Document:

<PAGE>   1

                                                                EXHIBIT 10.19(E)

                           CHANGE IN TERMS AGREEMENT

<TABLE>
<CAPTION>
  PRINCIPAL     LOAN DATE    MATURITY     LOAN NO    CALL/COLL     ACCOUNT   OFFICER    INITIALS
<S>             <C>          <C>          <C>         <C>          <C>       <C>        <C>
$1,000,000.00   05-09-2001   08-10-2001   0400706198  016/6666      120144      019

References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.

Any item above containing ***** has been omitted due to text length limitations.
</TABLE>

BORROWER: FAFCO, INC.                  LENDER: BUTTE COMMUNITY BANK
          435 OTTERSON DRIVE                   CHICO OFFICE
          CHICO, CA 95928                      2041 FOREST AVE
                                               CHICO, CA 95928

================================================================================

     PRINCIPAL AMOUNT: $1,000,000.00     INITIAL RATE: 9.000%
     DATE OF AGREEMENT: MAY 9, 2001

     DESCRIPTION OF EXISTING INDEBTEDNESS. THIS IS A VARIABLE RATE (1.500% OVER
     PRIME RATE AS PUBLISHED BY BUTTE COMMUNITY BANK, MAKING AN INITIAL RATE OF
     10.500%), NONDISCLOSABLE REVOLVING LINE OF CREDIT LOAN TO A CORPORATION
     FOR $1,000,000.00 DUE ON MAY 10, 2001.

     DESCRIPTION OF COLLATERAL. All Inventory, Chattel Paper, Accounts,
     Equipment, General Intangibles and Fixtures, including but not limited to
     ALL GOODWILL, TRADEMARKS, SERVICEMARKS, TRADE STYLES, TRADE NAMES,
     PATENTS, PATENT APPLICATIONS, LEASES, LICENSE AGREEMENT, FRANCHISE
     AGREEMENTS, BLUEPRINTS, DRAWINGS, PURCHASE ORDERS, CUSTOMER LISTS, ROUTE
     LISTS, INFRINGEMENTS, CLAIMS, COMPUTER PROGRAMS, COMPUTER DISCS, COMPUTER
     TAPES, LITERATURE, REPORTS, CATALOGS, DESIGN RIGHTS, INCOME TAX REFUNDS,
     PAYMENTS OF INSURANCE AND RIGHTS TO PAYMENTS OF ANY KIND.

     DESCRIPTION OF CHANGE IN TERMS. MATURITY DATE TO BE EXTENDED FROM MAY 10,
     2001 TO AUGUST 10, 2001. ALL OTHER TERMS AND CONDITIONS TO REMAIN THE SAME.

     PROMISE TO PAY. FAFCO, INC. ("BORROWER") PROMISES TO PAY TO BUTTE COMMUNITY
     BANK ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE UNITED STATES OF AMERICA,
     THE PRINCIPAL AMOUNT OF ONE MILLION & 00/100 DOLLARS ($1,000,000.00) OR SO
     MUCH AS MAY BE OUTSTANDING, TOGETHER WITH INTEREST ON THE UNPAID
     OUTSTANDING PRINCIPAL BALANCE OF EACH ADVANCE. INTEREST SHALL BE CALCULATED
     FROM THE DATE OF EACH ADVANCE UNTIL REPAYMENT OF EACH ADVANCE.

     PAYMENT. BORROWER WILL PAY THIS LOAN ON DEMAND. PAYMENT IN FULL IS DUE
     IMMEDIATELY UPON LENDER'S DEMAND. IF NO DEMAND IS MADE, BORROWER WILL PAY
     THIS LOAN IN ONE PAYMENT OF ALL OUTSTANDING PRINCIPAL PLUS ALL ACCRUED
     UNPAID INTEREST ON AUGUST 10, 2001. IN ADDITION, BORROWER WILL PAY REGULAR
     MONTHLY PAYMENTS OF ALL ACCRUED ON PAID INTEREST DUE AS OF EACH PAYMENT
     DATE, BEGINNING JUNE 10, 2001, WITH ALL SUBSEQUENT INTEREST PAYMENTS TO BE
     DUE ON THE SAME DAY OF EACH MONTH AFTER THAT. INTEREST ON THIS AGREEMENT IS
     COMPUTED ON A 365/360 SIMPLE INTEREST BASIS; THAT IS, BY APPLYING THE RATIO
     OF THE ANNUAL INTEREST RATE OVER A YEAR OF 360 DAYS, MULTIPLIED BY THE
     OUTSTANDING PRINCIPAL BALANCE, MULTIPLIED BY THE ACTUAL NUMBER OF DAYS THE
     PRINCIPAL BALANCE IS OUTSTANDING. Borrower will pay Lender at Lender's
     address shown above or at such other place as Lender may designate in
     writing.

     VARIABLE INTEREST RATE. The interest rate on this Agreement is subject to
     change from time to time based on changes in an index which is Lender's
     Prime Rate (the "Index"). This is the rate Lender charges, or would charge,
     on 90-day unsecured loans to the most creditworthy corporate customers.
     This rate may or may not be the lowest rate available from Lender at any
     given time. Lender will tell Borrower the current index rate upon
     Borrower's request. The interest rate change will not occur more often than
     each DAY. Borrower understands that Lender may make loans based on other
     rates as well. THE INDEX CURRENTLY IS 7.500% PER ANNUM. THE INTEREST RATE
     TO BE APPLIED TO THE UNPAID PRINCIPAL BALANCE OF THE NOTE  WILL BE AT A
     RATE OF 1.500 PERCENTAGE POINTS OVER THE INDEX, RESULTING IN AN INITIAL
     RATE OF 9.000% PER ANNUM. NOTICE: Under no circumstances will the interest
     rate on the Note be more than the maximum rate allowed by applicable law.

     PREPAYMENT; MINIMUM INTEREST CHARGE. In any event, even upon full
     prepayment of this Agreement, Borrower understands that Lender is entitled
     to a MINIMUM INTEREST CHARGE OF $50.00. Other than Borrower's obligation
     to pay any minimum interest charge, Borrower may pay without penalty all
     or a portion of the amount owed earlier than it is due. Early payments
     will not, unless agreed to by Lender in writing, relieve Borrower of
     Borrower's obligation to continue to make payments of accrued unpaid
     interest. Rather, early payments will reduce the principal balance due.
     Borrower agrees not to send Lender payments marked "paid in full", "without
     recourse", or similar language. If Borrower sends such a payment, Lender
     may accept it without losing any of Lender's rights under this Agreement,
     and Borrower will remain obligated to pay any further amount owed to
     Lender. All written communications concerning disputed amounts, including
     any check or other payment instrument that indicates that the payment
     constitutes "payment in full" of the amount owed or that is tendered with
     other conditions or limitations or as full satisfaction of a disputed
     amount must be mailed or delivered to: Butte Community Bank, CHICO OFFICE,
     2041 FOREST AVE, CHICO, CA 95928.

     LATE CHARGE. If a payment is 10 days or more late, Borrower will be
     charged 5.000% OF THE REGULARLY SCHEDULED PAYMENT OR $5.00, WHICHEVER IS
     GREATER.

     INTEREST AFTER DEFAULT. Upon Borrower's failure to pay all amounts
     declared due pursuant to this section, including failure to pay upon final
     maturity, the total sum due under this Agreement will bear interest from
     the date of acceleration or maturity at the variable interest rate on this
     Agreement.

     DEFAULT. Each of the following shall constitute an Event of Default under
     this Agreement:

          PAYMENT DEFAULT. Borrower fails to make any payment when due under
          the Indebtedness.

          OTHER DEFAULTS. Borrower fails to comply with or to perform any other
          term, obligation, covenant or condition contained in this Agreement
          or in any of the Related Documents or to comply with or to perform
          any term, obligation, covenant or condition contained in any other
          agreement between Lender and Borrower.

          FALSE STATEMENTS. Any warranty, representation or statement made or
          furnished to Lender by Borrower or on Borrower's behalf under this
          Agreement or the Related Documents is false or misleading in any
          material respect, either now or at the time made or furnished or
          becomes false or misleading at any time thereafter.

          INSOLVENCY. The dissolution or termination of Borrower's existence as
          a going business, the insolvency of Borrower, the appointment of a
          receiver for any part of Borrower's property, any assignment for the
          benefit of creditors, any type of creditor workout, or the
          commencement of any proceeding under any bankruptcy or insolvency
          laws by or against Borrower.

          CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
          forfeiture proceedings, whether by judicial proceeding, self-help,
          repossession or any other method, by any creditor of Borrower or by
          any governmental agency against any collateral securing the
          Indebtedness. This includes a garnishment of any of Borrower's
          accounts, including deposit accounts, with Lender. However, this
          Event of Default shall not apply if there is a good faith dispute by
          Borrower as to the validity or reasonableness of the claim which is
          the basis of the creditor or forfeiture proceeding and if Borrower
          gives Lender written notice of the creditor or forfeiture proceeding
          and deposits with Lender monies or a surety bond for the creditor or
          forfeiture proceeding, in an amount determined by Lender, in its sole
          discretion, as being an adequate reserve or bond for the dispute.

          EVENTS AFFECTING GUARANTOR.

          CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent
          (25%) or more of the common stock of Borrower.

          ADVERSE CHANGE. A material adverse change occurs in Borrower's
          financial condition, or Lender believes the prospect of payment or
          performance of the Indebtedness is impaired.

          INSECURITY. Lender in good faith believes itself insecure.

          CURE PROVISIONS. If any default, other than a default in payment is
          curable and if Borrower has not been given a notice of a breach of
          the same provision of this Agreement within the preceding twelve (12)
          months, it may be cured (and no event of default will have occurred)
          if Borrower, after receiving written notice from Lender demanding
          cure of such default: (1) cures the default within fifteen (15) days;
          or (2) if the cure requires more than fifteen (15) days, immediately
          initiates steps which Lender deems in Lender's sole discretion to be
          sufficient to cure the default and thereafter continues and completes
          all reasonable and necessary steps sufficient to produce compliance
          as soon as reasonably practical.

     LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid
     principal balance on this Agreement and all accrued unpaid interest
     immediately due, and then Borrower will pay that amount.

     ATTORNEYS' FEES; EXPENSES. Lender may hire or pay someone else to help
     collect this Agreement if Borrower does not pay. Borrower will pay Lender
     that amount. This includes, subject to any limits under applicable law,
     Lender's attorneys' fees and Lender's legal expenses, whether or not there
     is a lawsuit, including attorneys' fees, expenses for bankruptcy
     proceedings (including efforts to modify or vacate any automatic stay or
     injunction), and appeals. Borrower also will pay any court costs, in
     addition to all other sums provided by law.

     GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY, CONSTRUED AND ENFORCED
     IN ACCORDANCE WITH FEDERAL LAW AND THE LAWS OF THE STATE OF CALIFORNIA.
     THIS AGREEMENT HAS BEEN ACCEPTED BY LENDER IN THE STATE OF CALIFORNIA.

     CHOICE OF VENUE. If there is a lawsuit, Borrower agrees upon Lender's
     request to submit to the jurisdiction of the courts of BUTTE County, State
     of

<PAGE>   2
                           CHANGE IN TERMS AGREEMENT                      PAGE 2
                                  (CONTINUED)
================================================================================
     California.

     DISHONORED ITEM FEE.  Borrower will pay a fee to Lender of $10.00 if
     Borrower makes a payment on Borrower's loan and the check or
     preauthorized charge with which Borrower pays is later dishonored.

     RIGHT OF SETOFF.  To the extent permitted by applicable law, Lender
     reserves a right of setoff in all Borrower's accounts with Lender (whether
     checking, savings, or some other account). This includes all accounts
     Borrower holds jointly with someone else and all accounts Borrower may
     open in the future. However, this does not include any IRA or Keough
     accounts, or any trust accounts for which setoff would be prohibited by
     law. Borrower authorizes Lender, to the extent permitted by applicable
     law, to charge or setoff all sums owing on the indebtedness against any
     and all such accounts.

     LINE OF CREDIT.  This Agreement evidences a revolving line of credit.
     Advances under this Agreement may be requested orally by Borrower or as
     provided in this paragraph. Lender may, but need not, require that all
     oral requests be confirmed in writing. All communications, instructions,
     or directions by telephone or otherwise to Lender are to be directed to
     Lender's office shown above. The following persons currently are
     authorized to request advances and authorize payments under the line of
     credit until Lender receives from Borrower, at Lender's address shown
     above, written notice of revocation of their authority: ALEX N. WATT,
     EXECUTIVE VP/SECRETARY OF FAFCO, INC.; NANCY I. GARVIN, VICE PRESIDENT OF
     FINANCE OF FAFCO, INC.; AND FREEMAN A. FORD, PRESIDENT OF FAFCO, INC.
     Borrower agrees to be liable for sums either: (A) advanced in accordance
     with the instruction of an authorized person or (B) credited to any of
     Borrower's accounts with Lender. The unpaid principal balance owing on
     this Agreement at any time may be evidenced by endorsements on this
     Agreement or by Lender's internal records, including daily computer
     print-outs. Lender will have no obligation to advance funds under this
     Agreement if: (A) Borrower or any guarantor is in default under the terms
     of this Agreement or any agreement that Borrower or any guarantor has with
     Lender, including any agreement made in connection with the signing of
     this Agreement; (B) Borrower or any guarantor ceases doing business or is
     insolvent; (C) any guarantor seeks, claims or otherwise attempts to limit,
     modify or revoke such guarantor's guarantee of this Agreement or any other
     loan with Lender; (D) Borrower has applied funds provided pursuant to this
     Agreement for purposes other than those authorized by Lender; or (E)
     Lender in good faith believes itself insecure.

     CONTINUING VALIDITY.  Except as expressly changed by this Agreement, the
     terms of the original obligation or obligations, including all agreements
     evidenced or securing the obligation(s), remain unchanged and in full
     force and effect. Consent by Lender to This Agreement does not waive
     Lender's right to strict performance of the obligation(s) as changed, nor
     obligate Lender to make any future change in terms. Nothing in this
     Agreement will constitute a satisfaction of the obligation(s). It is the
     intention of Lender to retain as liable parties all makers and endorsers
     of the original obligation(s), including accommodation parties, unless a
     party is expressly released by Lender in writing. Any maker or endorser,
     including accommodation makers, will not be released by virtue of this
     Agreement. If any person who signed the original obligation does not sign
     this Agreement below, then all persons signing below acknowledge that this
     Agreement is given conditionally, based on the representation to Lender
     that the non-signing party consents to the changes and provisions of this
     Agreement or otherwise will not be released by it. This waiver applies not
     only to any initial extension, modification or release, but also to all
     such subsequent actions.

     SUCCESSORS AND ASSIGNS.  Subject to any limitations stated in this
     Agreement on transfer of Borrower's interest, this Agreement shall be
     binding upon and inure to the benefit of the parties, their successors and
     assigns. If ownership of the Collateral becomes vested in a person other
     than Borrower, Lender, without notice to Borrower, may deal with
     Borrower's successors with reference to this Agreement and the
     Indebtedness by way of forbearance or extension without releasing Borrower
     from the obligations of this Agreement or liability under the Indebtedness.

     NOTIFY US OF INACCURATE INFORMATION WE REPORT TO CONSUMER REPORTING
     AGENCIES.  Please notify us if we report any inaccurate information about
     your account(s) to a consumer reporting agency. Your written notice
     describing the specific inaccuracy(ies) should be sent to us at the
     following address: Butte Community Bank 672 Person Rd Paradise, CA 95969

     MISCELLANEOUS PROVISIONS.  This Agreement is payable on demand. The
     inclusion of specific default provisions or rights of Lender shall not
     preclude Lender's right to declare payment of this Agreement on its
     demand. Lender may delay or forgo enforcing any of its rights or remedies
     under this Agreement without losing them. Borrower and any other person
     who signs, guarantees or endorses this Agreement, to the extent allowed by
     law, waive any applicable statute of limitations, presentment, demand for
     payment, and notice of dishonor. Upon any change in the terms of this
     Agreement, and unless otherwise expressly stated in writing, no party who
     signs this Agreement, whether as maker, guarantor, accommodation maker or
     endorser, shall be released from liability. All such parties agree that
     Lender may renew or extend (repeatedly and for any length of time) this
     loan or release any party or guarantor or collateral; or impair, fail to
     realize upon or perfect Lender's security interest in the collateral; and
     take any other action deemed necessary by Lender without the consent of
     or notice to anyone. All such parties also agree that Lender may modify
     this loan without the consent of or notice to anyone other than the party
     with whom the modification is made. The obligations under this Agreement
     are joint and several.

     PRIOR TO SIGNING THIS AGREEMENT, BORROWER READ AND UNDERSTOOD ALL THE
     PROVISIONS OF THIS AGREEMENT, INCLUDING THE VARIABLE INTEREST RATE
     PROVISIONS. BORROWER AGREES TO THE TERMS OF THE AGREEMENT.

     CIT SIGNERS:

     X_____________________________________
      NANCY I. GARVIN

================================================================================<PAGE>   1

                                                                EXHIBIT 10.19(F)

                            BUSINESS LOAN AGREEMENT

<TABLE>
<CAPTION>
  PRINCIPAL     LOAN DATE    MATURITY     LOAN NO.   CALL   COLLATERAL    ACCOUNT   OFFICER    INITIALS
<S>            <C>          <C>          <C>         <C>    <C>           <C>       <C>        <C>
$445,000.00    05-15-2000   05-10-2003   0400706206  016      6666        120144      019
</TABLE>

References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
--------------------------------------------------------------------------------

BORROWER: FAFCO, INC.                  LENDER: BUTTE COMMUNITY BANK
          2690 MIDDLEFIELD ROAD                CHICO OFFICE
          REDWOOD CITY, CA 94063               2041 FOREST AVE
                                               CHICO, CA 95928
================================================================================

     THIS BUSINESS LOAN AGREEMENT BETWEEN FAFCO, INC. ("BORROWER") AND BUTTE
     COMMUNITY BANK ("LENDER") IS MADE AND EXECUTED ON THE FOLLOWING TERMS AND
     CONDITIONS. BORROWER HAS RECEIVED PRIOR COMMERCIAL LOANS FROM LENDER OR
     HAS APPLIED TO LENDER FOR A COMMERCIAL LOAN OR LOANS AND OTHER FINANCIAL
     ACCOMMODATIONS, INCLUDING THOSE WHICH MAY BE DESCRIBED ON ANY EXHIBIT OR
     SCHEDULE ATTACHED TO THIS AGREEMENT. ALL SUCH LOANS AND FINANCIAL
     ACCOMMODATIONS, TOGETHER WITH ALL FUTURE LOANS AND FINANCIAL
     ACCOMMODATIONS FROM LENDER TO BORROWER, ARE REFERRED TO IN THIS AGREEMENT
     INDIVIDUALLY AS THE "LOAN" AND COLLECTIVELY AS THE "LOANS." BORROWER
     UNDERSTANDS AND AGREES THAT: (a) IN GRANTING, RENEWING, OR EXTENDING ANY
     LOAN, LENDER IS RELYING UPON BORROWER'S REPRESENTATIONS, WARRANTIES, AND
     AGREEMENTS, AS SET FORTH IN THIS AGREEMENT; (b) THE GRANTING, RENEWING, OR
     EXTENDING OF ANY LOAN BY LENDER AT ALL TIMES SHALL BE SUBJECT TO LENDER'S
     SOLE JUDGMENT AND DISCRETION; AND (c) ALL SUCH LOANS SHALL BE AND SHALL
     REMAIN SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS OF THIS AGREEMENT.

     TERM: This Agreement shall be effective as of May 15, 2000, and shall
     continue thereafter until all Indebtedness of Borrower to Lender has been
     performed in full and the parties terminate this Agreement in writing.

     DEFINITIONS. The following words shall have the following meanings when
     used in this Agreement. Terms not otherwise defined in this Agreement
     shall have the meanings attributed to such terms in the Uniform Commercial
     Code. All references to dollar amounts shall mean amounts in lawful money
     of the United States of America.

          AGREEMENT. The word "Agreement" means this Business Loan Agreement,
          as this Business Loan Agreement may be amended or modified from time
          to time, together with all exhibits and schedules attached to this
          Business Loan Agreement from time to time.

          BORROWER. The word "Borrower" means FAFCO, INC. The word "Borrower"
          also includes, as applicable, all subsidiaries and affiliates of
          Borrower as provided below in the paragraph titled "Subsidiaries and
          Affiliates."

          CERCLA. The word "CERCLA" means the Comprehensive Environmental
          Response, Compensation, and Liability Act of 1980, as amended.

          CASH FLOW: The words "Cash Flow" mean net income after taxes, and
          exclusive of extraordinary gains and income, plus depreciation and
          amortization.

          COLLATERAL. The word "Collateral" means and includes without
          limitation all property and assets granted as collateral security for
          a Loan, whether real or personal property, whether granted directly
          or indirectly, whether granted now or in the future, and whether
          granted in the form of a security interest, mortgage, deed of trust,
          assignment, pledge, chattel mortgage, chattel trust, factor's lien,
          equipment trust, conditional sale, trust receipt, lien, charge, lien
          or title retention contract, lease or consignment intended as a
          security device, or any other security or lien interest whatsoever,
          whether created by law, contract, or otherwise.

          DEBT. The word "Debt" means all of Borrower's liabilities excluding
          Subordinated Debt.

          ERISA. The word "ERISA" means the Employee Retirement Income
          Security Act of 1974, as amended.

          EVENT OF DEFAULT. The words "Event of Default" mean and include
          without limitation any of the Events of Default set forth below in
          the section titled "EVENTS OF DEFAULT."

          GRANTOR. The word "Grantor" means and includes without limitation each
          and all of the persons or entities granting a Security Interest in any
          Collateral for the Indebtedness, including without limitation all
          Borrowers granting such a Security Interest.

          GUARANTOR. The word "Guarantor" means and includes without limitation
          each and all of the guarantors, sureties, and accommodation parties
          in connection with any Indebtedness.

          INDEBTEDNESS. The word "Indebtedness" means and includes without
          limitation all Loans, together with all other obligations, debts and
          liabilities of Borrower to Lender, or any one or more of them, as well
          as all claims by Lender against Borrower, or any one or more of them;
          whether now or hereafter existing, voluntary or involuntary, due or
          not due, absolute or contingent, liquidated or unliquidated; whether
          Borrower may be liable individually or jointly with others; whether
          Borrower may be obligated as a guarantor, surety, or otherwise;
          whether recovery upon such Indebtedness may be or hereafter may
          become barred by any statute of limitations; and whether such
          Indebtedness may be or hereafter may become otherwise unenforceable.

          LENDER. The word "Lender" means BUTTE COMMUNITY BANK, its successors
          and assigns.

          LIQUID ASSETS. The words "Liquid Assets" mean Borrower's cash on hand
          plus Borrower's readily marketable securities.

          LOAN. The word "Loan" or "Loans" means and includes without
          limitation any and all commercial loans and financial accommodations
          from Lender to Borrower, whether now or hereafter existing, and
          however evidenced, including without limitation those loans and
          financial accommodations described herein or described on any exhibit
          or schedule attached to this Agreement from time to time.

          NOTE. The word "Note" means and includes without limitation
          Borrower's promissory note or notes, if any, evidencing Borrower's
          Loan obligations in favor of Lender, as well as any substitute,
          replacement or refinancing note or notes therefor.

          PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and
          security interests securing Indebtedness owed by Borrower to Lender;
          (b) liens for taxes, assessments, or similar charges either not yet
          due or being contested in good faith; (c) liens of materialmen,
          mechanics, warehousemen, or carriers, or other like liens arising in
          the ordinary course of business and securing obligations which are
          not yet delinquent; (d) purchase money liens or purchase money
          security interests upon or in any property acquired or held by
          Borrower in the ordinary course of business to secure indebtedness
          outstanding on the date of this Agreement or permitted to be incurred
          under the paragraph of this Agreement titled "Indebtedness and
          Liens"; (e) liens and security interests which, as of the date of
          this Agreement, have been disclosed to and approved by the Lender in
          writing; and (f) those liens and security interests which in the
          aggregate constitute an immaterial and insignificant monetary amount
          with respect to the net value of Borrower's assets.

          RELATED DOCUMENTS. The words "Related Documents" mean and include
          without limitation all promissory notes, credit agreements, loan
          agreements, environmental agreements, guaranties, security agreements,
          mortgages, deeds of trust, and all other instruments, agreements and
          documents, whether now or hereafter existing, executed in connection
          with the Indebtedness.

          SECURITY AGREEMENT. The words "Security Agreement" mean and include
          without limitation any agreements, promises, covenants, arrangements,
          understandings or other agreements, whether created by law, contract,
          or otherwise, evidencing, governing, representing, or creating a
          Security Interest.

          SECURITY INTEREST. The words "Security Interest" mean and include
          without limitation any type of collateral security, whether in the
          form of a lien, charge, mortgage, deed of trust, assignment, pledge,
          chattel mortgage, chattel trust, factor's lien, equipment trust,
          conditional sale, trust receipt, lien or title retention contract,
          lease or consignment intended as a security device, or any other
          security or lien interest whatsoever, whether created by law,
          contract, or otherwise.

          SARA. The word "SARA" means the Superfund Amendments and
          Reauthorization Act of 1986 as now or hereafter amended.

          SUBORDINATED DEBT. The words "Subordinated Debt" mean Indebtedness
          and liabilities of Borrower which have been subordinated by written
          agreement to indebtedness owed by Borrower to Lender in form and
          substance acceptable to Lender.

          TANGIBLE NET WORTH. The words "Tangible Net Worth" mean Borrower's
          total assets (i.e., goodwill, trademarks, patents, copyrights,
          organizational expenses, and similar intangible items, but including
          leaseholds and leasehold improvements) less total Debt.

          WORKING CAPITAL. The words "Working Capital" mean Borrower's current
          assets, excluding prepaid expenses, less Borrower's current
          liabilities.

     CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the
     initial Loan Advance and each subsequent Loan Advance under this Agreement
     shall be subject to the fulfillment to Lender's satisfaction of all of the
     conditions set forth in this Agreement and in the Related Documents.

          LOAN DOCUMENTS. Borrower shall provide to Lender in form satisfactory
          to Lender the following documents for the Loan: (a) the Note, (b)
          Security Agreements granting to Lender security interests in the
          Collateral, (c) Financing Statements perfecting Lender's Security
          Interests; (d) evidence of insurance as required below; and (e) any
          other documents required under this Agreement or by Lender or its
          counsel.

          BORROWER'S AUTHORIZATION. Borrower shall have provided in form and
          substance satisfactory to Lender properly certified resolutions, duly
          authorizing the execution and delivery of this Agreement, the Note
          and the Related Documents, and such other authorizations and other
          documents and instruments as Lender or its counsel, in their sole
          discretion, may require.

<PAGE>   2
05-15-2000                  BUSINESS LOAN AGREEMENT                       PAGE 2
LOAN NO 0400706206                (CONTINUED)
================================================================================

     PAYMENT OF FEES AND EXPENSES. Borrower shall have paid to Lender all fees,
     charges, and other expenses which are then due and payable as specified in
     this Agreement or any Related Document.

     REPRESENTATIONS AND WARRANTIES. The representations and warranties set
     forth in this Agreement, in the Related Documents, and in any document or
     certificate delivered to Lender under this Agreement are true and correct.

     NO EVENT OF DEFAULT. There shall not exist at the time of any advance a
     condition which would constitute an Event of Default under this Agreement.

REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:

     ORGANIZATION. Borrower is a corporation which is duly organized, validly
     existing, and in good standing under the laws of the State of California
     and is validly existing and in good standing in all states in which
     Borrower is doing business. Borrower has the full power and authority to
     own its properties and to transact the businesses in which it is presently
     engaged or presently proposes to engage. Borrower also is duly qualified
     as a foreign corporation and is in good standing in all states in which
     the failure to so qualify would have a material adverse effect on its
     businesses or financial condition.

     AUTHORIZATION. The execution, delivery, and performance of this Agreement
     and all Related Documents by Borrower, to the extent to be executed,
     delivered or performed by Borrower, have been duly authorized by all
     necessary action by Borrower; do not require the consent or approval of
     any other person, regulatory authority or governmental body; and do not
     conflict with, result in a violation of, or constitute a default under (a)
     any provision of its articles of incorporation or organization, or bylaws,
     or any agreement or other instrument binding upon Borrower or (b) any law,
     governmental regulation, court decree, or order applicable to Borrower.

     FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
     Lender truly and completely disclosed Borrower's financial condition as of
     the date of the statement, and there has been no material adverse change in
     Borrower's financial condition subsequent to the date of the most recent
     financial statement supplied to Lender. Borrower has no material contingent
     obligations except as disclosed in such financial statements.

     LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement
     required hereunder to be given by Borrower when delivered will constitute,
     legal, valid and binding obligations of Borrower enforceable against
     Borrower in accordance with their respective terms.

     PROPERTIES. Except as contemplated by this Agreement or as previously
     disclosed in Borrower's financial statements or in writing to Lender and as
     accepted by Lender, and except for property tax liens for taxes not
     presently due and payable, Borrower owns and has good title to all of
     Borrower's properties free and clear of all Security Interests, and has not
     executed any security documents or financing statements relating to such
     properties. All of Borrower's properties are titled in Borrower's legal
     name, and Borrower has not used, or filed a financing statement under, any
     other name for at least the last five (5) years.

     HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous substance,"
     "disposal," "release," and "threatened release," as used in this Agreement,
     shall have the same meanings as set forth in the "CERCLA," "SARA," the
     Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.,
     the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et
     seq., Chapters 6.5 through 7.7 of Division 20 of the California Health and
     Safety Code, Section 25100, et seq., or other applicable state or Federal
     laws, rules, or regulations adopted pursuant to any of the foregoing.
     Except as disclosed to and acknowledged by Lender in writing, Borrower
     represents and warrants that: (a) During the period of Borrower's ownership
     of the properties, there has been no use, generation, manufacture, storage,
     treatment, disposal, release or threatened release of any hazardous waste
     or substance by any person on, under, about or from any of the properties.
     (b) Borrower has no knowledge of, or reason to believe that there has been
     (i) any use, generation, manufacture, storage, treatment, disposal,
     release, or threatened release of any hazardous waste or substance on,
     under, about or from the properties by any prior owners or occupants of any
     of the properties, or (ii) any actual or threatened litigation or claims of
     any kind by any person relating to such matters. (c) Neither Borrower nor
     any tenant, contractor, agent or other authorized user of any of the
     properties shall use, generate, manufacture, store, treat, dispose of, or
     release any hazardous waste or substance on, under, about or from any of
     the properties; and any such activity shall be conducted in compliance with
     all applicable federal, state, and local laws, regulations, and ordinances,
     including without limitation those laws, regulations and ordinances
     described above. Borrower authorizes Lender and its agents to enter upon
     the properties to make such inspections and tests as Lender may deem
     appropriate to determine compliance of the properties with this section of
     the Agreement. Any inspections or tests made by Lender shall be at
     Borrower's expense and for Lender's purposes only and shall not be
     construed to create any responsibility or liability on the part of Lender
     to Borrower or to any other person. The representations and warranties
     contained herein are based on Borrower's due diligence in investigating the
     properties for hazardous waste and hazardous substances. Borrower hereby
     (a) releases and waives any future claims against Lender for indemnity or
     contribution in the event Borrower becomes liable for cleanup or other
     costs under any such laws, and (b) agrees to indemnify and hold harmless
     Lender against any and all claims, losses, liabilities, damages, penalties,
     and expenses which Lender may directly or indirectly sustain or suffer
     resulting from a breach of this section of the Agreement or as a
     consequence of any use, generation, manufacture, storage, disposal, release
     or threatened release of a hazardous waste or substance on the properties.
     The provisions of this section of the Agreement, including the obligation
     to indemnify, shall survive the payment of the Indebtedness and the
     termination or expiration of this Agreement and shall not be affected by
     Lender's acquisition of any interest in any of the properties, whether by
     foreclosure or otherwise.

     LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative
     proceeding or similar action (including those for unpaid taxes) against
     Borrower is pending or threatened, and no other event has occurred which
     may materially adversely affect Borrower's financial condition or
     properties, other than litigation, claims, or other events, if any, that
     have been disclosed to and acknowledged by Lender in writing.

     TAXES. To the best of Borrower's knowledge, all tax returns and reports of
     Borrower that are or were required to be filed, have been filed, and all
     taxes, assessments and other governmental charges have been paid in full,
     except those presently being or to be contested by Borrower in good faith
     in the ordinary course of business and for which adequate reserves have
     been provided.

     LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing,
     Borrower has not entered into or granted any Security Agreements, or
     permitted the filing or attachment of any Security Interests on or
     affecting any of the Collateral directly or indirectly securing repayment
     of Borrower's Loan and Note, that would be prior or that may in any way be
     superior to Lender's Security Interests and rights in and to such
     Collateral.

     BINDING EFFECT. This Agreement, the Note, all Security Agreements directly
     or indirectly securing repayment of Borrower's Loan and Note and all of the
     Related Documents are binding upon Borrower as well as upon Borrower's
     successors, representatives and assigns, and are legally enforceable in
     accordance with their respective terms.

     COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for
     business or commercial related purposes.

     EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower may
     have any liability complies in all material respects with all applicable
     requirements of law and regulations, and (i) no Reportable Event nor
     Prohibited Transaction (as defined in ERISA) has occurred with respect to
     any such plan, (ii) Borrower has not withdrawn from any such plan or
     initiated steps to do so, (iii) no steps have been taken to terminate any
     such plan, and (iv) there are no unfunded liabilities other than those
     previously disclosed to Lender in writing.

     LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of business,
     or Borrower's Chief executive office, if Borrower has more than one place
     of business, is located at 2690 MIDDLEFIELD ROAD, REDWOOD CITY, CA 94063.
     Unless Borrower has designated otherwise in writing this location is also
     the office or offices where Borrower keeps its records concerning the
     Collateral.

     INFORMATION. All information heretofore or contemporaneously herewith
     furnished by Borrower to Lender for the purposes of or in connection with
     this Agreement or any transaction contemplated hereby is, and all
     information hereafter furnished by or on behalf of Borrower to Lender will
     be, true and accurate in every material respect on the date as of which
     such information is dated or certified; and none of such information is or
     will be incomplete by omitting to state any material fact necessary to make
     such information not misleading.

     SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and agrees
     that Lender, without independent investigation, is relying upon the above
     representations and warranties in extending Loan Advances to Borrower.
     Borrower further agrees that the foregoing representations and warranties
     shall be continuing in nature and shall remain in full force and effect
     until such time as Borrower's Indebtedness shall be paid in full, or until
     this Agreement shall be terminated in the manner provided above, whichever
     is the last to occur.

AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:

     LITIGATION. Promptly inform Lender in writing of (a) all material adverse
     changes in Borrower's financial condition, and (b) all existing and all
     threatened litigation, claims, investigations, administrative proceedings
     or similar actions affecting Borrower or any Guarantor which could
     materially affect the financial condition of Borrower or the financial
     condition of any Guarantor.

     FINANCIAL RECORDS. Maintain its books and records in accordance with
     generally accepted accounting principles, applied on a consistent basis,
     and permit Lender to examine and audit Borrower's books and records at all
     reasonable times.

<PAGE>   3
05-15-2000                  BUSINESS LOAN AGREEMENT                       PAGE 3
LOAN NO 0400706206                (CONTINUED)
================================================================================

     FINANCIAL STATEMENTS. Furnish Lender with, as soon as available, but in no
     event later than ninety (90) days after the end of each fiscal year,
     Borrower's balance sheet and income statement for the year ended, audited
     by a certified public accountant satisfactory to Lender, and, as soon as
     available, but in no event later than thirty (30) days after the end of
     each month, Borrower's balance sheet and profit and loss statement for the
     period ended, prepared and certified as correct to the best knowledge and
     belief by Borrower's chief financial officer or other officer or person
     acceptable to Lender. All financial reports required to be provided under
     this Agreement shall be prepared in accordance with generally accepted
     accounting principles, applied on a consistent basis, and certified by
     Borrower as being true and correct.

     ADDITIONAL INFORMATION. Furnish such additional information and
     statements, lists of assets and liabilities, agings of receivables and
     payables, inventory schedules, budgets, forecasts, tax returns, and other
     reports with respect to Borrower's financial condition and business
     operations as Lender may request from time to time.

     FINANCIAL COVENANTS AND RATIOS. Comply with the following covenants and
     ratios:

          TANGIBLE NET WORTH. Maintain a minimum Tangible Net Worth of not
          less than $3,000,000.00.

          NET WORTH RATIO. Maintain a ratio of Total Liabilities to Tangible
          Net Worth of less than 1.25 to 1.00.

          WORKING CAPITAL. Maintain Working Capital in excess of $1,000,000.00.

          CURRENT RATIO. Maintain a ratio of Current Assets to Current
          Liabilities in excess of 1.50 to 1.00.

          QUICK RATIO. Maintain a ratio of Liquid Assets to Current Liabilities
          in excess of 1.00 to 1.00.

          INCOME. Maintain not less than the following income level: 1.00
          QUARTERLY.

          CASH FLOW REQUIREMENTS. Maintain Cash Flow at not less than the
          following level: 1.75 TO 1.00. Except as provided above, all
          computations made to determine compliance with the requirements
          contained in this paragraph shall be made in accordance with
          generally accepted accounting principles, applied on a consistent
          basis, and certified by Borrower as being true and correct.

          INSURANCE. Maintain fire and other risk insurance, public liability
          insurance, and such other insurance as Lender may require with
          respect to Borrower's properties and operations, in form, amounts,
          coverages and with insurance companies acceptable to Lender.
          Borrower, upon request of Lender, will deliver to Lender from time to
          time the policies or certificates of insurance in form satisfactory
          to Lender, including stipulations that coverages will not be
          cancelled or diminished without at least ten (10) days' prior written
          notice to Lender. Each insurance policy also shall include an
          endorsement providing that coverage in favor of Lender will not be
          impaired in any way by any act, omission or default of Borrower or
          any other person. In connection with all policies covering assets in
          which Lender holds or is offered a security interest for the Loans,
          Borrower will provide Lender with such loss payable or other
          endorsements as Lender may require.

     INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on
     each existing insurance policy showing such information as Lender may
     reasonably request, including without limitation the following: (a) the
     name of the insurer; (b) the risks insured; (c) the amount of the policy;
     (d) the properties insured; (e) the then current property values on the
     basis of which insurance has been obtained, and the manner of determining
     those values; and (f) the expiration date of the policy. In addition, upon
     request of Lender (however not more often than annually), Borrower will
     have an independent appraiser satisfactory to Lender determine, as
     applicable, the actual cash value or replacement cost of any Collateral.
     The cost of such appraisal shall be paid by Borrower.

     OTHER AGREEMENTS. Comply with all terms and conditions of all other
     agreements, whether now or hereafter existing, between Borrower and any
     other party and notify Lender immediately in writing of any default in
     connection with any other such agreements.

     LOAN PROCEEDS. Use all Loan proceeds solely for the following specific
     purposes: EQUIPMENT FINANCING FOR FAFCO, INC.

     TAXES, CHARGES AND LIENS. Pay and discharge when due all of its
     indebtedness and obligations, including without limitation all
     assessments, taxes, governmental charges, levies and liens, of every kind
     and nature, imposed upon Borrower or its properties, income, or profits,
     prior to the date on which penalties would attach, and all lawful claims
     that, if unpaid, might become a lien or charge upon any of Borrower's
     properties, income, or profits. Provided however, Borrower will not be
     required to pay and discharge any such assessment, tax, charge, levy, lien
     or claim so long as (a) the legality of the same shall be contested in
     good faith by appropriate proceedings, and (b) Borrower shall have
     established on its books adequate reserves with respect to such contested
     assessment, tax, charge, levy, lien, or claim in accordance with
     generally accepted accounting practices. Borrower, upon demand of Lender,
     will furnish to Lender evidence of payment of the assessments, taxes,
     charges, levies, liens and claims and will authorize the appropriate
     governmental official to deliver to Lender at any time a written statement
     of any assessments, taxes, charges, levies, liens and claims against
     Borrower's properties, income, or profits.

     PERFORMANCE. Perform and comply with all terms, conditions, and provisions
     set forth in this Agreement and in the Related Documents in a timely
     manner, and promptly notify Lender if Borrower learns of the occurrence of
     any event which constitutes an Event of Default under this Agreement or
     under any of the Related Documents.

     OPERATIONS. Maintain executive and management personnel with substantially
     the same qualifications and experience as the present executive and
     management personnel; provide written notice to Lender of any change in
     executive and management personnel; conduct its business affairs in a
     reasonable and prudent manner and in compliance with all applicable
     federal, state and municipal laws, ordinances, rules and regulations
     respecting its properties, charters, businesses and operations, including
     without limitation, compliance with the Americans With Disabilities Act
     and with all minimum funding standards and other requirements of ERISA and
     other laws applicable to Borrower's employee benefit plans.

     INSPECTION. Permit employees or agents of Lender at any reasonable time to
     inspect any and all Collateral for the Loans or Loans and Borrower's other
     properties and to examine or audit Borrower's books, accounts, and records
     and to make copies and memoranda of Borrower's books, accounts, and
     records. If Borrower now or at any time hereafter maintains any records
     (including without limitation computer generated records and computer
     software programs for the generation of such records) in the possession of
     a third party, Borrower, upon request of Lender, shall notify such party
     to permit Lender free access to such records at all reasonable times and
     to provide Lender with copies of any records it may request, all at
     Borrower's expense.

     COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide Lender
     at least annually and at the time of each disbursement of Loan proceeds
     with a certificate executed by Borrower's chief financial officer, or
     other officer or person acceptable to Lender, certifying that the
     representations and warranties set forth in this Agreement and true and
     correct as of the date of the certificate and further certifying that, as
     of the date of the certificate, no Event of Default exists under this
     Agreement.

     ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all
     respects with all environmental protection federal, state and local laws,
     statutes, regulations and ordinances; not cause to permit to exist, as a
     result of an intentional or unintentional action or omission on its part
     or on the part of any third party, on property owned and/or occupied by
     Borrower, any environmental activity where damage may result to the
     environment, unless such environmental activity is pursuant to and in
     compliance with the conditions of a permit issued by the appropriate
     federal, state or local governmental authorities; shall furnish to Lender
     promptly and in any event within thirty (30) days after receipt thereof a
     copy of any notice, summons, lien, citation, directive, letter or other
     communication from any governmental agency or instrumentality concerning
     any intentional or unintentional action or omission of Borrower's part in
     connection with any environmental activity whether or not there is damage
     to the environment and/or other natural resources.

     ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory
     notes, mortgages, deeds of trust, security agreements, financing
     statements, instruments, documents and other agreements as Lender or its
     attorneys may reasonably request to evidence and secure the Loans and to
     perfect all Security Interests.

NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent
of Lender:

     CAPITAL EXPENDITURES. Make or contract to make capital expenditures,
     including leasehold improvements, in any fiscal year in excess of
     $100,000.00 or incur liability for rentals of property (including both
     real and personal property) in an amount which, together with capital
     expenditures, shall in any fiscal year exceed such sum.

     INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the normal
     course of business and indebtedness to Lender contemplated by this
     Agreement, create, incur or assume additional indebtedness for borrowed
     money, including capital leases, in excess of the aggregate amount of U.S.
     $100,000.00, (b) except as allowed as a Permitted Lien, sell, transfer,
     mortgage, assign, pledge, lease, grant a security interest in, or encumber
     any of Borrower's assets, or (c) sell with recourse any of Borrower's
     accounts, except to Lender.

     CONTINUITY OF OPERATIONS. (a) engage in any business activities
     substantially different than those in which Borrower is presently engaged,
     (b) cease operations, liquidate, merge, transfer, acquire or consolidate
     with any other entity, change ownership, change its name, dissolve or
     transfer or sell Collateral out of the ordinary course of business, (c) pay
     any dividends on Borrower's stock (other than dividends payable in its
     stock), provided, however that notwithstanding the foregoing, but only so
     long as no Event of Default has occurred and is continuing or would result
     from the payment of dividends, if Borrower is a "Subchapter S Corporation"
     (as defined in the Internal Revenue Code of 1986, as amended), Borrower
     may pay cash dividends on its stock to its shareholders from time to time
     in amounts necessary to enable the shareholders to pay income taxes and
     make estimated income tax payments to satisfy their liabilities under
     federal and state law which arise solely from their status as Shareholders
<PAGE>   4
05-15-2000                  BUSINESS LOAN AGREEMENT                       PAGE 4
LOAN NO 0400706206                (CONTINUED)
================================================================================

     of a Subchapter S Corporation because of their ownership of shares of stock
     of Borrower, or (d) purchase or retire any of Borrower's outstanding shares
     or alter or amend Borrower's capital structure.

     LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money or
     assets, (b) purchase, create or acquire any interest in any other
     enterprise or entity, or (c) incur any obligation as surety or guarantor
     other than in the ordinary course of business.

CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement
or any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or Guarantor becomes insolvent, files a
petition in bankruptcy or similar proceedings, or is adjudged a bankrupt; (c)
there occurs a material adverse change in Borrower's financial condition, in
the financial condition of any Guarantor, or in the value of any Collateral
securing any Loan; (d) any Guarantor seeks, claims or otherwise attempts to
limit, modify or revoke such Guarantor's guaranty of the Loan or any other loan
with Lender; or (e) Lender in good faith deems itself insecure, even though no
Event of Default shall have occurred.

ADDITIONAL PROVISION. THE BORROWER AGREES TO MOVE OR MAINTAIN THEIR GENERAL
OPERATING CHECKING ACCOUNT WITH THE BANK DURING THE LIFE OF THE LOAN.

ADDITIONAL FINANCIAL STATEMENTS. 10Q AND 10K STATEMENTS DUE WITHIN 5 DAYS OF
EACH FILING.

BORROWING BASE AND ELIGIBLE ACCOUNTS. BORROWING BASE: 75% OF ELIGIBLE ACCOUNTS.
ELIGIBLE ACCOUNTS: ACCOUNTS LESS THAN 90 DAYS PAST DUE; ACCOUNTS THAT MAKE UP
LESS THAN 25% OF TOTAL ACCOUNTS; FOREIGN ACCOUNTS SPECIFICALLY APPROVED BY BANK.

RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in,
and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
Borrower's right, title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including without
limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on the Indebtedness against
any and all such accounts.

EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:

     DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when due
     on the Loans.

     OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to
     perform when due any other term, obligation, covenant or condition
     contained in this Agreement or in any of the Related Documents, or failure
     of Borrower to comply with or to perform any other term, obligation,
     covenant or condition contained in any other agreement between Lender and
     Borrower.

     DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default
     under any loan, extension of credit, security agreement, purchase or sales
     agreement, or any other agreement, in favor of any other creditor or person
     that may materially affect any of Borrower's property or Borrower's or any
     Grantor's ability to repay the Loans or perform their respective
     obligations under this Agreement or any of the Related Documents.

     FALSE STATEMENTS. Any warranty, representation or statement made or
     furnished to Lender by or on behalf of Borrower or any Grantor under this
     Agreement or the Related Documents is false or misleading in any material
     respect at the time made or furnished, or becomes false or misleading at
     any time thereafter.

     DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents
     ceases to be in full force and effect (including failure of any Security
     Agreement to create a valid and perfected Security Interest) at any time
     and for any reason.

     INSOLVENCY. The dissolution or termination of Borrower's existence as a
     going business, the insolvency of Borrower, the appointment of a receiver
     for any part of Borrower's property, any assignment for the benefit of
     creditors, any type of creditor workout, or the commencement of any
     proceeding under any bankruptcy or insolvency laws by or against Borrower.

     CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
     forfeiture proceedings, whether by judicial proceeding, self-help,
     repossession or any other method, by any creditor of Borrower, any creditor
     of any Grantor against any collateral securing the Indebtedness, or by any
     governmental agency. This includes a garnishment, attachment, or levy on or
     of any of Borrower's deposit accounts with Lender. However, this Event of
     Default shall not apply if there is a good faith dispute by Borrower or
     Grantor, as the case may be, as to the validity or reasonableness of the
     claim which is the basis of the creditor or forfeiture proceeding, and if
     Borrower or Grantor gives Lender written notice of the creditor or
     forfeiture proceeding and furnishes reserves or a surety bond for the
     creditor or forfeiture proceeding satisfactory to Lender.

     EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect
     to any Guarantor of any of the Indebtedness or any Guarantor dies or
     becomes incompetent, or revokes or disputes the validity of, or liability
     under, any Guaranty of the Indebtedness. Lender, at its option, may, but
     shall not be required to, permit the Guarantor's estate to assume
     unconditionally the obligations arising under the guaranty in a manner
     satisfactory to Lender, and, in doing so, cure the Event of Default.

     CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent (25%)
     or more of the common stock of Borrower.

     ADVERSE CHANGE. A material adverse change occurs in Borrower's financial
     condition, or Lender believes the prospect of payment or performance of the
     Indebtedness is impaired.

     INSECURITY. Lender, in good faith, deems itself insecure.

     RIGHT TO CURE. If any default, other than a Default on Indebtedness, is
     curable and if Borrower or Grantor, as the case may be, has not been given
     a notice of a similar default within the preceding twelve (12) months, it
     may be cured (and no Event of Default will have occurred) if Borrower or
     Grantor, as the case may be, after receiving written notice from Lender
     demanding cure of such default: (a) cures the default within fifteen (15)
     days; or (b) if the cure requires more than fifteen (15) days, immediately
     initiates steps which Lender deems in Lender's sole discretion to be
     sufficient to cure the default and thereafter continues and completes all
     reasonable and necessary steps sufficient to produce compliance as soon as
     reasonably practical.

EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any
obligation to make Loan Advances or disbursements), and, at Lender's option,
all Indebtedness immediately will become due and payable, all without notice of
any kind to Borrower, except that in the case of an Event of Default of the
type described in the "Insolvency" subsection above, such acceleration shall be
automatic and not optional. In addition, Lender shall have all the rights and
remedies provided in the Related Documents or available at law, in equity, or
otherwise. Except as may be prohibited by applicable law, all of Lender's
rights and remedies shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude pursuit
of any other remedy, and an election to make expenditures or to take action to
perform an obligation of Borrower or of any Grantor shall not affect Lender's
right to declare a default and to exercise its rights and remedies.

MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:

     AMENDMENTS. This Agreement, together with any Related Documents,
     constitutes the entire understanding and agreement of the parties as to the
     matters set forth in this Agreement. No alteration of or amendment to this
     Agreement shall be effective unless given in writing and signed by the
     party or parties sought to be charged or bound by the alteration or
     amendment.

     APPLICABLE LAW. THIS AGREEMENT HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY
     LENDER IN THE STATE OF CALIFORNIA. IF THERE IS A LAWSUIT, BORROWER AGREES
     UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF BUTTE
     COUNTY, THE STATE OF CALIFORNIA. THIS AGREEMENT SHALL BE GOVERNED BY AND
     CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.

     CAPTION HEADINGS. Caption headings in this Agreement are for convenience
     purposes only and are not to be used to interpret or define the provisions
     of this Agreement.

     MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Borrower under
     this Agreement shall be joint and several, and all references to Borrower
     shall mean each and every Borrower. This means that each of the persons
     signing below is responsible for all obligations in this Agreement.

     CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's
     sale or transfer, whether now or later, of one or more participation
     interests in the Loans to one or more purchasers, whether related or
     unrelated to Lender. Lender may provide, without any limitation whatsoever,
     to any one or more purchasers, or potential purchasers, any information or
     knowledge Lender may have about Borrower or about any other matter relating
     to the Loan, and Borrower hereby waives any rights to privacy it may have
     with respect to such matters. Borrower additionally waives any and all
     notices of sale of participation interests, as well as all notices of any
     repurchase of such participation interests. Borrower also agrees that the
     purchasers of any such participation interests will be considered as the
     absolute owners of such interests in the Loans and will have all the rights
     granted under the participation agreement or agreements governing the sale
     of such participation interests. Borrower further waives all rights of
     offset or counterclaim that it may have now or later against Lender or
     against any purchaser of such a participation interest and unconditionally
     agrees that either Lender or such purchaser may enforce Borrower's
     obligation under the Loans irrespective of the failure or insolvency of any
     holder of any interest in the Loans. Borrower further agrees that the
     purchaser of any such participation interests may enforce its interests
     irrespective of any personal claims or defenses that Borrower may have
     against Lender.

     COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's
     expenses, including without limitation attorney's fees, incurred in
     connection with the preparation, execution, enforcement, modification and
     collection of this Agreement or in connection with the Loans made pursuant
     to this Agreement. Lender may pay someone else to help collect the Loans
     and to enforce this Agreement, and Borrower will pay that amount. This
     includes, subject to any limits under applicable law, Lender's attorneys'
     fees and Lender's legal expenses, whether or not there is a
<PAGE>   5
05-15-2000                   BUSINESS LOAN AGREEMENT                     PAGE 5
LOAN NO 0400706206                (CONTINUED)
===============================================================================
     lawsuit, including attorneys' fees for bankruptcy proceedings (including
     efforts to modify or vacate any automatic stay or injunction), appeals, and
     any anticipated post-judgment collection services. Borrower also will pay
     any courts costs, in addition to all other sums provided by law.

     NOTICES. All notices required to be given under this Agreement shall be
     given in writing, may be sent by telefacsimile (unless otherwise required
     by law), and shall be effective when actually delivered or when deposited
     with a nationally recognized overnight courier or deposited in the United
     States mail, first class, postage prepaid, addressed to the party to whom
     the notice is to be given at the address shown above. Any party may change
     its address for notices under this Agreement by giving formal written
     notice to the other parties, specifying that the purpose of the notice is
     to change the party's address. To the extent permitted by applicable law,
     if there is more than one Borrower, notice to any Borrower will constitute
     notice to all Borrowers. For notice purposes, Borrower will keep Lender
     informed at all times of Borrower's current address(es).

     SEVERABILITY. If a court of competent jurisdiction finds any provision of
     this Agreement to be invalid or unenforceable as to any person or
     circumstance, such finding shall not render that provision invalid or
     unenforceable as to any other persons or circumstances. If feasible, any
     such offending provision shall be deemed to be modified to be within the
     limits of enforceability or validity; however, if the offending provision
     cannot be so modified, it shall be stricken and all other provisions of
     this Agreement in all other aspects shall remain valid and enforceable.

     SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any
     provisions of this Agreement makes it appropriate, including without
     limitation any representation, warranty or covenant, the word "Borrower"
     as used herein shall include all subsidiaries and affiliates of Borrower.
     Notwithstanding the foregoing however, under no circumstances shall this
     Agreement be construed to require Lender to make any Loan or other
     financial accommodation to any subsidiary or affiliate of Borrower.

     SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on
     behalf of Borrower shall bind its successors and assigns and shall inure
     to the benefit of Lender, its successors and assigns. Borrower shall not,
     however, have the right to assign its rights under this Agreement or any
     interest therein, without the prior consent of Lender.

     SURVIVAL. All warranties, representations, and covenants made by Borrower
     in this Agreement or in any certificate or other instrument delivered by
     Borrower to Lender under this Agreement shall be considered to have been
     relied upon by Lender and will survive the making of the Loan and delivery
     to Lender of the Related Documents, regardless of any investigation made
     by Lender or on Lender's behalf.

     TIME IS OF THE ESSENCE. Time is of the essence in the performance of this
     Agreement.

     WAIVER. Lender shall not be deemed to have waived any rights under this
     Agreement unless such waiver is given in writing and signed by Lender. No
     delay or omission on the part of Lender in exercising any right shall
     operate as a waiver of such right or any other right. A waiver by Lender
     of a provision of this Agreement shall not prejudice or constitute a
     waiver of Lender's right otherwise to demand strict compliance with that
     provision or any other provision of this Agreement. No prior waiver by
     Lender, nor any course of dealing between Lender and Borrower, or between
     Lender and any Grantor, shall constitute a waiver of any of Lender's
     rights or of any obligations of Borrower or of any Grantor as to any
     future transactions. Whenever the consent of Lender is required under this
     Agreement, the granting of such consent by Lender in any instance shall
     not constitute continuing consent in subsequent instances where such
     consent is required, and in all cases such consent may be granted or
     withheld in the sole discretion of Lender.

BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF MAY
15, 2000.

BORROWER
FAFCO, INC.

By:  /s/ FREEMAN A. FORD
   ----------------------------
     FREEMAN A. FORD, President

LENDER:
BUTTE COMMUNITY BANK

By:  /s/ [SIGNATURE ILLEGIBLE]
   ----------------------------
     Authorized Officer
===============================================================================

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