   all  accounting  terms  used  herein  shall  be
interpreted,  all  accounting  determinations  hereunder  shall be made, and all
financial  statements required to be delivered  hereunder shall be prepared,  in
accordance with GAAP, applied,  in the case of Borrower,  on a consistent basis.
When used herein,  the term "financial  statements"  shall include the notes and
schedules thereto. Unless otherwise stated, all references to fiscal periods are
to those of Borrower.

                  Section 1.3  Computation of Time Periods.  In this  Agreement,
with respect to the  computation  of periods of time from a specified  date to a
later  specified  date, the word "from" means "from and including" and the words
"to" and "until" each mean "to but  excluding."  Periods of days  referred to in
this Agreement shall be counted in calendar days unless otherwise stated.

                  Section 1.4 Construction. Unless the context of this Agreement
clearly requires otherwise, references to the plural include the singular and to
the  singular  include the plural,  references  to any gender  include any other
gender,  the part includes the whole, the term "including" is not limiting,  and
the term "or" has,  except where  otherwise  indicated,  the  inclusive  meaning
represented  by  the  phrase  "and/or."  References  in  this  Agreement  to any
"determination," or any matter being  "determined," by Agent,  Required Lenders,
or any  Lender as  applicable,  includes  good faith  estimates  (in the case of
quantitative determinations), and good faith beliefs (in the case of qualitative
determinations)  by the party charged with making such  determination  and means
that any such  determination so made shall be conclusive  absent manifest error.
The words "hereof," "herein,"  "hereby,"  "hereunder," and similar terms in this
Agreement refer to this Agreement as a whole and not to any particular provision
of this Agreement.  Article, section,  subsection,  clause, exhibit and schedule
references are to this Agreement,  unless otherwise specified.  Any reference to
this  Agreement or the other  Credit  Documents  includes any and all  permitted
alterations,  amendments,  changes,  extensions,  modifications,   renewals,  or
supplements thereto or thereof, as applicable.

                  Section 1.5  Exhibits and  Schedules.  All of the exhibits and
schedules attached hereto shall be deemed incorporated herein by reference.

                  Section 1.6 No  Presumption  Against Any Party.  Neither  this
Agreement nor any other Credit Document nor any uncertainty or ambiguity  herein
or therein  shall be 


                                       7.
<PAGE>

construed or resolved using any presumption against any party hereto or thereto,
whether  under any rule of  construction  or otherwise.  On the  contrary,  this
Agreement  and the other  Credit  Documents  have been  reviewed  by each of the
parties and their  counsel  and, in the case of any  ambiguity  or  uncertainty,
shall be construed  and  interpreted  according  to the ordinary  meaning of the
words used so as to fairly accomplish the purposes and intentions of all parties
hereto.

                  Section 1.7  Independence  of  Provisions.  All agreements and
covenants  hereunder  and  under  the  other  Credit  Documents  shall  be given
independent  effect such that if a particular  action or condition is prohibited
by the terms of any such  agreement  or  covenant,  the fact that such action or
condition  would be permitted  within the  limitations  of another  agreement or
covenant shall not be construed as allowing such action to be taken or condition
to exist.


                                   ARTICLE II

                                   THE CREDITS

                  Section 2.1 Borrowing.  On the Borrowing Date,  unless Initial
Lender reasonably  determines that any applicable condition specified in Section
3.2 has not been satisfied,  Initial Lender will make, and Borrower will accept,
the  Initial  Loan by making the amount  thereof  available  to  Borrower at the
Agent's Funding Office (or elsewhere in accordance with Borrower's instructions)
not later than 12:00 noon (California time) on the Borrowing Date.

                  Section  2.2  Maturity  of  Loans.  Borrower  shall  repay the
principal amount of the Loans (such repayment to be applied to the Loans ratably
in proportion to their outstanding principal amounts) on the Maturity Date.

                  Section 2.3 Notes.

                           (a) The Loan of each Lender  shall be  evidenced by a
Note  payable to the order of such Lender for the account of its Lending  Office
in an amount equal to the  aggregate  unpaid  principal  amount of such Lender's
Loan.

                           (b)  Each  Lender,  shall  record,  and  prior to any
transfer by such  Lender of its Note shall  endorse on the  schedules  forming a
part thereof,  if any,  appropriate  notations to evidence the date, amount, and
maturity  of each  Loan  made by such  Lender  and the date and  amount  of each
payment of principal  made by Borrower with respect  thereto;  provided that the
failure  of any Lender to make any such  recordation  or  endorsement  shall not
affect the obligations of Borrower  hereunder or under the Notes. Each Lender is
hereby irrevocably  authorized by Borrower so to endorse such Lender's Note, and
to attach to and make a part of its Note, a  continuation  of any such schedule,
if any, as and when required.


                                       8.
<PAGE>

                  Section 2.4 Interest  Rates.  Each Loan shall bear interest on
the outstanding  principal  amount thereof at the Fixed Rate.  Accrued  interest
shall be payable on each  Interest  Payment Date and on the Maturity  Date.  Any
overdue principal on the Loan shall bear interest,  payable on demand,  for each
day until  paid at a rate per annum  equal to the sum of 2% plus the  higher of:
(a) the Fixed Rate and (b) the Prime Rate for such day plus  0.50%.  Any overdue
interest  on the Loan,  to the extent  permitted  by law,  shall bear  interest,
payable on demand,  for each day until paid at a rate per annum equal to the sum
of 2% plus the Fixed Rate.

                  Section  2.5  Fees.  Borrower  shall  pay to Agent for its own
account the agency and other fees relating to the facility  under this Agreement
pursuant to the letter agreement between Borrower and Agent.

                  Section 2.6 Optional Prepayments. Borrower may, upon notice to
Agent given as below  provided,  prepay Loans in whole at any time, or from time
to time in part in amounts  aggregating  $1,000,000  or an integral  multiple of
$500,000  in  excess  thereof,  by paying  the  principal  amount to be  prepaid
together with accrued interest thereon to the date of prepayment;  provided that
any such prepayment  shall be accompanied by the funding losses of Lenders under
Section 2.8.  Borrower  shall give notice to Agent of each  prepayment not later
than 11:00 a.m. (California time) on the third Business Day prior to the date of
prepayment  of any Loans,  specifying  the amount to be prepaid  and the date of
prepayment. Such notice shall not be revocable by Borrower. Upon receipt of such
notice,  Agent shall promptly notify each Lender of the contents  thereof and of
such Lender's ratable share of such prepayment.

                  Section 2.7 General Provisions as to Payments.  Borrower shall
make each  payment  (which  payment  shall be in Dollars) of  principal  of, and
interest  on,  the  Loans  and of fees  hereunder,  not later  than  11:00  a.m.
(California time) on the date when due (and any payment received after such time
on any day shall not be  effective  as a payment for the purpose of  calculating
accrued interest and fees payable under this Agreement until the next succeeding
Business  Day), in federal or other  immediately  available  funds,  to Agent at
Agent's  Funding  Office.  Agent will  promptly  distribute  to each  Lender its
ratable share of each such payment received by Agent for the account of Lenders.
Whenever any payment of principal of, or interest on, the Loans or of fees shall
be due on a day which is not a Business Day, the date for payment  thereof shall
be extended to the next succeeding  Business Day. If the date for any payment of
principal is extended by operation of law or otherwise,  interest  thereon shall
be payable for such extended time.

                  Section 2.8  Funding  Losses.  If  Borrower  makes any payment
(whether  voluntary,  mandatory,  accelerated  or otherwise)  of principal  with
respect to any Loan, pursuant to Article II or Article VI, or otherwise,  on any
day other than the  Maturity  Date,  or if Borrower  fails to borrow the Initial
Loan on the Borrowing  Date,  Borrower shall reimburse each Lender on demand for
any resulting loss or expense  incurred by it (or by any existing or prospective
Participant  in the related  Loan),  including  any loss  incurred in obtaining,

                                       9.
<PAGE>

liquidating,  or employing  deposits  from third persons or in  liquidating  the
Loans  obtained by such Lender in connection  with its Loan;  provided that such
Lender shall have  delivered to Borrower a certificate  as to the amount of such
loss or expense,  which  certificate shall be presumed correct in the absence of
manifest error.

                  Section 2.9  Computation  of Interest  and Fees.  Interest and
fees shall be (a) computed on the basis of a year of 365 days,  and (b) paid for
the actual  number of days elapsed  (including  the first day but  excluding the
last day).

                  Section 2.10 Maximum Interest Rate.  Notwithstanding  anything
to the contrary contained in this Agreement,  Borrower shall not be obligated to
pay, and no Lender shall be entitled to charge,  collect,  receive,  reserve, or
take  interest (it being  understood  that  interest  shall be calculated as the
aggregate of all charges which constitute interest under applicable law that are
contracted for, charged,  reserved,  received, or paid) in excess of the maximum
non-usurious  interest  rate,  as in  effect  from  time to time,  which  may be
charged,  contracted  for,  reserved,  received,  or collected by such Lender in
connection with this Agreement,  the Notes and the other Credit  Documents under
applicable law. For purposes of this Section,  the term  "applicable  law" means
the internal  laws of the State of  California  and, to the extent  controlling,
laws of the United  States of  America,  but,  to the  extent,  contrary  to the
express intent of the parties,  California law is found to be  inapplicable  for
the  purposes  of this  Section,  then  "applicable  law" also means that law in
effect from time to time and applicable to this loan transaction  which lawfully
permits  the  charging  and  collection  of  the  highest  permissible,  lawful,
non-usurious rate of interest on such loan transaction and this Agreement.

                  Section  2.11  Reduced  Return.   If  any  Lender  shall  have
determined  that any new or  additional  applicable  law,  regulation,  rule, or
regulatory requirement  (collectively in this Section  "Requirement")  regarding
capital adequacy,  or any change therein, or any change in the interpretation or
administration  thereof  by  any  governmental   authority,   central  bank,  or
comparable agency charged with the interpretation of administration  thereof, or
compliance  by such  Lender  with any new or  additional  request  or  directive
regarding  capital adequacy (whether or not having the force of law) of any such
authority,  central bank, or comparable  agency, has or would have the effect of
reducing the rate of return on such  Lender's  capital as a  consequence  of the
Commitment and obligations hereunder to a level below that which would have been
achieved  but  for  such  Requirement,   change,  or  compliance   (taking  into
consideration  such Lender's  policies  with respect to capital  adequacy) by an
amount deemed by such Lender to be material (which amount shall be determined by
such  Lender's  reasonable  allocation  of  the  aggregate  of  such  reductions
resulting  from such  events),  then from time to time,  within 30 Business Days
after  written  demand by such  Lender,  Borrower  shall pay to such Lender such
additional  amount or amounts as will compensate such Lender for such reduction.
Notwithstanding the foregoing,  no additional compensation will be required from
Borrower under this Section if the reason for additional  compensation was based
solely on such Lender's  failure to comply with any existing or new law, treaty,
rule, or regulation or requirement.  In addition, a Lender shall promptly notify
Borrower of any 


                                      10.
<PAGE>

proposed request for compensation  under this Section and shall provide Borrower
with  reasonable  support  therefor.  Any  request  by a Lender  for  additional
compensation shall be structured to allocate such additional costs over the term
of the credit affected thereby.

                  Section 2.12  Requirements  of Law. In the event that any law,
regulation,  or  directive  or any change  therein or in the  interpretation  or
application  thereof or  compliance  by any Lender with any request or directive
(whether  or not  having  the  force  of law)  from  any  central  bank or other
governmental authority, agency or instrumentality:

                  (a) does or shall subject such Lender to any new or additional
tax of any kind  whatsoever  with respect to this  Agreement,  the Note,  or any
Loan,  or change the basis of taxation of payments to such Lender of  principal,
commitment  fee,  non-utilization  fee,  interest,  or any other amount  payable
hereunder  (except  for  changes in the rate of tax on the overall net income of
such Lender);

                  (b) does or  shall  impose,  modify,  or hold  applicable  any
reserve, assessment rate, special deposit, compulsory loan, or other requirement
(collectively  in this  Section,  "Requirements")  against  assets  held by,  or
deposits or other liabilities in or for the account of, advances or loans by, or
other credit  extended by, or any other  acquisition  of funds by, any office of
such Lender;

                  (c) does or shall impose on Lender any other new or additional
condition;  and the result of any of the  foregoing  is to increase  the cost to
such Lender of making, renewing or maintaining its Loans or to reduce any amount
receivable  thereunder  by an  amount  determined  by such  Lender,  in its sole
discretion,  to be material  (which increase or reduction shall be determined by
such Lender's  reasonable  allocation of the aggregate of such cost increases or
reduced amounts receivable resulting from such events),  then, in any such case,
Borrower  shall pay to such Lender,  within 30 Business Days of its demand,  any
additional  amounts necessary to compensate such Lender for such additional cost
or reduced  amount  receivable as determined by such Lender with respect to this
Agreement.  If any  Lender  becomes  entitled  to claim any  additional  amounts
pursuant to this subsection,  it shall notify Borrower of the event by reason of
which it has become so entitled. A statement incorporating the calculation as to
any additional  amounts payable pursuant to the foregoing  sentence submitted by
any Lender to Borrower  shall be  conclusive  in the absence of manifest  error.
Notwithstanding the foregoing,  no additional compensation will be required from
Borrower under this Section if the reason for said additional  compensation  was
based  solely on such  Lender's  failure to comply with any existing or new law,
treaty, rule, regulation,  or requirement.  In addition, a Lender shall promptly
notify Borrower of any proposed request for compensation  under this Section and
shall provide Borrower with reasonable support therefor. Any request by a Lender
for  additional  compensation  shall be structured  to allocate such  additional
costs over the term of the credit affected thereby.


                                      11.
<PAGE>

                  Section  2.13  Lender  Withholding  Certificates.  Each Lender
agrees  that it shall  deliver to  Borrower  (with a copy to  Agent):  (i) on or
before the Closing Date either:  (A) a statement that it is  incorporated in the
United  States  of  America,  or  (B) if it is not  so  incorporated,  two  duly
completed copies of United States Internal Revenue Service form 1001 or 4224, as
appropriate,  promulgated  pursuant to the IRC,  indicating  that such Lender is
entitled  to  receive  payments  under  this  Agreement   without  deduction  or
withholding  of any United States  federal income taxes as permitted by the IRC,
(ii) from time to time,  such extensions or renewals of such forms (or successor
forms) as may  reasonably  be  requested by Borrower but only to the extent such
Lender  determines that it may properly effect such extensions or renewals under
applicable  tax treaties,  laws,  regulations,  and  directives and (iii) in the
event of a transfer of any Loan to a Subsidiary or Affiliate of such Lender, two
new duly completed  copies of Internal Revenue Service Form 1001 or 4224 (or any
successor form), as the case may be, for such Subsidiary or Affiliate.  Borrower
and Agent shall each be entitled to rely on such forms in its  possession  until
receipt of any revised or successor form pursuant to the preceding sentence.


                                   ARTICLE III

                              CONDITIONS PRECEDENT

                  Section  3.1   Effectiveness.   This  Agreement  shall  become
effective  on the date that each of the  following  conditions  shall  have been
satisfied (or waived in accordance with Section 8.5):


                  (a) Receipt by Agent of counterparts  hereof signed by each of
the  parties  hereto  (or,  in the case of any  party  as to  which an  executed
counterpart  shall  not  have  been  received,  receipt  by the  Agent  in  form
satisfactory  to it of  telegraphic,  telex,  facsimile  transmission  or  other
written  confirmation  from such party of execution of a  counterpart  hereof by
such party);

                  (b) Receipt by Agent, for the account of Initial Lender,  of a
duly  executed  Note dated on or before the  Closing  Date,  complying  with the
provisions of Section 2.3;

                  (c) Receipt by Agent of a fully  completed  and duly  executed
Compliance  Certificate  of Borrower  using a  "Determination  Date" (as therein
defined) as of the fiscal quarter ending December 29, 1996; and

                  (d) Receipt by Agent of (i) good  standing  certificates  from
the  Secretary  of State of Delaware and the  Secretary  of State of  California
relating  to Borrower  and (ii) a  certificate  of the  Secretary  or  Assistant
Secretary of Borrower as to the incumbency of the officers of Borrower executing
this Agreement and attaching  true and correct copies of Borrower's  certificate
of incorporation,  bylaws and resolutions relating to the execution and

                                      12.
<PAGE>

delivery  of this  Agreement  and the other  Credit  Documents,  all in form and
substance satisfactory to Agent;

Agent shall promptly  notify Borrower of the Closing Date, and such notice shall
be conclusive and binding on all parties hereto. All documents shall be dated as
of a date reasonably near the Closing Date unless  otherwise  specified or Agent
shall otherwise agree.

                  Section  3.2 Borrowing.        

                  The  obligation of Initial  Lender to make the Initial Loan on
the  Borrowing  Date is subject to the  performance  by  Borrower  of all of its
obligations  under  this  Agreement  and to the  satisfaction  of the  following
conditions:

                  (a) The fact  that,  immediately  after  giving  effect to the
Initial Loan, no Default shall have occurred and be continuing;

                  (b) The  fact  that  the  representations  and  warranties  of
Borrower  contained in this Agreement  shall be true and correct in all material
respects on and as of the Borrowing  Date both before and after giving effect to
the Initial Loan;

                  (c) Receipt by Agent from Borrower of a payment in such amount
as Agent may  reasonably  request on account of  expenses  incurred  by Agent in
connection  with the  negotiation  and  preparation of the Credit  Documents and
related  matters and for which Agent is  entitled to  reimbursement  pursuant to
Section 8.3; and

                  (d) Receipt by Agent of any fees  payable on the Closing  Date
referenced in Section 2.5.

The  acceptance  by  Borrower  of the  Initial  Loan  shall  be  deemed  to be a
representation  and  warranty by Borrower  that,  on the date of such Loan,  and
after giving effect  thereto,  the facts specified in subsections (a) and (b) of
this Section 3.2 are true.


                                   ARTICLE IV

                         REPRESENTATIONS AND WARRANTIES

                  Borrower  represents  and  warrants  to Agent and each  Lender
that:  

                  Section 4.1 Organization.  Borrower is duly organized, validly
existing,  and in good  standing  under the laws of the state of its  formation.
Borrower is also duly  authorized,  qualified,  and  licensed in all  applicable
jurisdictions, and under all applicable laws, regulations, ordinances, or orders
of public  authorities,  to carry on its  business in the  locations  and in the
manner  presently  conducted,  to the extent that the failure to do so would not

                                      13.
<PAGE>

reasonably  be  expected  to result in a  Material  Adverse  Change.  All of the
Subsidiaries  and  Consolidated  Subsidiaries  of Borrower and the percentage of
Borrower's  ownership  interest  therein  as of the date of this  Agreement  are
identified on the Schedule of Subsidiaries.


                  Section  4.2  Authorization.   The  execution,  delivery,  and
performance by Borrower of the Credit Documents,  and the obtaining of the Loans
hereunder,  are within Borrower's corporate powers, have been duly authorized by
all necessary corporate action and do not contravene (i) Borrower's  certificate
of incorporation,  by-laws or other organizational  documents or (ii) any law or
regulation (including Regulations G, T, U, and X) or any contractual restriction
binding on or affecting Borrower.

                  Section  4.3  Governmental   Consents.   No  authorization  or
approval or other action by, and no notice to or filing with,  any  governmental
authority or regulatory body (except routine  reports  required  pursuant to the
Securities  Exchange  Act of 1934,  as  amended  (if such act is  applicable  to
Borrower)  is required  for the due  execution,  delivery,  and  performance  by
Borrower of the Credit Documents.

                  Section 4.4  Validity.  The Credit  Documents  are the binding
obligations of Borrower,  enforceable in accordance with their respective terms;
except  in each  case as  such  enforceability  may be  limited  by  bankruptcy,
insolvency,  reorganization,  liquidation,  moratorium, or other similar laws of
general application and equitable principles relating to or affecting creditors'
rights.

                  Section 4.5 Financial  Condition.  The Base Financials  fairly
present the financial condition of Borrower and its Consolidated Subsidiaries as
at the date  thereof  and the  results of the  operations  of  Borrower  and its
Consolidated  Subsidiaries for the respective periods ended on such date, all in
accordance with GAAP,  consistently  applied.  Since January 1, 1997,  there has
been no material adverse change in the business, operations, properties, assets,
or  condition   (financial  or  otherwise)  of  Borrower  and  its  Consolidated
Subsidiaries, taken as a whole.

                  Section  4.6  Litigation.  Except  as set  forth  in the  Base
Financials,  there  is no  pending  or,  to the  best of  Borrower's  knowledge,
threatened,  action or proceeding  affecting Borrower or any of its Consolidated
Subsidiaries before any court,  governmental agency, or arbitrator,  which would
be reasonably likely to result in a Material Adverse Change.

                  Section  4.7  ERISA  Plans.  Borrower  and  each of its  ERISA
Affiliates  is in  compliance  in all  material  respects  with  any  applicable
provisions of ERISA and the regulations and published interpretations thereunder
wish respect to all Employee Benefit Plans. No Termination Event has occurred or
is  reasonably  expected to occur with  respect to any  Pension  Plan that would
reasonably be expected to result in a Material Adverse Change.

                  Section  4.8  Disclosure.  No  representation  or  warranty of
Borrower  contained in this  Agreement or any other  document,  certificate,  or
written  statement  furnished 


                                      14.
<PAGE>

to Agent or any Lender by or on behalf of Borrower  for use in  connection  with
the transactions contemplated by this Agreement contains any untrue statement of
a material fact or omits to state a material fact (known to Borrower in the case
of any document not furnished by it)  necessary in order to make the  statements
contained herein or therein not misleading. To the best of Borrower's knowledge,
there is no fact known to  Borrower  (other than  matters of a general  economic
nature) which materially adversely affects the business,  operations,  property,
assets,  or condition  (financial or otherwise) of Borrower and its Consolidated
Subsidiaries,  taken as a whole,  which has not been disclosed herein or in such
other  documents,  certificates  and  statements  furnished  to Agent for use in
connection with the transactions contemplated hereby.

                  Section 4.9 Margin Stock.  The  aggregate  value of all margin
stock (as defined in the Margin  Regulations)  directly or  indirectly  owned by
Borrower and its  Consolidated  Subsidiaries  is less than 25% of the  aggregate
value of Borrower's assets.

                  Section 4.10 Environmental Matters. Except as set forth in the
financial  statements  delivered  on or prior to the date  hereof and except for
certain claims associated with Great Western Chemical,  neither Borrower nor any
Consolidated Subsidiary,  nor, to the best of their knowledge, any other person,
has treated, stored,  processed,  discharged,  spilled, or otherwise disposed of
any substance defined as hazardous or toxic by any applicable federal, state, or
local law, rule,  regulation,  order,  or directive,  or any waste or by-product
thereof,  at any real property or any other facility owned,  leased,  or used by
Borrower  or  any  Consolidated  Subsidiary,  in  violation  of  any  applicable
statutes,  regulations,  ordinances, or directives of any governmental authority
or  court,  which  violations  may  result  in  liability  to  Borrower  or  any
Consolidated  Subsidiary  in an  amount  for  all  such  violations  that  could
reasonably  be  expected  to  result  in a  Material  Adverse  Change;  and  the
unresolved  violations,  if any, set forth in the financial statements delivered
on or prior to the date hereof will not result in  liability  to Borrower or any
Consolidated  Subsidiary in an amount for all such  unresolved  violations  that
would reasonably be expected to result in a Material  Adverse Change.  Except as
set forth in the financial  statements delivered on or prior to the date hereof,
no employee or other person has ever made a claim or demand against  Borrower or
any Consolidated Subsidiary based on alleged damage to health caused by any such
hazardous or toxic substance or by any waste or by-product  thereof in an amount
that would  reasonably be expected to result in a Material  Adverse Change;  and
the unsatisfied  claims, if any, or demands against Borrower or any Consolidated
Subsidiary  set forth in the financial  statements  delivered on or prior to the
date  hereof  will  not  result  in  uninsured  liability  to  Borrower  or  any
Consolidated  Subsidiary  or  any  of  their  respective  officers,   employees,
representatives,  agents,  or shareholders in an amount that could reasonably be
expected to result in a Material Adverse Change for all such unsatisfied  claims
or demands.  Except as set forth in the  financial  statements  delivered  on or
prior to the date hereof neither  Borrower nor any  Consolidated  Subsidiary has
been charged by any  governmental  authority with  improperly  using,  handling,
storing,  discharging,  or disposing of any such hazardous or toxic substance or
waste or by-product  thereof or with causing or permitting  any pollution of any
body of water in an amount  that would  reasonably  be  expected  to result in a
Material Adverse Change; and 


                                      15.
<PAGE>

the outstanding charges, if any, set forth in the financial statements delivered
on or prior to the date hereof will not result in  liability  to Borrower or any
Consolidated  Subsidiary  or  any  or  their  respective  officers,   employees,
representatives,  agents,  or shareholders in an amount that could reasonably be
expected  to  result  in a  Material  Adverse  Change  for all such  outstanding
charges.

                  Section  4.11 Not an  Investment  Company.  Borrower is not an
"investment  company" within the meaning of the Investment  Company Act of 1940,
as amended.

                  Section  4.12 Margin  Regulations.  Borrower is not engaged in
the  business  of  extending  credit for the purpose of  purchasing  or carrying
margin stock (within the meaning of the Margin Regulations).

                  Section  4.13  Events of Default.  No Default has  occurred or
would result from the incurring of  obligations by Borrower under this Agreement
or any other Credit Document.

                  Section  4.14  Employee  Matters.  There is no  strike or work
stoppage  in  existence  or,  to the best of  Borrower's  knowledge,  threatened
involving  Borrower or its  Consolidated  Subsidiaries  that could reasonably be
expected to have a Material Adverse Effect.


                                    ARTICLE V

                                    COVENANTS

                  Borrower agrees that, so long as any amount payable  hereunder
or under any Note remains unpaid:

                  Section 5.1  Information.  Borrower  will deliver to Agent and
each Lender:

                  (a) As soon as  available  and in any  event  within  120 days
after the end of each fiscal  year,  an audited  consolidated  balance  sheet of
Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and
the related consolidated  statements of income, of cash flows, and of changes in
stockholders'  equity  for such  fiscal  year,  setting  forth  in each  case in
comparative  form the figures for the previous  fiscal year,  accompanied  by an
unqualified  report  and  opinion  therein  of  Ernst & Young  or  other  public
accountants of nationally recognized standing;

                  (b) As soon as available and in any event within 60 days after
the end of each of the first  three  fiscal  quarters  of each  fiscal  year,  a
consolidated  balance sheet of Borrower and its Consolidated  Subsidiaries as of
the end of such fiscal  quarter,  and the  related  consolidated  statements  of
income, cash flows,  changes in stockholders' equity for 


                                      16.
<PAGE>

such  fiscal  quarter and for the portion of the fiscal year ended at the end of
such fiscal quarter,  setting forth in each case in comparative form the figures
for the  corresponding  fiscal  quarter  and the  corresponding  portion  of the
previous   fiscal  year,  all  certified   (subject  to  normal  year-end  audit
adjustments)  as to fairness of  presentation  and  consistency by a Responsible
Officer;

                  (c) Simultaneously  with the delivery of each set of financial
statements  referenced in  subsections  (a) and (b) of this Section 5.1, a fully
completed  Compliance  Certificate  of a Responsible  Officer,  calculated  with
respect to such  financial  statements  and setting forth the other  information
specified by such Compliance  Certificate and including all schedules referenced
therein;

                  (d)  Promptly   upon  the  filing   thereof,   copies  of  all
registration  statements  (other than the exhibits  thereto and any registration
statements on Form S-8 or its  equivalent)  and reports on Forms 10-K,  10-Q and
8-K (or their  equivalents) that Borrower or any of its Subsidiaries  shall have
filed with the Securities and Exchange Commission;

                  (e)  Promptly  upon  becoming  aware of the  occurrence  of or
forthcoming  occurrence  of  any  (a)  Termination  Event,  or  (b)  "prohibited
transaction,"  as such term is defined in Section 4975 of the  Internal  Revenue
Code or Section 406 of ERISA,  in connection  with any Employee  Benefit Plan or
any trust created  thereunder,  a written notice  specifying the nature thereof,
what action  Borrower  has taken,  is taking,  or proposes to take with  respect
thereto, and, when known, any action taken or threatened by the Internal Revenue
Service,  the Department of Labor, or the Pension Benefit  Guaranty  Corporation
with respect thereto;

                  (f)  With  reasonable  promptness  copies  of (a) all  notices
received  by  Borrower or any of its ERISA  Affiliates  of the  Pension  Benefit
Guaranty  Corporation's intent to terminate any material Pension Plan or to have
a trustee  appointed  to  administer  any  Pension  Plan;  (b) each  Schedule  B
(Actuarial  Information)  to the  annual  report  (Form  5500  Series)  filed by
Borrower or any of its ERISA  Affiliates with the Internal  Revenue Service with
respect to each material  Pension Plan; and (c) all notices received by Borrower
or any of its ERISA Affiliates from a Multiemployer  Plan sponsor concerning the
material  imposition  or material  amount of  withdrawal  liability  pursuant to
Section 4202 of ERISA;

                  (g) Forthwith upon an executive  officer of Borrower  learning
of the occurrence of any Default, a certificate of a Responsible Officer setting
forth the details  thereof and the action that Borrower is taking or proposes to
take with respect thereto;

                  (h) As  soon as  reasonably  practicable  after a  Responsible
Officer obtains  knowledge of the  commencement of, or of a threat (with respect
to which there is a reasonable possibility of assertion) of the commencement of,
an action,  suit,  or  proceeding  against  Borrower or any of its  Subsidiaries
before any court or arbitrator or any governmental  body, agency, or official in
which  there is a  reasonable  possibility  of an adverse  decision  


                                      17.
<PAGE>

which would  reasonably be expected to result in a Material  Adverse Change,  or
which in any manner  questions the validity of any Credit Document or any of the
transactions  contemplated hereby,  information as to the nature of such pending
or threatened action, suit, or proceeding; and

                  (i) From time to time, such additional  information  regarding
the  business,  properties,   financial  position,  results  of  operations,  or
prospects  of Borrower  and its  Subsidiaries,  as Agent,  at the request of any
Lender, may reasonably request.

                  Section 5.2  Financial  Condition.  Borrower  will  maintain a
financial  condition  for  it  and  its  Subsidiaries  in  compliance  with  the
following:

                  (a) Profitability. Borrower will not permit, on a consolidated
after-tax basis, a net loss in more than two consecutive fiscal quarters.

                  (b) Consolidated  Tangible Net Worth. Borrower will not permit
its  Consolidated  Tangible Net Worth on a quarterly  consolidated  basis, to be
less than $500,000,000,  plus (i) 80% of Borrower's cumulative  consolidated net
income (without deduction for any losses), adjusted on an annual basis beginning
with Borrower's  fiscal year ending December 29, 1996, plus (ii) 100% of the net
proceeds  of  equity   investments  and  issues  received  by  Borrower  or  its
Consolidated  Subsidiaries  (other  than equity  investments  by Borrower in its
Consolidated  Subsidiaries  or equity  investments  by  Borrower's  Consolidated
Subsidiaries in Borrower)  adjusted on a quarterly  basis.  For purposes hereof,
the minimum  Consolidated  Tangible Net Worth requirement shall not be increased
by equity issued through the exercise of employee stock options and/or  employee
stock  purchase  plans and the  definition  shall be  exclusive of any effect of
minority interests.

                  (c) Leverage.  Borrower will not permit ratio of  consolidated
total  liabilities   (excluding  Convertible  Debt  and  minority  interests  in
Subsidiaries)  to  Consolidated  Tangible  Net  Worth  at the end of any  fiscal
quarter to exceed .85 to 1.00.

                  Section 5.3 Corporate  Existence,  Etc.  Borrower shall at all
times preserve and keep in full force and effect Borrower's and its Consolidated
Subsidiaries'   corporate  existence  and  rights  and  franchises  material  to
Borrower's business and those of each of its Consolidated Subsidiaries; provided
that  the  corporate  existence  of  any  such  Consolidated  Subsidiary  may be
terminated  if such  termination  is in the best interest of Borrower and is not
materially disadvantageous to Lenders.

                  Section 5.4 Payment of Taxes and Claims.  Borrower  shall pay,
and cause each of its Consolidated  Subsidiaries  (except Dastek(M)) to pay, all
taxes, assessments, and other governmental charges imposed upon it or any of its
properties or assets or in respect of any of its franchises,  business,  income,
or  property  before any  penalty or interest  accrues  thereon,  and all claims
(including,  without  limitation,  claims for labor,  services,  materials,  and
supplies)  for sums which have  become due and  payable and which by law have or
may become a lien upon any of its  properties or assets,  prior to the time when
any penalty or fine 


                                      18.
<PAGE>

shall be incurred  with respect  thereto;  provided that no such charge or claim
need  be paid if  being  contested  in good  faith  by  appropriate  proceedings
promptly  instituted  and  diligently  conducted  and if such  reserve  or other
appropriate  provision,  if any, as shall be required  in  conformity  with GAAP
shall have been made therefor.

                  Section 5.5 Maintenance of Properties. Borrower shall maintain
or cause to be  maintained  in good  repair,  working  order and  condition  all
material  properties  used  or  useful  in the  business  of  Borrower  and  its
Consolidated  Subsidiaries (except Dastek(M)) and from time to time will make or
cause to be made all appropriate repairs,  renewals,  and replacements  thereof.
Borrower will maintain or cause to be  maintained,  with  financially  sound and
reputable  insurers,  insurance  with respect to its properties and business and
the properties and business of its Consolidated  Subsidiaries (except Dastek(M))
against loss or damage of the kinds customarily  insured against by corporations
of  established  reputation  engaged  in the  same  or  similar  businesses  and
similarly situated, of such types and in such amounts as are customarily carried
under similar circumstances by such other corporations.

                  Section 5.6  Inspection.  Borrower shall permit any authorized
representatives  designated by Agent at the request of Required Lenders to visit
and  inspect  any of  the  properties  of  Borrower  or any of its  Consolidated
Subsidiaries   (except  Dastek(M)),   including  its  and  their  financial  and
accounting  records,  and to make  copies and take  extracts  therefrom,  and to
discuss  its and  their  affairs,  finances,  and  accounts  with its and  their
officers and independent public accountants, all at such reasonable times during
normal  business hours and under  Borrower's  supervision and as often as may be
reasonably  requested.  Any such  additional  information  together  with  other
nonpublic  information  received  hereunder  shall be held in  confidence by the
recipients thereof and may not be used for any purpose other than to monitor the
creditworthiness   of  Borrower  and  its  Consolidated   Subsidiaries   (except
Dastek(M))  and shall not be disclosed or  disseminated  to any other Person for
any reason, and the Non-Disclosure Agreement shall apply thereto.

                  Section  5.7  Compliance  with  Laws,   Etc.   Borrower  shall
exercise,  and cause each of its Consolidated  Subsidiaries to exercise, all due
diligence  in order to comply  with the  requirements  of all  applicable  laws,
rules, regulations, and orders of any governmental authority, including, without
limitation,   all   environmental   laws,   rules,   regulations,   and  orders,
noncompliance with which would result in a Material Adverse Change.

                  Section 5.8 Liens, Etc. Borrower shall not create or suffer to
exist,  or permit any of its  Consolidated  Subsidiaries  (except  Dastek(M)) to
create  or  suffer  to  exist,  any  Lien  upon  or with  respect  to any of its
properties, whether now owned or hereafter acquired, or assign, or permit any of
its Consolidated Subsidiaries (except Dastek(M)) to assign, any right to receive
income,  in each  case to secure  any Debt of any  Person  other  than (i) Liens
reflected  in the Base  Financials  or on Schedule of  Permitted  Liens and (ii)
Permitted Liens.


                                      19.
<PAGE>

                  Section 5.9 Dividends,  Etc. Borrower shall not declare or pay
any dividends,  purchase or otherwise acquire for value its capital stock now or
hereafter outstanding, or make any distribution of assets to its stockholders as
such,  or permit any of its  Consolidated  Subsidiaries  (except  Dastek(M))  to
purchase  or  otherwise  acquire  for value any stock of  Borrower,  except that
Borrower and/or its Consolidated Subsidiaries (except Dastek(M)) may (i) declare
and deliver dividends and  distributions  payable in its capital stock; and (ii)
in any fiscal  year  declare  and pay cash  dividends  to its  stockholders  and
purchase or otherwise  acquire shares of its own  outstanding  capital stock for
cash in an aggregate  amount up to 30% of net income after taxes of Borrower and
its Consolidated  Subsidiaries (except Dastek(M)) for the immediately  preceding
fiscal year.

                  Section 5.10 Consolidation,  Merger, or Acquisition. Regarding
Borrower and its  Consolidated  Subsidiaries  (except  Dastek(M)),  liquidate or
dissolve  or  enter  into  any  consolidation,   merger,  acquisition,  material
partnership,  material joint venture,  syndication, or other combination without
Required Lender's prior written consent,  which consent will not be unreasonably
withheld,  except that (a) Borrower may consolidate  with, merge into or acquire
any  other  corporation  or  entity  and  (b)  any  corporation  or  entity  may
consolidate with or merge into Borrower; provided that, in either case, Borrower
shall be the  surviving  entity of such merger or  consolidation,  and  provided
further  that,  in  either  case,  immediately  after the  consummation  or such
consolidation   or  merger  there  shall  exist  no  condition  or  event  which
constitutes  a  Default.   In  addition   Borrower  may  purchase  any,  all  or
substantially  all  of the  assets  of  any  other  Person  in  connection  with
acquisitions  reasonably  related  to  Borrower's  existing  lines of  business;
provided that immediately after the effectiveness of any such acquisition, there
shall have occurred and be continuing no Default.

                  Section 5.11 Loans,  Investments,  and Secondary  Liabilities.
Borrower  shall  not  make or  permit  to  remain  outstanding,  or  permit  any
Consolidated   Subsidiary  (except  Dastek(M))  to  make  or  permit  to  remain
outstanding,  any loan or advance to, or guaranty,  induce or  otherwise  become
contingently liable, directly or indirectly, in connection with the obligations,
stock, or dividends of, or own, purchase, or acquire any stock, obligations,  or
securities of or any other interest in, or make any capital contribution to, any
other Person, except Borrower and its Consolidated Subsidiaries may:

                         (i) own, purchase,  or acquire certificates of deposit,
time deposits and bankers' acceptances issued by Lender,  commercial paper rated
Moody's P-2 or better  and/or  Standard & Poor's A-2 or better,  obligations  or
instruments issued by or guaranteed by an entity designated as Standard & Poor's
A-2 or  better,  or  Moody's  P-2 or better or the  equivalent  by a  nationally
recognized credit agency,  municipal bonds, and other governmental and corporate
debt  obligations  rated  Standard  & Poor's A or better  and/or  Moody's  A2 or
better, direct obligations of the United States of America or its agencies,  and
obligations guaranteed or insured by the United States of America, and any funds
investing in any of the foregoing;



                                      20.
<PAGE>

                         (ii) acquire and own stock, obligations,  or securities
received in  connection  with debts  created in the ordinary  course of business
owing to Borrower or a Subsidiary;

                         (iii)  continue to own the  existing  capital  stock of
Borrower's Subsidiaries;

                         (iv)  endorse  negotiable  instruments  for  deposit or
collection or similar transactions in the ordinary course of business;

                         (v)  make  loans,  advances  to,  or  investments  in a
Subsidiary  or joint  venture in  connection  with the normal  operations of the
business of such Subsidiary or joint venture and allow  Borrower's  Subsidiaries
or any  joint  venture  to  which  it is a party  to make or  permit  to  remain
outstanding  advances  from  Borrower's  Subsidiaries  or such joint  venture to
Borrower;

                         (vi)  make or permit  to  remain  outstanding  loans or
advances to Borrower's  Subsidiaries or any joint venture to which it is a party
or enter into or permit to remain outstanding  guarantees in connection with the
obligations of Borrower's Subsidiaries or such joint venture; and

                         (vii)  make or permit to remain  outstanding  (a) loans
and/or advances to Borrowers' officers, stockholders and/or employees, which, in
the aggregate,  would not exceed  $3,000,000  during the term of this Agreement,
(b) loans to Borrower's vendors, in the ordinary course of Borrower's  business,
which,  in the aggregate,  do not exceed  $5,000,000,  (c) progress  payments to
Borrower's vendors made in the ordinary course of Borrower's  business,  (d) (i)
loans and/or advances for the purpose of purchasing  Borrower's  shares of stock
pursuant to its  employee  stock  purchase or option  plans,  (ii)  advances for
salary,  travel,  and other  expenses,  advances  against  commission  and other
similar  advances  made to  officers  or  employees  in the  ordinary  course of
Borrower's  business,  and (iii) loans and/or  advances to or for the benefit of
officers,  directors,  or  employees in  connection  with  litigation  and other
proceedings  involving  such  persons  by  virtue of their  status as  officers,
directors,  or  employees,  respectively,  and (e)  investments  under  deferred
compensation  plans  for  the  benefit  of the  employees  of  Borrower  and its
Subsidiaries.

                  Section 5.12 Asset  Sales.  Borrower  shall not convey,  sell,
lease,  transfer,  or dispose of  (individually,  a  "Transfer"),  or permit any
Consolidated  Subsidiary (except Dastek(M)) to Transfer, in one transaction or a
series of transactions all or any part of its or its  Consolidated  Subsidiary's
(except  Dastek(M))  business,  property or fixed  assets  outside the  ordinary
course  of  business,  whether  now owned or  hereafter  acquired,  except  that
Borrower and its Consolidated Subsidiaries (except Dastek(M)) may make Transfers
of  business,  property or fixed  assets in  transactions  outside the  ordinary
course of business for consideration  which in the aggregate does not exceed, in
any fiscal  year,  20% of  Consolidated  


                                      21.
<PAGE>

Tangible  Net  Worth  as at the end of the  preceding  fiscal  year of  Borrower
without the prior written consent of Required  Lenders,  which consent shall not
be unreasonably withheld.


                                   ARTICLE VI

                                    DEFAULTS

                  Section 6.1 Defaults.  If one or more of the following  events
("Events of Default") shall have occurred and be continuing:


                  (a) Borrower  shall fail to pay the principal of any Loan when
due, any  installment  of interest on any Loan  outstanding  hereunder  within 5
Business Days of the date when due or any other amount payable  hereunder within
10 Business Days of the date when due; or

                  (b) Any  representation or warranty made by Borrower herein or
by Borrower (or any of its  officers) in  connection  with the Credit  Documents
shall prove to have been incorrect in any material respect when made; or

                  (c)  Borrower  shall  fail to  perform  or  observe  any term,
covenant or agreement  contained in this  Agreement or in any and all  documents
executed in conjunction with this Agreement, which failure continues uncured for
more than 30 consecutive  days.  Notwithstanding  the foregoing,  any failure of
Borrower  to perform or observe  Sections  5.2,  5.3,  5.8.,  5.10 or 5.12 shall
constitute  an Event of  Default  without  regard  to any  lapse of time or cure
period; or

                  (d) Borrower or any of its Consolidated  Subsidiaries  (except
Dastek(M)) shall, after written demand,  fail to pay any principal of or premium
or interest on, any Debt in which Borrower may be obligated as either a borrower
or guarantor,  the aggregate  outstanding amount of which is at least $1,000,000
(excluding  Debt  evidenced  by the  Notes),  when  due  (whether  by  scheduled
maturity,  required  prepayment,  acceleration,  demand,  or otherwise) and such
failure shall continue after the applicable grace period, if any is specified in
the agreement or instrument relating to such Debt; or

                  (e)  (i)  Borrower  or any of  its  Consolidated  Subsidiaries
(except Dastek(M)) shall commence any case, proceeding or other action (A) under
any existing or future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization, or relief of debtors, seeking to have an
order for  relief  entered  with  respect to it, or  seeking  to  adjudicate  it
bankrupt  or  insolvent,  or seeking  reorganization,  arrangement,  adjustment,
winding-up, liquidation,  dissolution, composition, or other relief with respect
to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian
or  other  similar  official  for it or for all or any  substantial  part of its
assets, or Borrower or any of its Consolidated  Subsidiaries  (except Dastek(M))
shall make a general assignment for the benefit 


                                      22.
<PAGE>

of its creditors;  or (ii) there shall be commenced  against  Borrower or any of
its Consolidated  Subsidiaries (except Dastek(M)) any case,  proceeding or other
action of a nature  referred  to in clause  (i) above  which (A)  results in the
entry of an order for  relief or any such  adjudication  or  appointment  or (B)
remains undismissed, undischarged, or unbonded for a period of 30 days; or (iii)
there  shall  be  commenced   against   Borrower  or  any  of  its  Consolidated
Subsidiaries  (except Dastek(M)) any case,  proceeding,  or other action seeking
issuance of a warrant of attachment,  execution,  distraint,  or similar process
against all or any substantial  part of its assets which results in the entry of
an order for any such relief which shall not have been vacated,  discharged,  or
stayed or bonded pending  appeal within 30 days from the entry thereof;  or (iv)
Borrower or any of its Consolidated  Subsidiaries  (except Dastek(M)) shall take
any action in  furtherance  of, or  indicating  its consent to,  approval of, or
acquiescence in, any of the acts set forth in clause (i), (ii), and (iii) above;
or (v) Borrower or any of its Consolidated  Subsidiaries shall generally not, or
shall be unable to, or shall admit in writing its inability to, pay its debts as
they become due; or

                  (f) One judgment or decree shall be entered  against  Borrower
or any of its Consolidated Subsidiaries (except Dastek(M)) involving a liability
(not paid or 75% covered by insurance or the third party  indemnity of a solvent
indemnitor)  equal to or greater  than  $5,000,000  or one or more  judgments or
decrees  shall  be  entered  against   Borrower  or  any  of  its   Consolidated
Subsidiaries (except Dastek(M)) involving in the aggregate a liability (not paid
or  75%  covered  by  insurance  or  the  third  party  indemnity  of a  solvent
indemnitor)  equal to or greater  than  $10,000,000  and all such  judgments  or
decrees shall not have been  vacated,  discharged,  or stayed or bonded  pending
appeal within 30 days from the entry thereof; or

                  (g) (i) Borrower or any of its ERISA  Affiliates fails to make
full payment when due of all material amounts which, under the provisions of any
Pension Plan or Section 412 of the IRC,  Borrower or any of its ERISA Affiliates
is required to pay as contributions thereto;

                         (i) any material  accumulated funding deficiency occurs
or exists, whether or not waived, with respect to any Pension Plan;

                         (ii) the excess of the  actuarial  present value of all
benefit  liabilities under all material Pension Plans over the fair market value
of the assets of such Pension Plans (excluding on such computation Pension Plans
with  assets  greater  than  benefit  liabilities)  allocable  to  such  benefit
liabilities are greater than 5% of Consolidated Tangible Net Worth;

                         (iii)  Borrower or any of its ERISA  Affiliates  enters
into any transaction which has as its principal purpose the evasion of liability
under Subtitle D of Title IV of ERISA;

                         (iv)  (A)  Any  material  Pension  Plan  maintained  by
Borrower or any of its ERISA Affiliates  shall be terminated  within the meaning
of Title IV of ERISA,  or (B) a trustee  shall be  appointed  by an  appropriate
United States district court to administer 


                                      23.
<PAGE>

any material Pension Plan, or (C) the Pension Benefit  Guaranty  Corporation (or
any successor  thereto)  shall  institute  proceedings to terminate any material
Pension  Plan or to appoint a trustee to  administer  any Pension  Plan,  or (D)
Borrower or any of its ERISA  Affiliates  shall withdraw  (under Section 4063 of
ERISA) from any material  Pension Plan, if as of the date of the event listed in
subclauses  (A)-(C) above or any subsequent  date,  either Borrower or its ERISA
Affiliates  has any  material  liability  (such  liability  to include,  without
limitation,  any material liability to the Pension Benefit Guaranty Corporation,
or any successor  thereto,  or to any other party under Sections 4062,  4063, or
4064 of  ERISA  or any  other  provision  of law)  resulting  from or  otherwise
associated with the events listed in subclauses (A)-(C) above;

                         (v) As used  in this  subsection  6.1(g)(vi)  the  term
"accumulated funding deficiency" has the meaning specified in Section 412 of the
IRC and the terms "actuarial  present value" and "benefit  liabilities" have the
meanings specified in Section 4001 of ERISA; or

                  (h) There shall be instituted against Borrower,  or any of its
Consolidated   Subsidiaries   (except  Dastek(M)),   any  proceeding  for  which
forfeiture (not paid or 75% covered by insurance or the third party indemnity of
a solvent  indemnitor) of any property equal to or greater than  $5,000,000 is a
potential  penalty and such proceeding shall not have been vacated or discharged
within 30 days of its institution;

then, and in every such event, Agent shall, if requested by Required Lenders, by
notice to Borrower,  declare the Loans (together with accrued interest  thereon)
and all other amounts owing under this Agreement, the Notes and the other Credit
Documents to be, and such Loans and amounts shall thereupon become,  immediately
due and payable without presentment,  demand,  protest,  notice of acceleration,
notice of intent to  accelerate,  or other notice of any kind,  all of which are
hereby  waived by  Borrower,  provided  that in the case of any of the Events of
Default  specified  in  subsection  (e) of this  Section  6.1  with  respect  to
Borrower,  without  any notice to Borrower or any other act by Agent or Lenders,
the Loans (together with accrued interest thereon) and all other amounts payable
by  Borrower   hereunder  shall  become  immediately  due  and  payable  without
presentment,  demand,  protest,  notice  of  acceleration,  notice  of intent to
accelerate,  or other  notice of any kind,  all of which  are  hereby  waived by
Borrower.

                  Section  6.2 Notice of  Default.  Agent  shall give  notice to
Borrower under Section 6.1(a) or 6.1(c)  promptly upon being  requested to do so
by any Lender and shall thereupon notify all Lenders thereof.


                                      24.
<PAGE>

                                   ARTICLE VII

                                AGENT AND LENDERS

                  Section  7.1  Appointment  and   Authorization.   Each  Lender
irrevocably  appoints and  authorizes  Agent to take such action as agent on its
behalf and to exercise  such powers under the Credit  Documents as are delegated
to it by the terms  thereof,  together  with all such  powers as are  reasonably
incidental thereto.

                  Section  7.2 Agent  and  Affiliates.  IBJ shall  have the same
rights  and  powers  under the  Credit  Documents  as any other  Lender  and may
exercise or refrain from  exercising  the same as though it were not Agent;  and
the term  "Lenders"  shall include IBJ in its individual  capacity.  IBJ and its
Affiliates may accept  deposits from, lend money to, act as agent or trustee for
other  lenders to, and generally  engage in any kind of banking,  trust or other
business with Borrower or any of its Affiliates as if it were not Agent.

                  Section 7.3 Action by Agent.  The  obligations  of Agent under
the  Credit  Documents  are only  those  expressly  set forth  therein.  Without
limiting the  generality  of the  foregoing,  (a) Agent shall not be required to
take any action with respect to any Default, except as expressly provided in the
Credit  Documents,  and (b) with respect to any provision of any Credit Document
which authorizes  Agent to give any consent or approval,  impose any requirement
or take any other discretionary  action,  Agent may, but is not required to, use
its own discretion in determining whether to take any such action, and (c) as to
(i) matters requiring or permitting an approval,  consent,  waiver,  election or
other action by Required Lenders, (ii) matters as to which,  notwithstanding any
delegation of authority to Agent, Agent has requested instructions from Required
Lenders,  and (iii) matters not expressly  provided for by the Credit Documents,
Agent shall not be required to exercise any  discretion or take any action,  but
shall be  required  to act or to refrain  from  acting  only (and shall be fully
protected  in so acting or  refraining  from acting)  upon the  instructions  of
Required  Lenders,  and such  instructions  shall be binding  upon all  Lenders;
provided  that Agent shall not be required to take any action  which in the good
faith judgment of Agent would expose Agent to personal  liability or is contrary
to any Credit  Document or applicable  law. Agent may treat each existing Lender
as the holder of the right to  payment  of its  outstanding  Loans  until  Agent
receives and accepts an Assignment and Acceptance  signed by such Lender and its
Assignee in accordance with the provisions of this Agreement.

                  Section 7.4 Consultation with Experts.  Agent may consult with
legal counsel (including counsel to Borrower),  independent public  accountants,
and other experts selected by it and shall not be liable for any action taken or
omitted  to be taken by it in good faith in  accordance  with the advice of such
counsel, accountants, or experts.

                  Section  7.5  Liability  of  Agent.   Neither  Agent  nor  any
director, officer, agent, or employee of Agent shall be liable to any Lender for
any action taken or not taken by it in connection with the Credit  Documents (a)
with the consent or at the request of 


                                      25.
<PAGE>

Required  Lenders or (b) in the absence of its own gross  negligence  or willful
misconduct. Neither Agent nor any director, officer, agent, or employee of Agent
shall be responsible for or have any duty to ascertain, inquire into, or verify:
(i) any  statement,  warranty,  or  representation  made in connection  with the
Credit Documents or any borrowing hereunder;  (ii) the performance or observance
of any of the covenants or agreements of Borrower in the Credit Documents; (iii)
the  satisfaction  of any  condition  specified  in  Article  III;  or (iv)  the
validity,  effectiveness,  or  genuineness  of any Credit  Document or any other
instrument or writing furnished in connection  therewith.  Agent shall not incur
any liability by acting in reliance upon any notice or any consent, certificate,
statement,  or other  writing  (which  may be a bank  wire,  telex,  or  similar
writing)  believed by it to be genuine or to have been given or be signed by the
proper party or parties.

                  Section 7.6  Indemnification.  Each Lender  shall,  ratably in
accordance  with its Loans,  indemnify  Agent (to the extent not  reimbursed  by
Borrower) against any cost,  expense  (including  counsel fees and disbursements
and allocated costs for in-house legal services),  claim, demand,  action, loss,
or liability  (except such as result from Agent's  gross  negligence  or willful
misconduct)  that Agent may suffer or incur,  or which may be  asserted  against
Agent,  directly or indirectly  arising out of or in connection  with the Credit
Documents  or any  action  taken or omitted by Agent  thereunder  or  incidental
thereto.

                  Section 7.7 Credit Decision.  Each Lender acknowledges that it
has,  independently  and without  reliance upon Agent or any other  Lender,  and
based on such documents and information as it has deemed  appropriate,  made its
own credit analysis and decision to enter into this Agreement.  Each Lender also
acknowledges that it will,  independently and without reliance upon Agent or any
other  Lender,  and based on such  documents  and  information  as it shall deem
appropriate at the time,  continue to make its own credit decisions in taking or
not taking any action under the Credit Documents.

                  Section 7.8 Successor  Agent.  Agent may resign at any time by
giving  written   notice  thereof  to  Lenders  and  Borrower.   Upon  any  such
resignation, Borrower shall have the right, with the consent of Required Lenders
(which  consent  shall not be  unreasonably  withheld),  to appoint a  successor
Agent.  If no successor  Agent shall have been so appointed by Borrower with the
consent of Required Lenders and shall have accepted such  appointment  within 30
days  after the  retiring  Agent's  giving of  notice of  resignation,  then the
retiring  Agent may appoint a successor  Agent which shall be a commercial  bank
organized or licensed  under the laws of the United  States of America or of any
State   thereof  and  having  a  combined   capital  and  surplus  of  at  least
$100,000,000.  Upon the acceptance of its  appointment  as Agent  hereunder by a
successor  Agent,  such successor  Agent shall  thereupon  succeed to and become
vested with all the rights and duties of the  retiring  Agent,  and the retiring
Agent  shall be  discharged  from its  duties and  obligations  under the Credit
Documents.  After any  retiring  Agent's  resignation  hereunder  as Agent,  the
provisions  of this  Article  VII shall  inure to its  benefit as to any actions
taken or omitted to be taken by it while it was Agent.


                                      26.
<PAGE>

                  Section 7.9  Collateral.  Each of Lenders  represents to Agent
and each other  Lender  that it in good faith is not  relying  upon any  "margin
stock" (as defined in the Margin  Regulations) as collateral in the extension or
maintenance of any Loan.

                  Section  7.10  Agent/Borrower  Relationship.   The  protective
provisions set forth in Article VII relating to the Agent are intended to govern
the relationship  between the Agent and the Lenders and shall not be interpreted
to decrease or increase the liability of the Agent as concerns its  relationship
with Borrower.


                                  ARTICLE VIII

                                  MISCELLANEOUS

                  Section  8.1  Notices.  All  notices,   requests,   and  other
communications  to any party under this Agreement  shall be in writing and shall
be given to such party at its address or telex or facsimile  number set forth on
the  signature  pages  hereof (or in the case of an Assignee as set forth on the
signature pages of the relevant Assignment and Acceptance) or such other address
or telex or facsimile number as such party may hereafter specify for the purpose
by  notice  to  Agent  and  Borrower.   Each  such  notice,   request  or  other
communication shall be effective: (a) if given by telex or facsimile,  when such
telex  or  facsimile  is  transmitted  to the  telex  or  facsimile  number,  as
applicable,  specified  in  this  Section  and,  in the  case  of  telexes,  the
appropriate  answer back is received and, in the case of  facsimiles,  the party
sending the facsimile has telephonically  confirmed its receipt, (b) if given by
registered or certified  mail,  return  receipt  requested,  72 hours after such
communication  is  deposited  in the mails with  postage  prepaid,  addressed as
aforesaid  or (c) if given by any other  means,  when  delivered  at the address
specified in this Section 8.1;  provided that any  communications to Agent under
Article II  (including  any  communication  required in order to  ascertain  the
applicable rates of interest  thereunder)  shall not be effective until received
by Agent. In the event of any conflict  between any oral  communication to Agent
and the written confirmation  thereof,  such oral communication shall control if
Agent has acted thereon prior to actual receipt of such written confirmation.


                  Section 8.2 No Waivers;  Rights and  Remedies  Cumulative.  No
failure  or delay by Agent or any Lender in  exercising  any  right,  power,  or
privilege  under any Credit Document shall operate as a waiver thereof nor shall
any single or partial  exercise  thereof  preclude any other or further exercise
thereof or the exercise of any other right, power, or privilege.  The rights and
remedies  provided in the Credit Documents shall be cumulative and not exclusive
of any rights or remedies provided by law.

                  Section 8.3 Expenses and Indemnity.

                  (a) Borrower  agrees to pay, within 30 days of demand therefor
(but on demand if there  shall then exist any Event of  Default),  all costs and
expenses (i) of Agent 


                                      27.
<PAGE>

(including   reasonable  and  documented  attorneys'  fees  and  reasonable  and
documented  costs  of  in-house  counsel  and  staff)  in  connection  with  the
preparation,  amendment,  or modification of the Credit  Documents,  and (ii) of
Agent or any  Lender in  connection  with the  enforcement  (including,  without
limitation, in appellate, bankruptcy, insolvency,  liquidation,  reorganization,
moratorium,  or  other  similar  proceedings)  or  restructuring  of the  Credit
Documents;  provided  that  Borrower's  obligation  to reimburse  Agent for such
attorneys' fees in connection with the preparation of the Credit Documents shall
be limited to $15,000; provided, further, that Agent and Lenders shall use their
best  efforts to utilize  the same legal firm to  represent  them with regard to
Borrower's obligations hereunder.

                  (b) Whether or not the transactions  contemplated hereby shall
be consummated,  Borrower  agrees to indemnify,  pay and hold Agent and Lenders,
and the shareholders,  officers,  directors,  employees, and agents of Agent and
Lenders,  harmless  from and against any and all  claims,  liabilities,  losses,
damages,  costs, and expenses  (whether or not any of the foregoing Persons is a
party to any litigation),  including, without limitation,  reasonable attorneys'
fees and costs (including,  without  limitation,  the reasonable estimate of the
allocated cost of in-house legal counsel and staff) and costs of  investigation,
document  production,  attendance  at a  deposition,  or other  discovery,  with
respect to or arising out of any proposed  acquisition by Borrower or any of its
Consolidated   Subsidiaries  of  any  Person  or  any  securities  (including  a
self-tender),  this  Agreement or any use of proceeds  hereunder,  or any claim,
demand,  action or cause of action being asserted against Borrower or any of its
Consolidated  Subsidiaries   (collectively,   the  "Indemnified   Liabilities"),
provided  that  Borrower  shall have no  obligation  hereunder  with  respect to
Indemnified  Liabilities arising from the gross negligence or willful misconduct
of any such Persons.  If any claim is made, or any action, suit or proceeding is
brought,   against  any  Person  indemnified   pursuant  to  this  Section,  the
indemnified Person shall notify Borrower of such claim or of the commencement of
such action,  suit or  proceeding,  and Borrower will assume the defense of such
action,  suit  or  proceeding,   employing  counsel  selected  by  Borrower  and
reasonably satisfactory to the indemnified Person, and pay the fees and expenses
of such counsel.  This covenant shall survive  termination of this Agreement and
payment of any outstanding Notes.

                  Section 8.4 Offset; Sharing of Recoveries.

                  (a) Upon the  occurrence  and  during the  continuance  of any
Event of Default,  each Lender, upon prior notice to Agent and all other Lenders
and only with the consent of Required Lenders,  is hereby authorized at any time
and from time to time,  to the fullest  extent  permitted by law, to set-off and
apply any and all  deposits  (general or special,  time or demand,  provision or
final) at any time held and other  indebtedness at any time owing by such Lender
to or for the credit or the account of Borrower against an equivalent  amount of
Loans,  irrespective  of whether or not such  Lender  shall have made any demand
under this Agreement and although such obligations may be unmatured. Each Lender
agrees  promptly  to notify  Borrower  and  Agent  after  any such  set-off  and
application  is made by such  Lender,  provided  that the  failure  to give such
notice shall not affect the validity of such set-off and application. The rights
of each Lender  under this  Section  8.4(a) are in addition to other  rights 


                                      28.
<PAGE>

and remedies (including, without limitation, other rights of set-off) which such
Lender may have. Borrower agrees, to the fullest extent it may effectively do so
under  applicable law, that any holder of a participation in any Lender's Loans,
whether or not acquired  pursuant to the  foregoing  arrangements,  may exercise
rights  of  set-off  or  counterclaim  and other  rights  with  respect  to such
participation  as  fully  as if such  holder  of a  participation  were a direct
creditor  of  Borrower  in the  amount  of  such  participation,  and  any  such
participant by so exercising such rights agrees to be bound by the provisions of
Section 8.4(b).

                  (b) Except for a prepayment  received by a Lender  pursuant to
Section 8.5(b),  each Lender agrees that if it shall, by exercising any right of
set-off,  counterclaim,  security interest,  or otherwise,  receive payment of a
proportion of the aggregate amount of principal and interest due with respect to
any  Loans by it which is  greater  than the  proportion  received  by any other
Lender in respect of the  aggregate  amount of  principal  and interest due with
respect to Loans by such other Lender, the Lender receiving such proportionately
greater  payment  shall  purchase  such  participations  in Loans  by the  other
Lenders,  and such other  adjustments  shall be made, as may be required so that
all such  payments of principal  and  interest  with respect to Loans by Lenders
shall be shared by Lenders pro rata;  provided that (i) if all or any portion of
such payment is thereafter  recovered  from such Lender,  such purchase shall be
rescinded and the purchase price  restored to the extent of such  recovery,  but
without interest, and (ii) nothing in this Section shall impair the right of any
Lender to exercise any right of set-off or counterclaim it may have and to apply
the amount subject to such exercise to the payment of  indebtedness  of Borrower
other than the Loans.

                  (c) From and after the first to occur of (x) any  acceleration
of maturity of the Notes  pursuant to Section 6.1 or (y) the Maturity  Date, and
so long as any Loan remains outstanding,  sums received by Agent for application
to any Loan (and whether received by voluntary payment, set-off,  disposition of
collateral or otherwise)  shall be applied by Agent in the following  order: (i)
to costs and expenses and other amounts  payable to Agent pursuant to the Credit
Documents,  (ii) to interest on the Loans,  (iii) to the Loans,  and (iv) to the
other obligations in such order as Required Lenders and Agent shall agree.

                  Section 8.5 Amendments and Waivers.

                  (a) Any  provision of the Credit  Documents  may be amended or
waived if, but only if, such  amendment or waiver is in writing and is signed by
Borrower  and  Agent  with the  consent  of  Required  Lenders,  whereupon  such
amendment  or waiver  shall be binding  on all  Lenders;  provided  that no such
amendment or waiver  shall,  unless  consented to by Agent and all Lenders,  (i)
reduce the  principal  of or rate of interest on any Loan or any fees  hereunder
(other than fees payable solely to Agent in which case only the consent of Agent
shall be required), (ii) postpone the date fixed for any payment of principal of
or interest on any Loan or any fees hereunder, or (iii) change the definition of
"Required  Lenders"  or  otherwise  change the number of Lenders  which shall be
required for Lenders or any of them to take any action under this Section 8.5 or
any other provision of the Credit Documents. No 


                                      29.
<PAGE>

amendment of the duties of Agent hereunder,  or of the immunities,  indemnities,
and  protections  afforded to Agent by Article  VII,  shall be made  without the
consent of Agent.

                  (b) If Borrower  requests a modification of the type specified
in clauses (i) through (iii) of subsection (a) above (a "Modification  Request")
and any  Lender  (other  than  IBJ) or  Participant  refuses  to  agree  to such
modification (a  "Nonaccepting  Entity"),  Agent shall use good faith efforts to
secure a substitute  Lender or participant  acceptable to Borrower and Agent and
willing to accept such modification as a replacement for the Nonaccepting Entity
(an  "Accepting  Entity")  and, if Agent shall be unable to secure an  Accepting
Entity  within  50 days  from  Agent's  receipt  from  Borrower  of the  related
Modification  Request,  then  Borrower may, at its option so long as no Event of
Default would result therefrom,  prepay all but not less than all of the Loan or
participation  interest of such  Nonaccepting  Entity (A) without  obtaining the
consent  of any  Person if the  principal  amount of such Loan or  participation
interest  is less than  $25,000,000  and (B) with the  consent  of the  Required
Lenders  (for the purpose of  determining  such  Required  Lenders  such Loan or
participation interest of such Nonaccepting Entity shall not be included) if the
principal  amount  of such  Loan  or  participation  interest  is  greater  than
$25,000,000;   incident  to  such   prepayment,   Borrower  shall  pay  to  such
Nonaccepting  Entity  the  outstanding  principal  amount  of such  Nonaccepting
Entity's Loan or participation interest, accrued interest thereon to the date of
prepayment,  amounts to which such  Nonaccepting  Entity is entitled pursuant to
Section  2.8 by  reason  of such  prepayment,  and all the  amounts  then  owing
hereunder by Borrower to such  Nonaccepting  Entity.  Upon any such  prepayment,
Borrower shall give Agent and Lenders immediate notice thereof.

                  Section 8.6 Successors and Assigns; Participations.

                  (a) This  Agreement  shall be  binding  upon and  inure to the
benefit of the  parties  hereto and their  respective  successors  and  assigns,
except  (i) that  Borrower  may not  assign  or  transfer  any of its  rights or
obligations  under this  Agreement  or any other  Credit  Document  without  the
consent of all  Lenders  and (ii) no Lender may  assign or  transfer  any of its
rights or obligations  under this Agreement,  except to the extent  permitted by
this Section 8.6.

                  (b)  Any   Lender  may  at  any  time  sell  to  one  or  more
institutional  lenders  (each  a  "Participant")   proportionate   participating
interests in all Loans owing to such Lender,  the Note held by such Lender,  and
in any other interest of such Lender  hereunder;  provided that no participating
interest  may be sold by a Lender  pursuant to this  subsection  (b): (w) to any
Participant  that is not then a  Participant  or Lender  without  the consent of
Borrower and Agent,  (which consent may not be  unreasonably  withheld),  (x) if
after giving effect  thereto,  the Loan of such Lender which is held for its own
account  (and not on  behalf  of  participating  interests)  would be less  than
$15,000,000,  (y) if such participating interest is equivalent to a Loan of less
than  $15,000,000,  or (z) on a basis  which  permits the  Participant  to grant
subparticipations  with respect to or to otherwise transfer less than all of its
participating  interest to any Person. In the event of any such sale by a Lender
of a participating  interest to


                                      30.
<PAGE>

a  Participant,  such Lender's  obligations  under this  Agreement and the other
Credit  Documents  shall  remain  unchanged,  such Lender  shall  remain  solely
responsible for the performance thereof,  such Lender shall otherwise remain the
holder of any such Note for all purposes under this Agreement,  and Borrower and
Agent shall  continue to deal solely and directly with such Lender in connection
with such Lender's  rights and  obligations  under this  Agreement and the other
Credit Documents.  Subject to the provisions of this Section 8.6(b), each Lender
shall be  entitled  to obtain (on behalf of the  Participants)  the  benefits of
Sections  2.8,  2.11 and 2.12 with  respect to all  participations  in its Loans
outstanding  from time to time.  No Lender shall grant any  participation  under
which the Participant shall have rights to approve (or shall require the consent
of such  Participant  before such Lender may approve) any amendment to or waiver
of this Agreement or the other Credit  Documents or the extension of any date on
which any principal, interest or other sums payable hereunder are due, except to
the extent  such  amendment  or waiver:  (i) reduces the rate of interest on any
Loan, (ii) reduces the amount of principal  payable on any Loan or (iii) extends
the  Maturity  Date.  Not less than five  Business  Days  after the grant of any
participating interest to a Participant, the Lender granting such interest shall
notify Agent and Borrower of the name of the  Participant  and of the nature and
extent of the participating interest granted to such Participant.

                  (c)  Any   Lender  may  at  any  time  sell  to  one  or  more
institutional  lenders  (each  an  "Assignee")  all,  or  a  proportionate  part
(equivalent  to a Loan of not less than  $15,000,000)  of all, of its rights and
obligations  under this Agreement and the Notes,  and such Assignee shall assume
all such  rights and  obligations,  pursuant  to an  Assignment  and  Acceptance
executed by such Assignee and such transferor Lender;  provided that no interest
may be sold by a Lender  pursuant to this subsection (c) to any Assignee that is
not then a Lender without the consent of Borrower and Agent,  (which consent may
not be unreasonably  withheld);  and provided further that no interest less than
all of  such  Lender's  interest  may be  sold  by a  Lender  pursuant  to  this
subsection (c) if, after giving effect thereto, such Lender's Loan would be less
than  $15,000,000.  Upon (i) such execution of such  Assignment and  Acceptance,
(ii) delivery by the  transferor  Lender of an executed  copy thereof,  together
with notice that the payment  referred to in clause  (iii) below shall have been
made, to Borrower,  Agent and each Lender, and (iii) payment by such Assignee to
such  transferor  Lender of an amount equal to the purchase price agreed between
such transferor  Lender and such Assignee,  such Assignee shall for all purposes
be a  Lender  party  to  this  Agreement  and  shall  have  all the  rights  and
obligations of a Lender under this  Agreement and the other Credit  Documents to
the same extent as if it were an original party hereto with a Loan in the amount
set forth in such Assignment and Acceptance,  and the transferor Lender shall be
released  from its  obligations  hereunder  to a  corresponding  extent,  and no
further consent or action by Borrower,  Lenders or Agent shall be required. Upon
the consummation of any transfer to an Assignee  pursuant to this subsection (c)
the transferor Lender, Agent and Borrower shall make appropriate arrangements so
that,  if required,  new Notes are issued to such Assignee and, to the extent it
remains a Lender  hereunder,  such transferor  Lender,  and upon the issuance of
such new Note(s),  such transferor Lender shall surrender the existing Note held
by it.


                                      31.
<PAGE>

                  (d) Any  Lender  may at any time  pledge or assign  all or any
part of (or a  proportionate  participating  interest in) such  Lender's  rights
under the Credit  Documents  to any  Federal  Reserve  Bank in  accordance  with
applicable law.

                  (e)  Borrower  authorizes  each  Lender  to  disclose  to  any
Participant or Assignee (a "Transferee") and any prospective Transferee, any and
all financial  information in such Lender's possession concerning Borrower which
has been  delivered  to such Lender by Borrower  pursuant to this  Agreement  or
which has been  delivered  to such Lender by Borrower  in  connection  with such
Lender's credit evaluation prior to entering into this Agreement,  provided that
such  Transferee or  prospective  Transferee has first agreed to be bound by the
provisions of Section 8.10 and executed the required Confidentiality Letter.

                  (f) If pursuant to  subsection  (c) of this  Section  8.6, any
interest in this  Agreement or any Note is  transferred to any Assignee which is
organized  under the laws of any  jurisdiction  other than the United  States of
America or any State thereof,  the transferor  Lender shall cause such Assignee,
concurrently  with the  effectiveness of such transfer,  (i) to represent to the
transferor  Lender  (for  the  benefit  of the  transferor  Lender,  Agent,  and
Borrower) that under applicable law and treaties no taxes will be required to be
withheld  by Agent,  Borrower,  or the  transferor  Lender  with  respect to any
payments to be made to such Assignee in respect of the Loans, (ii) to furnish to
each of the transferor Lender,  Agent, and Borrower two duly completed copies of
either U.S.  Internal Revenue Service Form 4224 or U.S. Internal Revenue Service
Form 1001 (wherein such Assignee claims  entitlement to complete  exemption from
U.S. federal  withholding tax on all interest  payments  hereunder) and (iii) to
agree (for the benefit of the transferor Lender, Agent, and Borrower) to provide
the transferor Lender, Agent, and Borrower a new Form 4224 or Form 1001 upon the
obsolescence  of any  previously  delivered  form and  comparable  statements in
accordance  with  applicable  U.S.  laws and  regulations  and  amendments  duly
executed and  completed by such  Assignee,  and to comply from time to time with
all applicable  U.S. laws and  regulations  with regard to such  withholding tax
exemption.

                  (g) No  Transferee  (including  for this  purpose a  different
Lending  Office of a Lender)  shall be entitled  to receive any greater  payment
under Sections 2.11 and 2.12 than the transferor Lender would have been entitled
to receive with respect to the rights  transferred,  unless such  assignment  or
participation is made with the prior written consent of Borrower.

                  Section  8.7   Obligations   of  Lenders  are   Several.   The
obligations of each Lender under this  Agreement are several.  Neither Agent nor
any Lender  shall be liable for the  failure of any other  Lender to perform its
obligations under this Agreement.

                  Section 8.8 Governing Law; Jurisdiction and Venue.

                  (a)  GOVERNING  LAW.  THIS  AGREEMENT  AND  THE  OTHER  CREDIT
DOCUMENTS (EXCEPT TO THE EXTENT OTHERWISE  EXPRESSLY SET 


                                      32.
<PAGE>

FORTH  THEREIN) SHALL BE DEEMED TO HAVE BEEN MADE IN THE STATE OF CALIFORNIA AND
THE VALIDITY, CONSTRUCTION,  INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF,
AND THE RIGHTS OF THE PARTIES  HERETO AND THERETO,  SHALL BE  DETERMINED  UNDER,
GOVERNED BY, AND CONSTRUED IN ACCORDANCE  WITH THE INTERNAL LAWS OF THE STATE OF
CALIFORNIA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.

                  (b) JURISDICTION AND VENUE. TO THE MAXIMUM EXTENT PERMITTED BY
LAW,  THE  PARTIES  HERETO  AGREE  THAT ALL  ACTIONS OR  PROCEEDINGS  ARISING IN
CONNECTION WITH THIS AGREEMENT OR THE OTHER CREDIT  DOCUMENTS SHALL BE TRIED AND
LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE CITY OF AND COUNTY
OF SAN  FRANCISCO,  STATE OF  CALIFORNIA,  OR,  AT THE SOLE  OPTION  OF AGENT OR
REQUIRED  LENDERS,  IN ANY OTHER COURT IN WHICH AGENT OR REQUIRED  LENDERS SHALL
INITIATE  LEGAL OR EQUITABLE  PROCEEDINGS  AND WHICH HAS  JURISDICTION  OVER THE
SUBJECT MATTER AND PARTIES IN CONTROVERSY. TO THE EXTENT THEY MAY LEGALLY DO SO,
THE PARTIES  HERETO  HEREBY WAIVE ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE
OF FORUM NON  CONVENIENS  OR TO OBJECT TO VENUE TO THE EXTENT ANY  PROCEEDING IS
BROUGHT IN ACCORDANCE  WITH THIS SUBSECTION (b) AND STIPULATE THAT THE STATE AND
FEDERAL  COURTS  LOCATED  IN THE CITY OF AND COUNTY OF SAN  FRANCISCO,  STATE OF
CALIFORNIA,  SHALL HAVE IN PERSONAM  JURISDICTION AND VENUE OVER EACH SUCH PARTY
FOR THE PURPOSE OF  LITIGATING  ANY SUCH  DISPUTE,  CONTROVERSY,  OR  PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT,  OR THE OTHER CREDIT DOCUMENTS.  TO
THE MAXIMUM EXTENT PERMITTED BY LAW, SERVICE OF PROCESS  SUFFICIENT FOR PERSONAL
JURISDICTION  IN ANY  ACTION  AGAINST  BORROWER  MAY BE  MADE BY  REGISTERED  OR
CERTIFIED MAIL, RETURN RECEIPT  REQUESTED,  TO ITS ADDRESS SPECIFIED FOR NOTICES
PURSUANT TO SECTION 8.1.

                  Section 8.9 Counterparts; Facsimile Signatures. This Agreement
may be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures  thereto and hereto were upon the same
instrument.  Delivery of an executed  counterpart  of the signature page to this
Agreement  by facsimile  shall be  effective as delivery of a manually  executed
counterpart of this Agreement,  and any party delivering an executed counterpart
of the  signature  page to this  Agreement by facsimile to any other party shall
thereafter  also  promptly  deliver  a  manually  executed  counterpart  of this
Agreement to such other party, but the failure to deliver such manually executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement.

                  Section  8.10  Confidentiality.  Agent  and  each  of  Lenders
(including  any  Assignee  and  Participant)  agree  to  keep  confidential  any
information relating to Borrower in accordance with the provisions of Borrower's
standard  Confidentiality Letter in substantially 


                                      33.
<PAGE>

the form  attached as Exhibit D hereto and such Person shall execute and deliver
to  Borrower  a copy of  such  Confidentiality  Letter  at the  time  it  enters
(directly or indirectly) into a lending relationship with Borrower.

                  Section 8.11 Entire  Agreement.  This  Agreement and the other
Credit  Documents  (a) integrate  all the terms and  conditions  set forth in or
incidental to the Credit  Documents,  (b) supersede  all oral  negotiations  and
prior writings with respect to the subject  matter hereof,  and (c) are intended
by the parties as the final  expression  of the  agreement  with  respect to the
terms and conditions  set forth in the Credit  Documents and as the complete and
exclusive  statement of the terms agreed to by the parties.  In the event of any
conflict between the terms,  conditions and provisions of this Agreement and any
other Credit  Document,  the terms,  conditions and provisions of this Agreement
shall prevail.


                                      34.
<PAGE>

                  IN WITNESS  WHEREOF,  the  parties  hereto  have  caused  this
Agreement to be duly executed by their respective  authorized  signatories as of
the day and year first above written.

BORROWER:                KOMAG, INCORPORATED,
                         a Delaware corporation


                         By ___________________________

                         Title: _______________________


                         Address for Notices:

                         Attn: Treasurer
                         275 South Hillview Drive
                         Milpitas, California 95035

                         Telephone: (408) 957-4217
                         Facsimile: (408) 956-1104



                                      35.
<PAGE>

AGENT:                   THE INDUSTRIAL BANK OF JAPAN,
                         LIMITED, SAN FRANCISCO AGENCY,
                         as Agent for Lenders


                         By ___________________________

                         Title: _______________________


                         Address for Notices:

                         Attn: Jeanette O'Donnell
                         555 California Street, Suite 3110
                         San Francisco, CA 94104

                         Telephone: (415) 693-1831
                         Facsimile: (415) 982-1917


                         Agent's Funding Office:

        Bank:            Bank of America NT&SA
                         International Deposit Services 6561
                         1850 Gateway Boulevard
                         Concord, CA 94520

        Account:         The Industrial Bank of Japan, Limited
                         Los Angeles Agency

        Account No.      62906-14014
                         "For Credit to IBJ SFA, A/C 2601-22011"



                                      36.
<PAGE>

                                   SCHEDULE 2

                          SCHEDULE OF PERMITTED LIENS

1.  Purchase money security interests in equipment; and

2.  UCC filings evidencing leased equipment.



<PAGE>

                                   SCHEDULE 1

                            SCHEDULE OF SUBSIDIARIES

                                                            Percentage of the
                                                           Borrower's Ownership
                                                           --------------------

1.  Komag Material Technology, Inc.                                80%

2.  Komag Technology Partners                                      50%

3.  Asahi Komag Co., Ltd.                                           0%*

4.  Komag Bermuda Ltd.                                            100%

5.  Komag Overseas Ltd.                                           100%

6.  Komag USA (Malaysia) Sdn                                        0%**

7.  Dastek Holding Company                                         60%

8.  Dastek (M) SDN BHD                                              0%**

9.  Asahi Komag (Thailand) Co., Ltd.                                0%****

10. Komag (Barbados) Ltd.                                         100%

*        The Borrower owns 50% of Komag Technology Partners,  which owns 100% of
         Asahi Komag Co., Ltd.

**       Komag Bermuda Ltd. (97%) and Komag Overseas Ltd. (3%) own 100% of Komag
         USA (Malaysia) Sdn.

***      Dastek Holding Company owns 100% of Dastek (M) SDN BHD.

****     Asahi Komag Co., Ltd. owns 100% of Asahi Komag (Thailand) Co., Ltd.