LOAN AGREEMENT

                                BANK OF SCOTLAND

                                     LOAN TO

                         FIRSTCITY FINANCIAL CORPORATION




                                  APRIL 8, 1998





                                  


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                           TABLE OF CONTENTS

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1..............................................1.DEFINITIONS AND TERMS.1

      1.1.........................................................GAAP13

      1.2.....................................................BORROWER13

      1.3........................................RULES OF CONSTRUCTION13


2................................................LOANS - GENERAL TERMS14

      2.1...............................................REVOLVING LOAN14

      2.2.....................................MAXIMUM PRINCIPAL AMOUNT14

      2.3..........................MATURITY DATE; TERMINATION OF LOANS16

      2.4..........................AUTHORIZED DISBURSEMENT OF PROCEEDS16

      2.5..........................................BORROWING PROCEDURE17

      2.6...............................................INTEREST RATE.17

      2.7..............................................CHANGE OF LAWS.18

      2.8...........................................REGULATORY CHANGES18

      2.9...................ADVANCES PRIOR TO LIBOR RATE DETERMINATION18

      2.10..........................EURODOLLAR ADVANCES AND CONVERSION18

      2.11....................................INTEREST PERIOD ELECTION19

      2.12........................................................FEES19

      2.13.......................................................USURY20


3........................................................PAYMENT TERMS20

      3.1......................LOAN ACCOUNT; METHOD OF MAKING PAYMENTS20

      3.2............................................INTEREST PAYMENTS21

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      3.3...........................................PRINCIPAL PAYMENTS21

      3.4.............................................PLACE OF PAYMENT21       

      3.5...........................PAYMENT ON MATURITY AND PREPAYMENT21

      3.6..............................ADVANCES TO CONSTITUTE ONE LOAN22

      3.7......................APPLICATION OF PAYMENTS AND COLLECTIONS22

      3.8...........................................MONTHLY STATEMENTS23


4.................................................ANCILLARY AGREEMENTS23

      4.1...................................................GUARANTIES23

      4.2.......................................NOTE PLEDGE AGREEMENTS23

      4.3......................................STOCK PLEDGE AGREEMENTS23


5....................GENERAL WARRANTIES, REPRESENTATIONS AND COVENANTS24

      5.1.......................GENERAL REPRESENTATIONS AND WARRANTIES24

      5.2..............REAFFIRMATION OF WARRANTIES AND REPRESENTATIONS32

      5.3...................SURVIVAL OF WARRANTIES AND REPRESENTATIONS32


6..................................COVENANTS AND CONTINUING AGREEMENTS33

      6.1..........................................FINANCIAL COVENANTS33

      6.2........................................AFFIRMATIVE COVENANTS33

      6.3...........................................NEGATIVE COVENANTS37

      6.4.............................................REQUIRED NOTICES41

      6.5............................................PAYMENT OF CLAIMS42

      6.6........................................YEAR 2000 COMPLIANCE.43


7..............................................................DEFAULT43

      7.1...........................................EVENTS OF DEFAULT.43

  
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      7.2..........................................REMEDIES CUMULATIVE46

      7.3.................................................ACCELERATION46

      7.4.....................................................REMEDIES47

      7.5............................................INJUNCTIVE RELIEF47

      7.6............................ADVANCES DURING UNMATURED DEFAULT47


8.................................CONDITIONS PRECEDENT TO DISBURSEMENT47

      8.1..............................................CHECKLIST ITEMS47

      8.2............................................NECESSARY ACTIONS47

      8.3.........................................CONDITIONS PRECEDENT47


9..............................................................GENERAL48

      9.1........................................COMPLIANCE WITH ERISA48

      9.2........................................................COSTS54

      9.3....................................................STATEMENT54

      9.4......................................................NOTICES54

      9.5.......................................AMENDMENTS AND WAIVERS55

      9.6.......................NO IMPLIED WAIVER; REMEDIES CUMULATIVE55

      9.7.................................................SEVERABILITY56

      9.8............................INCORPORATION OF OTHER AGREEMENTS56

      9.9...................................................ACCEPTANCE57

      9.10...................................................KNOWLEDGE57

      9.11..........................................WAIVER BY BORROWER57

      9.12...............................................GOVERNING LAW57

      9.13........................................WAIVER OF MARSHALING58

      9.14...........................................LIMITATION BY LAW58


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      9.15..................SURVIVAL OF REPRESENTATIONS AND WARRANTIES58

      9.16..........................................SERVICE OF PROCESS58

      9.17...................................REPRESENTATION BY COUNSEL58

      9.18.............................................RELEASE OF BANK58

      9.19........................................INVALIDATED PAYMENTS59

      9.20....................................................HEADINGS59

      9.21................................................COUNTERPARTS59

      9.22...............................................FAX EXECUTION59

      9.23................................NO THIRD PARTY BENEFICIARIES59

      9.24...........................................DOMICILE OF LOANS60

      9.25............................................ENTIRE AGREEMENT60

      9.26................................................CONSTRUCTION60

      9.27......................................SUCCESSORS AND ASSIGNS60

      9.28..............................................TEXAS LANGUAGE60

      9.29.....................................WAIVER OF TRIAL BY JURY61





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                             LOAN AGREEMENT


      THIS LOAN AGREEMENT (this "AGREEMENT"), dated for reference purposes only
as of April 8 , 1998 by and between Bank of Scotland, acting through its branch
in New York, New York ("BANK"), a foreign banking corporation incorporated under
the laws of Scotland with its principal place of business at 565 Fifth Avenue,
New York, NY 10017, and FirstCity Financial Corporation, a Delaware corporation
("BORROWER"), with its principal place of business at 6400 Imperial Drive, P.O.
Box 8216, Waco, Texas 76714.


                               RECITALS:

      A. Borrower has requested and Bank has agreed to provide Borrower with a
revolving credit facility in an amount not to exceed Fifty Million Dollars
($50,000,000) (the "LOANS").

      B. Borrower intends to use the proceeds of the Loans to make loans and
other financial accommodations to its Affiliates.

      C. The Loans will be secured by a pledge of all of Borrower's assets,
including the stock or other equity interests of corporations and partnerships
owned by Borrower.

      D. The parties deem it to be in their best interest to set forth their
mutual agreements herein.

      NOW THEREFORE, in consideration of any loan, advance, extension of credit
and/or other financial accommodation at any time made by Bank to or for the
benefit of Borrower, and of the promises set forth herein, the parties hereto
agree as follows:


1.          DEFINITIONS AND TERMS.

      1.1 Definitions. The following words, terms and/or phrases shall have the
meanings set forth thereafter and such meanings shall be applicable to the
singular and plural form thereof, giving effect to the numerical difference.

            (a) "ADVANCE": any loan of monies made by Bank to Borrower pursuant
      to the terms of Section 2.1.

            (b) "ADVANCE DATE": with respect to each Advance, the Business Day
      upon which the proceeds of such Advance are to made available to Borrower.


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            (c) "AFFILIATE": any Person (i) in which Borrower, one or more
      equity interest holders owning twenty-five percent (25%) or more of the
      total equity interest of Borrower, any Subsidiary, and/or any Parent,
      individually, jointly and/or severally, now or at any time or times
      hereafter, has or have an equity or other ownership interest equal to or
      in excess of twenty-five percent (25%) of the total equity of or other
      ownership interest in such Person; and/or (ii) which directly or
      indirectly through one or more intermediaries controls or is controlled
      by, or is under common control with Borrower; and/or (iii) any officer or
      director of Borrower or any Primary Obligor. For purposes of this
      definition, "CONTROL" shall mean the possession, directly or indirectly,
      of the power to direct or cause the direction of the management and
      policies of a Person, whether through the ownership of Stock, by contract
      or otherwise, and in any case shall include direct or indirect ownership
      (beneficially or of record) of, or direct or indirect power to vote, 25%
      or more of the outstanding shares of any class of capital stock of such
      Person (or in the case of a Person that is not a corporation, 25% or more
      of any class of equity interest).

            (d) "AGREEMENT": this Loan Agreement, together with all amendments,
      modifications, extensions, supplements, restatements replacements and
      extensions hereto or hereof.

            (e) "AGREEMENT AND ESTOPPEL CERTIFICATE": an agreement and estoppel
      certificate executed and delivered by each maker of a Pledged Note, in
      form and substance acceptable to Bank, in its sole and exclusive
      discretion.

            (f) "AND/OR": one or the other or both, or any one or more or all,
      of the things or Persons in connection with which the conjunction is used.

            (g) "ASSETS": any and all real, personal and intangible property of
      a Person, including, without limitation, accounts, chattel paper, contract
      rights, letters of credit, instruments and documents, equipment, general
      intangibles, inventory, leases, options, licenses, and real property,
      whether now existing or hereafter acquired or arising.

            (h) "BANK": Bank of Scotland, a foreign banking corporation
      incorporated under the laws of Scotland, and its successors and assigns.

            (i) "BOOK VALUE": the meaning set forth in Section 2.2(b).

            (j) "BORROWER": FirstCity Financial Corporation, a Delaware
      corporation, and its permitted successors and assigns.

            (k) "BORROWER'S LIABILITIES": all obligations and liabilities of
      Borrower to Bank under the terms of this Agreement, the Security
      Agreement, the Note Pledge Agreements, the Stock Pledge Agreements and



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      the other Loan Documents, and all extensions and renewals or refinancing
      thereof, whether such obligation or liability is direct or indirect,
      secured or unsecured, joint or several, absolute or contingent, due or to
      become due, whether for payment or performance, whether heretofore
      arising, now existing or hereafter arising, however evidenced, created,
      incurred, acquired or owing and whether now contemplated or hereafter
      arising. Without limitation of the foregoing, such liability and
      obligations include the principal amount of Loans, interest, fees,
      indemnities or expenses under this Agreement and all other Loan Documents,
      and all extensions, renewals and refinancing thereof, whether or not such
      Loans were made in compliance with the terms and conditions of this
      Agreement or in excess of the obligation of Bank to lend. Borrower's
      Liabilities shall remain Borrower's Liabilities, notwithstanding any
      assignment or transfer or any subsequent assignment or transfer of any of
      the Borrower's Liabilities or any interest therein.

            (l) "BORROWER'S OBLIGATIONS": all terms, conditions, warranties,
      representations, agreements, undertakings, covenants and provisions (other
      than Borrower's Liabilities) to be performed, discharged, kept, observed
      or complied with by Borrower to or for the benefit of Bank, under the
      terms of this Agreement and all other Loan Documents, and all extensions
      and renewals or refinancing thereof, whether such obligation is direct or
      indirect, secured or unsecured, joint or several, absolute or contingent,
      due or to become due, whether heretofore arising, now existing or
      hereafter arising, however evidenced, created, incurred, acquired or owing
      and whether now contemplated or hereafter arising. Borrower's Obligations
      shall remain Borrower's Obligations, notwithstanding any assignment or
      transfer or any subsequent assignment or transfer of any of the Borrower's
      Obligations or any interest therein.

            (m) "BORROWING BASE": the meaning set forth in Section 2.2(b).

            (n) "BORROWING BASE CERTIFICATE": the certificate delivered by
      Borrower to Bank in accordance with the provisions of Section 6.2(c)(vi).

            (o) "BORROWING REQUEST": a request for an Advance setting forth the
      information required pursuant to Section 2.5(a).

            (p) "BUSINESS DAY": (i) For all purposes other than as covered by
      clause (ii) hereof, any day, other than a Saturday, Sunday, a day that is
      a legal holiday under the laws of the State of Illinois, the State of New
      York, and the State of Texas or any other day on which banking
      institutions located in the State of Illinois, the State of New York and
      the State of Texas are authorized or required by law or other governmental
      action to close; and (ii) with respect to determinations in connection
      with, and payments of principal and interest in Eurodollar Advances, any
      day



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            which is a Business Day described in clause (i) and which is also a
      day for trading by and between banks in U.S. dollar deposits in the London
      Interbank Eurodollar Market.

            (q) "CAPITALIZED LEASE" at any time any lease which is, or is
      required under GAAP to be, capitalized on the balance sheet of the lessee
      at such time, and "CAPITALIZED LEASE OBLIGATION" of any Person at any time
      shall mean the aggregate amount which is, or is required under GAAP to be,
      reported as a liability on the balance sheet of such Person at such time
      as lessee under a Capitalized Lease.

            (r) "CHARGES": all national, Federal, state, county, city, municipal
      and/or other governmental (or any instrumentality, division, agency, body
      or department thereof, including without limitation the Pension Benefit
      Guaranty Corporation) taxes, levies, assessments, charges, liens, claims
      or encumbrances upon and/or relating to the Borrower's Assets, the Secured
      Obligations, Borrower's business, Borrower's ownership and/or use of any
      of its Assets, Borrower's income and/or gross receipts and/or Borrower's
      ownership and/or use of any of its material Assets.

            (s) "CONSOLIDATED GROUP": Borrower and those Affiliates of Borrower
      required to file consolidated tax returns pursuant to Section 1502 of the
      Code.

            (t) "COSTS": any and all reasonable costs and expenses (including,
      without limitation, the reasonable fees and expenses of any counsel,
      accountants, appraisers or other professionals) incurred by Bank at any
      time, in connection with: (i) the preparation, negotiation, execution and
      administration of this Agreement and all other Loan Documents; (ii) the
      preparation, negotiation and execution of any amendment or modification of
      this Agreement or the other Loan Documents; (iii) the custody,
      preservation, use or operation of, or the sale of, collection from or
      other realization upon the Pledged Property; (iv) the exercise or
      enforcement of any of the rights of Bank hereunder; (v) any failure by
      Borrower to perform or observe any of the provisions hereunder; (vi) any
      litigation, contest, dispute, suit, proceeding or action (whether
      instituted by Bank, Borrower or any other Person) in any way relating to
      this Agreement, the other Loan Documents, the Secured Obligations, the
      Pledged Property, Borrower's affairs or any Affiliate's affairs; (vii) any
      attempt to enforce any rights of Bank against Borrower or any other Person
      which may be obligated to Bank by virtue of this Agreement or the other
      Loan Documents; and (viii) performing any of the obligations relating to
      or payment of any of Borrower's Obligations hereunder in accordance with
      the terms hereof.

            (u) "DEFAULT RATE": interest at the rate of two percent (2%) per
      annum plus the Prime Interest Rate.



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            (v) "DESIGNATED PERSON": any Person identified as a "DESIGNATED
      PERSON" on Borrower's Secretary's Certificate dated of even date herewith,
      as amended or superseded from time to time.

            (w) "DOLLARS": the lawful currency of the United States of America.

            (x) "ELIGIBLE NOTE": the meaning set forth in Section 2.2(c).

            (y) "ENVIRONMENTAL LAWS": any Federal, state or local law, rule,
      regulation, ordinance, order, code or statute applicable to Borrower or
      its property, in each case as amended (whether now existing or hereafter
      enacted or promulgated), controlling, governing or relating to the
      pollution or contamination of the air, water or land or concerning
      hazardous, special or toxic materials, wastes or substances, or any
      judicial or administrative interpretation of such laws, rules or
      regulations, including, without limitation, the Water Pollution Control
      Act (33 U.S.C. ss. 1251 et seq.), Resource Conservation and Recovery Act
      (42 U.S.C. ss. 6901 et seq.), Safe Drinking Water Act (42 U.S.C. ss.
      3000(f) et seq.), Toxic Substances Control Act (15 U.S.C. ss. 2601 et
      seq.), Clean Air Act (42 U.S.C. ss. 7401 et seq.), and Comprehensive
      Environmental Response, Compensation and Liability Act (42 U.S.C. ss. 9601
      et seq.).

            (z) "EQUIPMENT LEASES": all leases or similar agreements pursuant to
      which Borrower leases equipment.

            (aa) "EURODOLLAR ADVANCE": any portion of the Loan for which the
      interest rate is based on the Eurodollar Rate, whether or not Bank obtains
      Eurodollars equal to all or any portion of such Eurodollar Advance

            (bb) "EURODOLLAR RATE": the variable rate equal to two and six
      hundred twenty-five thousandths percent (2.625%) per annum plus the LIBOR
      Rate.

            (cc) "EVENT OF DEFAULT": the definition ascribed to this term in
      Section 7.1.

            (dd) "EXCLUDED ENTITIES": the definition ascribed to this term in
      Section 4.3.

            (ee) "EXCLUDED NOTES": the definition ascribed to this term in
      Section 4.2.

            (ff) "FC CAPITAL": FC Capital Corp., a New York corporation.

            (gg) "FC COMMERCIAL": FirstCity Commercial Corporation, a Texas
      corporation.



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            (hh) "FC CONSUMER LENDING": FirstCity Consumer Lending Corporation,
      a Texas corporation.

            (ii) "FC MORTGAGE": FirstCity Financial Mortgage Corporation, a
      Delaware corporation.

            (jj) "FC SERVICING": FirstCity Servicing Corporation, a Texas
      corporation.

            (kk) "FEDERAL FUNDS EFFECTIVE RATE": for any day shall mean the rate
      per annum (rounded upward to the nearest 1/100 of 1%) determined by Bank
      (which determination shall be conclusive) to be the rate per annum
      announced by the Federal Reserve Bank of New York (or any successor) on
      such day as being the weighted average of the rates on overnight Federal
      funds transactions arranged by Federal funds brokers on the previous
      trading day, as computed and announced by such Federal Reserve Bank (or
      any successor) in substantially the same manner as such Federal Reserve
      Bank computes and announces the weighted average it refers to as the
      "Federal Funds Effective Rate" as of the date of this Agreement; provided
      that if such Federal Reserve Bank (or its successor) does not announce
      such rate on any day, the "Federal Funds Effective Rate" for such day
      shall be the Federal Funds Effective Rate for the last day on which such
      rate was announced.

            (ll) "FEE AGREEMENTS": any partnership agreement, management
      agreement, consulting agreement, or other agreements pursuant to which
      Borrower or any Primary Obligor or Secondary Obligor is to be paid fees,
      distributions, allocations, expense reimbursements, consideration, salary
      or other compensation in consideration for providing management, personnel
      or services, in any form whatsoever, from any Affiliate or from any other
      Person. Services to be rendered under Fee Agreements may include, but not
      be limited to consulting, collecting revenues, paying operating expenses
      not paid directly by others, and providing clerical and bookkeeping
      services.

            (mm) "FINANCIALS": those financial statements of Borrower and/or any
      other Loan Party, heretofore, concurrently herewith or hereafter delivered
      by or on behalf of Borrower and/or any other Loan Party to Bank, including
      but not limited to those financial statements and reports delivered by
      Borrower to Bank pursuant to Section 6.2(c).

            (nn) "GAAP": generally accepted accounting principles applied in the
      preparation of the financial statements of a Person with such changes
      thereto as: (i) shall be consistent with the then-effective principles
      promulgated or adopted by the Financial Accounting Standards Board and its
      predecessors and successors, and (ii) shall be concurred in by the
      independent certified public accountants of recognized standing acceptable



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      to Bank reviewing such financial statements of such Person.

            (oo) "GOVERNMENTAL AUTHORITY": any government or political
      subdivision or any agency, authority, bureau, central bank, commission,
      department or instrumentality of either, or any court, tribunal. grand
      jury or arbitrator, in each case whether foreign or domestic.

            (pp) "GUARANTIES": the meaning set forth in Section 4.1.

            (qq) "GUARANTORS": collectively, (i) FC Commercial, (ii) FC Consumer
      Lending, and (iii) FC Servicing, and each other Person who has guaranteed
      all or any portion of the Secured Obligations.

            (rr) "GUARANTY EQUIVALENT": any agreement, document or instrument
      pursuant to which a Person directly or indirectly guarantees, becomes
      surety for, endorses, assumes, agrees to indemnify the obligee of any
      other Person against, or otherwise agrees, becomes or remains liable
      (contingently or otherwise) for, such obligation, other than by
      endorsements of instruments in the ordinary course of business. Without
      limitation, a Guaranty Equivalent shall be deemed to exist if a Person
      agrees, becomes or remains liable (contingently or otherwise), directly or
      indirectly: (i) to purchase or assume, or to supply funds for the payment,
      purchase or satisfaction of, an obligation; (ii) to make any loan,
      advance, capital contribution or other investment in, or a purchase or
      lease of any property or services from, a Person; (iii) to maintain the
      solvency of such Person; (iv) to enable such Person to meet any other
      financial condition; (v) to enable such Person to satisfy any obligation
      or to make any payment; (vi) to assure the holder of an obligation against
      loss; (vii) to purchase or lease property or services from such Person
      regardless of the non-delivery of or failure to furnish of such property
      or services; or (viii) in respect of any other transaction the effect of
      which is to assure the payment or performance (or payment of damages or
      other remedy in the event of nonpayment or nonperformance) of any
      obligation.

            (ss) "INDEBTEDNESS": with respect to any Person, at a particular
      time (without duplication): (i) all obligations on account of money
      borrowed by, or credit extended to or on behalf of, or for or on account
      of deposits with or advances to, such Person; (ii) all obligations of such
      Person evidenced by bonds, debentures, notes or similar instruments; (iii)
      all obligations of such Person for the deferred purchase price of property
      or services other than trade payables incurred in the ordinary course of
      business and on terms customary in the trade; (iv) all obligations secured
      by a Lien on property owned by such Person (whether or not assumed); and
      all obligations of such Person under Capitalized Leases (without regard to
      any limitation of the rights and remedies of the holder of such Lien or
      the lessor under such Capitalized Lease to repossession or sale of such
      property); (v) the face amount of all letters of credit issued for the
      account of such Person



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      and, without duplication, the unreimbursed amount of all drafts drawn
      thereunder, and all other obligations of such Person associated with such
      letters of credit or draws thereon; (vi) all obligations of such Person in
      respect of acceptances or similar obligations issued for the account of
      such Person; (vii) all obligations of such Person under a product
      financing or similar arrangement; (viii) all obligations of such Person
      under any interest rate or currency protection agreement, interest rate or
      currency future, interest rate or currency option, interest rate or
      currency swap or cap or other interest rate or currency hedge agreement;
      and (ix) all obligations and liabilities with respect to unfunded vested
      benefits under any "EMPLOYEE BENEFIT PLAN" or with respect to withdrawal
      liabilities incurred under ERISA by Borrower or any ERISA Affiliate to a
      "MULTIEMPLOYER PLAN", as such terms are defined under the Employee
      Retirement Income Security Act of 1974.

            (tt) "INDEBTEDNESS INSTRUMENT": any note, mortgage, indenture,
      chattel mortgage, deed of trust, loan agreement, hypothecation agreement,
      pledge agreement, security agreement, financing statement or other
      document, instrument or agreement evidencing or securing the payment of or
      otherwise relating to the borrowing of monies. Indebtedness Instruments
      shall include, but not be limited to the Loan Documents.

            (uu) "INTEREST PERIOD": with respect to any Eurodollar Advance, the
      period commencing on the date such Eurodollar Advance is made or continued
      as a Eurodollar Advance, as the case may be, or the date on which a Prime
      Rate Advance is converted into such Eurodollar Advance as applicable, and
      ending seven days, or one, two, three and six months thereafter, as
      Borrower may elect in the applicable Borrowing Request (or as Borrower
      shall be deemed to have elected, as applicable); provided that any
      Interest Period which would otherwise end on a day which is not a Business
      Day shall be extended to the next succeeding Business Day unless such
      Business Day falls in another calendar month, in which case such Interest
      Period shall end on the next preceding Business Day. No Interest Period
      shall terminate after the end of the Maturity Date.

            (vv) "INTEREST RATE": the Prime Interest Rate or the Eurodollar
      Rate, as determined in accordance with the provisions of Article 2.

            (ww) "LIEN": any mortgage, deed of trust, pledge, lien,
      hypothecation, security interest, charge or other encumbrance or security
      arrangement of any nature whatsoever, including but not limited to any
      conditional sale or title retention arrangement, and any assignment,
      deposit arrangement or lease intended as, or having the effect of,
      security.

            (xx) "LIBOR BREAKAGE FEE": a fee equal to all losses (excluding loss
      of anticipated profits) costs, or expense incurred by reason of the
      liquidation or reemployment of deposits or other funds acquired by Bank to
      fund or maintain the requested Eurodollar Advance, when, as a



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      result of such failure on the part of Borrower or prepayment by Borrower
      (including, without limitation, any mandatory prepayment of principal and
      any prepayment resulting from the liabilities being declared due and
      payable in accordance with their terms hereof), interest on such
      Eurodollar Advance is not based on the applicable Eurodollar Rate for the
      requested Interest Period.

            (yy) "LIBOR RATE": for each Interest Period, a rate of interest, per
      annum, equal to: (i) the rate of interest determined by the Bank at which
      deposits in U.S. Dollars for the relevant Interest Period are offered
      based on information presented on the Telerate Screen as of 11:00 A.M.
      (London time) on the applicable Interest Rate Determination Date; provided
      that if more than one (1) offered rate appears on the Telerate Screen in
      respect of such Interest Period, the arithmetic mean of all such rates (as
      determined by the Bank) will be the rate used; provided further that if
      Telerate ceases to provide LIBOR quotations, such rate shall be the
      average rate of interest determined by the Bank at which deposits in U.S.
      Dollars are offered for the relevant Interest Period by banks or other
      financial institutions selected by Bank to banks in London interbank
      markets as of 11:00 A.M. (London time) on the applicable Interest Rate
      Determination Date, multiplied by (ii) the Libor Rate Reserve Percentage.
      The LIBOR Rate shall be adjusted automatically as of the effective date of
      each change in the LIBOR Rate Reserve Percentage. The LIBOR Rate shall be
      calculated in accordance with the foregoing whether or not Bank is
      actually required to hold reserves in connection with its eurocurrency
      funding or, if required to hold such reserves, is required to hold
      reserves at the LIBOR Rate Reserve Percentage.

            (zz) "LIBOR RATE RESERVE PERCENTAGE": for any day shall mean the
      percentage (expressed as a decimal, rounded upward to the nearest 1/100 of
      1%), as determined in good faith by Bank (which determination shall be
      conclusive), which is in effect on such day as prescribed by the Board of
      Governors of the Federal Reserve System (or any successor) representing
      the maximum reserve requirement (including, without limitation,
      supplemental, marginal and emergency reserve requirements) with respect to
      eurocurrency funding (currently referred to as "Eurocurrency liabilities")
      of a member bank in such system.

            (aaa) "LOAN": any and all loans, advances, extensions of credit
      and/or other financial accommodations of any kind or nature made by Bank
      at any time to, for the benefit or at the request of Borrower pursuant to
      this Agreement and/or any of the other Loan Documents.

            (bbb) "LOAN DOCUMENTS": this Agreement and the Other Agreements.

            (ccc) "LOAN PARTY": Borrower and every other Person who is a party
      to any one or more of the Loan Documents.



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            (ddd) "MATURITY DATE": April 30, 1999, or such earlier date as all
      of Borrower's Obligations shall be due and payable by acceleration or
      otherwise.

            (eee) "MAXIMUM PRINCIPAL AMOUNT": the meaning set forth in Section
      2.2(a).

            (fff) "MONTHLY REPORT": those reports delivered to Bank in
      accordance with Section 6.2(c)(iii).

            (ggg) "NAF": National Auto Funding Corporation, a Texas corporation.

            (hhh) "NOTE": that certain revolving promissory note dated even date
      herewith, in the original principal amount of $50,000,000 made by Borrower
      payable to the order of Bank, as said note may hereafter be amended,
      restated, modified, supplemented, extended or replaced.

            (iii) "NOTE PLEDGE AGREEMENT": any one or more of those certain Note
      Pledge Agreements entered into concurrently herewith by Borrower and
      certain of the Primary Obligors, pursuant to which such Loan Party has
      pledged to Bank certain promissory notes, including the Eligible Notes.

            (jjj) "ORGANIC DOCUMENTS": with respect to any Person, its articles
      or certificate of incorporation, by-laws, shareholder's agreement,
      certificate of partnership, certificate of limited partnership,
      partnership agreement, articles of organization, operating agreement, or
      similar documents or agreements governing its management and the rights
      and privileges of its equity owners.

            (kkk) "OTHER AGREEMENTS": the Note, the Note Pledge Agreements, the
      Stock Pledge Agreements, together with all other agreements, instruments
      and documents evidencing or securing the Loans or the transactions
      contemplated herein, including, without limitation, bond agreements, loan
      agreements, security agreements, guaranties, mortgages, deeds of trust,
      notes, applications and agreements for letters of credit, letters of
      credit, advances of credit, bankers acceptances, pledges, powers of
      attorney, consents, assignments, collateral assignments, contracts,
      notices, leases, financing statements and all other written matter
      heretofore, now and/or from time to time hereafter executed by and/or on
      behalf of Borrower, any other Loan Party and delivered to Bank, or issued
      by Bank upon the application and/or other request of, and on behalf of,
      Borrower.

            (lll) "PARENT": any Person, now or at any time or times hereafter,
      owning or controlling (alone or with Borrower, any Subsidiary and/or any
      other Person) at least a majority of the issued and outstanding Stock or
      other ownership interest of Borrower or any Subsidiary (hereinafter



                                       10


<PAGE>
      defined). For purposes of this definition, "CONTROL" shall have the same
      meaning ascribed to this term in Section 1.1(c).


            (mmm) "PERMITTED LIENS": (i) any liens created in favor of Bank;
      (ii) liens for Charges which are not yet due and payable or which are
      expressly permitted pursuant to the terms hereof, or claims and unfunded
      liabilities under ERISA not yet due and payable or which are being
      contested in good faith; (iii) liens arising in connection with worker's
      compensation, unemployment insurance, old age pensions and social security
      benefits which are not overdue or are being contested in good faith by
      appropriate proceedings diligently pursued, provided that in the case of
      any such contest any proceedings commenced for the enforcement of such
      lien shall have been duly suspended and such provision for the payment of
      such lien has been made on the books of Borrower (or the applicable
      Affiliate) as may be required by GAAP; (iv) liens incurred in the ordinary
      course of business to secure the performance of statutory obligations
      arising in connection with progress payments or advance payments due under
      contracts with the United States Government or any agency thereof entered
      into in the ordinary course of business; (v) any liens securing
      indebtedness of Borrower (or any Affiliate) to any Persons in an aggregate
      amount less than $200,000; (vi) ad valorem taxes relating to Assets of
      First B and First X (as defined on Schedule 1.1(xxx), (vii) as to
      Secondary Obligors, NAF and/or FC Capital, purchase money liens in
      connection with the acquisition of Assets, (viii) as to Secondary Obligors
      NAF, and/or FC Capital, only, liens relating to Indebtedness incurred in
      connection with warehousing assets or the securitization of Assets, and
      (ix) those liens disclosed on Schedule 5.1(g).

            (nnn) "PERSON": any individual, sole proprietorship, partnership,
      limited liability company, joint venture, trust, unincorporated
      organization, association, corporation, institution, entity, party or
      government (whether national, Federal, state, county, city, municipal or
      otherwise, including without limitation any instrumentality, division,
      agency, body or department thereof).

            (ooo) "PLEDGED ENTITIES": those entities whose shareholders,
      partners, members or other equity owners have pledged an equity interest
      in such entity to secure the Secured Obligations.

            (ppp) "PLEDGED NOTES": those certain promissory notes made by
      certain Primary Obligors payable to the order of Borrower, or made by
      certain Secondary Obligors payable to the order of a Primary Obligor,
      which have been pledged to Bank pursuant to a Note Pledge Agreement.

            (qqq) "PLEDGED PROPERTY": any and all other property (real, personal
      or intangible) pledged by Borrower or any other Loan Party to secure
      payment and performance of the Secured Obligations, including but



                                       11


<PAGE>
      not limited to: (i) any and all Collateral, as defined in the Security
      Agreement; (ii) any and all interests pledged pursuant to the Note Pledge
      Agreements; and (iii) any and all interests pledged pursuant to the Stock
      Pledge Agreements.

            (rrr) "PRIMARY OBLIGORS": collectively, (i) FC Capital, (ii) FC
      Commercial, (iii) FC Consumer Lending, (iv) FC Mortgage, (v) FC Servicing,
      and (vi) NAF.

            (sss) "PRIME INTEREST RATE": an interest rate equal to the higher
      of: (i) the Federal Funds Effective Rate plus one-half of one percent
      (.5%), or (ii) the Prime Rate.

            (ttt) "PRIME RATE": the prime rate of interest quoted from time to
      time by the Bank of Scotland as its base rate on corporate loans at large
      U.S. money center commercial banks on such day; provided that in the event
      the Bank of Scotland ceases quoting a prime rate, Prime Rate shall mean
      the per annum rate of interest quoted as the Bank Prime Loan Rate for the
      most recent weekday for which such rate is quoted in Statistical Release
      H.15 (519) published from time to time by the Board of Governors of the
      Federal Reserve System; provided further that in the event that both of
      the aforesaid indices cease to be published or to quote rates of the
      aforesaid types, the Prime Rate shall be determined from a comparable
      index chosen by Bank in good faith. The Prime Rate shall change effective
      on the date of the publication of any change in the applicable index by
      which the Prime Rate is determined.

            (uuu) "PRIME RATE ADVANCE": all or any portion of the Loan which is
      not a Eurodollar Advance.

            (vvv) "RECORDS": all books, records, computer records, computer
      software, ledger cards, programs and other computer materials, customer
      and supplier lists, invoices, orders and other property and general
      intangibles at any time evidencing or relating to the Assets.

            (www) "REDUCTION EVENT": the meaning set forth in Section 2.2(a).

            (xxx) "SEC": the Securities and Exchange Commission.

            (yyy) "SECONDARY OBLIGORS": those entities identified on Schedule
      1.1(xxx).

            (zzz) "SECURED OBLIGATIONS": all of Borrower's Liabilities,
      Borrower's Obligations and all other obligations and liabilities of any
      other Loan Party to Bank under the terms of this Agreement, the Security
      Agreement, the Guaranties, the Note Pledge Agreements, the Stock Pledge
      Agreements and the other Loan Documents, and all extensions and renewals



                                       12


<PAGE>
      or refinancing thereof, whether such obligation or liability is direct or
      indirect, otherwise secured or unsecured, joint or several, absolute or
      contingent, due or to become due, whether for payment or performance,
      whether heretofore arising, now existing or hereafter arising, however
      evidenced, created, incurred, acquired or owing and whether now
      contemplated or hereafter arising. Without limitation of the foregoing,
      such liability and obligations include the principal amount of Loans,
      interest, fees, indemnities or expenses under this Agreement or any other
      Loan Document, and all extensions, renewals and refinancing thereof,
      whether or not such Loans were made in compliance with the terms and
      conditions of this Agreement or in excess of the obligation of the Bank to
      lend. Secured Obligations shall remain Secured Obligations,
      notwithstanding any assignment or transfer or any subsequent assignment or
      transfer of any of the Secured Obligations or any interest therein.

            (aaaa)       "SECURITIES":  shall have the meaning ascribed to that
      term in the Securities Act of 1934.

            (bbbb) "SECURITIES LAWS": all applicable Federal and state
      securities laws and regulations promulgated pursuant thereto.

            (cccc) "SECURITY AGREEMENTS": those certain security agreements by
      and between Bank and Borrower, dated even date herewith, or by and between
      certain Primary Obligors and Bank, each dated even date herewith, as said
      agreements may be amended, modified, supplemented, extended, renewed or
      replaced.

            (dddd) "STOCK": all shares, interests, participations or other
      equivalents (however designated) of or in a corporation, whether voting or
      non-voting, including, but not limited to, common stock, warrants,
      preferred stock, convertible debentures and all agreements, instruments
      and documents convertible, in whole or in part, into any one or more or
      all of the foregoing.

            (eeee) "STOCK PLEDGE AGREEMENT": any one or more of those certain
      stock pledge agreements, partnership pledge agreements and/or membership
      interest pledge agreements entered into concurrently hereby by Borrower
      and other Loan Parties, pursuant to which such Loan Party has pledged to
      Bank Stock or other equity interests in the Pledged Entities.

            (ffff) "SUBSIDIARY": any Person at least a majority of whose issued
      and outstanding Stock or other ownership interests now or at any time
      hereafter is owned by Borrower, any Primary Obligor or Secondary Obligor,
      as applicable.

            (gggg) "TANGIBLE NET WORTH": as determined at any time, the total of
      shareholders' equity (including capital stock, additional paid-in



                                  13


<PAGE>
      capital and retained earnings after deducting treasury stock and
      subordinated indebtedness approved in writing by Bank) of a Person, less
      the sum of the total amount of any intangible assets, which, for purposes
      of this definition, shall include, without limitation, general intangibles
      and, if applicable, all accounts receivable from any Affiliate of such
      Person or any shareholders or officers of any Affiliate of such Person,
      all prepaid expenses, any unamortized debt, discount and expense,
      unamortized deferred charges and good will, all as determined in
      accordance with GAAP.

            (hhhh) "UNMATURED DEFAULT": any event or condition which, with the
      passage of time or the giving of notice or both, would constitute an Event
      of Default hereunder.

      1.2 GAAP. Except as otherwise defined in this Agreement or the other Loan
Documents, all accounting terms used herein shall have the meaning ascribed to
that term in accordance with GAAP.

      1.3 Borrower. Whenever the context so requires, the use of "IT" in
reference to Borrower shall mean Borrower as defined above.

      1.4 Rules of Construction. In this Agreement, unless a clear contrary
intention appears:

            (a) the singular number includes the plural number and vice versa;
      reference to any gender includes each other gender;

            (b) the words "herein," "hereof" and "hereunder" and other words of
      similar import refer to this Agreement as a whole and not to any
      particular Article, Section or other subdivision;

            (c) reference to any Person includes such Person's successors and
      assigns but, if applicable, only if such successors and assigns are
      permitted by this Agreement, and reference to a Person in a particular
      capacity excludes such Person in any other capacity or individually;
      provided that nothing in this clause is intended to authorize any
      assignment not otherwise permitted by this Agreement;

            (d) reference to any agreement, document or instrument means such
      agreement, document or instrument as amended, supplemented or modified and
      in effect from time to time in accordance with the terms thereof and, if
      applicable, the terms hereof, and reference to any note includes any note
      issued pursuant to any Loan Document in extension or renewal thereof and
      in substitution or replacement therefor;

            (e) unless the context indicates otherwise, reference to any
      Article, Section, Schedule or Exhibit means such Article or Section hereof
      or such Schedule or Exhibit hereto:



                                  14


<PAGE>
            (f) the words "INCLUDING" (and with correlative meaning "INCLUDE")
      means including, without limiting the generality of any description
      preceding such term:

            (g) with respect to the determination of any period of time, the
      word "from" means "from and including" and the word "to" means "to but
      excluding;" and

            (h) reference to any law means such as amended, modified, codified
      or reenacted, in whole or in part, and in effect from time to time.

            (i) The Article and Section headings herein are for convenience only
      and shall not affect the construction hereof.


2.          LOANS - GENERAL TERMS

      2.1         Revolving Loan. 

            Subject to the terms and conditions hereof, Bank shall make
available to Borrower revolving Loans from time to time in an aggregate
principal amount not to exceed at any time outstanding $50,000,000. The Loans
shall be further evidenced by the Note. The Loans shall be funded and interest
shall accrue and be paid thereon in accordance with this Article 2. The entire
unpaid principal balance plus accrued but unpaid interest on the Loans is due
and payable on the Maturity Date.

      2.2         Maximum Principal Amount.

            (a) Notwithstanding anything to the contrary contained herein or in
any other Loan Document but subject to the limitations set forth in Section
2.2(d), the principal portion of Borrower's Liabilities outstanding at any one
time during the term hereof shall not exceed:

                  (i)   at any time prior to the occurrence of a Reduction
                        Event, the lesser of (A) $50,000,000 and (B) the
                        Borrowing Base, or

                  (ii)  at any time after the occurrence of a Reduction Event,
                        the lesser of (A) ($40,000,000), and (B) the Borrowing
                        Base.

The foregoing is collectively referred to herein as the "MAXIMUM PRINCIPAL
AMOUNT." As used herein, a "REDUCTION EVENT" shall mean:

                  (y)   after the filing of an S-3 in accordance with Section
                        6.3(f): (i) the sale of Securities pursuant to such
                        filing, (ii) the voluntary withdrawal of such filing, or
                        (iii) the

 


                                       15

<PAGE>
                    
                        rejection or prohibition by the SEC of such filing, for
                        any reason whatsoever; or

                  (z) ninety (90) days after the date hereof.

Notwithstanding anything to the contrary contained herein, it is the intent and
agreement of the parties that in the event Bank establishes a co-lending
relationship with one or more other lenders and the total amount of the loan to
Borrower pursuant to the terms of this Agreement, as amended, is increased, that
Bank's lending commitment to Borrower under such amended facility shall be
reduced to $40,000,000, whether or not a Reduction Event shall then have
occurred.

            (b) Subject to the limitations set forth in Section 2.2(d), the
borrowing base ("BORROWING BASE") applicable to the Loans shall be equal, on any
day during the term of this Agreement, to an amount up to 65% of the Book Value
of all Eligible Notes. As used herein, "BOOK VALUE" shall mean an amount equal
to: (i) the unpaid principal balance of any Eligible Note, exclusive of any
interest, fees, charges, penalties or other amounts due or payable thereunder,
minus (ii) an amount equal to the negative Tangible Net Worth of any obligor on
any Eligible Note.

            (c) As used herein, "ELIGIBLE NOTE" shall mean any one or more
negotiable promissory notes made by a Primary Obligor payable to the order of
Borrower, in form and substance acceptable to Bank, in its sole and exclusive
discretion, which note: (i) has been pledged to Bank pursuant to the Note Pledge
Agreement by and between Borrower and Bank; (ii) has been delivered to Bank by
Borrower; (iii) has been endorsed by Borrower payable to the order of Bank; (iv)
for which Borrower has delivered to Bank an Agreement and Estoppel Certificate
from the maker thereof, all in form and substance acceptable to Bank in its sole
and exclusive discretion; and (v) the representations and warranties with
respect to which made in the applicable Note Pledge Agreement are true and
correct in all material respects. A true, accurate and complete schedule of all
Eligible Notes is attached hereto as Schedule 2.2(c); provided however, Borrower
shall have the right to amend Schedule 2.2(c) if and when Borrower delivers to
Lender an Agreement and Estoppel Certificate from FC Capital relating to that
certain Subordinated Promissory Note dated as of January 1, 1998, in the
principal amount of $50,000,000 made by FC Capital payable to the order of
Borrower. Upon delivery and acceptance of such Agreement and Estoppel
Certificate from FC Capital and amendment of Schedule 2.2(c), such note shall be
an Eligible Note under the terms of this Agreement. Borrower shall not enter
into, amend, modify, supplement, restate or replace any Eligible Note, without
in each instance, Bank's prior written consent.

            (d) In addition to the limitations on Maximum Principal Amount, Book
Value and Eligible Notes set forth in other provisions hereof, the



                                       16


<PAGE>
Borrowing Base, Eligible Notes and the Maximum Principal Amount shall be limited
as follows

                  (i)   For the purpose of determining the Borrowing Base, at
                        any one time, the maximum Book Value for any one
                        Eligible Note shall be $30,769,231, resulting in the
                        maximum amount of Loans available to be made with
                        respect to such portion of the Borrowing Base being
                        $20,000,000.

                  (ii)  For the purpose of determining the Borrowing Base, at
                        any one time, the maximum aggregate Book Value of
                        Eligible Notes made by NAF and FC Consumer Lending shall
                        be $30,769,231, resulting in the maximum amount of Loans
                        available to be made with respect to such portion of the
                        Borrowing Base being $20,000,000.

                  (iii) Upon Borrower's delivery to Bank of a Borrowing Base
                        Report, Bank shall determine, in its sole and absolute
                        discretion and in the exercise of good faith, which
                        individual notes listed thereon are Eligible Notes.

            (e) In the event that the outstanding principal balance of the Loan
exceeds the Maximum Principal Amount at any time, Borrower shall pay the amount
of such excess to Bank, without notice or demand, and any amount not so paid
shall bear interest at the Default Rate until paid. Borrower's obligation to pay
principal pursuant to this Section 2.2(e) shall include (but not be limited to)
an obligation to pay principal in an amount required to reduce the outstanding
principal balance to an amount equal to or less than $40,000,000 at all times
after the occurrence of a Reduction Event. This is an absolute obligation to pay
to Bank the amount of the unpaid principal balance of the Loan in excess of said
Maximum Principal Amount, regardless of the cause of such excess.

      2.3         Maturity Date; Termination of Loans. 

            Bank's obligation to make any Advance to Borrower pursuant to the
provisions hereof shall be in effect until the Maturity Date, unless sooner
terminated by Bank upon the occurrence of an Event of Default, an Unmatured
Default, or pursuant to the terms hereof.

      2.4         Authorized Disbursement of Proceeds. 

            Borrower hereby authorizes and directs Bank to disburse, for and on
behalf of Borrower and for Borrower's account, the proceeds of any Loan to such
Person as Borrower or any Designated Person shall direct. In addition to
Advances of Loan proceeds made pursuant to a Borrowing Request made by Borrower
from time to time, Borrower hereby irrevocably authorizes Bank to disburse
proceeds of the Loan to pay: (a) interest which is accrued but unpaid and which
is due and payable pursuant to the terms hereof and of the Note until the Loan
is paid in full; and (b) for any and all Costs. The execution of this Agreement
by Borrower shall, and hereby does,


                                       17

<PAGE>
constitute an irrevocable direction and authorization to Bank so to disburse
such funds described in this Section and to treat such Advances as money loaned
pursuant to this Agreement and as indebtedness evidenced by the Note. No further
direction or authorization from Borrower shall be necessary for Bank to make
such Advances, and all such Advances shall satisfy, to the extent so disbursed,
the obligations of Borrower hereunder and shall be evidenced by the Note.
Notwithstanding anything to the contrary contained herein, Bank is under no duty
or obligation to make such Advances and failure to make such Advances shall not
be deemed to be a default by Bank or impair any of Bank's rights or remedies
hereunder.

      2.5         Borrowing Procedure.

            (a) In order to request an Advance, Borrower shall hand deliver or
telecopy to Bank a duly completed Borrowing Request not later than 11:00 a.m.
New York time: (i) at least three (3) Business Days before a proposed Eurodollar
Advance and (ii) at least one (1) Business Day before a proposed Prime Rate
Advance. Each Borrowing Request shall be irrevocable and shall specify: (w) the
number and location of the account to which funds are to be disbursed; (x) the
date such Advance is to be made (which shall be a Business Day); (y) the amount
of such Advance; and (z) if applicable, the information required to elect that
such Advance be a Eurodollar Advance, in compliance with the provisions of
Sections 2.10 and 2.11. Each Borrowing Request shall be accompanied by a
Borrowing Base Certificate, dated as of the date of such Borrowing Request.

            (b) If Borrower in respect of an outstanding Eurodollar Advance
shall not have delivered a Borrowing Request in accordance with Section 2.5(a)
at least three (3) Business Days prior to the end of the Interest Period then in
effect for such Eurodollar Advance and requesting that such Eurodollar Advance
be refinanced, then Borrower shall (unless Borrower has notified the Bank not
fewer than three (3) Business Days prior to the end of such Interest Period,
that such Eurodollar Advance is to be repaid at the end of such Interest Period)
be deemed to have delivered a Borrowing Request requesting that such Advance be
refinanced with a new Advance of equivalent amount, and such new Advance shall
bear interest at the Prime Interest Rate.

      2.6         Interest Rate. 

            The principal on the Note shall bear interest at the Prime Interest
Rate or, to the extent Borrower has fully and timely complied with the
provisions of Sections 2.10 and 2.11, at the Eurodollar Rate. Unless Borrower
has designated any Advance as a Eurodollar Advance in strict accordance with the
terms hereof, Borrower's Liabilities shall bear interest at the Prime Interest
Rate. Interest on all Prime Rate Advances shall be computed on a 365-day year
for the actual number of days elapsed. Interest on all Eurodollar Advances shall
be computed on a 360 day year for the actual number of days elapsed. After the
occurrence of an Event of Default and during the continuation thereof, all Loans
shall bear interest at the Default Rate. The unpaid principal balance of each
Advance shall bear interest at the Interest Rate applicable thereto, determined
by

                                       18

<PAGE>
Bank in accordance with the provisions hereof, which determination shall be
binding upon Borrower, absent manifest error.

      2.7         Change of Laws. 

            If Bank shall determine at any time after the date hereof that the
adoption of any law, rule or regulation regarding capital adequacy, or any
change therein or in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof or compliance by Bank with any request
or directive regarding capital adequacy (whether or not having the force of law)
from any such authority, central bank or comparable agency, has or would have
the effect of reducing the rate of return on Bank's capital as a consequence of
its obligations hereunder to a level below that which Bank could have achieved
but for such adoption, change or compliance (taking into consideration Bank's
policies with respect to capital adequacy) by an amount deemed by Bank to be
material, then Borrower shall pay to Bank upon demand such amount or amounts, in
addition to the amounts payable under any other provision of this Agreement or
the Other Agreements, as will compensate Bank for such reduction. Determinations
by Bank for purposes of this Section of the additional amount or amounts
required to compensate Bank with respect to the foregoing shall be conclusive in
the absence of manifest error. In determining such amount or amounts, Bank may
use any reasonable averaging or attribution methods. Notwithstanding the
foregoing, no amounts shall be payable by Borrower to Bank under the terms of
this Section 2.7 if the Secured Obligations are paid in full on or before ten
(10) days after the date on which Bank shall have notified Borrower that amounts
will be due under this Section 2.7. In the event of a prepayment pursuant to
this Section 2.7, any LIBOR Breakage Fee otherwise payable pursuant to the terms
of this Article 2 shall be waived by Bank and shall not be due or payable.

      2.8         Regulatory Changes. 


            Notwithstanding any other provision herein contained to the
contrary, in the event that any regulatory change shall, in the reasonable
determination of Bank, make it unlawful for Bank to make or to maintain any
Eurodollar Advance or impose additional restrictions on Eurodollar Advances by
Bank, then, the obligation of Bank to make or maintain any such Eurodollar
Advance shall be terminated and all outstanding Eurodollar Advances shall
automatically be converted to Prime Rate Advances. Bank shall, as promptly as
practicable following any such determination, give Borrower a notice thereof
that sets forth the basis for any such determination. After such determination
and while such determination is in effect, Bank shall not be required to make
further Eurodollar Advances.

      2.9         Advances Prior to LIBOR Rate Determination. 

            Anything herein to the contrary notwithstanding, after notice but
prior to making any requested Eurodollar Advance if, for any reason whatsoever,
LIBOR Rates are not then being quoted for the requested Interest Period and in
an amount approximating the amount of such Eurodollar Advance, Bank shall give
Borrower prompt notice thereof and such Eurodollar Advance (if not yet made)
shall be a Prime Rate Advance and no conversions into Eurodollar Advances shall
be permitted and no


                                       19

<PAGE>
new Eurodollar Advances shall be made so long as such condition exists.

      2.10        Eurodollar Advances and Conversion.

            Provided no Event of Default or Unmatured Default has occurred and
is continuing, Borrower shall have the option, subject to the other provisions
of this Agreement, to: (i) request that any Advance or any portion of an Advance
in a minimum amount of $250,000 and in multiples of $100,000, shall be deemed to
be a Eurodollar Advance by giving telephonic notice to Bank at least three
Business Days prior to the day any Eurodollar Advance is to be made hereunder
specifying the applicable Interest Period; provided that Borrower gives Bank
written confirmation by facsimile of its telephonic notice on the same Business
Day as such telephone notice is given with respect to such Eurodollar Advance,
and (ii) convert on any Business Day, all or any portion of the outstanding
principal amount of any Advance or any portion of an Advance, in a minimum
amount of $250,000 and in multiples of $100,000, from one type of interest rate
advance to another type of interest rate advance by giving at least three (3)
Business Days prior telephonic notice to Bank thereof; provided that Borrower
gives Bank written confirmation of its telephonic notice by facsimile on the
same Business Day that such telephonic notice is given with respect to such
conversion hereunder. Notwithstanding the foregoing: (y) no Eurodollar Advance
may be converted into a Prime Rate Advance pursuant to this Section 2.10, except
effective on the last day of the Interest Period applicable thereto, and (z)
Borrower shall have no more than five (5) Eurodollar Advances with different
interest periods at any one time.

      2.11        Interest Period Election. 

            Borrower may, by prior telephonic notice to Bank, elect the Interest
Period(s) to be applicable to all or any portion of any Eurodollar Advance upon
the expiration of the Interest Period then applicable to such Eurodollar
Advance; provided that such notice is given to Bank at least three (3) Business
Days prior to the expiration of the then Interest Period and that Borrower gives
written confirmation by facsimile of its telephonic notice on the same Business
Day that such telephonic notice is given. In the event Borrower does not make
such an election with respect to all or any portion of a Eurodollar Advance for
which the Interest Period is expiring, then, upon the expiration of such
Interest Period, the portion of such Eurodollar Advance for which no such
election has been made shall automatically convert to a Prime Rate Advance.

      2.12        Fees.

            (a) Facility Fee. A facility fee of $475,000 shall be payable by
Borrower concurrently herewith.

            (b) Unused Commitment. Borrower shall pay an unused commitment fee
in an amount equal to .125% (on an annual basis, based on a 365-day year) of:
(i) at all times prior to a Reduction Event, the difference between $50,000,000
and the daily outstanding principal balance of the Loan, and (ii) at all times
after a Reduction Event, the difference between $40,000,000 and the daily
outstanding principal balance of the Loan. Such fee shall be payable quarterly
in


                                       20

<PAGE>
arrears on the last Business Day of each calendar quarter.

            (c) LIBOR Breakage Fee. In the event of any prepayment of an Advance
prior to the end of the then applicable Interest Period (by acceleration or
otherwise) or in the event any Advance is not made after delivery of a Borrowing
Request in accordance with the terms hereof, for any reason whatsoever, Borrower
shall pay to Bank an amount equal to the LIBOR Breakage Fee.

            (d) Interest on Fees. Any fee payable under Sections 2.12(b) and (c)
not paid when due shall bear interest at the Default Rate.

      2.13        Usury. 

            The provisions of this Section shall govern and control over any
irreconcilably inconsistent provision contained in this Agreement or in any
other document evidencing or securing the Loan. Bank shall never be entitled to
receive, collect, or apply as interest hereon (for purposes of this Section, the
word "INTEREST" shall be deemed to include any sums treated as interest under
applicable law governing matters of usury and unlawful interest), any amount in
excess of the Highest Lawful Rate (hereinafter defined) and, in the event Bank
ever receives, collects, or applies as interest any such excess, such amount
which would be excessive interest shall be deemed a partial prepayment of
principal and shall be treated hereunder as such; and, if the principal of this
Agreement is paid in full, any remaining excess shall forthwith be paid to
Borrower. In determining whether or not the interest paid or payable, under any
specific contingency, exceeds the Highest Lawful Rate, Borrower and Bank shall,
to the maximum extent permitted under applicable law, (i) characterize any
non-principal payment as an expense, fee or premium rather than as interest,
(ii) exclude voluntary prepayments and the effects thereof, and (iii) spread the
total amount of interest throughout the entire contemplated term of this
Agreement, provided, that if this Agreement is paid and performed in full prior
to the end of the full contemplated term hereof, and if the interest received
for the actual period of existence hereof exceeds the Highest Lawful Rate, Bank
shall refund to Borrower the amount of such excess and, in such event, Bank
shall not be subject to any penalties provided by any laws for contracting for,
charging or receiving interest in excess of the Highest Lawful Rate. "HIGHEST
LAWFUL RATE" shall mean the maximum rate of interest which Bank is allowed to
contract for, charge, take, reserve or receive under applicable law after taking
into account, to the extent required by applicable law, any and all relevant
payments or charges hereunder.

3.          PAYMENT TERMS

      3.1         Loan Account; Method of Making Payments. 

            Bank shall maintain a Loan Account on its books in which shall be
recorded: (i) all Loans made by Bank to Borrower pursuant to this Agreement;
(ii) all payments made by Borrower on all Loans; and (iii) all other appropriate
debits and credits as provided in this Agreement, including, without limitation,
all fees, charges, expenses and interest. All entries in the Loan Account shall
be made in accordance with Bank's


                                       20

<PAGE>
customary accounting practices, in effect from time to time. The failure of Bank
to record any of the foregoing shall not in any way limit Borrower's obligations
under this Agreement.

      3.2         Interest Payments.

            (a) Accrued interest on all Prime Rate Advances shall be payable
monthly, in arrears, on the last Business Day of each month during the term
hereof, without notice or demand.

            (B) Accrued interest on any Eurodollar Advance shall not be due and
payable monthly, but, instead, shall be payable in arrears on the last day, of
the Interest Period applicable thereto; provided that, in the event Borrower
elects a six month interest period, Borrower shall pay accrued interest on the
three month anniversary of the Interest Period and at the end of such Interest
Period.

      3.3         Principal Payments.

            Borrower shall pay mandatory principal payments at the following
times and in the following amounts:

            (a) The unpaid principal balance, plus all accrued but unpaid
interest shall be due and payable in full on the Maturity Date, without notice
or demand.

            (b) In the event of a principal payment on any Pledged Note in an
amount in excess, in the aggregate of $500,000, Borrower and the applicable Loan
Party shall give immediate notice thereof to Bank and Borrower shall pay to Bank
principal in an amount equal to the amount of such principal payment on said
Pledged Note; provided that the parties hereby acknowledge that such principal
payment shall not reduce the Maximum Principal Amount hereunder, except to the
extent that payment of the Pledged Note has reduced the amount of the Borrowing
Base.

            (c) Upon the occurrence of a Reduction Event, Borrower will pay
principal in an amount necessary to reduce the outstanding principal balance to
an amount less than the Maximum Principal Amount set forth in Section
2.2(a)(ii).

            (d) Subject to the provisions of Section 3.3(c), in the event that
Borrower issues Securities in accordance with the provisions of Section 6.3(f),
Borrower shall give immediate notice thereof to Bank and Borrower shall pay to
Bank principal in an amount equal to the net proceeds of such issuance; provided
that the parties hereby acknowledge that such principal payment shall not reduce
the Maximum Principal Amount hereunder.

      3.4         Place of Payment.

            All payments to Bank hereunder and under the Other Agreements shall
be payable in immediately available funds on or before noon New York time at the
place designated on Exhibit A, or such place or places as Bank may designate in
writing to Borrower. All of such payments to Persons other than Bank shall be
payable at such place or places as Bank may designate in


                                       21

<PAGE>
writing to Borrower. Borrower's Liabilities and the other Secured Obligations
will be payable as set forth in the Note, this Agreement, and the Other
Agreements.

      3.5         Payment on Maturity and Prepayment. 


            On the Maturity Date, whether by acceleration or otherwise, Borrower
shall pay to Bank, in full, in cash or other immediately available funds, the
outstanding amount of the Loan. Each Prime Rate Advance may be repaid at any
time, without premium or penalty by Borrower giving telephonic notice to Bank of
such prepayment no later than 10:00 a.m. New York time on the date of such
prepayment, confirmed in writing by facsimile of its telephonic notice on the
same day. Each Eurodollar Advance may be prepaid on the last day of the Interest
Period applicable thereto, but only by Borrower giving telephonic notice to Bank
of such prepayment at least three Business Days prior to the day of such
prepayment, such notice confirmed in writing by facsimile on the day of the
telephonic notice. Prepayment of any Eurodollar Advance during an Interest
Period is expressly prohibited. In the event of an attempted prepayment of any
Eurodollar Advance during any Interest Period, Bank, at Borrower's option, shall
either: (i) hold such funds in a non-interest bearing cash collateral account to
secure Borrower's Obligations and to apply such funds to Borrower's Obligations
on the last day of the Interest Period, or (ii) apply such funds to Borrower's
Obligations, in which event Borrower shall pay to Bank a LIBOR Breakage Fee
immediately upon demand therefor, and any amount not so paid shall bear interest
at the Default Rate.

      3.6         Advances to Constitute One Loan.

            All Advances, loans and any other financial accommodations provided
pursuant to the terms hereof by Bank to Borrower shall constitute one loan and
all indebtedness and obligations of Borrower to Bank under this Agreement, the
Other Agreements or otherwise shall constitute one general obligation.

      3.7         Application of Payments and Collections.

            (a) Application of Payments. Bank shall have the right unilaterally
(and without notice to or the consent of any Person) to allocate any and all
payments which may be received by or tendered to Bank made by Borrower or any
other Person at any time or from time to time and which relate in any way to the
Loan or any other of Borrower's Obligations then due and payable in any order of
priority as Bank in its reasonable discretion shall elect, as follows: (i) to
the payment of any Costs; (ii) to accrued but unpaid interest, penalties and
late payment fees; and (iii) to principal; provided that Bank shall not allocate
payments in a manner which would create a LIBOR Breakage Fee or other fee or
penalty payable by Borrower which would not otherwise be imposed. Borrower (y)
irrevocably waives the right to direct the application of payments and
collections received by Bank from or on behalf of Borrower, and (z) agrees that
Bank shall have the continuing exclusive right to apply and reapply any and all
such payments and collections against the Loan or any other Borrower's
Liabilities or the Secured Obligations then due and payable in such manner as
Bank may deem appropriate, notwithstanding any entry by Bank upon any of its
books and records.


                                       22

<PAGE>
            (b) Reapplication of Payments. To the extent that Bank receives any
payment on account of the Secured Obligations, and any such payment(s) and/or
proceeds or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, subordinated and/or required to be repaid
to a trustee, receiver or any other Person under any bankruptcy act, state or
federal law, common law or equitable cause, then, to the extent of such
payment(s) or proceeds received, the Secured Obligations or part thereof
intended to be satisfied shall be revived and continue in full force and effect,
as if such payment(s) and/or proceeds had not been received by Bank and applied
on account of the Secured Obligations.

      3.8         Monthly Statements. 

            All Advances to Borrower and all other debits and credits provided
for in this Agreement shall be evidenced by entries made by Bank in its internal
data control systems showing the date, amount and reason for each such debit or
credit. Until such time as Bank shall have rendered to Borrower written
statements of account as provided herein, the balance in the Loan Account, as
set forth on Bank's most recent statement, shall be rebuttably presumptive
evidence of the amounts due and owing to Bank by Borrower. At Bank's option,
Bank shall render a monthly statement to Borrower setting forth the balance of
the Loan Account, including principal, interest, costs, penalties, charges and
other fees. Each such statement shall be subject to subsequent adjustment by
Bank and Bank's right to reapply payments in accordance with Section 3.7(b), but
shall, as to statements of principal and interest then due or having been paid,
absent manifest errors or omissions, be presumed correct and binding upon
Borrower and shall constitute an account stated unless, within thirty (30) days
after receipt of any statement from Bank, Borrower shall deliver to Bank written
objection thereto, specifying the error or errors, if any, contained in such
statement.

4.          ANCILLARY AGREEMENTS

      4.1         Guaranties. 

            Concurrently herewith, Borrower shall cause each Guarantor to
execute and deliver to Bank a guaranty of payment and performance of all of the
Secured Obligations; provided that the liability of each Guarantor shall be
limited to the unpaid balance of the Eligible Note made by it payable to the
order of Borrower plus enforcement costs.

      4.2         Note Pledge Agreements. 

            Concurrently herewith Borrower shall execute and deliver to Bank a
Note Pledge Agreement, pursuant to which Borrower shall pledge to Bank each and
every promissory note made by an Affiliate payable to the order of Borrower,
whether now existing or hereafter arising and whether or not an Eligible Note.
Concurrently herewith Borrower shall cause each Primary Obligor to execute and
deliver to Bank a Note Pledge Agreement, pursuant to which each Primary Obligor
shall pledge to Bank each and every promissory note made by any Affiliate
payable to the order of a Primary Obligor, whether now existing or hereafter
arising. Notwithstanding the foregoing, Borrower shall not be required to pledge
or to require any other Person to pledge: (i) promissory notes


                                       23

<PAGE>
made by Borrower or any Primary Obligor payable to the order to an Affiliate
which is a general partner of a limited partnership which note had been made to
satisfy the capital adequacy requirements imposed upon the general partner of a
limited partnership under the Code, or (ii) those notes identified on Schedule
4.2 (those notes referred to in subsection (i), and (ii) above are collectively
referred to as "EXCLUDED NOTES").

      4.3         Stock Pledge Agreements. 

            Except as set forth on Schedule 4.3, Borrower shall execute and
deliver to Bank a Stock Pledge Agreement, pursuant to which Borrower shall
pledge to Bank all of the Stock, shares, membership interests, partnership
interest, venture interest and all other equity interests, in any form
whatsoever, of each and every Person in which Borrower owns an equity interest,
whether now existing or hereafter arising. Except as set forth on Schedule 4.3,
Borrower shall cause each Primary Obligor, each Secondary Obligor and each other
Affiliate, as Bank shall reasonably request to execute and deliver to Bank a
Stock Pledge Agreement, pursuant to which each such Person shall pledge to Bank
all of the Stock, shares, membership interests, partnership interest, venture
interest and all other equity interests, in any form whatsoever, of each and
every Person in which such Person owns an equity interest, whether now existing
or hereafter arising. Those Entities identified on Schedule 4.3 (as may be
amended from time to time with the prior written consent of Bank in accordance
with Section 5.1(e)(iv)) shall be referred to herein as "EXCLUDED ENTITIES" and
neither Borrower nor any Affiliate of Borrower shall be obligated to pledge its
Stock, partnership interests, membership interests or other equity interest in
such Entity.

      4.4         Security Agreements. 

            Concurrently herewith Borrower and each Guarantor shall deliver to
Bank a security agreement pursuant to which it will grant a security interest in
all of its Assets to secure the Secured Obligations.

5.          GENERAL WARRANTIES, REPRESENTATIONS AND COVENANTS

      5.1         General Representations and Warranties.

            Except as disclosed in writing to Bank concurrently herewith,
Borrower warrants and represents to and covenants with Bank that:

            (a)         Organization.

                  (i)   Borrower is and at all times hereafter shall be a
                        corporation, duly organized and existing and in good
                        standing under the laws of the State of Delaware and
                        qualified or licensed to do business and in good
                        standing in all states in which the laws thereof require
                        Borrower to be so qualified and/or licensed and in which
                        the failure to so qualify could have a material adverse
                        effect on the business or assets of Borrower or its
                        ability to perform its obligations under the Loan
                        Documents, including without limitation the State of
                        Texas.


                                       24

<PAGE>
                  (ii)  Each Primary Obligor and each Secondary Obligor is and
                        at all times hereafter shall be a corporation or a
                        limited partnership, duly organized and existing and in
                        good standing under the laws of the state of its
                        organization and qualified or licensed to do business
                        and in good standing in all states in which the laws
                        thereof require each Primary Obligor and each Secondary
                        Obligor to be so qualified and/or licensed and in which
                        the failure to so qualify could have a material adverse
                        effect on the business, operation, Assets or condition
                        (financial or otherwise) of such Primary Obligor or
                        Secondary Obligor or its ability to perform its
                        obligations under the Loan Documents or any Eligible
                        Note, to which it is a party.

            (b)         Entity Power.

                  (i)   Borrower has the right, power and capacity and is duly
                        authorized and empowered to enter into, execute, deliver
                        and perform this Agreement and the Other Agreements, to
                        which it is a party.

                  (ii)  Each Primary Obligor and each Secondary Obligor has the
                        right, power and capacity and is duly authorized and
                        empowered to enter into, execute, deliver and perform
                        those Loan Documents to which it is a party.

            (c)         Violation of Organizational Documents.

                  (i)   The execution, delivery and/or performance by Borrower
                        of this Agreement and the Other Agreements to which it
                        is a party, shall not, by the lapse of time, the giving
                        of notice or otherwise, constitute a violation of any
                        applicable law or a breach of any provision contained in
                        the Organic Documents of Borrower, or contained in any
                        agreement, instrument or document to which Borrower, is
                        now or hereafter a party or by which it or any of its
                        assets is or may become bound.

                  (ii)  The execution, delivery and/or performance by each
                        Primary Obligor and each Secondary Obligor of the Other
                        Agreements to which it is a party, shall not, by the
                        lapse of time, the giving of notice or otherwise,
                        constitute a violation of any applicable law or a breach
                        of any provision contained in the Organic Documents of
                        such Primary Obligor or such Secondary Obligor, or
                        contained in any agreement, instrument or document to
                        which such Primary Obligor or such Secondary Obligor is
                        now or


                                       25

<PAGE>

                        hereafter a party or by which it or any of its Assets is
                        or may become bound.

            (d)         Enforceability.

                  (i)   This Agreement and the Other Agreements to which
                        Borrower is a party, are and will be the legal, valid
                        and binding agreements of Borrower, enforceable in
                        accordance with their respective terms, except as
                        enforcement thereof may be subject to the effect of
                        applicable bankruptcy, insolvency, reorganization,
                        moratorium or similar laws affecting creditors' rights
                        generally, and to general principles of equity
                        (regardless of whether such enforcement is sought in a
                        proceeding in equity or at law); and

                  (ii)  Those Other Agreements to which each other Loan Party is
                        a party are and will be the legal, valid and binding
                        agreements of such Loan Party, enforceable in accordance
                        with their respective terms, except as enforcement
                        thereof may be subject to the effect of applicable
                        bankruptcy, insolvency, reorganization, moratorium or
                        similar laws affecting creditors' rights generally, and
                        to general principles of equity (regardless of whether
                        such enforcement is sought in a proceeding in equity or
                        at law);

            (e)         Ownership

                  (i)   Schedule 5.1(e) sets forth all classes of stock of
                        Borrower, the shareholders thereof (other than members
                        of the general public), addresses of each shareholder,
                        number of shares owned and how the shares are held;

                  (ii)  Schedule 5.1 (e) (as may be amended from time to time)
                        sets forth all classes of stock and/or partnership
                        interests of each Primary Obligor and each Secondary
                        Obligor, the shareholders and/or portions thereof, and
                        the addresses, number of shares and/or partnership
                        interests owned and how the shares are held.

                  (iii) Schedule 5.1(e) (as may be amended from time to time)
                        sets forth all options, warrants and other rights to
                        acquire Stock or other equity interests of Borrower, any
                        Primary Obligor, any Secondary Obligor, and any other
                        Pledged Entity, the nature of such option, warrant or
                        right and the conditions for the exercise thereof, with
                        the exception of those warrants to purchase 500,000
                        shares of the


                                       26

<PAGE>
                        common stock of Borrower which are subject to the
                        Warrant Agreement dated as of July 3, 1995 by and
                        between Borrower and American Stock Transfer & Trust
                        Company, as warrant agent. Bank hereby expressly
                        consents to the transfer, issuance or conveyance of
                        Stock and/or other Equity Interests of any Person in
                        accordance with such options, warrants and rights.

                  (iv)  Borrower shall deliver to Bank notice within (10)
                        Business Days after Borrower or any other Loan Party
                        acquires the Stock, Partnership Interest or other equity
                        interest in any Entity after the date hereof. Unless
                        Bank elects not to require Borrower or such other Loan
                        Party to pledge its equity interest in such Entity,
                        Borrower and/or the applicable Loan Party: (A) shall
                        grant to Bank a perfected first security interest in its
                        equity interest in such Entity, (B) shall deliver a
                        Stock Pledge Agreement or such other pledge agreement in
                        form and substance acceptable to Bank, (C) shall amend
                        the applicable Schedules of the applicable Stock Pledge
                        Agreement, (D) shall execute and deliver to the Pledged
                        Entity a notice of lien, (E) shall execute any and all
                        financing statements required by Bank to perfect its
                        security interest, (F) shall deliver the original Stock
                        certificates or other evidence of ownership to Bank,
                        together with an assignment separate from certificate
                        therefor, and (G) shall take such other action to effect
                        and perfect such security interest as Bank shall
                        reasonably require. In the event Bank elects not to
                        require a pledge of such equity interests, Borrower
                        shall amend Schedule 4.3.


                                       27

<PAGE>
            (f)         Fictitious Names.

                  (i)   Each of the fictitious names, if any, used by Borrower
                        during the five (5) year period preceding the date of
                        this Agreement is set forth on Schedule 5.1(f) attached
                        hereto (as amended from time to time) and none of such
                        fictitious names are registered trademarks or tradenames
                        with the U.S. Patent and Trademark Office, except as set
                        forth in Schedule 5.1(f);

                  (ii)  Each of the fictitious names, if any, used by each
                        Primary Obligor and each Secondary Obligor during the
                        five (5) year period preceding the date of this
                        Agreement is set forth on Schedule 5.1(f) attached
                        hereto (as amended --------------- from time to time),
                        and none of such fictitious names are registered
                        trademarks or tradenames with the U.S. Patent and
                        Trademark Office; provided that, variations on the
                        ------------- corporate name of Primary Obligors and
                        Secondary Obligors in states where used solely for
                        qualifying to do business therein shall and have been
                        excluded from such schedule, with Lender's consent and
                        approval.

            (g) Title. Schedule 5.1(g) is a true, accurate and complete list of
      all Liens, relating to the Pledged Property on the date hereof. At all
      times following acquisition thereof, Borrower shall have good,
      indefeasible and merchantable title to and ownership of all of its Assets,
      free and clear of all liens, claims, security interests and encumbrances,
      except the Permitted Liens.

            (h) Financial Warranty. Borrower: (i) is now, and at all times
      hereafter shall be generally paying its debts as they mature, (ii) now
      owns, and shall at all times hereafter own, property which, at a fair
      valuation, is greater than the sum of its debt, and (iii) now has, and
      shall have at all times hereafter, capital sufficient to carry on its
      business and transactions and all businesses and transactions in which it
      is about to engage. Primary Obligors and Secondary Obligors (other than SL
      Funding, as defined on Schedule 1.1(xxx) and NAF): (i) are each now, and
      at all times hereafter shall be generally paying their respective debts as
      they mature, and (ii) each now has, and shall have at all times hereafter,
      capital sufficient to carry on its business and transactions and all
      businesses and transactions in which it is about to engage.

            (i) Proceedings. There are no actions or proceedings which are
      pending or threatened against Borrower, any Primary Obligor or any
      Secondary Obligor which might result in any material and adverse change in
      its business, operations, Assets, condition (financial or otherwise) or
      its ability to fully perform its respective obligations and liabilities
      under the Loan


                                       28

<PAGE>
      Documents to which it is a party.

            (j)         Government Contracts. Except as set forth on Schedule
      5.1(j), neither Borrower, nor any Primary Obligor or any Secondary Obligor
      has any government contracts.

            (k) Adequate Licenses. Borrower, each Primary Obligor and Secondary
      Obligor possesses adequate Assets, licenses, patents, copyrights,
      trademarks and tradenames to continue to conduct its business as
      previously conducted by it and as contemplated in the foreseeable future
      except such licenses, patents, copyrights, trademarks and trade names the
      failure of which to obtain could not have a material adverse effect on
      Borrower's or such Primary Obligor's or Secondary Obligor's business,
      operations, Assets, condition (financial or otherwise) or ability to
      perform its obligations under those Loan Documents to which it is a party.

            (l)         Government Permits; Consents.

                  (i)   Borrower and each Primary Obligor and Secondary Obligor
                        has and is in good standing with respect to all
                        governmental permits, certificates, consents and
                        franchises necessary to continue to conduct its business
                        as previously conducted prior to the date hereof and to
                        own or lease and operate its properties as now owned or
                        leased by it. None of said permits, certificates,
                        consents or franchises contain any term, provision,
                        condition or limitation more burdensome than such as are
                        generally applicable to Persons engaged in the same or
                        similar business as the applicable Loan Party.

                  (ii)  Except for those consents set forth on Schedule 5.1(l),
                        neither Borrower, nor any other Loan Party requires the
                        approval, consent or waiver by any other Person
                        (including but not limited to shareholders, partners,
                        members, equity owners, holders of Indebtedness
                        Instruments, or any owner of any lien upon the Assets of
                        any one or more of them or their Affiliates) for the
                        consummation of the transactions contemplated herein,
                        including but not limited to the borrowing of the Loan,
                        the pledge of the Pledged Property, and the payment and
                        performance of all Secured Obligations. Borrower and
                        each other Loan Party has received the consents
                        described on Schedule 5.1(l) and has delivered a copy
                         thereof to Bank.

            (m)         Charge; Restrictions.  Neither Borrower, nor any Primary
      Obligor nor any Secondary Obligor is a party to (nor are any of its Assets


                                       29

<PAGE>
      otherwise subject to) any contract or agreement or subject to any Charge
      (other than ad valorem taxes owed by First X or First B) restriction,
      judgment, decree or order materially and adversely affecting its business,
      property, assets, operations or condition, financial or otherwise other
      than ad valorem taxes not yet due and payable.

            (n) Compliance with Laws. Neither Borrower, nor any Primary Obligor
      nor any Secondary Obligor is, or will be during the term hereof, in
      violation of any applicable statute, regulation, order or ordinance of the
      United States of America, of any state, city, town, municipality, county
      or of any other jurisdiction, or of any agency thereof, including the
      Federal Reserve Board, in any respect materially and adversely affecting
      its business, operations, Assets, or condition (financial or otherwise) or
      its ability to perform its obligations under those Loan Documents to which
      it is a party.

            (o) Compliance with Indebtedness Instruments. Borrower is not and at
      no time during the term hereof shall be in default under any Indebtedness
      Instrument. No Primary Obligor or any Secondary Obligor is, on the date
      hereof, in default under any Indebtedness Instrument.

            (p) Financials. The Financials heretofore delivered by Borrower, or
      any other Loan Party to Bank, fairly and accurately present the assets,
      liabilities and financial conditions and results of operations of
      Borrower, and such other Persons described therein as of and for the
      periods ending on such dates and have been prepared in accordance with
      generally accepted accounting principles and such principles have been
      applied on a basis consistently followed in all material respects
      throughout the periods involved.

            (q) Tax Returns. Borrower and each other member of the Consolidated
      Group has filed or caused to be filed all tax returns which are required
      to be filed, and has paid all Charges shown to be due and payable on said
      returns or on any assessments made against it or any of its property, and
      all other Charges imposed on it or any of its properties by any
      governmental authority except for ad valorem taxes.

            (r) No Adverse Change. There has been no material and adverse change
      in the Assets, liabilities or financial condition of Borrower or any
      Primary Obligor or Secondary Obligor since the date of the Financials.

            (s) No Indebtedness. Except as disclosed in the most recent
      Financials heretofore delivered by Borrower to Bank and in Schedule 5.1(s)
      and Schedule 5.1(t) or otherwise disclosed in writing to Bank, none of
      Borrower nor any other member of the Consolidated Group has any
      Indebtedness (except for Indebtedness arising in the ordinary course of
      its business since the dates reflected in the Financials that is not
      Indebtedness


                                       30

<PAGE>
      for borrowed money), has guaranteed or entered into any Guaranty
      Equivalent (other than as a result of the endorsement of any instrument of
      items of payment for deposit or collection in the ordinary course of
      business or as otherwise expressly permitted pursuant to the terms hereof)
      the obligations of any Person, and there are no actions or proceedings
      which are pending or, to the best of Borrower's knowledge, threatened
      against Borrower or any other member of the Consolidated Group which, in
      any of the foregoing cases, are reasonably likely to result in any
      material adverse change in its financial condition or materially adversely
      affect its assets or its ability to fully perform and satisfy its
      obligations under the Loan Documents.

            (t) Indebtedness. Attached hereto as Schedule 5.1(t) (as amended
      from time to time) is a true, accurate, and complete schedule of all
      Indebtedness, other than the Excluded Notes, owing by any one or more of
      Borrower, any Primary Obligor, any Secondary Obligor or any other Pledged
      Entity setting forth: (i) the date such indebtedness was incurred; (ii)
      the original principal amount thereof and the outstanding principal
      balance thereof as of the date hereof; (iii) the interest rate payable
      thereon; (iv) whether such indebtedness is evidenced by a note or other
      writing and whether any security has been granted to secure payment
      thereof; (v) the payment terms thereof; (vi) the maturity date thereof;
      and (vii) whether there has been any notice of default , or to Borrower's
      knowledge, any default thereunder.

            (u) Notes. Attached hereto as Schedule 5.1(u) is a true, accurate
      and complete schedule of all promissory notes made by any Affiliate
      payable to the order of Borrower, a Primary Obligor and a Secondary
      Obligor, other than those notes set forth on Schedule 2.2(c) and the
      Excluded Notes. If at any time after the date hereof, any Affiliate
      borrows money or otherwise incurs Indebtedness from Borrower, a Primary
      Obligor or a Secondary Obligor, Borrower shall immediately (i) give Bank
      notice thereof, (ii) deliver a copy of such note to Bank, (iii) prepare a
      Schedule 5.1(u)(iii) (other than the excluded Notes) (as amended from time
      to time) setting forth the maker and holder of such note, the principal
      amount thereof and the payment terms thereof, and (iv) if requested by
      Bank, cause the holder of such note to pledge such note to Bank pursuant
      to a Note Pledge Agreement, in form and substance acceptable to Bank, in
      its sole and exclusive discretion.

            (v) No Liability on Bank. The execution, delivery and performance by
      Borrower and each other Loan Party of this Agreement and/or the Other
      Agreements will not, except to the extent caused by independent actions of
      Bank, impose on or subject Bank to any liability, whether fixed or
      contingent, in respect of any Environmental Law relating to the operation
      of Borrower's business. Bank's exercise of any of the rights or remedies
      described in this Agreement or in any of the Other Agreements shall not
      constitute a breach of any provision contained in any agreement,


                                       31

<PAGE>
      instrument or document concerning the assignment or license of, or the
      payment of royalties for, any patents, patent rights, tradenames,
      trademarks, trade secrets, know-how, copyrights or any other form of
      intellectual property now or at any time or times hereafter protected as
      such by any applicable law;

            (w) Affiliates. Schedule 5.1(w) attached hereto is a true, accurate
      and complete schedule of Borrower's Affiliates, together with a
      description of Borrower's relationship to each such Affiliate.

            (x) Real Property; Environmental Issues. Neither Borrower nor any
      Primary Obligor nor any Secondary Obligor, other than First X and First B,
      now owns or at no time in the last five (5) years has owned, any real
      property. Neither Borrower nor any Primary Obligor nor any Secondary
      Obligor has received a summons, citation, notice, or directive from the
      Environmental Protection Agency or any other federal or state governmental
      agency concerning any action or omission resulting in the releasing, or
      otherwise disposing of hazardous waste or hazardous substances into the
      environment with respect to any real property.

            (y) Investment Company Act and Public Utility Holding Company Act.
      Neither Borrower nor any Primary Obligor or any Secondary Obligor nor the
      entering into of the Loan Documents, nor the issuance of the Note is
      subject to any of the provisions of the Investment Company Act of 1940, as
      amended. Neither Borrower, nor any Primary Obligor or any Secondary
      Obligor is a "holding company" as defined in the Public Utility Holding
      Company Act of 1935, as amended, or subject to any other federal or state
      statute or regulation limiting its ability to insure Indebtedness for
      money borrowed.

            (z) Disclosure. Neither this Agreement nor any Loan Document nor any
      statement, list, certificate or other document or information, nor any
      schedules to this Agreement or any other Loan Document, delivered or to be
      delivered to Bank, contains or will contain any untrue statement of a
      material fact or omits or will omit to state a material fact necessary to
      make statements contained herein or therein, in light of the circumstances
      in which they are made, not misleading.

            (aa)        Qualification.

                  (i)   Solely by reason of (and without regard to any other
                        activities of Bank in any state in which Assets are
                        located) the entering into, performance and enforcement
                        of this Agreement, the Note and the other Loan Documents
                        by Bank will not constitute doing business by Bank in
                        any of such states or result in any liability of Bank
                        for taxes or other governmental charges; and


                                       32

<PAGE>
                        qualification by Bank to do business in such
                        jurisdiction is not necessary in connection with, and
                        the failure to so qualify will not affect, the
                        enforcement of, or exercise of any rights or remedies
                        under, any of such documents.

                  (ii)  No "business activity," "doing business" or similar
                        report or notice is required to be filed by the Bank in
                        any such jurisdiction in connection with the Loans or
                        the transactions contemplated by this Agreement, and the
                        failure to file any such report or notice will not
                        affect the enforcement of, or the exercise of any rights
                        or remedies under, this Agreement or any of the other
                        Loan Documents.

      5.2         Reaffirmation of Warranties and Representations. 

            Each request for an Advance made by Borrower pursuant to this
Agreement or the Other Agreements shall constitute (i) an automatic warranty and
representation by Borrower to Bank that there does not then exist an Event of
Default or an Unmatured Default, and (ii) a reaffirmation as of the date of said
Borrowing Request that each and every warranty and representation of Borrower
contained in this Article 5 and other sections of this Agreement and in the
Other Agreements, including without limitation the representations set forth in
the Stock Pledge Agreements and Note Pledge Agreements, is true and correct in
all material respects, except where such representation or warranty specifically
relates to an earlier date.

      5.3         Survival of Warranties and Representations. 

            Borrower covenants, warrants and represents to Bank that all
representations and warranties of Borrower contained in this Agreement and the
Other Agreements shall be true on the date hereof, and shall survive the
execution, delivery and acceptance hereof and thereof by the parties thereto and
the closing of the transactions described herein and therein or related hereto
or thereto. Unless expressly limited by the terms of this Article 5, each
representation and warranty shall be deemed to be remade concurrently with each
Advance hereunder.


6.          COVENANTS AND CONTINUING AGREEMENTS.

      6.1         Financial Covenants. 

            Borrower and all other members of the Consolidated Group, on a
consolidated basis, shall, at all times during the term hereof, measured
quarterly.

            (a) maintain a ratio of Indebtedness to Tangible Net Worth equal to
      or less than 10 to 1;

            (b) maintain a ratio of EBITDA to interest expense equal to 1.25 to
      1; and


                                       33

<PAGE>
            (c) maintain Tangible Net Worth equal to or greater than
      $95,000,000.

All covenants set forth herein shall be measured quarterly, upon receipt of the
statements delivered to Bank pursuant to Section 6.2(c)(iii) or the annual
consolidated financial statements delivered in accordance with Section
6.2(c)(i), if available.

      6.2         Affirmative Covenants.

            Borrower warrants and represents to and covenants with Bank that
Borrower shall, unless Bank otherwise consents thereto in writing, do all of the
following during the term hereof:

            (a) Representation and Warranties. Subject to Borrower's right to
      cure set forth in Section 7.1(e), to the extent any representation or
      warranty contained herein refers to an event or state of facts which
      exists on the date hereof and shall exist during the term hereof or at the
      time of each Advance hereunder, said representation or warranty shall be
      deemed to be an affirmative covenant by Borrower to take all actions, omit
      to take such actions or cause such actions to be taken which shall be
      necessary or desirable to cause such representation or warranty to be true
      and accurate at all times during the term hereof. To the extent any
      representation, warranty or covenant herein (including the negative
      covenants set forth in Section 6.3) relates to any other Person (including
      but not limited to a Primary Obligor, a Secondary Obligor, any Pledged
      Entity or any other Loan Party) it shall be deemed to be a covenant of
      Borrower to cause such Person to comply with or otherwise perform such
      representation, warranty or covenant, whether or not Borrower has the
      legal, corporate or other ability to cause such compliance or performance.

            (b) Corporate Existence. Borrower, Primary Obligors and Secondary
      Obligors shall preserve and maintain their respective corporate existence,
      rights, privileges and franchises in the jurisdiction of their respective
      incorporation or organization, and qualify and remain qualified to do
      business in each other jurisdiction in which such qualification is
      necessary in view of their respective business or operations, except such
      jurisdictions where failure to qualify would not have a material adverse
      effect on Borrower's, Primary Obligor's or Secondary Obligor's (as
      applicable) business, Assets, operations, condition (financial or
      otherwise) or ability to perform its respective obligations under the Loan
      Documents.

            (c) Records; Reports. Borrower covenants with Bank that Borrower
      shall keep Records and prepare financial statements and shall cause to be
      furnished to Bank the following (all of the foregoing and following which
      comprise financial statements are to be kept and prepared in accordance
      with GAAP applied on a basis consistent with the Financials unless
      Borrower's certified public accountants concur in any changes therein and
      such changes are consistent with then applicable GAAP).


                                       34

<PAGE>
                  (i)   As soon as available but not later than ninety (90) days
                        after the close of each fiscal year of Borrower, a
                        consolidated and consolidating balance sheet of Borrower
                        and the other members of the Consolidated Group as at
                        the end of such year, the related statement of
                        operations (including income statement) for such year
                        and a reconciliation of capital for such year, all
                        certified on an unqualified basis by a firm of
                        independent certified public accountants selected by
                        Borrower and acceptable to Bank, in Bank's sole and
                        absolute discretion.

                  (ii)  Concurrently with the delivery of the financial
                        statements described in Section (i) above for fiscal
                        years ending after December 31, 1997: (A) a certificate
                        of the aforesaid certified public accountants certifying
                        to Bank that based upon their examination of the affairs
                        of Borrower and the other members of the Consolidated
                        Group, performed in connection with the preparation of
                        said financial statements, they are not aware of the
                        occurrence or existence of any condition or event which
                        constitutes an Event of Default or Unmatured Default,
                        or, if they are aware thereof, the nature thereof, and
                        (B) a reliance letter executed by an authorized partner
                        of the aforesaid certified public accountants, in form
                        and substance reasonably acceptable to Bank, and
                        acknowledging that Bank may rely on such financial
                        statements in connection with this Agreement
                        notwithstanding that Bank is not in privity with such
                        certified public accountants in connection with such
                        financial statements.

                  (iii) As soon as available but not later than thirty (30) days
                        after the end of each calendar month hereafter, a
                        consolidated and consolidating balance sheet of Borrower
                        and the other members of the Consolidated Group as at
                        the end of, and the related statement of operations for,
                        the portion of such Person's fiscal year then elapsed,
                        all certified by the chief financial officer of such
                        Person's to be prepared in accordance with generally
                        accepted accounting principles and to present fairly the
                        financial position and results of operations of such
                        Person for such period.

                  (iv)  Concurrently with delivery to its shareholders copies of
                        all financial and other information delivered by
                        Borrower to such Persons, including without limitation,
                        its proxy statements and annual reports to stockholders.
                        Concurrently with delivery to the SEC by Borrower,


                                       35

<PAGE>
                        copies of all reports filed by Borrower with the SEC,
                        including without limitation, all reports on Forms 10K,
                        10Q or 8K promulgated under the Securities Exchange Act
                        of 1934, as amended.

                  (v)   Concurrently with delivery of the Financials required
                        pursuant to Sections 6.2(c)(i) and (iii) hereof, a
                        certificate executed by the President, Treasurer or
                        Chief Financial Officer of Borrower that no Event of
                        Default or Unmatured Default has occurred and is
                        continuing (including but not limited to compliance with
                        the covenants set forth in Section 6.1) or if an Event
                        of Default or Unmatured Default has occurred, setting
                        forth the details of such event and the action which
                        Borrower proposes to take with respect thereto.

                  (vi)  Concurrently with each Borrowing Request, each payment
                        by an Affiliate with respect to a Pledged Note and any
                        change in the Borrowing Base, but in no event less often
                        than once each month, a Borrowing Base Certificate,
                        prepared by the Treasurer of Borrower, setting forth in
                        form and detail reasonably acceptable to Bank a schedule
                        of the Book Value of the Eligible Notes (including all
                        detail necessary to the calculation thereof) and a
                        calculation of the ratio of Indebtedness to Tangible Net
                        Worth.

                  (vii) Such other data and information (financial and
                        otherwise) as Bank, from time to time, reasonably may
                        request bearing upon or related to Borrower's or any
                        Guarantor's financial condition and/or results of
                        operations.

            (d) Insurance. Borrower, Primary Obligors and Secondary Obligors at
      their sole cost and expense, shall keep and maintain: (i) policies of
      insurance against all hazards and risks ordinarily insured against by
      other owners or users of properties in similar business or as reasonably
      requested in writing by Bank; and (ii) public liability insurance relating
      to such Person's ownership and use of its Assets. All such policies of
      insurance shall be in form, with insurers and in such amounts as may be
      satisfactory to Bank. Borrower shall deliver to Bank the original (or
      certified) copy of each policy of insurance, and evidence of payment of
      all premiums for each such policy. Such policies of insurance (except
      those of public liability) shall contain an endorsement, in form and
      substance acceptable to Bank, showing losses payable to Bank. Such
      endorsement or an independent instrument furnished to Bank, shall provide
      that all insurance companies will give Bank at least thirty (30) days
      prior written notice before any such policy or policies of insurance shall
      be altered or canceled and that no act or default of Borrower


                                       36

<PAGE>
      or any other Person shall affect the right of Bank to recover under such
      policy or policies of insurance in case of loss or damage. Borrower hereby
      directs all insurers under such policies of insurance (except those of
      public liability) to pay all proceeds payable thereunder directly to Bank.
      Borrower, irrevocably, appoints Bank (and all officers, employees or
      agents designated by Bank) as Borrower's true and lawful agent and
      attorney-in-fact for the purpose of making, settling and adjusting claims
      under such policies of insurance, endorsing the name of Borrower on any
      check, draft, instrument or other item of payment for the proceeds of such
      policies of insurance and for making all determinations and decisions with
      respect to such policies of insurance. In the event Borrower at any time
      or times hereafter shall fail to obtain or maintain any of the policies of
      insurance required above or to pay any premium in whole or in part
      relating thereto, then Bank, without waiving or releasing any of
      Borrower's Obligations or any Event of Default or Unmatured Default
      hereunder, may at any time or times thereafter (but shall be under no
      obligation to do so) obtain and maintain such policies of insurance and
      pay such premium and take any other action with respect thereto which Bank
      deems advisable. All sums so disbursed by Bank, including reasonable
      attorneys' fees, court costs, expenses and other charges relating thereto,
      shall be part of Borrower's Liabilities, payable by Borrower to Bank on
      demand. The Bank shall also have been named as an additional insured with
      respect to Borrower's liability insurance.

            (e) Payment of Charges. Other than ad valorem taxes payable by First
      X or First B, Borrower, each Primary Obligor and each Secondary Obligor
      shall pay promptly, when due, all Charges and Borrower, each Primary
      Obligor and each Secondary Obligor shall not permit the Charges to arise
      or to remain unpaid, and will promptly discharge the same. In the event
      Borrower, any Primary Obligor or any Secondary Obligor, at any time or
      times hereafter, shall fail to pay the Charges or to obtain such
      discharges as required herein, Borrower shall so advise Bank thereof in
      writing. Bank may, without waiving or releasing any of Borrower's
      Obligations or any Event of Default or Unmatured Default hereunder, in its
      sole and absolute discretion, at any time or times thereafter, make such
      payment, or any part thereof, or obtain such discharge and take any other
      action with respect thereto which Bank deems advisable. All sums so paid
      by Bank and any expenses, including reasonable attorneys' fees, court
      costs, expenses and other charges relating thereto, shall be part of
      Borrower's Liabilities, payable by Borrower to Bank on demand.
      Notwithstanding the foregoing, Borrower, any Primary Obligor or any
      Secondary Obligor may permit or suffer the Charges to attach to its Assets
      and may dispute, without prior payment thereof, the Charges, on the
      conditions that: (i) Borrower or the applicable Primary Obligor or
      Secondary Obligor, in good faith, shall be contesting the same in an
      appropriate proceeding diligently pursued; (ii) enforcement thereof
      against any assets of Borrower or the applicable Primary Obligor or
      Secondary Obligor shall be stayed; and (iii) appropriate reserves therefor
      shall have been established on


                                       37

<PAGE>
      the Records of Borrower or the applicable Primary Obligor or Secondary
      Obligor in accordance with GAAP.

            (f) Pay Debts. Borrower and each Primary Obligor and Secondary
      Obligor shall pay or discharge or otherwise satisfy all Indebtedness at or
      before maturity or before the same becomes delinquent; provided that
      neither Borrower, nor any Primary Obligor or any Secondary Obligor shall
      be required to pay any Indebtedness while the same is being contested by
      it in good faith and by appropriate proceedings so long as Borrower or the
      applicable Primary Obligor or Secondary Obligor shall have set aside on
      its books reserves in accordance with GAAP with respect thereto and title
      to any property of Borrower or the applicable Primary Obligor or Secondary
      Obligor is not jeopardized.

            (g) Compliance with Laws. Borrower and each Primary Obligor and
      Secondary Obligor shall comply with all laws, rules, regulations and
      governmental orders (federal, state and local), including all
      Environmental Laws, having applicability to it or to the business or
      businesses at any time conducted by it, where the failure to so comply
      would have a material adverse effect, either individually or in the
      aggregate, on the business, Assets, operations, condition (financial or
      otherwise) or its ability to perform its obligations under the Loan
      Documents.

            (h) Perform Obligations. Borrower and each Primary Obligor and
      Secondary Obligor shall duly and punctually pay and perform each of its
      obligations under this Agreement and the Other Agreements in accordance
      with the terms thereof.

            (i) Management. As of the date hereof and at all times during the
      term hereof either (i) both of James Hawkins and James Sartain, or (ii)
      either James Hawkins or James Sartain and either of Matthew Landry or Rick
      R. Hagelstein shall be employed full-time with Borrower and shall be
      responsible for the day to day management of Borrower.

      6.3         Negative Covenants. 

            Borrower warrants and represents to and covenants with Bank that
neither Borrower, nor any Primary Obligor nor any Secondary Obligor, as the case
may be, shall, without Bank's prior written consent, which Bank may or may not
give in its sole and absolute discretion, concurrently or hereafter do any of
the following:

            (a) Sell or Encumber Assets. Neither Borrower, nor any Primary
      Obligor nor any Secondary Obligor shall assign, sell or transfer any of
      its Assets to any Person, other than in the ordinary course of business,
      nor permit, grant, or suffer a security interest, lien, claim or
      encumbrance upon any of its Assets, except the Permitted Liens and ad
      valorem taxes of First X and First B.

                (b) Attachment. Neither Borrower, nor any Primary Obligor


                                       38

<PAGE>
      nor any Secondary Obligor shall permit or suffer any levy, attachment or
      restraint to be made affecting any of its Assets;

            (c) Receiver. Neither Borrower, nor any Primary Obligor nor any
      Secondary Obligor shall permit or suffer any receiver, trustee or assignee
      for the benefit of creditors, or any other custodian to be appointed to
      take possession of all or any of its Assets, other than a custodian
      pursuant to a voluntary custodial agreement entered into to perfect a
      security interest.

            (d) Amend Organizational Documents; Business Objectives. Neither
      Borrower, nor any Primary Obligor or any Secondary Obligor shall make any
      change: (i) in its Organic Documents or capital structure; or (ii) in any
      of its business objectives, purposes and operations, including by
      undertaking additional business activities. Neither Borrower, nor any
      Primary Obligor nor any Secondary Obligor shall engage in any business not
      of the same general type as those conducted by them on the date hereof.

            (e)         Mergers and Acquisitions.

                  (i)   Neither Borrower, nor any Primary Obligor nor any
                        Secondary Obligor shall merge or consolidate with any
                        Person.  Borrower, Primary Obligors and Secondary
                        Obligors shall have the right to acquire the stock or
                        Assets of another Person (whether by sale of Assets or
                        sale or exchange of stock, or purchase, lease or
                        otherwise); provided that any and all such acquisitions
                        shall be through one or more Subsidiaries of Borrower,
                        Primary Obligors or Secondary Obligors and such
                        acquisition shall not violate any other representation,
                        warranty or covenant set forth in this Agreement or any
                        other Loan Document.

                  (ii)  NAF will not merge, consolidate or acquire the Assets of
                        any Person, shall not commence any new business venture
                        and shall use the proceeds of any sale or other
                        disposition of its Assets to pay the Eligible Note made
                        by it.

            (f)         Stock Transfers.

                  (i)   Except as disclosed in Schedule 5.1(e), as amended from
                        time to time with Bank's consent, and except as
                        permitted pursuant to Section 6.3(f)(ii), neither any
                        Primary Obligor, any Secondary Obligor nor any Pledged
                        Entity shall grant any option, warrant or other right to
                        purchase any equity interest in such Person, without in
                        each case the prior written consent of Bank, which
                        consent shall not be unreasonably withheld.


                                       39

<PAGE>
                  (ii)  Notwithstanding anything to the contrary contained
                        herein, Borrower shall have the right to register on
                        Form S-3, and publicly offer and sell equity Securities
                        of Borrower under the following terms and conditions:
                        (w) Borrower shall deliver notice to Bank, within
                        twenty-four (24) hours of the filing with the SEC; (x)
                        Borrower shall fully and timely comply with all
                        Securities Laws and with all terms and provisions of the
                        underwriting agreement pursuant to which such Securities
                        are offered for sale; (y) the prospectus and all other
                        selling materials used by Borrower in such offering
                        shall not contain any misstatement of material fact or
                        omit to state any fact which would render the statements
                        contained therein false or misleading., and (z) pay the
                        proceeds of such offering to Bank, in accordance with
                        the terms hereof.

            (g) Adverse Transactions. Neither Borrower, nor any Primary Obligor
      nor any Secondary Obligor shall enter into any transaction which
      materially and adversely affects its ability to perform its obligations
      under the Loan Documents or to pay any other Indebtedness.

            (h) Investments. Neither Borrower, nor any Primary Obligor nor any
      Secondary Obligor shall make any investment in the Stock or obligations of
      any Person, except in the ordinary course of its business.

            (i) Dividends; Payment of Fees, etc. At any time during the term
      hereof, without Bank's prior written consent which may be withheld in
      Bank's sole and absolute discretion, neither Borrower, nor any Primary
      Obligor nor any Secondary Obligor shall: (i) make any distributions or pay
      any dividends or make any distributions of property or assets with respect
      to its Stock; (ii) pay any director's fees or any salaries to any director
      or shareholder unless such shareholder or director is directly and
      actively employed by Borrower or any Primary Obligor or Secondary Obligor;
      provided that, Borrower may compensate outside directors in an amount not
      to exceed $2,000 per meeting and may pay the stated dividends on its
      special preferred stock and its adjusting preferred stock.

            (j) Fee Agreements. Attached hereto as Schedule 6.3(j) (as amended
      from time to time) is a true, accurate and complete schedule of all Fee
      Agreements to which Borrower or any Primary Obligor or Secondary Obligor
      is a party.. Bank hereby expressly consents to the performance by Borrower
      and said Primary Obligors and Secondary Obligors of said Fee Agreements,
      as in effect on the date hereof. Within ten (10) Business Day after
      Borrower, any Primary Obligor or any Secondary Obligor has entered into
      any new Fee Agreement or shall have modified in any material respect any
      existing Fee Agreement, Borrower shall give Bank notice thereof and amend
      Schedule 6.3(j), if applicable, and shall, upon request by Bank, deliver


                                       40

<PAGE>
      a copy of any new or amended Fee Agreement to Bank. Except in the ordinary
      course of business, Borrower shall not enter into any other transactions
      with any Affiliate, including, without limitation, agreements for the
      purchase, sale or exchange of property or the rendering of any services to
      or by any Affiliate, or enter into, assume or suffer to exist any
      employment, management, administration, advisory or consulting contract
      with any Affiliate or, in each of the foregoing cases, with any officer,
      director or partner of any Affiliate (or a spouse or other relative of any
      of them).

            (k) Indebtedness. Neither Borrower nor any Primary Obligor, other
      than NAF and FC Capital, shall contract, create, incur, assume or suffer
      to exist any Indebtedness; except for (w) the Loans, , (x) Indebtedness
      existing on the date hereof and reflected on the Financials of Borrower
      delivered on such date, (y) Indebtedness disclosed on Schedules 5.1(s) and
      (t), and (z) unsecured trade payables, unsecured Indebtedness of Borrower
      to an Affiliate, and purchase money financing (whether secured or
      unsecured) to parties (other than to Affiliates), incurred in the ordinary
      course of business that do not exceed, in the aggregate at any time
      outstanding, $500,000.

            (l) Loan; Guaranty Debt. Borrower shall not make any loan to any
      Person, other than loans to Primary Obligors pursuant to the terms of the
      Eligible Notes. Except as set forth on Schedule 6.3(l), neither Borrower,
      nor any Primary Obligor or any Secondary Obligor shall enter into any
      Guaranty Equivalents in the aggregate at any time outstanding exceeding
      $5,000,000.

            (m) Pay Indebtedness. Except in the ordinary course of business,
      neither Borrower, nor any Primary Obligor nor any Secondary Obligor shall
      defease, prepay, repay, purchase, redeem or otherwise acquire any of its
      Indebtedness for borrowed money.

            (n) Issue Power of Attorney. Except pursuant to this Agreement and
      the Other Agreements, neither Borrower, nor any Primary Obligor nor any
      Secondary Obligor shall issue any power of attorney or other contract or
      agreement giving any Person power or control over the day-to-day
      operations of Borrower's, any Primary Obligor's or any Secondary Obligor's
      business, other than in connection with Permitted Liens or Indebtedness
      expressly permitted pursuant to the terms of this Agreement.

            (o) Amendment of Credit Agreements. Except in the ordinary course of
      business, neither Borrower, nor any Primary Obligor or any Secondary
      Obligor, shall amend, modify or extend any note, credit agreement,
      security agreement or other document, instrument of agreement evidencing
      or securing Indebtedness of such entity, without in each case Bank's prior
      written consent; provided that Primary Obligors and Secondary


                                       41

<PAGE>
      Obligors may extend and renew existing credit facilities without Bank's
      consent.

      6.4         Required Notices.

            (a) Borrower shall notify Bank and amend Schedule 5.1(t) on the same
      Business Day that: (i) Borrower makes any additional loans or advances to
      any Primary Obligor or Secondary Obligor, whether or not evidenced by a
      writing signed by the obligor thereof; and (ii) Borrower received any
      payment of principal on any Pledged Note identified on Schedule 5.1(t),
      (such notice may be given by delivery of a Borrowing Base Certificate in
      accordance with the provisions hereof.

            (b) In addition to those notices required elsewhere in this
      Agreement and in the Stock Pledge Agreement and the Note Pledge Agreement
      to which Borrower is a party, Borrower shall notify Bank promptly after
      obtaining knowledge of:

                  (i)   except as otherwise previously disclosed, any event or
                        occurrence which Borrower has determined has caused a
                        material loss or decline in value of Borrower's, any
                        Primary Obligor's, or any Secondary Obligor's Assets due
                        to casualty or any other adverse occurrence and the
                        estimated (or actual, if available) amount of such loss
                        or decline;

                  (ii)  the institution of any suit or administrative proceeding
                        which, if determined adversely to Borrower, any Primary
                        Obligor or any Secondary Obligor or any Pledged Entity,
                        is reasonably likely to materially adversely affect the
                        operations, financial condition or business of Borrower
                        or any Primary Obligor or any obligor of a Pledged Note,
                        as applicable;

                  (iii) Borrower, any Primary Obligor or any Secondary Obligor
                        or any Pledged Entity becoming subject to any Charge,
                        restriction, judgment, decree or order which could
                        materially and adversely affect Borrower's or a Primary
                        Obligor's business, operations, Assets, condition
                        (financial or otherwise) or ability to perform its
                        respective obligations under the Loan Documents.

                  (iv)  the commencement of any lockout, strike or walkout
                        relating to any labor contract to which Borrower, any
                        Primary Obligor or any Secondary Obligor is a party;

                  (v)   except as otherwise previously disclosed, any event or
                        occurrence which Borrower, any Primary Obligor or any


                                       42

<PAGE>
                        Secondary Obligor or any Pledged Entity has determined
                        will have a material adverse affect on the ability of
                        any obligor of a Pledged Note to repay such Pledged
                        Note;

                  (vi)  the occurrence of a default by Borrower, any Primary
                        Obligor or any Secondary Obligor or any Pledged Entity
                        under any agreement, document or instrument to which it
                        is a party which could materially and adversely affect
                        its business, operations, Assets, condition (financial
                        or otherwise) or ability to perform its respective
                        obligations under the Loan Documents;

                  (vii) the filing of a petition under any section or chapter of
                        the United States Bankruptcy Code or any similar law or
                        regulation shall be filed by or against Borrower, any
                        Primary Obligor, Secondary Obligor, or any Pledged
                        Entity or any such Person shall make an assignment for
                        the benefit of its creditors or if any case or
                        proceeding is filed by or against any such Person for
                        its dissolution or liquidation;

                  (viii)the making of an application for the appointment of a
                        receiver, trustee or custodian for any of the assets of
                        Borrower, any Primary Obligor, or any Secondary Obligor,
                        other than voluntary custodial relationships entered
                        into to perfect security interests;

                  (ix)  as soon as possible and in any event within five (5)
                        days after Borrower shall have obtained knowledge of the
                        occurrence of an Event of Default or Unmatured Default,
                        the written statement of the chief financial officer of
                        Borrower setting forth the details of such event and the
                        action which Borrower proposes to take with respect
                        thereto;

                  (x)   the exercise of any holder of any option, warrant or
                        right to purchase any equity interest in Borrower, any
                        Primary Obligor, any Secondary Obligor or any other
                        Pledged Entity, other than the exercise of rights
                        disclosed in Section 5.1(e);

                  (xi)  the breach of the covenants set forth in Section 6.2(i);
                        and

                  (xii) the issuance or sale of any Securities permitted
                        pursuant to Section 6.3(f).

      6.5         Payment of Claims.  

            Bank, in its sole and absolute discretion,


                                       43

<PAGE>
without waiving or releasing any of Borrower's Liabilities or Borrower's
Obligations or any Event of Default, may at any time or times hereafter, but
shall be under no obligation to, pay, acquire and/or accept an assignment of any
security interest, lien, encumbrance or claim asserted by any Person against the
Assets of Borrower, or any Primary Obligor, or any Secondary Obligor. All sums
paid by Bank in respect thereof and all reasonable Costs relating thereto
incurred by Bank or for which Bank becomes obligated on account thereof shall be
part of Borrower's Liabilities payable by Borrower to Bank on demand and any
amount not paid on demand shall bear interest at the Default Rate.

      6.6         Year 2000 Compliance.

            (a) The computer and management information systems of the Borrower,
      the Primary Obligors and the Secondary Obligors are adequate for the
      conduct of their business as presently conducted and as proposed to be
      conducted and there are no material requirements for systems integration,
      upgrade or replacement, and there are no facilities or software
      inadequacies that could reasonably be expected to have a material adverse
      effect on the business of the Borrower, any Primary Obligor, Secondary
      Obligor.

            (b) The Borrower, the Primary Obligors and the Secondary Obligors
      will be Year 2000 Compliant on or before March 31, 1999 and at all times
      thereafter. As used in the preceding sentence, "Year 2000 Compliant" means
      the ability of the software and other information processing capabilities
      of such Person to correctly interpret and process all data in whatever
      form so as to avoid errors that may otherwise occur because of the
      inability of software or other information processing capabilities to
      recognize accurately the year 2000 or subsequent dates.

            (c) Any reprogramming required to permit the proper functioning of
      the computer and management information systems of the Borrower and its
      Subsidiaries during and following the year 2000 will be completed by March
      31, 1999 and the cost of such reprogramming is not expected to have a
      material adverse effect on the business of the Borrower or its
      Subsidiaries.




                                       44

<PAGE>

7.          DEFAULT

      7.1         Events of Default. 

            The occurrence of any one of the following events shall constitute a
default ("EVENT OF DEFAULT") under this Agreement:

            (a) If Borrower fails or neglects to perform, keep or observe any of
      Borrower's Obligations or if Borrower fails or neglects to cause any
      Primary Obligor, Secondary Obligor or any other Loan Party (for any reason
      whatsoever) to keep or observe any covenant with respect to such Entity
      set forth herein and the same is not cured within thirty (30) days after
      Bank gives Borrower notice of such default; provided that a breach of any
      of the provisions, terms, conditions or covenants contained in Sections
      6.2(d), 6.3 and 6.4 shall automatically be an Event of Default without any
      notice or cure period.

            (b) If any representation, warranty or material statement, report or
      certificate made or delivered by any Loan Party, or any of its directors,
      officers, authorized employees or agents, to Bank is not true and correct;

            (c) If Borrower fails to pay any of the Secured Obligations, when
      due and payable or declared due and payable and the same is not cured
      within five (5) days after Bank gives Borrower notice of such default
      provided however, that Interest shall accrue at the Default Rate
      commencing immediately after non-payment;

            (d) If Borrower shall default under the terms of any Indebtedness
      Instrument, other than the Loan Documents.

            (e) If any single Primary Obligor or Secondary Obligor shall default
      under the terms of any Indebtedness Instrument and such default is not
      cured within ninety (90) days after the occurrence thereof; provided that
      such cure period shall not apply if: (i) a default occurs by such Primary
      Obligor or Secondary Obligor under the terms of any other Indebtedness
      Instrument securing or evidencing a different borrowing, or (ii) if any
      other Primary Obligor or Secondary Obligor defaults under the terms of any
      Indebtedness Instrument during such ninety (90) day cure period.
      Notwithstanding the foregoing, if any two or more such Persons are
      obligated for the same Indebtedness and a default occurs thereunder, it
      shall be deemed to be a default by a single Person for the purposes of
      this Section 7.1(e).

            (f) If Borrower fails or neglects to perform, keep or observe any of
      Borrower's Obligations or to cause any Primary Obligor or Secondary
      Obligor to keep or observe any representation, warranty or covenant,
      contained in Section 6.2(e) and the same is not cured within ten (10) days
      after Bank gives Borrower notice of such default.


                                       45

<PAGE>
            (g) Ten (10) days after a breach of the representation, warranty and
      covenant set forth in Section 6.2(i), unless waived by Bank in its sole
      and exclusive discretion, nothing in this Section 7.1(g) being deemed to
      be a covenant by Bank to waive such default or an implications that Bank
      will be reasonable in its decision not to waive such default.

            (h) If any of Borrower's Assets or the assets of any Primary
      Obligor, or Secondary Obligor or any portion thereof are attached, seized,
      subjected to a writ of distress warrant, or are levied upon, or come
      within the possession of any receiver, trustee, custodian or assignee for
      the benefit of creditors and the same is not terminated or dismissed
      within sixty (60) days thereafter, other than the Assets of First X or
      First B arising out of the failure to pay ad valorem taxes;

            (i) If a petition under any section or chapter of the United States
      Bankruptcy Code or any similar law or regulation shall be filed by
      Borrower, any Primary Obligor or any Secondary Obligor, or if Borrower,
      any Primary Obligor or any Secondary Obligor shall make an assignment for
      the benefit of its creditors or if any case or proceeding is filed by
      Borrower, any Primary Obligor or any Secondary Obligor for its dissolution
      or liquidation;

            (j) If Borrower, any Primary Obligor or any Secondary Obligor is
      enjoined, restrained or in any way prevented by court order from
      conducting all or any material part of its business affairs or if a
      petition under any section or chapter of the United States Bankruptcy Code
      or any similar law or regulation is filed against Borrower, any Primary
      Obligor or any Secondary Obligor or if any case or proceeding is filed
      against Borrower, any Primary Obligor or any Secondary Obligor for its
      dissolution or liquidation and such injunction, restraint or petition is
      not dismissed or stayed within sixty (60) days after the entry or filing
      thereof;

            (k) If an application is made by Borrower, any Primary Obligor, any
      Secondary Obligor or any Pledged Entity for the appointment of a receiver,
      trustee or custodian for any of its assets other than a custodian pursuant
      to a voluntary custodial agreement entered into to perfect a security
      interest;

            (l) If an application is made by any Person other than a Loan Party
      for the appointment of a receiver, trustee, or custodian for any of the
      Assets of Borrower, any Primary Obligor or any Secondary Obligor or any
      Pledged Entity and the same is not dismissed within sixty (60) days after
      the application therefor;

            (m) Except as expressly permitted pursuant to Section 6.2(e), (i) if
      a notice of any Charge is filed of record with respect to all or any of
      Borrower's, any Primary Obligor's, or any Secondary Obligor's Assets, or
      (ii) if any Charge becomes a lien or encumbrance upon any of its assets
      and


                                       46

<PAGE>
      the same is not released within sixty (60) days after the same becomes a
      lien or encumbrance;

            (n) The occurrence of a default or Event of Default or Unmatured
      Default under any agreement, instrument and/or document executed and
      delivered by any Guarantor to Bank, which is not cured within the time, if
      any, specified therefor in such agreement, instrument or document or any
      of the Loan Documents shall fail to grant to Bank on behalf of the Bank
      the lien or other security interest (if any) intended to be created
      thereby or any Loan Party thereto shall assert that it is not liable with
      respect thereto; or any Guarantor shall assert that it is not liable as a
      guarantor or otherwise under its guarantee agreement executed in
      connection herewith;

            (o) The occurrence of an Event of Default under any of the Other
      Agreements, which is not cured within the time, if any, specified therefor
      in such Other Agreement;

            (p) Except as expressly permitted pursuant to the terms hereof, if
      Borrower, any Primary Obligor, any Secondary Obligor or any Pledged Entity
      issues to or transfers to any Person any Stock of Borrower, any Primary
      Obligor, any Secondary Obligor or any Pledged Entity;

            (q) If any final non-appealable judgment for the payment of money in
      excess of $250,000 (after giving effect to any amount covered by insurance
      as to which the insurer shall not have defied or questioned its obligation
      to pay) shall be rendered against Borrower, any Primary Obligor, or any
      Secondary Obligor; or final judgment for the payment of money in excess of
      $250,000 shall be rendered against Borrower, any Primary Obligor, or any
      Secondary Obligor and the same shall remain undischarged for a period of
      thirty (30) days during which execution shall not be effectively stayed or
      diligently contested in good faith by appropriate proceedings;

            (r) If Borrower or any ERISA Affiliate (1) shall effect a complete
      or partial withdrawal (as defined in ERISA Sections 4203 or 4205) from a
      Multiemployer Plan, if such withdrawal could subject either Borrower or
      any ERISA Affiliate to liability; (2) shall fail to pay when due an amount
      that is payable by it to the PBGC or to an Employee Benefit Plan; (3) has
      instituted against it by a fiduciary of any Multiemployer Plan an action
      to enforce ERISA Section 515 and such proceedings shall not have been
      dismissed within thirty (30) days thereafter; (4) has imposed against it
      any tax under Code Section 4980B(a); (5) has assessed against it by the
      Secretary of Labor a civil penalty with respect to any Employee Benefit
      Plan under ERISA Section 502(c) or 502(l); (6) shall apply for a waiver of
      the minimum funding standards of the Code; or (7) shall permit any other
      event or condition to occur or exist with respect to an Employee Benefit
      Plan that


                                       47

<PAGE>
      could subject either Borrower or any ERISA Affiliate to liability;

            (s) Except as set forth in Section 7.1(d) or (e), a default by
      Borrower, any Primary Obligor, or any Secondary Obligor shall occur under
      any agreement, document or instrument (other than this Agreement or any of
      the other Loan Documents) now or hereafter existing, to which Borrower,
      any Primary Obligor, or any Secondary Obligor is a party and the effect of
      such default is reasonably likely to have a material adverse effect on the
      financial conditions or business operations of such Loan Party;

            (t) If Borrower, any Primary Obligor, or any Secondary Obligor
      dissolves, liquidates (other than with respect to a Secondary Obligor upon
      the disposition of all of its Assets in the ordinary course of its
      business), or fails to maintain its corporate existence, without the prior
      written consent of Bank.

      7.2         Remedies Cumulative.  

            All of Bank's rights and remedies under this Agreement and the Other
Agreements are cumulative and non-exclusive.

      7.3         Acceleration. 

            Upon the occurrence an Event of Default and the continuation
thereof, without notice by Bank to or demand by Bank to Borrower, Bank shall
have no further obligation to and may then forthwith cease advancing monies,
extending credit or issuing letters of credit to or for the benefit of Borrower
under this Agreement and the Other Agreements. Upon an Event of Default, without
notice by Bank to or demand by Bank to Borrower, all Secured Obligations shall
be due and payable, forthwith.

      7.4         Remedies. 

            Upon the occurrence of an Event of Default and the continuation
thereof, Bank, in its sole and absolute discretion, may exercise any and all
rights and remedies that it may have under the other Loan Documents, at law or
in equity.

      7.5        Injunctive Relief. 

            Borrower recognizes that upon the occurrence of an Event of Default,
no remedy of law will provide adequate relief to Bank, and agrees that Bank
shall be entitled to temporary and permanent injunctive relief in any such case
without the necessity of proving actual damages.

      7.6         Advances During Unmatured Default. 

            Upon the occurrence of any Unmatured Default or Event of Default
(other than Unmatured Defaults under Section 7.1(e), Bank shall not be obligated
to make any Advances; provided that, nothing contained herein shall prohibit
Bank from making any Advances.

8.          CONDITIONS PRECEDENT TO DISBURSEMENT

      8.1         Checklist Items. 

            The obligation of Bank to make the Loan to Borrower is subject to
the condition precedent that, in addition to satisfaction of the conditions set
forth in Sections 8.2 and 8.3, Bank shall have received, prior to the first
disbursement of the proceeds of any of the Loan hereunder all documents,


                                       48

<PAGE>
instruments, agreements, notes, evidences of Borrower's authority, and all other
instruments as Bank may reasonably request, including but not limited to all
items on the documentation checklist, delivered by Bank to Borrower prior to the
date hereof.

      8.2         Necessary Actions. 

            The obligation of Bank to make the Loan to Borrower is subject to
the further condition precedent that all proceedings taken in connection with
the transactions contemplated by this Agreement, and all instruments,
authorizations and other documents applicable thereto, shall be reasonably
satisfactory in form and substance to Bank and its counsel.

      8.3         Conditions Precedent. 

            In addition to the foregoing, prior to Bank making of any and all
Loans hereunder, all of the following shall have been satisfied in a manner
satisfactory to Bank:

            (a) no change in the condition or operations, financial or
      otherwise, of Borrower or any other Loan Party shall have occurred which
      change, in the sole credit judgment of Bank, may have a material adverse
      effect on Borrower or any other Loan Party;

            (b) no litigation shall be outstanding or have been instituted or
      threatened which Bank determines to be material against Borrower or other
      Loan Party;

            (c) all of the representations and warranties of Borrower set forth
      in this Agreement and each of the Other Agreements to which Borrower or
      other Loan Party is a party shall be true and correct on the date of the
      contemplated Loan to the same extent as originally made on such date; and

            (d) no Event of Default or Unmatured Default shall exist or be
      continuing.

9.          GENERAL

      9.1         Compliance with ERISA.

            (a)         Representations and Warranties.  Borrower hereby
      represents and warrants that:

                  (i)   Schedule 9.1 hereto describes the Employee Benefit Plans
                        to which Borrower or any of its ERISA Affiliates may
                        have obligations;

                  (ii)  each Employee Benefit Plan of Borrower or any of its
                        ERISA Affiliates is in compliance in all material
                        respects with its terms and with the applicable
                        provisions of ERISA, the Code and all other statutes and
                        regulations


                                       49

<PAGE>
                        applicable thereto and each such Employee Benefit Plan
                        that is intended to be qualified under Section 401(a) of
                        the Code has been determined by the Internal Revenue
                        Service to be so qualified, and each trust related to
                        any such Employee Benefit Plan has been determined to be
                        exempt from federal income tax under Section 501(a) of
                        the Code;

                  (iii) neither Borrower nor any of its ERISA Affiliates
                        maintains or contributes to any Employee Benefit Plan
                        with an actuarial present value of projected benefit
                        obligations that exceeds the fair market value of net
                        assets available for such benefits, calculated on the
                        basis of the actuarial assumptions specified in the most
                        recent actuarial valuation for such Employee Benefit
                        Plan, and no such Employee Benefit Plan provides for
                        subsidized early retirement benefits that could
                        materially adversely affect the funded status of such
                        Employee Benefit Plan or Employee Benefit Plans in the
                        event of a reduction in force or plant closing;

                  (iv)  with respect to each Employee Benefit Plan that is a
                        "defined benefit plan," as defined in Section 3(35) of
                        ERISA, the assets of each such Employee Benefit Plan are
                        equal to or greater than the accrued benefits of the
                        participants and beneficiaries thereunder, as determined
                        pursuant to the actuarial methods and assumptions
                        utilized by the PBGC in the event of a plan termination;

                  (v)   neither Borrower nor any of its ERISA Affiliates
                        sponsors, maintains, participates in or contributes to
                        any employee welfare benefit plan within the meaning of
                        Section 3(1) of ERISA that provides benefits to
                        employees after termination of employment other than as
                        required by Section 601 of ERISA; as such, neither
                        Borrower nor any of its ERISA Affiliates are currently
                        or will in the future be subject to the accounting
                        recognition and disclosure standards of Statement of
                        Financial Accounting Standards No. 106 (FASB 106);

                  (vi)  neither Borrower nor any of its ERISA Affiliates has
                        breached any of the responsibilities, obligations, or
                        duties imposed on them by ERISA or the regulations
                        promulgated thereunder with respect to any Employee
                        Benefit Plan;

                  (vii) neither Borrower nor any ERISA Affiliate has (i) failed
                        to


                                       50

<PAGE>
                        make a required contribution or payment to a
                        Multiemployer Plan or (ii) made or expects to make a
                        complete or partial withdrawal under Sections 4203 or
                        4205 of ERISA from a Multiemployer Plan;

                  (viii)at the date hereof, the aggregate potential withdrawal
                        liability payment, as determined in accordance with
                        Title IV of ERISA, of Borrower and any ERISA Affiliates
                        with respect to all Employee Benefit Plans that are
                        Multiemployer Plans does not exceed $50,000 and, to the
                        best of Borrower's and its ERISA Affiliate's knowledge,
                        no Multiemployer Plan is in reorganization or insolvent
                        within the meaning of Sections 4241 or 4245 of ERISA.

                  (ix)  neither Borrower nor any ERISA Affiliate has failed to
                        make a required installment or any other required
                        payment under Section 412 of the Code on or before the
                        due date for such installment or other payment;

                  (x)   neither Borrower nor any ERISA Affiliate is required to
                        provide security to an Employee Benefit Plan under
                        Section 401(a)(29) of the Code due to an Employee
                        Benefit Plan amendment that results in an increase in
                        current liability for the plan year;

                  (xi)  no liability to the PBGC has been, or is expected by
                        Borrower or any ERISA Affiliate to be, incurred by
                        Borrower or any ERISA Affiliate, other than the payment
                        of premiums, and there are no premium payments that have
                        became due and which are unpaid;

                  (xii) no events have occurred in connection with any Employee
                        Benefit Plan that might constitute grounds for the
                        termination of any such Employee Benefit Plan by the
                        PBGC or for the appointment by any United States
                        District Court of a trustee to administer any such
                        Employee Benefit Plan;

                  (xiii)no Reportable Event has, in the case of any Employee
                        Benefit Plan maintained by Borrower or an ERISA
                        Affiliate other than a Multiemployer Plan, occurred and
                        is continuing, or to the best of Borrower's knowledge,
                        has occurred and is continuing in the case of any such
                        Employee Benefit Plan that is a Multiemployer Plan;

                  (xiv) no Employee Benefit Plan maintained by Borrower or an
                        ERISA Affiliate had an Accumulated Funding Deficiency,


                                       51

<PAGE>
                        whether or not waived, as of the last day of the most
                        recent fiscal year of such Employee Benefit Plan or, in
                        the case of any Multiemployer Plan, as of the most
                        recent fiscal year of such Multiemployer Plan for which
                        the annual reports of such Multiemployer Plan's
                        actuaries and auditors have been received; and

                  (xv)  neither Borrower nor any ERISA Affiliate has engaged in
                        a Prohibited Transaction prior to the date hereof, and
                        the execution, delivery, and carrying out of this
                        Agreement will not involve any non-exempt Prohibited
                        Transactions (within the meaning of Part 4 of Subtitle B
                        of Title I of ERISA) or any transaction in connection
                        with which a tax could be imposed pursuant to Section
                        4975 of the Code.

            (b) ERISA Reports. Borrower shall:

                  (i)   as soon as possible, and in any event within fifteen
                        (15) Business Days, after Borrower or an ERISA Affiliate
                        knows or has reason to know that, regarding any Employee
                        Benefit Plan with respect to Borrower or an ERISA
                        Affiliate, a Prohibited Transaction or a Reportable
                        Event has occurred (whether or not the requirement for
                        notice, if applicable, of such Reportable Event has been
                        waived by the PBGC), deliver to the Bank a certificate
                        of a responsible officer of Borrower setting forth the
                        details of such Prohibited Transaction or Reportable
                        Event, the action that Borrower proposes to take with
                        respect thereto, and, when known, any action taken or
                        threatened by the Internal Revenue Service, Department
                        of Labor, or PBGC;

                  (ii)  upon request of the Bank made from time to time, deliver
                        to the Bank a copy of the most recent actuarial report,
                        funding waiver request, and annual report filed with
                        respect to any Employee Benefit Plan maintained by
                        Borrower or an ERISA Affiliate;

                  (iii) upon request of the Bank made from time to time, deliver
                        to the Bank a copy of any Employee Benefit Plan
                        sponsored, contributed to, participated in or maintained
                        by Borrower or any ERISA Affiliate; and

                  (iv)  as soon as possible, and in any event within ten (10)
                        Business Days, after it knows or has reason to know that
                        any of the following have occurred with respect to any
                        Employee Benefit Plan maintained, or contributed to, by


                                       52

<PAGE>
                        Borrower or an ERISA Affiliate, deliver to the Bank a
                        certificate of a responsible officer of Borrower setting
                        forth the details of the events described in (a) through
                        (l) and the action that Borrower or any ERISA Affiliate
                        proposes to take with respect thereto, together with a
                        copy of any notice or filing from the PBGC or other
                        agency of the United States government with respect to
                        such of the events described in (a) through (l): (a) any
                        Employee Benefit Plan has been terminated; (b) the Plan
                        Sponsor intends to terminate any Employee Benefit Plan;
                        (c) the PBGC has instituted or will institute
                        proceedings under Section 4042 of ERISA to terminate any
                        such Employee Benefit Plan or to appoint a trustee to
                        administer such Employee Benefit Plan, or Borrower or
                        any ERISA Affiliate receives a notice from a
                        Multiemployer Plan that such action has been taken by
                        the PBGC with respect to such Multiemployer Plan; (d)
                        Borrower or any ERISA Affiliate withdraws from any
                        Employee Benefit Plan, or notice of any withdrawal
                        liability is received by Borrower or any ERISA
                        Affiliate; (e) any Employee Benefit Plan has received an
                        unfavorable determination letter from the Internal
                        Revenue Service regarding the qualification of the
                        Employee Benefit Plan under Section 401(a) of the Code;
                        (f) Borrower or any ERISA Affiliate fails to make a
                        required installment or any other required payment under
                        Section 412 of the Code on or before the due date for
                        such installment or payment or has applied for a waiver
                        of the minimum funding standard under Section 412 of the
                        Code; (g) the imposition of any tax under Code Section
                        4980B(a) or the assessment by the Secretary of Labor of
                        a civil penalty under Sections 502(c) or 502(l) of
                        ERISA; (h) there is a partial or complete withdrawal (as
                        described in ERISA Section 4203 or 4205) by Borrower or
                        any ERISA Affiliate from a Multiemployer Plan; (i)
                        Borrower or any ERISA Affiliate is in "DEFAULT" as
                        defined in ERISA Section 4219(c)(5)) with respect to
                        payments to a Multiemployer Plan required by reason of
                        its complete or partial withdrawal from such Employee
                        Benefit Plan; (j) a Multiemployer Plan is in
                        "REORGANIZATION" or is "INSOLVENT" (as described in
                        Title IV of ERISA) or such Multiemployer Plan intends to
                        terminate or has terminated under Section 4041A of
                        ERISA; (k) the institution of a proceeding by a
                        fiduciary of a Multiemployer Plan against Borrower or
                        any ERISA Affiliate to enforce Section 515 of ERISA; or
                        (1) Borrower or any ERISA Affiliate has increased
                        benefits under any existing Employee Benefit Plan or
                        commenced


                                       53

<PAGE>
                        contributions to an Employee Benefit Plan to which
                        Borrower or any ERISA Affiliate was not previously
                        contributing. For purposes of this Section, Borrower
                        shall be deemed to have knowledge of all facts known by
                        the Plan Administrator of any Employee Benefit Plan of
                        which Borrower or any ERISA Affiliate is the Plan
                        Sponsor.

            (c) Compliance with ERISA. Borrower and its ERISA Affiliates will
      not (i) establish, maintain, or operate any Employee Benefit Plan that is
      not in compliance in all material respects with the provisions of ERISA,
      the Code, and all other applicable laws, and the regulations and
      interpretations thereunder; (ii) allow to exist any Accumulated Funding
      Deficiency with respect to any Employee Benefit Plan, whether or not
      waived; (iii) terminate any Employee Benefit Plan or withdraw or effect a
      partial or complete withdrawal (as described in ERISA Section 4203 or
      4205) from any Multiemployer Plan, if such termination or withdrawal could
      subject Borrower or any ERISA Affiliate to liability; (iv) fail to make
      any required installment or any other payment required under Section 412
      of the Code on or before the due date for such installment or other
      payment; (v) amend any Employee Benefit Plan so as to result in an
      increase in current liability for the plan year such that Borrower or any
      ERISA Affiliate is required to provide security to such Employee Benefit
      Plan under Section 401(a)(29) of the Code; (vi) fail to make any
      contribution or payment to any Multiemployer Plan which Borrower or any
      ERISA Affiliate may be required to make under any agreement relating to
      such Multiemployer Plan; (vii) enter into any Prohibited Transaction for
      which a class exemption is not available or a private exemption previously
      has not been obtained from the Department of Labor; (viii) permit the
      occurrence of any Reportable Event, or any other event or condition, which
      could subject either Borrower or any ERISA Affiliate to liability; or (ix)
      allow or permit to exist any other event or condition known or that
      reasonably should be known to Borrower which event or condition could
      subject either Borrower or any ERISA Affiliate to liability.

            (d) Definitions. For purposes of this Section 9.1, the following
      definitions shall apply:

                  (i)   "ACCUMULATED FUNDING DEFICIENCY" shall have the meaning
                        assigned to that term in Section 302 of ERISA.

                  (ii)  "CODE" shall mean the Internal Revenue Code of 1986, as
                        amended.

                  (iii) "EMPLOYEE BENEFIT PLAN" shall mean an employee benefit
                        plan within the meaning of Section 3(3) of ERISA that is
                        maintained, sponsored, participated in or contributed to


                                       54

<PAGE>
                        by Borrower or any ERISA Affiliate.

                  (iv)  "ERISA" shall mean the Employee Retirement Income
                        Security Act of 1974, as amended from time to time, or
                        any successor thereto.

                  (v)   "ERISA AFFILIATE" shall mean any corporation, trade or
                        Business that is, along with Borrower, a member of a
                        controlled group of trades or businesses, or a member of
                        any group of organizations, within the meaning of
                        Sections 414(b), (c), (m) or (o) of the Code, and any
                        regulations thereunder.

                  (vi)  "MULTIEMPLOYER PLAN" shall mean any plan described in
                        Section 3(37) or 4001(a)(3) of ERISA to which
                        contributions are or have been made by Borrower or any
                        ERISA Affiliate.

                  (vii) "PBGC" shall mean the Pension Benefit Guaranty
                        Corporation or any governmental body succeeding to its
                        functions.

                  (viii)"PLAN Administrator" shall have the meaning assigned to
                        it in Section 3(16)(A) of ERISA.

                  (ix)  "PLAN SPONSOR" shall have the meaning assigned to it in
                        Section 3(16)(B) of ERISA.

                  (x)   "PROHIBITED TRANSACTION" shall mean a transaction that
                        is prohibited under Code Section 4975 or ERISA Section
                        406 and not exempt under Code Section 4975 or ERISA
                        Section 408.

                  (xi) "REPORTABLE EVENT" shall mean (a) an event described in
                        Section 4043(c), 4068(a), or 4063(a) of ERISA or in the
                        regulations thereunder, (b) receipt of a notice of
                        withdrawal liability with respect to a Multiemployer
                        Plan pursuant to Section 4202 of ERISA, (c) an event
                        requiring Borrower or any ERISA Affiliate to provide
                        security for an Employee Benefit Plan under Code Section
                        401(a)(29), (d) any failure to make payments required by
                        Code Section 412(m), (e) the withdrawal of Borrower or
                        any ERISA Affiliate from an Employee Benefit Plan in
                        which it is a "SUBSTANTIAL EMPLOYER" as defined in
                        Section 4001(a)(2) of ERISA, (f) the institution of
                        proceedings to terminate an Employee Benefit Plan by the
                        PBGC, or (g) the filing of a notice to terminate an
                        Employee Benefit Plan or the treatment of an amendment
                        of an Employee


                                       55

<PAGE>
                        Benefit Plan as a termination under Section 4041 of
                        ERISA.

      9.2         Costs. 

            Borrower hereby agrees that it shall reimburse Bank on demand, as
part of Borrower's Obligations, for any and all Costs and any amount not paid on
demand shall bear interest at the Default Rate.

      9.3         Statement.

            Each statement of account by Bank delivered to Borrower relating to
the Secured Obligations shall be presumed correct and accurate and shall
constitute an account stated between Borrower and Bank unless Bank subsequently
corrects such statement of its own volition or, within thirty (30) days after
Borrower's receipt of said statement, Borrower delivers to Bank, by registered
or certified mail addressed to Bank at the address specified in Section 9.4,
written objection thereto specifying the error or errors, if any, which Borrower
asserts are contained in any such statement.

      9.4         Notices.

            Any and all notices given in connection with this Agreement shall be
deemed adequately given only if in writing (which term, for all purposes of this
Agreement and the other Loan Documents, shall include telecopy) and addressed to
the party for whom such notices are intended at the address set forth below. All
notices shall be sent by personal delivery, Federal Express or other over-night
messenger service, first class registered or certified mail, postage prepaid,
return receipt requested or by other means at least as fast and reliable as
first class mail. A written notice shall be deemed to have been given to the
recipient party on the earlier of (a) the date it shall be delivered to the
address required by this Agreement; (b) the date delivery shall have been
refused at the address required by this Agreement; or (c) with respect to
notices sent by mail, the date as of which the postal service shall have
indicated such notice to be undeliverable at the address required by this
Agreement. Any and all notices referred to in this Agreement, or which either
party desires to give to the other, shall be addressed as follows:

      IF TO BORROWER:               FirstCity Financial Corporation
                                    6400 Imperial Drive
                                    P.O. Box 8216
                                    Waco, Texas  76714
                                    Attn:  James Holmes
                                    Telecopy:  254-751-7648

      IF TO BANK:                   Bank of Scotland
                                    565 Fifth Avenue
                                    New York, New York 10017
                                    Attn:  Loans Administration
                                    Telecopy: 212-557-9460


                                       56

<PAGE>
      WITH A COPY TO:               Sachnoff & Weaver, Ltd.
                                    Suite 2900
                                    30 South Wacker Drive
                                    Chicago, Illinois 60606
                                    Attn:  Frank Ballantine, Esq.
                                    Telecopy:  312-207-6400

                                     and to

                                    Bank of Scotland
                                    Chicago Representative Office
                                    181 West Madison Street
                                    Suite 3525
                                    Chicago, Illinois 60602
                                    Attn:  James Halley
                                    Telecopy:  312-263-1143

The above addresses may be changed by notice of such change, mailed as provided
herein, to the last address designated.

      9.5         Amendments and Waivers. 

            This Agreement and the other Loan Documents may not be modified,
altered or amended except by an agreement in writing signed by Borrower and
Bank. Borrower expressly agrees that for purposes of this Agreement and each and
every other Loan Document: (i) this Agreement and each and every other Loan
Document shall be a "credit agreement" under the Illinois Credit Agreements Act,
815 ILCS 160/1 et. seq. (the "ACT"); (ii) the Act applies to this transaction
including, but not limited to, the execution of this Agreement and each and
every other Loan Document; and (iii) any action on or in any way related to this
Agreement and each and every other Loan Document shall be governed by the Act.
Borrower may not sell, assign or transfer this Agreement or the Other Agreements
or any portion thereof, including, without limitation, Borrower's rights,
titles, interests, remedies, powers and/or duties hereunder or thereunder.
Borrower hereby consents to Bank's sale, assignment, transfer or other
disposition, at any time and from time to time hereafter, of this Agreement or
the Other Agreements, or of any portion thereof or participation therein,
including, without limitation, Bank's rights, titles, interests, remedies,
powers and/or duties.

      9.6         No Implied Waiver; Remedies Cumulative. 

            Bank's failure at any time or times hereafter to require strict
performance by Borrower of any provision of this Agreement or any other Loan
Document shall not waive, affect or diminish any right of Bank thereafter to
demand strict compliance and performance therewith. Any suspension or waiver by
Bank of an Event of Default or an Unmatured Default by Borrower or any other
Loan Party under this Agreement or the Other Agreements shall not suspend, waive
or affect any other Event of Default or Unmatured Default by Borrower or any
other Loan Party under this Agreement or the Other Agreements, whether the same
is prior or subsequent


                                       57

<PAGE>
thereto and whether of the same or of a different type. None of the
undertakings, agreements, warranties, covenants and representations of Borrower
contained in this Agreement or the Other Agreements and no Event of Default or
Unmatured Default by Borrower or any other Loan Party under this Agreement or
the Other Agreements shall be deemed to have been suspended or waived by Bank
unless such suspension or waiver is by an instrument in writing signed by an
officer of Bank and directed to Borrower or such applicable other Loan Party
specifying such suspension or waiver.

      9.7         Severability. 

            If any provision (in whole or in part) of this Agreement or the
other Loan Documents or the application thereof to any person or circumstance is
held invalid or unenforceable, then such provision shall be deemed modified,
restricted, or reformulated to the extent and in the manner necessary to render
the same valid and enforceable, or shall be deemed excised from this Agreement
or the other Loan Document, as the case may require, and this Agreement and such
other Loan Document shall be construed and enforced to the maximum extent
permitted by law, as if such provision had been originally incorporated herein
as so modified, restricted, or reformulated or as if such provision had not been
originally incorporated herein or therein, as the case may be. The parties
further agree to seek a lawful substitute for any provision found to be
unlawful. If such modification, restriction or reformulation is not reasonably
possible, the remainder of this Agreement and the other Loan Documents and the
application of such provision to other persons or circumstances will not be
affected thereby and the provisions of this Agreement and the other Loan
Documents shall be severable in any such instance.

      9.8         Incorporation of Other Loan Documents. 

            The provisions of the Other Agreements are incorporated in this
Agreement by this reference thereto. Except as otherwise provided in this
Agreement and except as otherwise provided in the Other Agreements by specific
reference to the applicable provision of this Agreement, if any provision
contained in this Agreement is in conflict with, or inconsistent with, any
provision in the Other Agreements or the other Loan Documents, Bank shall have
the right to elect, in its sole and absolute discretion, which provision shall
govern and control. Except to the extent provided to the contrary in this
Agreement and in the other Loan Documents, no termination or cancellation
(regardless of cause or procedure) of this Agreement or the Other Agreements
shall in any way affect or impair the powers, obligations, duties, rights and
liabilities of Borrower or Bank in any way or respect relating to (a) any
transaction or event occurring prior to such termination or cancellation, and/or
(b) any of the undertakings, agreements, covenants, warranties and
representations of Borrower contained in this Agreement or the Other Agreements.
All such undertakings, agreements, covenants, warranties and representations
shall survive such termination or cancellation.

      9.9         Acceptance. 

            This Agreement and the other Loan Documents are submitted by
Borrower to Bank (for Bank's acceptance or rejection thereof) at Bank's
principal place of business as an offer by Borrower to borrow monies from


                                       58

<PAGE>
Bank now and from time to time hereafter and shall not be binding upon Bank or
become effective until and unless accepted by Bank, in writing, at said place of
business. If so accepted by Bank, this Agreement and the other Loan Documents
and the other Loan Documents shall be deemed to have been made at said place of
business. This Agreement and the other Loan Documents and the other Loan
Documents shall be governed and controlled by the laws of the State of Illinois
as to interpretation, enforcement, validity, construction, effect and in all
other respects including, but not limited to, the legality of the interest rate
and other charges, but excluding choice of law provisions and perfection of
security interests which shall be governed and controlled by the laws of the
relevant jurisdiction.

      9.10        Knowledge. 

            As used herein the phrase "TO THE BEST OF BORROWER'S KNOWLEDGE" or
words of such import shall mean all knowledge, including, actual knowledge and
knowledge of matters which any reasonable person in such position knew or should
have known, of the respective officers, directors and managers of Borrower.

      9.11        Waiver by Borrower. 

            EXCEPT AS OTHERWISE PROVIDED FOR IN THIS AGREEMENT OR REQUIRED BY
LAW, BORROWER WAIVES (A) PRESENTMENT, DEMAND AND PROTEST, NOTICE OF PROTEST,
NOTICE OF PRESENTMENT, DEFAULT, NON-PAYMENT, MATURITY, RELEASE, COMPROMISE,
SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER, ACCOUNTS,
CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS, CHATTEL PAPER AND GUARANTIES AT ANY
TIME HELD BY BANK ON WHICH BORROWER MAY IN ANY WAY BE LIABLE; (B) ALL RIGHTS TO
NOTICE AND A HEARING PRIOR TO BANK'S TAKING POSSESSION OR CONTROL OF, OR TO BANK
REPLEVY, ATTACHMENT OR LEVY UPON THE COLLATERAL OR ANY BOND OR SECURITY WHICH
MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING BANK TO EXERCISE ANY OF BANK'S
REMEDIES; AND (C) THE BENEFIT OF ALL VALUATION, APPRAISEMENT, EXTENSION AND
EXEMPTION LAWS.

      9.12        Governing Law. 

            THIS AGREEMENT HAS BEEN DELIVERED FOR ACCEPTANCE BY BANK IN CHICAGO,
ILLINOIS AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL
LAWS (AS OPPOSED TO THE CONFLICTS OF LAW PROVISIONS) OF THE STATE OF ILLINOIS.
TO THE EXTENT PERMITTED BY APPLICABLE LAW BORROWER HEREBY (a) IRREVOCABLY
SUBMITS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN CHICAGO,
ILLINOIS OVER ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY MATTER ARISING
FROM OR RELATED TO THIS AGREEMENT; (b) IRREVOCABLY WAIVES THE DEFENSE OF AN
INCONVENIENT FORUM TO THE MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING IN ANY
SUCH COURT; (c) AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING IN
ANY SUCH COURT SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW;
AND (d) AGREES NOT TO INSTITUTE ANY LEGAL ACTION OR PROCEEDING AGAINST BANK OR
ANY OF THEIR


                                       59

<PAGE>
RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR PROPERTY, CONCERNING ANY
MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT IN ANY COURT OTHER THAN ONE
LOCATED IN COOK COUNTY, ILLINOIS. NOTHING IN THIS SECTION SHALL AFFECT OR IMPAIR
BANK'S RIGHT TO SERVE LEGAL PROCESS IN ANY MANNER PERMITTED BY LAW OR BANK'S
RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR BORROWER'S PROPERTY
IN THE COURTS OF ANY OTHER JURISDICTION.

      9.13        Waiver of Marshaling. 

            All rights of marshaling of assets of Borrower, including any such
right with respect to the Pledged Property, are hereby waived by Borrower.

      9.14        Limitation by Law. 

            All rights, remedies and powers provided in this Agreement may be
exercised only to the extent that the exercise thereof does not violate any
applicable provision of law, and all the provisions of this Agreement are
intended to be subject to all applicable mandatory provisions of law which may
be controlling and to be limited to the extent necessary so that they will not
render this Agreement invalid, unenforceable, in whole or in part, or not
entitled to be recorded, registered or filed under the provisions of any
applicable law.

      9.15        Survival of Representations and Warranties. 

            All representations and warranties contained in this Agreement or
made in writing by Borrower in connection herewith shall survive the execution
and delivery of this Agreement and repayment of the Secured Obligations. Any
investigation by Bank shall not diminish in any respect whatsoever its rights to
rely on such representations and warranties.

      9.16        Service of Process. 

            Borrower hereby irrevocably appoints and designates CT Corporation
System, Inc., 208 S. LaSalle Street, Chicago, IL 60604 as its true and lawful
attorney-in-fact and duly authorized agent for service of legal process and
agrees that service of such process upon such agent and attorney-in-fact shall
constitute personal service of such process upon Borrower.

      9.17        Representation by Counsel. 

            Borrower hereby represents that it has been represented by competent
counsel of its choice in the negotiation and execution of this Agreement and the
other Loan Documents; that it has read and fully understood the terms hereof;
Borrower and its counsel have been afforded an opportunity to review, negotiate
and modify the terms of this Agreement, and that it intends to be bound hereby.
In accordance with the foregoing, the general rule of construction to the effect
that any ambiguities in a contract are to be resolved against the party drafting
the contract shall not be employed in the construction and interpretation of
this Agreement.

      9.18        Release of Bank. 

            Borrower releases Bank from any and all causes of action or claims
which Borrower may now or hereafter have for any asserted loss or damage to
Borrower claimed to be caused by or arising from any act or omission to act on
the part of Bank, its officers, agents or employees,


                                       60

<PAGE>
except for willful misconduct or gross negligence.

      9.19        Invalidated Payments. 

            To the extent that either Bank receives any payment on account of
the Secured Obligations, and any such payment(s) and/or proceeds or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside, subordinated and/or required to be repaid to a trustee, receiver or
any other Person under any bankruptcy act, state or federal law, common law or
equitable cause, then, to the extent of such payment(s) or proceeds received,
the Secured Obligations or part thereof intended to be satisfied shall be
revived and continue in full force and effect, as if such payment(s) and/or
proceeds had not been received by Bank and applied on account of the Secured
Obligations.

      9.20        Headings. 

            The descriptive headings of the various provisions of this Agreement
and the other Loan Documents are inserted for convenience of reference only and
shall not be deemed to affect the meaning or construction of any of the
provisions hereof.

      9.21        Counterparts. 

            This Agreement and the other Loan Documents may be executed in any
number of counterparts, and by the different parties hereto and thereto on the
same or separate counterparts, each of which when so executed and delivered
shall be deemed to be an original; all the counterparts for each such Loan
Document shall together constitute one and the same agreement.

      9.22        Fax Execution. 

            For purposes of negotiating and finalizing this Agreement (including
any subsequent amendments thereto), any signed document transmitted by facsimile
machine ("FAX") shall be treated in all manner and respects as an original
document. The signature of any party by FAX shall be considered for these
purposes as an original signature. Any such FAX document shall be considered to
have the same binding legal effect as an original document, provided that an
original of the faxed document was mailed by first class US Mail or personally
delivered to the recipient, on the date of its transmission with proof of the
fax transmission. At the request of either party, any FAX document subject to
this Agreement shall be re-executed by both parties in an original form. The
undersigned parties hereby agree that neither shall raise the use of the FAX or
the fact that any signature or document was transmitted or communicated through
the use of a FAX as a defense to the formation of this Agreement.

      9.23        No Third Party Beneficiaries. 

            This Agreement is solely for the benefit of the Bank, Borrower and
their respective successors and assigns (except as otherwise expressly provided
herein) and nothing contained herein shall be deemed to confer upon any Person
other than Borrower and its successors and assigns any right to insist on or to
enforce the performance or observance of any of the obligations contained
herein. All conditions to the obligations of the Bank to make the Loans
hereunder are imposed solely and exclusively for the benefit of the Bank and its
respective successors and assigns and no other Person shall have standing to
require satisfaction of such conditions in accordance with their terms


                                       61

<PAGE>
and no other Persons shall under any circumstances be deemed to be a beneficiary
of such conditions.

      9.24        Domicile of Loans. 

            Bank may make, maintain or transfer any of its Loans hereunder to,
or for the account of, any branch office, subsidiary or affiliate of Bank.

      9.25        Entire Agreement. 

            This Agreement and the other Loan Documents constitute the entire
agreement of Borrower and Bank with respect to the subject matter hereof and
supersedes all prior and contemporaneous negotiations, agreements,
understandings and communications. No representation, understanding, promise or
condition concerning the subject matter hereof shall be binding upon Bank unless
expressed herein or therein. No course of dealing, course or performance, trade
usage or parole evidence of any nature, whether based on actions, omissions or
circumstances occurring or existing heretofore or hereafter, may be used in any
way to alter or supplement the terms hereof.

      9.26        Construction. 

            In this Agreement, unless the context otherwise clearly requires,
references to the plural include the singular, the singular the plural, and the
part the whole; the neuter case includes the masculine and feminine cases; and
"or" is not exclusive. In this Agreement, any references to property (and
similar terms) include an interest in such property (or other item referred to);
"include," "includes," "including" and similar terms are not limiting; and
"hereof," "herein," "hereunder" and similar terms refer to this Agreement as a
whole and not to any particular provision; and "expenses," "costs,"
"out-of-pocket expenses" and similar terms include the charges of in-house
counsel, auditors and other professionals of the relevant Person to the extent
that such amounts are routinely identified and charged under such Person's cost
accounting system. Section and other references in this Agreement are to this
Agreement unless otherwise specified.

      9.27        Successors and Assigns. 

            This Agreement shall be binding upon Borrower and its successors and
assigns, and shall inure to the benefit of and be enforceable by Bank and its
successors and assigns. Without limitation of the foregoing, Bank (and any
successive assignee or transferee) from time to time may assign or otherwise
transfer all or any portion of its rights or obligations under the Loan
Documents (including all or any portion of any commitment to extend credit), or
any Secured Obligations, to any other Person, and such Secured Obligations
(including any Secured Obligations resulting from extension of credit by such
other Person under or in connection with the Loan Documents) shall be and remain
Secured Obligations entitled to the benefit of this Agreement, and to the extent
of its interest in such Secured Obligations such other Person shall be vested
with all the benefits in respect thereof granted to Bank in this Agreement or
otherwise.

      9.28        Texas Language.

            (a)         THIS WRITTEN AGREEMENT (TOGETHER WITH THE


                                       62

<PAGE>
OTHER LOAN DOCUMENTS ) REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO
WITH RESPECT TO THE MATTERS COVERED HEREBY AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

            (B) THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES
HERETO.

      9.29        Waiver of Trial by Jury. 

            TO THE EXTENT PERMITTED BY LAW, BORROWER AND BANK EACH HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION
WITH THIS AGREEMENT OR THE OTHER AGREEMENTS OR ANY COURSE OF CONDUCT, COURSE OF
DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY IN
CONNECTION HEREWITH. BORROWER HEREBY EXPRESSLY ACKNOWLEDGES THAT THIS WAIVER IS
A MATERIAL INDUCEMENT FOR BANK TO MAKE THE LOAN.



                                       63

<PAGE>
      IN WITNESS WHEREOF, this Loan Agreement has been duly executed as of the
day and year specified at the beginning hereof.

                                    BORROWER:

                                    FIRSTCITY FINANCIAL CORPORATION
                                    a Delaware corporation




                                    By:
                                    Title:


                                    BANK:
                                    -----

                                BANK OF SCOTLAND




                                    By:
                                    Title:





<PAGE>



                   Schedule of Exhibits and Schedules
                   ----------------------------------



Exhibit A               Wire Transfer Instruction to Bank of Scotland
---------               

Schedule 1.1 (xxx)      Schedule of Secondary Obligors

Schedule 2.2(c)         Schedule of Eligible Notes

Schedule 4.2            Schedule of Excluded Notes

Schedule 4.3            Schedule of Excluded Entities

Schedule 5.1(e)         Schedule of Shareholders, Stock and Options

Schedule 5.1(f)         Schedule of Fictitious Names

Schedule 5.1(g)         Schedule of Permitted Liens

Schedule 5.1(j)         Schedule of Government Contracts

Schedule 5.1(l)         Consents

Schedule 5.1(s)         Schedule of Other Indebtedness

Schedule 5.1(t)         Schedule of Affiliate Indebtedness

Schedule 5.1(u)         Affiliate Notes

Schedule 5.1(u)(iii)    Schedule of Future Notes (to be delivered post-
                        closing as they arise)

Schedule 5.1(w)         Schedule of Affiliates

Schedule 6.3(j)         Fee Agreements

Schedule 6.3(l)         Guaranty Equivalents

Schedule 9.1            ERISA Matters




<PAGE>
                              EXHIBIT A

             WIRE TRANSFER INSTRUCTION TO BANK OF SCOTLAND



CITIBANK N.A., NEW YORK

ABA NO. 021000089

FOR ACCOUNT OF BANK OF SCOTLAND, NEW YORK

ACCOUNT NO.:  36046633

ATTN:  LOAN ADMINISTRATION

REF:  FIRSTCITY FINANCIAL CORPORATION




<PAGE>
                           SCHEDULE 1.1 (xxx)
                           SECONDARY OBLIGORS


FirstCity Funding Corporation, a Texas corporation

FirstCity Consumer Finance Corporation, a Texas corporation

SL Funding Corp., a Texas corporation

Harbor Financial Mortgage Corporation, a Texas corporation ("HARBOR")

Bosque Asset Corporation, a Texas corporation

First X Realty, L.P., a Texas limited partnership ("FIRST X")

FH Partners, Ltd., a Texas limited partnership

First B Realty, Ltd., a Texas limited partnership ("FIRST B")

Wamco XVII, Ltd., a Texas limited partnership

Wamco XXIV, Ltd., a Texas limited partnership

Wamco XXV, Ltd., a Texas limited partnership