EN POINTE TECHNOLOGIES INC, 10-K, 1997-12-29

EN POINTE TECHNOLOGIES INC
10-K, 1997-12-29
COMPUTERS & PERIPHERAL EQUIPMENT & SOFTWARE

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K

/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Fiscal Year ended September 30, 1997

/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

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COMMISSION FILE NUMBER 000-28052

EN POINTE TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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<S> <C>
DELAWARE 75-2467002
(State or other jurisdiction (I.R.S. Employer
of Identification
incorporation or organization) No.)
</TABLE>

100 NORTH SEPULVEDA BOULEVARD, 19TH FLOOR, EL SEGUNDO, CALIFORNIA 90245
(Address of principal executive offices)

Registrant's telephone number, including area code: (310) 725-5200

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Securities registered pursuant to Section 12(b) of the Act:

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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
<S> <C>
None None
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Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.001 per share
(Title of Class)
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO _

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /

The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sales price of the Common Stock as of
December 22,1997, was approximately $31,631,271.

The number of outstanding shares of the Registrant's Common Stock as of
December 22, 1997 was 5,855,040.
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DOCUMENTS INCORPORATED BY REFERENCE

PORTIONS OF REGISTRANT'S PROXY STATEMENT FOR THE 1998 ANNUAL MEETING OF
STOCKHOLDERS (TO BE FILED WITH THE COMMISSION ON OR BEFORE JANUARY 28, 1998):
PART III, ITEMS 10-13.

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THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS RELATING
TO FUTURE EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF THE COMPANY, INCLUDING
BUT NOT LIMITED TO STATEMENTS CONTAINED IN "FACTORS WHICH MAY AFFECT FUTURE
OPERATING RESULTS," "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS." READERS ARE CAUTIONED THAT
SUCH STATEMENTS, WHICH MAY BE IDENTIFIED BY WORDS INCLUDING "ANTICIPATES,"
"BELIEVES," "INTENDS," "ESTIMATES," "EXPECTS," AND SIMILAR EXPRESSIONS, ARE ONLY
PREDICTIONS OR ESTIMATIONS AND ARE SUBJECT TO KNOWN AND UNKNOWN RISKS AND
UNCERTAINTIES. IN EVALUATING SUCH STATEMENTS, READERS SHOULD CONSIDER THE
VARIOUS FACTORS IDENTIFIED IN THIS ANNUAL REPORT ON FORM 10-K, INCLUDING MATTERS
SET FORTH IN "FACTORS WHICH MAY AFFECT FUTURE OPERATING RESULTS," WHICH COULD
CAUSE ACTUAL EVENTS, PERFORMANCE OR RESULTS TO DIFFER MATERIALLY FROM THOSE
INDICATED BY SUCH STATEMENTS.

ITEM 1. BUSINESS

En Pointe Technologies, Inc. ("En Pointe" or the "Company") is a national
provider of information technology products and value-added services to large-
and medium-sized companies and government entities. The Company has developed an
innovative business model which capitalizes on the Company's proprietary
information systems and the extensive warehousing, purchasing and distribution
functions of selected national distributors of information technology products.
The Company's proprietary information systems, which include its EPIC software,
enable the Company to establish on-line communication links with its sales
representatives, selected distributors and certain customers that provide
pricing and availability information on a broad range of information technology
products from multiple sources. By leveraging its proprietary information
systems and distributor relationships, the Company is able to provide its
customers access to an extensive range of products at competitive prices without
the Company assuming the risks and costs associated with maintaining significant
product inventories.

INDUSTRY OVERVIEW

The markets for information technology products and services are expected to
continue to experience significant growth over the next few years. According to
DataQuest, Inc. ("DataQuest"), a leading industry publication, the U.S. market
for personal computers is expected to increase from $60.1 billion in 1996 to
$111.4 billion in 2000, representing a compound annual growth rate of 16.7%. In
addition, DataQuest expects the U.S. information technology services market to
increase from $56.0 billion in 1996 to $96.7 billion in 2000, representing a
compound annual growth rate of 14.7%. The Company believes that the leading
factors driving the growth in the markets for information technology products
and services are the continued transition to distributed computing technologies,
such as client/server, increased networking of personal computers into local
area networks ("LANs") and wide area networks ("WANs"), increased use of the
Internet and growing use of intranets in corporate environments.

Significant price competition and abbreviated product lifecycles have forced
information technology product manufacturers to pursue lower cost manufacturing,
assembly and distribution strategies. Additionally, certain product
manufacturers have elected to outsource the related configuration, installation
and maintenance of their products to third party providers. Wholesale
distributors, which inventory products from multiple vendors and sell to
resellers as well as corporate resellers, which sell directly to corporate end
users and provide related information technology services, have emerged as
direct beneficiaries of these trends by manufacturers.

The utilization of the information technology product distribution channel
and the continued efforts by manufacturers to improve their cost structure have
resulted in several changes in the marketplace. First, the wholesale distributor
market has experienced consolidation as the high fixed costs associated with
maintaining multiple warehouses and adequate inventory and the shift by
manufacturers from exclusive distribution partners to "open sourcing" have
forced a number of companies to align their businesses with financially stronger
partners. Second, the significant working capital required to carry large
in-stock product inventories and reductions in inventory price protection by
manufacturers have caused many resellers to adjust their current business
models. Due to the working capital required to maintain

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significant inventories, many corporate resellers often neither have the volume
nor range of products to fill customer demands. Third, several product
manufacturers have capitalized on their demand-driven operating model and direct
selling efforts to capture market share from other manufacturers and corporate
resellers.

In response to these changing market dynamics, the Company believes the
information technology product industry, and particularly corporate resellers,
will increasingly rely on electronic commerce to procure and deliver products
efficiently. The Company believes the ability to access product information
quickly and order and track products electronically, as well as to transact
business over the Internet, will provide a competitive advantage for corporate
resellers. Additionally, within the corporate reseller market, the Company
believes the ability to integrate electronically with end users and to provide
seamless access for product specifications, pricing, availability and order
tracking will enhance customer relationships and improve customer retention.

The decision-making process that organizations are confronted with when
planning, selecting and implementing information technology solutions is growing
more complex. Organizations must select from numerous product options with
shortening lifecycles. Organizations are continually faced with technology
obsolescence, and must design new networks and upgrade and migrate to new
systems. According to The Gartner Group, an information technology research
firm, the total cost of ownership of a personal computer over five years may be
as much as five times the initial capital expense. As a result, corporate
resellers are attempting to capitalize on their customer relationships initially
developed through product procurement in order to provide related value-added
services, including installation, pre- and post-sale technical support,
configuration and maintenance services, as well as higher-end service offerings,
including network and asset management, consulting and application development.

Furthermore, the Company believes a trend is emerging whereby the final
assembly of certain information technology products will be performed by third
parties including corporate resellers and distributors. In order to compete more
effectively and lower their costs, certain manufacturers have announced their
intention to reduce their own inventories and the inventories of their
distribution partners by implementing a build-to-order manufacturing process,
whereby final assembly will be performed by corporate resellers and distributors
as compared to the current build-to-forecast methodology employed by these
manufacturers.

THE EN POINTE BUSINESS MODEL

En Pointe's growth since its inception is attributable to its business
model, which features (i) a low cost overhead structure resulting from the
automation of many management and operating functions; (ii) sophisticated
proprietary information systems which enable En Pointe to provide enhanced
customer service; and (iii) reduced working capital requirements by leveraging
its limited inventory model and its Allied Distributor relationships.

The Company seeks to maintain a low-cost overhead structure through the
automation of many of its management and operating functions. En Pointe has
developed proprietary information systems to monitor sales, product returns,
profitability and accounts receivable at the sales representative, sales office
and customer levels. Additionally, the Company has integrated product purchasing
and customer invoicing into its information systems to expedite procurement and
billing. The Company believes that this level of automation allows it to operate
more efficiently and to provide its customers with competitive pricing and
quality service.

An integral component of the Company's business model is its ability to
access an extensive selection of information technology products stocked by a
number of distributors through its proprietary information systems, including
its EMS and EPIC software. These information systems make available to the
Company's sales representatives and certain of its customers product pricing and
availability of a broad range of information technology products, downloaded on
a daily basis, from certain large distributors of

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information technology products and services, including Ingram Micro Inc.
("Ingram Micro"), InaCom Corp. ("InaCom"), MicroAge, Inc. ("MicroAge"), Merisel
FAB, Inc. ("Merisel FAB"), Synnex Information Technologies, Inc. ("Synnex") and
Tech Data Corporation ("Tech Data") (the "Allied Distributors"). The information
provided by the Company's information systems allows the Company's sales
representatives to design each customer's order according to the particular
needs of that customer. If obtaining the best price for a particular product is
the customer's primary objective, the Company's information systems allow the
sales representative to identify which of the Allied Distributors can supply the
desired product at the best price. If immediate availability of products is the
customer's primary objective, then the Company's information systems can
indicate the availability of products from various Allied Distributors at
different warehouse locations across the country, and the order can be placed at
the Allied Distributor location which will enable the customer to receive the
desired products in the shortest time possible. Furthermore, the Company's
proprietary information systems allow the Company's customers to place a single
order which may include a number of different products from multiple
manufacturers or distributors. Each product ordered might ship overnight to a
desired configuration center or directly to the customer's location for delivery
to the end user. The Company's information systems can therefore reduce the
amount of unfulfilled customer orders and the need to backorder products.

The third element of the Company's business model is to reduce its working
capital requirements by leveraging its limited inventory model and utilizing the
extensive warehousing, purchasing and distribution functions of its Allied
Distributors. Since inception, the Company has been an innovator in using the
drop-shipping capabilities of the Allied Distributors to avoid many of the costs
and risks associated with maintaining inventory, which also enables the Company
to quickly adapt to changing demands. As product proliferation has occurred, the
Company's limited inventory model has given it a competitive advantage with
respect to price and availability on a broad range of products without the costs
and risks associated with carrying large amounts of inventory. The Company
believes its business model allows the Company to increase sales without a
significant capital investment in inventory.

PROPRIETARY INFORMATION SYSTEMS

The development and functionality of the Company's proprietary information
systems, including its EMS and EPIC software, has been an important factor in
the Company's success. These information systems provide online access to the
collective inventory and pricing information of the Allied Distributors for all
of the Company's sales offices, as well as for certain of the Company's
customers. These information systems are installed at the Company's sales
offices and can be installed, if desired, directly at a customer's facility.
These information systems enable the Company's sales representatives and
customers to access product pricing and availability information by manufacturer
part number or product description and provide detailed product specifications
for most major manufacturers. Customers can then enter orders on-line, check on
the status of their orders (including orders being configured directly by En
Pointe at its Memphis facility), access prior orders and serial numbers by
purchase order numbers, check on back-ordered products and verify FedEx and UPS
tracking and shipping numbers. The Company's systems can also provide the
customer with customized reports showing invoice, purchase order, cost, ship-to
address, serial numbers, dates, and totals of the products that such customer
has purchased from En Pointe.

The Company is currently in the process of rolling out the latest version of
its EPIC software, EPIC 2.0, which it expects to have implemented by the end
June 1998. EPIC 2.0 will offer greater functionality than the current
applications and will allow the Company to strengthen its operational and
marketing capabilities. EPIC 2.0 uses a three-tiered architecture designed
around Microsoft's SQL client/ server technology. This architecture enables
rapid deployment and development of the software and permits easy access to the
inventory and pricing information of the Allied Distributors for the Company's
customers and sales representatives. EPIC 2.0 provides added functionality in
the areas of order tracking, real-time product pricing and availability,
transaction lifecycle management, Internet accessibility,

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enhanced query capabilities and enhanced security. The Company is designing
additional modules for payroll, commission and rebate tracking functionality.

In addition, the Company continues to focus on the development of other
value-added software applications which will improve customer accessibility to
the EPIC software as well as enhance its customer service capabilities. EPIC NET
and ReqBuilder are two recent developments which will add to the Company's
customer service capabilities. EPIC NET is a web-based front end to the EPIC
software that allows a customer to generate product quotes and orders remotely
from the customer's site via the Internet. ReqBuilder is a Company proprietary
application which will assist the Company's customers in standardizing and
streamlining their product procurement process over a web-accessible platform.
See "Factors Which May Affect Future Operating Results--Risks Associated With
Dependence on Proprietary Technology."

PRODUCTS AND VALUE-ADDED SERVICES

PRODUCTS

The majority of the Company's sales to date have been attributable to the
resale of information technology products. The Company currently makes available
to its customers an extensive selection of information technology products at
what it believes to be a competitive combination of price and availability. The
Company currently offers over 36,000 information technology products from over
700 manufacturers, including International Business Machines Corporation
("IBM"), Compaq Computer Corporation ("Compaq"), Hewlett Packard Company
("Hewlett Packard" or "HP"), Dell, Apple, Digital Equipment Corp. ("DEC"), 3Com
Corp. ("3Com"), Microsoft Corp. ("Microsoft"), Toshiba Corp., NEC Corp., Novell,
Inc. ("Novell"), Kingston Technology Corporation, Lexmark International Group,
Inc., Sony Corporation and Bay Networks, Inc. The Company is also certified as a
Microsoft Senior Partner. Products offered by the Company include desktop and
laptop computers, monitors, servers, memory, midrange systems, peripherals and
operating system and application software. Products manufactured by IBM, Compaq
and Hewlett Packard accounted for 34.3%, 18.2% and 16.9%, respectively, of the
Company's net sales in fiscal 1997.

VALUE-ADDED SERVICES

The Company believes it can provide value to its customers not only by
offering an extensive selection of information technology products from a
variety of manufacturers and distributors, but also by offering related
value-added services. The gross profit margin on the value-added services which
the Company currently offers are significantly higher than the gross profit
margin on the Company's information technology products reselling business. The
Company has traditionally provided many of these services via outsourcing
arrangements with third parties; however, in order to further promote the
value-added portion of its business, the Company is in the process of expanding
its internal service capabilities. The Company intends to expand upon its
offering of value-added services by focusing upon three different categories of
service: technical services; consulting services; and customer information
services. The Company intends to provide these services pursuant to both
services contracts as well as on a time and materials basis. The provision of
value-added services currently does not account for a material portion of the
Company's net sales.

The Company's technical services include installation, pre- and post-sale
technical support, network design, maintenance, product configuration, on-site
technical staffing and project roll-out. The Company currently offers its
customers configuration services at its Memphis, Tennessee facility or through
outsourcing arrangements with certain Allied Distributors. The ability to
configure product orders has become increasingly important to En Pointe's
targeted customer base, and in response to the increased demand for these
services, the Company is planning to open a new configuration center in Ontario,
California. This new facility is expected to provide the Company with a greater
configuration capacity, as well as enable the

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Company to offer board-level repair and maintenance services. The Company's
project roll-out services generally involve the procurement of large volumes of
computer equipment with standard configurations delivered on a specific
timetable over a relatively short period of time. Roll-out projects may include
support capabilities such as project management, product scheduling, software
loading and testing, the coordination of shipments to multiple customer
locations and overall quality control.

The Company's consulting services currently include LAN/WAN integration,
asset management, mid-range systems consulting and special projects. The
Company's LAN/WAN integration services include consultation regarding
communication equipment requirements, configuring proposed solutions, systems
integration, installation and training. The Company's asset management services
consist of compiling and maintaining detailed information about a customer's
installed base of hardware and software assets, as well as all subsequent
service events related to those assets. The Company's mid-range system
consulting services involve the deployment and integration of RISC-based
platforms. To support these services, En Pointe personnel participate in
software solution provider certification and authorization programs. En Pointe
currently has attained the following nationwide certifications and designations:
Microsoft Windows NT Certified, 3Com NETBuilder II and LinkBuilder III GH
Authorized, DEC Alpha and IBM RS 6000/AIS. In addition, the Company is
authorized to provide HP 9000 and Sun Microsystems, Inc. products in selected
locations and to selected market segments.

Finally, the Company believes that its experience in designing and
developing its proprietary software systems provides the expertise necessary to
develop more advanced services, including application development and web site
development. The Company has recently entered into contracts to design and build
web sites for Mercury General Corporation and for the Los Angeles Department of
Airports. The Company has recently entered into a licensing agreement with
Shopping.com, an Internet shopping service, which plans to utilize the Company's
EPIC 2.0 software as the technology behind its Internet shopping venture.

CUSTOMERS

The Company's business model has allowed the Company to capture the business
of a number of large- and medium-sized corporate and government customers. The
Company's policy is to attract major customers by offering them "cost-plus"
pricing, whereby the Company prices information technology products at the
Company's cost plus a certain additional percentage negotiated with the
customer. Once the Company has been approved as a supplier to a customer, the
Company seeks to capture a significant portion of that customer's business,
which is typically spread over a number of resellers. The Company believes that
maintaining high customer satisfaction will enable the Company to more
effectively expand the range of value-added services it provides to include
sales of technical services, consulting services and customer information
services.

The entities listed below are illustrative of the wide range of customers
which have purchased information technology products and/or services from the
Company during fiscal 1997:

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Chase Manhattan Bank Mercury General Corporation McGraw Hill
ARCO State of Georgia State of Texas
IBM State of Oregon State of Washington
State of California
Boeing Northrop Grumman Corp. (CMAS)
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A substantial portion of the Company's net sales are derived under long-term
contracts, typically of at least one to two years' duration. However, these
contracts are usually non-exclusive agreements which are terminable upon 30
days' notice by either party. Purchases from customers are made pursuant to
individual purchase orders.

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In 1995, the Company was one of three resellers awarded a three-year
non-exclusive national contract with IBM to supply information technology
products to IBM, its wholly-owned subsidiaries, as well as certain operating
divisions and customers of IBM. For the fiscal years ended September 30, 1997,
1996 and 1995, net sales to IBM and certain IBM customers under the Company's
contract with IBM accounted for approximately 29.6%, 28.3% and 12.1%,
respectively, of the Company's net sales. IBM has extended the contract through
June 1998, at which time IBM will enter into new contracts (which the Company
believes will also include international sales) with one or more entities
bidding for this contract. The Company expects to bid for this contract.
However, no assurance can be made that the Company will be one of the entities
awarded this new contract. See "Factors Which May Affect Future Operating
Results--Risks Associated With Dependence on Relationships With IBM And Other
Large Customers."

SALES AND MARKETING

The Company currently employs approximately 232 sales representatives in 16
sales offices located throughout the U.S. (including its headquarters located in
El Segundo, California). The Company's sales efforts for most customers are
based in the regional sales offices, while certain of the Company's larger
customer relationships are maintained at the Company's headquarters. All of the
Company's sales representatives have access to the Company's proprietary
information systems. These systems allow the Company's sales representatives to
focus more on sales and less on the administrative tasks associated with
processing orders. Although the Company is highly reliant on its various
automated systems, the Company believes that high levels of personal interaction
with customers ensures the highest level of customer satisfaction. The Company
currently has sales offices in Irvine, Palo Alto, Sacramento, Denver, New York
City, Austin, Dallas, Portland, Salt Lake City, Seattle, Chicago, Atlanta,
Charlotte, Minneapolis and Memphis. The Company has adopted an entrepreneurial
approach with respect to its sales offices. Towards that end, sales office
personnel are usually given a high degree of autonomy, including limited pricing
authority. Each sales office also has profit and loss responsibility, with
compensation of sales office managers tied to the performance of their office.

The Company's practice is to hire experienced industry sales
representatives. Sales representatives are compensated based on the
profitability of their sales and their subsequent management of the account. The
Company typically will only guarantee the salary of a new sales representative
for several months, after which time all compensation to the sales
representative will come in the form of commissions. This compensation structure
has been very successful for the Company, as the most effective sales personnel
enjoy a high level of compensation relative to the industry average.

DISTRIBUTION

Many resellers of information technology products have assumed certain of
the functions of distributors, including stocking inventory, developing and
maintaining inventory control systems and establishing distribution systems. By
doing so, these resellers have incurred additional capital costs associated with
the warehousing of products, including the costs of leasing warehouse space,
maintaining inventory and tracking systems and employing personnel for stocking
and shipping duties. Furthermore, resellers which stock inventory risk
obsolescence costs, which the Company believes may be significant due to the
frequent product innovation and associated product obsolescence that
characterizes the information technology products market. The Company believes
that these overhead and "touch" costs require many resellers to incur expenses
which the Company expects more than offset the advantages of the lower purchase
prices that may be available to such resellers through their direct purchasing
relationships with manufacturers.

The Company's business model allows it to eliminate many overhead and
"touch" costs and risks. The Company has sought to take advantage of the
operational strengths of its Allied Distributors, who have developed extensive
warehousing, purchasing and distribution functions. As a result, En Pointe is
able to reduce its investment in product inventory and capital costs associated
with these "back office" functions and can accept lower gross profit margins
than many of its competitors and still remain profitable.

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One key feature of the Company's business model is the ability of the
Company to reliably deliver products purchased through the Company in a timely
fashion. The Company's information systems, which also serve as the Company's
ordering systems, allow the Company to place orders on a same-day basis. Most
orders for in-stock product are picked, staged and drop-shipped to the customer
from the Allied Distributor within 24 hours of receipt of order, and on the same
business day for orders received by 2 p.m. Pacific Time. The standard delivery
time is two to three business days. The configuration process will usually add a
maximum of three business days. After an order is entered, it is reviewed and
approved at the Company's headquarters and sent out electronically to the chosen
distributor. Once the order is shipped by the distributor, shipping information
is downloaded by the Company (usually done the day after the order is placed)
into its information systems. The Company will then use that information to
produce an invoice, which is sent to the customer. If a customer places an order
which cannot be filled by an individual distributor, then the Company will split
the order among multiple distributors.

Most of the Company's information technology product orders are currently
filled by the Allied Distributors. By choosing to rely on the "back office"
strengths of its Allied Distributors, the Company is also able to concentrate
on:

- SPECIFYING, RESEARCHING AND RECOMMENDING TECHNOLOGY. En Pointe's sales
representatives can use its proprietary information systems to assist its
customers in selecting the most appropriate technology to meet their
needs, as well as to determine the best combination of pricing and
availability of a wide variety of information technology products.

- COORDINATING AND OPTIMIZING PRODUCT DISTRIBUTION. Because En Pointe's
sales representatives have the ability to access the current inventory and
availability records of its Allied Distributors, these representatives are
able to determine which distributor can best supply the customer.
Furthermore, if any one distributor is unable to supply all of a
customer's needs, En Pointe is generally able to fill a customer's order
using multiple Allied Distributors. In order for En Pointe to facilitate
the distribution of information technology products to its customers, En
Pointe uses various carriers' (including FedEx and UPS) tracking software
and tracking numbers supplied by Allied Distributors to track customer
shipments.

En Pointe has been able to successfully implement its strategy due in large
part to the close relationships it has developed with the Allied Distributors.
The Company has been able to maintain these relationships due to several
factors, the most important of which is the volume of business that the Company
generates. This volume enables the Company to negotiate with its Allied
Distributors to receive discounts on certain products which the Company may pass
along to its customers. As the Company's sales have grown, it has been able to
take advantage of these discounts. In addition, many manufacturers make
discounts available from time to time to customers who place large-volume
orders. The Company seeks to participate in these discounts either directly
through agreements with the manufacturer, or indirectly as discounts are made
available to distributors, who in turn will pass a portion along to resellers.
See "Factors Which May Affect Future Operating Results--Risks Associated With
Dependence on Distributors And Manufacturers."

COMPETITION

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Company's competitors are larger, have substantially greater financial,
technical, marketing and other resources and offer a broader range of
value-added services than does the Company. The Company competes with, among
others, CompuCom Systems, Inc. ("CompuCom"), Dell Computer Corporation ("Dell"),
Elcom International, Inc. ("Elcom"), Entex Information Services, Inc. ("Entex"),
InaCom Corp. ("InaCom"), MicroAge, Inc. ("MircoAge"), Vanstar Corp. ("Vanstar")
and CDW Computer Centers, Inc. ("CDW"). The Company expects to face additional
competition from new market entrants in the future.

Competitive factors include price, service and support, the variety of
products and value-added services offered, and marketing and sales capabilities.
While the Company believes that it competes successfully with respect to most,
if not all of these factors, there can be no assurance that it will continue to
do so in the future. The information technology industry has come to be
characterized by aggressive price cutting and the Company expects pricing
pressures will continue in the foreseeable future. In addition, the information
technology products industry is characterized by abrupt changes in technology
and associated inventory and product obsolescence, rapid changes in consumer
preferences, short product life cycles and evolving industry standards. The
Company will need to continue to provide competitive prices, superior product
selection and quick delivery response time in order to remain competitive. If
the Company were to fail to compete favorably with respect to any of these
factors, the Company's business, financial position, results of operations and
cash flows would be materially and adversely affected. See "--Industry Overview"
and "Factors Which May Affect Future Operating Results--Competition."

INTELLECTUAL PROPERTY

The Company's ability to effectively compete in its market will depend
significantly on its ability to protect its proprietary technology, especially
its rights in the EPIC software. The Company relies primarily upon trade secrecy
and confidentiality agreements to establish and protect its rights in its
proprietary technology. While the Company has a copyright on its EPIC 1.5
software, and has applied for a copyright on its EPIC 2.0 software, it does not
have any patents on any other proprietary technology which the Company believes
to be material to its future success, and insofar as the Company relies on trade
secrets and proprietary know-how to maintain its competitive position, there can
be no assurance that others may not independently develop similar or superior
technologies or gain access to the Company's trade secrets or know-how.
Furthermore, there can be no assurance that any confidentiality agreements
between the Company and its employees will provide meaningful protection of the
Company's proprietary information in the event of any unauthorized use or
disclosure of such proprietary information.

There can be no assurance that the Company will not become subject to claims
of infringement involving its information systems, or any other system,
including the Company's EPIC software. In addition, the Company may initiate
claims or litigation against third parties for infringement of the Company's
proprietary rights or to establish the validity of the Company's proprietary
rights. Any such claims could be time consuming, result in costly litigation or
lead the Company to enter into royalty or licensing agreements rather than
disputing the merits of such claims.

The Company conducts its business under the trademark and service mark "En
Pointe Technologies" as well as its logo. The Company has been issued
registrations for the mark "En Pointe" as well as its logo in the United States
and has pending registrations in Canada, Mexico and the European Community. The
Company does not believe that its operations are dependent upon any of its
trademarks or service marks. The Company also sells products and provides
services under various trademarks, service marks, and trade names to which
reference is made in this Annual Report on Form 10-K that are the property of
owners other than the Company. Such owners have reserved all rights with respect
to their respective trademarks, service marks, and trade names. See "Factors
Which May Affect Future Operating Results--Risks Associated With Dependence on
Proprietary Technology."

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EMPLOYEES

As of November 30, 1997, the Company employed approximately 434 individuals,
including approximately 232 sales representatives, 80 systems engineers and
service technicians and 122 in administration and finance. The Company believes
that its ability to recruit and retain highly skilled technical and other
management personnel will be critical to its ability to execute its business
model and growth strategy. None of the Company's employees are represented by a
labor union or are subject to a collective bargaining agreement. The Company
believes that its relations with its employees are good.

FACTORS WHICH MAY AFFECT FUTURE OPERATING RESULTS

IN ADDITION TO THE INFORMATION SET FORTH ELSEWHERE IN THIS ANNUAL REPORT ON
FORM 10-K, THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING
THE COMPANY AND ITS BUSINESS.

THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1993 AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934. IN LIGHT OF THE IMPORTANT FACTORS THAT CAN
MATERIALLY AFFECT RESULTS, INCLUDING THOSE SET FORTH IN THIS PARAGRAPH AND
BELOW, THE INCLUSION OF FORWARD-LOOKING INFORMATION HEREIN SHOULD NOT BE
REGARDED AS A REPRESENTATION BY THE COMPANY OR ANY OTHER PERSON THAT THE
OBJECTIVES OR PLANS FOR THE COMPANY WILL BE ACHIEVED. THE COMPANY MAY ENCOUNTER
COMPETITIVE, TECHNOLOGICAL, FINANCIAL AND BUSINESS CHALLENGES MAKING IT MORE
DIFFICULT THAN EXPECTED TO CONTINUE TO RESELL INFORMATION TECHNOLOGY PRODUCTS;
THE COMPANY MAY BE UNABLE TO RETAIN EXISTING KEY SALES, TECHNICAL AND MANAGEMENT
PERSONNEL; THERE MAY BE OTHER MATERIAL ADVERSE CHANGES IN THE INFORMATION
TECHNOLOGY INDUSTRY OR IN THE COMPANY'S OPERATIONS OR BUSINESS, AND ANY OR ALL
OF THESE FACTORS MAY AFFECT THE COMPANY'S ABILITY TO CONTINUE ITS CURRENT RATE
OF SALES GROWTH OR MAY RESULT IN LOWER SALES VOLUME THAN CURRENTLY EXPERIENCED.
CERTAIN IMPORTANT FACTORS AFFECTING THE FORWARD-LOOKING STATEMENTS MADE HEREIN
INCLUDE, BUT ARE NOT LIMITED TO (I) A SIGNIFICANT PORTION OF THE COMPANY'S SALES
CONTINUING TO BE TO CERTAIN LARGE CUSTOMERS, (II) CONTINUED DEPENDENCE BY THE
COMPANY ON CERTAIN ALLIED DISTRIBUTORS, (III) CONTINUED DOWNWARD PRICING
PRESSURES IN THE INFORMATION TECHNOLOGY MARKET, (IV) THE LACK OF PRIOR
EXPERIENCE OF THE COMPANY IN THE PROVISION OF VALUE-ADDED SERVICES AND (V) THE
DECISION BY THE COMPANY TO EXPAND ITS SALES FORCE INTO VARIOUS NEW GEOGRAPHIC
TERRITORIES. ASSUMPTIONS RELATING TO BUDGETING, MARKETING, AND OTHER MANAGEMENT
DECISIONS ARE SUBJECTIVE IN MANY RESPECTS AND THUS SUSCEPTIBLE TO
INTERPRETATIONS AND PERIODIC REVISIONS BASED ON ACTUAL EXPERIENCE AND BUSINESS
DEVELOPMENTS, THE IMPACT OF WHICH MAY CAUSE THE COMPANY TO ALTER ITS MARKETING,
CAPITAL EXPENDITURE OR OTHER BUDGETS, WHICH MAY IN TURN AFFECT THE COMPANY'S
BUSINESS, FINANCIAL POSITION, RESULTS OF OPERATIONS AND CASH FLOWS. THE READER
IS THEREFORE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON FORWARD-LOOKING STATEMENTS
CONTAINED HEREIN, WHICH SPEAK AS OF THE DATE OF THIS ANNUAL REPORT ON FORM 10-K.

RISKS ASSOCIATED WITH DEPENDENCE ON RELATIONSHIP WITH IBM AND OTHER LARGE
CUSTOMERS

For the years ended September 30, 1997, 1996 and 1995, net sales to IBM and
certain IBM customers under the Company's current contract with IBM accounted
for approximately 29.6%, 28.3% and 12.1%, respectively, of the Company's net
sales. The Company's contracts for the provision of products or services are
generally non-exclusive agreements which are terminable by either party upon 30
days notice. The loss of IBM or any other large customer, the failure of IBM or
any other large customer to pay its accounts receivable on a timely basis, or a
material reduction in the amount of purchases made by IBM or any other large
customer could have a material adverse effect on the Company's business,
financial position, results of operations and cash flows. The current contract
with IBM is due to expire in June 1998, at which time IBM will enter into new
contracts with certain resellers to supply it, and certain of its customers,
with products and services. Although the Company intends to bid for such
contract, there can be no assurance that the Company will be successful in
obtaining such contract. The inability of the Company to retain the current
contract or obtain the new contract would have a material adverse impact on the
Company's business, financial position, results of operations and cash flows.
See "Business--Customers."

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RISKS ASSOCIATED WITH DEPENDENCE ON DISTRIBUTORS AND MANUFACTURERS

A key element of the Company's past success and future business strategy
involves the establishment of alliances with certain large distributors of
information technology products and services, including Ingram Micro, InaCom,
MicroAge, Merisel FAB, Synnex and Tech Data. These alliances enable the Company
to make available to its customers a wide selection of products without
subjecting the Company to many of the costs and risks associated with
maintaining large amounts of inventory. Products and services purchased from two
Allied Distributors, Ingram Micro and InaCom, accounted for 73.4% of the
Company's aggregate purchases in fiscal 1997. Certain Allied Distributors
provide the Company with substantial incentives in the form of allowances passed
through from manufacturers, discounts, credits and cooperative advertising,
which incentives directly affect the Company's operating income. There can be no
assurance that the Company will continue to receive such incentives in the
future and any reduction in the amount of these incentives could have a material
adverse effect on the Company's business, financial position, results of
operations and cash flows. Furthermore, the Company directly competes with
certain Allied Distributors for many of the same customers and therefore there
can be no assurance that any such Allied Distributor will not use its position
as a key supplier to the Company to pressure the Company from directly competing
with it. Substantially all of the Company's contracts with its Allied
Distributors are terminable by either party upon 30 days' notice or less and
several contain minimum purchase volume requirements as a condition to providing
discounts to the Company. The termination or interruption of the Company's
relationships with any of the Allied Distributors, modification of the terms or
discontinuance of agreements with any of the Allied Distributors, failure to
meet minimum purchase volume requirements, or the failure to establish a good
working relationship with any significant new distributor of information
technology products could materially adversely affect the Company's business,
financial position, results of operations and cash flows. See
"Business--Distribution."

Certain of the products offered by the Company are subject to manufacturer
allocations, which limit the number of units of such products available to the
Allied Distributors, which in turn may limit the number of units available to
the Company for resale to its customers. In addition, because certain products
offered by the Company are subject to manufacturer or distributor allocations,
which limit the number of units of such products available to the Company for
resale to its customers, there can be no assurance that the Company will be able
to offer popular new products or product enhancements to its customers in
sufficient quantity or in a timely manner to meet demand. In order to offer the
products of most manufacturers, the Company is required to obtain authorizations
from such manufacturers to act as a reseller of such products, which
authorizations may be terminated at the discretion of the manufacturers. There
can be no assurance that the Company will be able to obtain or maintain
authorizations to offer products, directly or indirectly, from new or existing
manufacturers. Termination of the Company's rights to act as a reseller of the
products of one or more significant manufacturers or the failure of the Company
to gain sufficient access to such new products or product enhancements could
have a material adverse effect on the Company's business, financial position,
results of operations and cash flows. See "Business-- Products and Value-Added
Services."

Recent changes in the information technology industry, especially pressure
on gross profit margins, has adversely affected a number of distributors of
information technology products, including certain Allied Distributors. There
can be no assurance that the continuing evolution of the information technology
industry will not further adversely affect the Company's distributors. Because
the Company's overall business strategy depends on the Company's relationships
with the Allied Distributors, the Company's business, financial position,
results of operations and cash flows would be materially adversely affected in
the event that distributors in general and Allied Distributors in particular
continue to suffer adverse consequences due to ongoing changes in the
information technology industry. There has recently been a consolidation trend
in the information technology industry, including consolidation among
distributors of information technology products. Because the Company's business
model is dependent upon the availability of a number of information technology
product distributors, any further consolidation would result in

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<PAGE>
fewer distributors available to supply products to the Company, which could have
a material adverse impact on the Company's business, financial position, results
of operations and cash flows. See "Business-- Industry Overview."

COMPETITION

The segment of the information technology industry in which the Company
operates is highly competitive. The Company competes with a large number and
wide variety of resellers of information technology products, including
traditional personal computer retailers, computer superstores, consumer
electronics and office supply superstores, mass merchandisers, corporate
resellers, value-added resellers, specialty retailers, distributors,
franchisers, mail-order and web-order companies, manufacturers and national
computer retailers which have commenced their own direct marketing operations to
end-users. Many of these companies compete principally on the basis of price and
may have lower costs than the Company which allow them to offer the same
products and services at a lower price. Many of the Company's competitors are
larger, have substantially greater financial, technical, marketing and other
resources and offer a broader range of value-added services than does the
Company. The Company competes with, among others, CompuCom, Dell, Elcom, Entex,
InaCom, MicroAge, Vanstar and CDW. The Company expects to face additional
competition from new market entrants in the future.

RISKS ASSOCIATED WITH INDUSTRY EVOLUTION AND PRICE REDUCTIONS; CHANGING METHODS
OF DISTRIBUTION

The information technology industry is undergoing significant change. The
industry has become more accepting of large-volume, cost-effective channels of
distribution and accordingly such channels have proliferated. In addition, many
traditional computer resellers are consolidating operations and acquiring or
merging with other resellers in an effort to increase efficiency. This current
industry reconfiguration has resulted in increased pricing pressures. Decreasing
prices of information technology products requires the Company to sell a greater
number of products to achieve the same level of net sales and gross profit. The
continuation of such trend could make it more difficult for the Company to
continue to increase its net sales and earnings growth. In addition, it is
possible that the historically high rate of growth of the information technology
industry may slow at some point in the future, resulting in a material adverse
effect on the Company's business, financial position, results of operations and
cash flows. Furthermore, new methods of distributing and selling information
technology products, such as on-line shopping services and catalogs published on
CD-ROM, may emerge in the future. Hardware and software manufacturers have sold,
and may in the future intensify their efforts to sell, their products directly
to end-users. From time to time, certain vendors have instituted programs for
the direct sale of large orders of hardware and software to certain major
corporate customers. These types of programs may continue to be developed and
used by various vendors. While the Company attempts to anticipate and influence
current and future distribution trends, any of these distribution methods or
competitive programs, if successful, could have a material adverse effect on the
Company's business, financial position, results of operations and cash flows.

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<PAGE>
Recently, a trend has emerged whereby the final assembly of certain
information technology products is performed by resellers and distributors. In
order to compete more effectively and lower their costs, certain information
technology product manufacturers that rely on the wholesale distribution model
have announced their intention to reduce their own inventories and the
inventories of their resellers and distributors by implementing a
"build-to-order" manufacturing process. These major manufacturers have also
begun to develop programs whereby final assembly will be performed by resellers
and distributors ("channel assembly") as compared to the current
"build-to-forecast" methodology employed by these manufacturers. The Company has
not, to date, been authorized to participate in any announced build-to-order
manufacturing processes, and there can be no assurance that the Company will
ever be authorized to participate in any such process. The failure of the
Company to obtain any such authorization could have a material adverse effect on
the Company's business, financial position, results of operations and cash
flows. If the Company eventually participates in a "build-to-order" process, the
Company will have to make a significant capital investment in order to
successfully participate in such process. See "Business--Industry Overview."

RISKS ASSOCIATED WITH DEPENDENCE ON PROPRIETARY TECHNOLOGY

The Company's ability to effectively compete in its market will depend
significantly on its ability to protect its proprietary technology in general
and its EPIC software in particular. The Company relies primarily on trade
secrecy and confidentiality agreements in order to establish and protect its
rights in its proprietary technology. There can be no assurance that the
existing methods for protecting the Company's proprietary technology will be
successful in defending either the confidentiality of, or the unauthorized use
of, this technology, nor can any assurance be given that the Company will be
able to achieve or maintain a meaningful technological advantage. The Company
could incur substantial costs in seeking enforcement of its proprietary rights
against infringement or unauthorized use by others, or in defending itself
against similar claims by other holders of proprietary information. While the
Company has a copyright on its EPIC 1.5 software and has applied for a copyright
of its EPIC 2.0 software, it does not have any patents on other proprietary
technology which the Company believes to be material to the Company's future
success. Insofar as the Company relies on trade secrets and proprietary know-how
to maintain its competitive position, there can be no assurance that others may
not independently develop similar or superior technologies or gain access to the
Company's trade secrets or know-how. See "Business--Intellectual Property."

The Company may experience delays, complications or expenses in installing,
integrating and operating the EPIC software, especially its EPIC 2.0 upgrade, or
interruptions or disruptions in EPIC software operations, any of which could
have a material adverse effect on the Company's business, financial position,
results of operations and cash flows. The Company believes that its EPIC
software will require modification or improvement as the Company expands. Such
modification or improvement may require substantial expenditures to design and
implement and may interrupt the Company's operations, resulting in a material
adverse effect on the Company's business, financial position, results of
operations and cash flows. See "Business--Intellectual Property" and
"Business--Proprietary Information Systems."

RISKS ASSOCIATED WITH POTENTIAL VARIABILITY IN QUARTERLY OPERATING RESULTS

The Company's quarterly net sales and operating results may vary
significantly as a result of a variety of factors, including: the demand for
information technology products and the Company's value-added services;
introduction of new hardware and software technologies; introduction of new
value-added services by the Company and its competitors; changes in
manufacturers' prices or price protection policies; changes in shipping rates;
disruption of warehousing or shipping channels; changes in the level of
operating expenses; the timing of major marketing or other service projects;
product supply shortages; inventory adjustments; changes in product mix; entry
into new geographic markets; the timing and integration of acquisitions or
investments; difficulty in managing margins; the loss of significant customer

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<PAGE>
contracts; the necessity to write-off a significant amount of accounts
receivable; and general competitive and economic conditions. In addition, a
substantial portion of the Company's net sales in each quarter results from
orders booked in such quarter. Accordingly, the Company believes that
period-to-period comparisons of its operating results are not necessarily
meaningful and should not be relied upon as an indication of future performance.
It is possible that in future periods, the Company's operating results may be
below the expectations of public market analysts and investors. In such event,
the market price of the Common Stock would likely be materially adversely
affected. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Quarterly Results."

RISKS ASSOCIATED WITH LOW MARGIN BUSINESS

The Company's historical growth in net income has been driven primarily by
net sales growth rather than increased profit margins. The Company's gross
profit margins are low compared to many other resellers of information
technology products. In fiscal 1997, the Company's gross profit margin was 9.0%.
Given the significant levels of competition that characterize the reseller
market, as well as the lower gross profit margins generated by the Company as a
result of its reliance on purchasing information technology products from its
Allied Distributors, it is unlikely that the Company will be able to
substantially increase gross profit margins in its core business of reselling
information technology products. Moreover, in order to attract and retain many
of its larger customers, the Company frequently must agree to volume discounts
and maximum allowable mark-ups that serve to limit the profitability of product
sales to such customers. Accordingly, to the extent that the Company's sales to
such customers increase, the Company's gross profit margins may be reduced, and
therefore any future increases in net income will have to be derived from
continued net sales growth, effective expansion into higher margin business
segments or a reduction in operating expenses as a percentage of net sales, none
of which can be assured. Furthermore, low gross profit margins increase the
sensitivity of the Company's business to increases in costs of financing,
because financing costs to carry a receivable can be relatively high compared to
the low dollar amount of gross profit on the sale underlying the receivable
itself. Low gross profit margins also increase the sensitivity of the business
to any increase in product returns and bad debt write-offs, as the impact
resulting from the inability to collect the full amount for products sold will
be relatively high compared to the low amount of gross profit on the sale of
such product. Any failure by the Company to increase or maintain its gross
profit margins and sales levels could have a material adverse effect on the
Company's business, financial position, results of operations and cash flows.
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations."

RISKS ASSOCIATED WITH DEPENDENCE ON AVAILABILITY OF CREDIT; RISKS ASSOCIATED
WITH DEPENDENCE ON IBMCC

The Company's business requires significant capital to finance accounts
receivable and, to a lesser extent, product inventory. In order to obtain
necessary working capital, the Company relies primarily on lines of credit that
are collateralized by substantially all of the Company's assets. As a result,
the amount of credit available to the Company may be adversely affected by
numerous factors beyond the Company's control, such as delays in collection or
deterioration in the quality of the Company's accounts receivable, economic
trends in the information technology industry, interest rate fluctuations and
the lending policies of the Company's creditors. Any decrease or material
limitation on the amount of capital available to the Company under its lines of
credit and other financing arrangements will limit the ability of the Company to
fill existing sales orders or expand its sales levels and, therefore, would have
a material adverse effect on the Company's business, financial position, results
of operations and cash flows. In addition, any significant increases in interest
rates will increase the cost of financing to the Company and would have a
material adverse effect on the Company's business, financial position, results
of operations and cash flows. The Company is dependent on the availability of
accounts receivable financing on reasonable terms and at levels that are high
relative to its equity base in order to maintain and increase its sales. There
can be no assurance that such financing will continue to be available to the
Company in the future or available under

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<PAGE>
terms acceptable to the Company. The inability of the Company to have continuous
access to such financing at reasonable costs could materially adversely impact
the Company's business, financial position, results of operations and cash
flows. As of September 30, 1997, the Company had outstanding borrowings under
its credit facilities of $50.7 million out of a total availability under its
credit facilities of $81.0 million.

The Company has primarily funded its working capital requirements through a
$70.0 million Inventory and Working Capital Agreement (the "IBMCC Financing
Agreement") with IBM Credit Corporation ("IBMCC"). At September 30, 1997, the
outstanding principal balance under the IBMCC Financing Agreement was
approximately $44.7 million. Borrowings under the IBMCC Financing Agreement are
collateralized by certain assets of the Company, including accounts receivable,
inventory and equipment. The IBMCC Financing Agreement expires April 13, 1998.
IBMCC may terminate the IBMCC Financing Agreement at any time upon the
occurrence of, and subsequent failure to cure, an "Event of Default" (as such
term is defined in the IBMCC Financing Agreement). In the event of such
termination, the outstanding borrowings under the IBMCC Financing Agreement
become immediately due and payable in their entirety. The termination of the
IBMCC Financing Agreement and the subsequent inability of the Company to secure
a replacement credit facility on terms and conditions similar to those contained
in the IBMCC Financing Agreement could have a material adverse effect on the
Company's business, financial position, results of operations and cash flows.
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."

RISKS RELATED TO DEPENDENCE ON SENIOR MANAGEMENT AND OTHER KEY PERSONNEL

The Company believes that its success has been and will continue to be
dependent on the services and efforts of its existing senior management and
other key personnel. The loss of the services of one or more of any of the
Company's existing senior management and other key personnel would have a
material adverse effect on the Company's business, financial position, results
of operations and cash flows.

The Company's success and its plans for future growth also depend on its
ability to attract and retain highly skilled personnel in all areas of its
business, including application development, sales and technical services.
Competition for qualified personnel in the information technology industry is
intense, and although the Company believes that it has thus far been successful
in attracting and retaining qualified personnel for its business, the inability
to attract and retain qualified personnel in the future could have a material
adverse effect upon the Company's business, financial position, results of
operations and cash flows.

RISKS RELATED TO MANAGEMENT OF GROWTH

Since its inception, the Company has experienced rapid growth in net sales,
the number of its employees and branch offices, the amount of administrative
overhead and the type of services offered. This growth has and, if continued,
will continue to put strains on the Company's management, operational and
financial resources. To execute the Company's growth strategy, the Company
expects to require the addition of new management personnel, including
application development, sales and technical services personnel, and the
development of additional expertise by existing personnel. The Company's ability
to manage growth effectively will require it to continue to implement and
improve its operational, financial and sales systems (at both the national and
local level), to develop the skills of its managers and supervisors and to hire,
train, motivate, retain and effectively manage its employees. There can be no
assurance that the Company will be successful in managing any future expansion,
and the failure to do so could materially adversely affect the Company's
business, financial position, results of operations and cash flows.

The Company is currently in the process of upgrading its accounting software
system. The Company expects that such upgrade will utilize a considerable amount
of the Company's management resources. There can be no assurance that the
Company will be able to successfully implement such software system,

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and such failure could have a material adverse impact on the Company's business,
financial position, results of operations and cash flows.

RISKS ASSOCIATED WITH EXPANDING SERVICES CAPABILITIES

The Company is expanding the nature and scope of its value-added services.
There can be no assurance that the value-added services business will be
successfully integrated with the Company's information technology products
reselling business or that the Company will be able to effectively compete in
this market. If the Company is unable to effectively provide value-added
services, it may be unable to effectively compete for the business of certain
large customers which require the provision of such services as a condition to
purchasing products from the Company. In addition, the Company will be subject
to risks commonly associated with a value-added services business, including
dependence on reputation, volatility of workload and dependence on ability to
recruit and retain qualified technical personnel. The expansion of the Company's
value-added services is expected to require a significant capital investment,
including a large increase in the number of technical employees. Also, a portion
of the Company's value-added services revenue may be derived from the
performance of services pursuant to fixed-price contracts. As a result, cost
overruns due to price increases, unanticipated problems, inefficient project
management or inaccurate estimation of costs could have a material adverse
effect on the Company's business, financial position, results of operations and
cash flows. See "Business--Products and Value-Added Services."

RISKS RELATED TO GEOGRAPHIC EXPANSION

The Company's growth has been and will continue to be driven, in part, by
sales generated through expansion into new geographic markets. The Company has
already opened sales offices in many of the metropolitan markets that the
Company believes offer the most potential for sales growth. Accordingly, to the
extent the Company attempts to open additional sales offices, there can be no
assurance that the new offices will experience the same success, if any,
experienced by the Company's existing sales offices. The failure of the Company
to expand or the failure by the Company to generate sufficient sales volumes in
new sales offices could have a material adverse effect on the Company's
business, financial position, results of operations and cash flows. The Company
generally incurs start-up expenses with respect to a new sales office for three
to six months after opening such sales office, and therefore, any increase in
the rate at which the Company opens new sales offices could have a material
adverse effect on the Company's business, financial position, results of
operations and cash flows.

RISKS ASSOCIATED WITH ACQUISITIONS AND INVESTMENTS IN COMPLEMENTARY BUSINESSES

One element of the Company's growth strategy may include expanding its
business through strategic acquisitions and investments in complementary
businesses. The Company has not had significant acquisition or investment
experience, and there can be no assurance that the Company will be able to
successfully identify suitable acquisition or investment candidates, complete
acquisitions or investments, or integrate acquired businesses into its
operations. Acquisitions and investments involve numerous risks, including
difficulties in the assimilation of the operations, services, products, vendor
agreements, and personnel of the acquired company, the diversion of management's
attention and other resources from other business concerns, entry into markets
in which the Company has little or no prior experience, and the potential loss
of key employees, customers, or contracts of the acquired company. Acquisition
and investments could also conflict with restrictions in the Company's
agreements with existing or future distributors or manufacturers. The Company is
unable to predict whether or when any prospective acquisition or investment
candidate will become available or the likelihood that any acquisition or
investment will be completed or successfully integrated. The Company's failure
to successfully manage any potential acquisitions or investments in
complementary businesses could have a material adverse effect on the Company's
business, financial position, results of operations and cash flows.

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RISKS ASSOCIATED WITH PLANNED INTERNATIONAL OPERATIONS

Although the Company to date has not generated significant net sales from
international operations, one of the elements of its growth strategy is to
expand internationally. There can be no assurance that the Company will be able
to successfully expand its international business. There are certain risks
inherent in doing business on an international level, such as remote management,
unexpected changes in regulatory requirements, export restrictions, tariffs and
other trade barriers, difficulties in staffing and managing foreign operations,
longer payment cycles, problems in collecting accounts receivable, political
instability, fluctuations in currency exchange rates, and potentially adverse
tax consequences, any of which could adversely impact the success of the
Company's international operations. There can be no assurance that one or more
of such factors will not have a material adverse effect on the Company's future
international operations and, consequently, on the Company's business, financial
position, results of operations and cash flows.

RISKS ASSOCIATED WITH BUSINESS INTERRUPTION; RISKS ASSOCIATED WITH DEPENDENCE ON
CENTRALIZED FUNCTIONS

The Company believes that its success to date has been, and future results
of operations will be, dependent in large part upon its ability to provide
prompt and efficient service to its customers. As a result, a substantial
disruption of the Company's day-to-day operations could have a material adverse
effect upon the Company's business, financial position, results of operations
and cash flows. In addition, the Company's success is largely dependent on the
accuracy, quality and utilization of the information generated by its
proprietary information systems, which are based in El Segundo, California.
Repairs, replacement, relocation or a substantial interruption in these systems
or in the Company's telephone or data communications systems, servers or power
could have a material adverse effect on the Company's business, financial
position, results of operations and cash flows. Although the Company has
business interruption insurance, an uninsurable loss could have a material
adverse effect on the Company's business, financial position, results of
operations and cash flows. The Company's current use of a single configuration
facility in Memphis also makes the Company more vulnerable to dramatic changes
in freight rates than a competitor with multiple, geographically dispersed
sites. Losses in excess of insurance coverage, an uninsurable loss, or change in
freight rates could have a material adverse effect on the Company's business,
financial position, results of operations and cash flows. See
"Business--Proprietary Information Systems."

RISKS ASSOCIATED WITH DEPENDENCE ON THIRD-PARTY SHIPPERS

The Company presently ships products from Memphis, Tennessee, and will be
shipping products from Ontario, California, by Federal Express Corporation
("FedEx") or United Parcel Service of America, Inc. ("UPS"), and the vast
majority of products that the Company sells are drop-shipped for the Company to
its customers by the Allied Distributors via these carriers. Changes in shipping
terms, or the inability of these third-party shippers to perform effectively
(whether as a result of mechanical failure, casualty loss, labor stoppage, other
disruption, or any other reason), could have a material adverse effect on the
Company's business, financial position, results of operations and cash flows.
There can be no assurance that the Company or others can maintain favorable
shipping terms or replace such shipping services on a timely or cost-effective
basis. See "Business--Distribution."

RISKS ASSOCIATED WITH PRODUCT RETURNS

As is typical of the information technology industry, the Company incurs
expenses as a result of the return of products by customers. Such returns may
result from defective goods, inadequate performance relative to customer
expectations, distributor shipping errors and other causes which are outside the
Company's control. Although the Company's distributors and manufacturers have
specific return policies that enable the Company to return certain products for
credit, to the extent that the Company's customers return products which are not
accepted for return by the distributor or manufacturer of such products, the

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Company will be forced to bear the cost of such returns. Any significant
increase in the rate of product returns, coupled with the unwillingness by the
Company's distributors or manufacturers to accept goods for return, could have a
material adverse effect on the Company's business, financial position, results
of operations and cash flows.

RISKS ASSOCIATED WITH EXTENSIONS OF CREDIT

As a marketing enhancement, the Company offers unsecured and secured credit
terms for qualified customers. Historically, the Company has not experienced
losses from write-offs in excess of established reserves. While the Company
evaluates customers' qualifications for credit and closely monitors its
extensions of credit, defaults by customers in timely repayment of these
extensions of credit could have a material adverse effect on the Company's
business, financial position, results of operations and cash flows. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations."

RISKS ASSOCIATED WITH POTENTIAL INFLUENCE BY EXECUTIVE OFFICERS AND PRINCIPAL
STOCKHOLDERS

The directors, executive officers and principal stockholders of the Company
and their affiliates beneficially own, in the aggregate, approximately 53.4% of
the outstanding Common Stock. As a result, these stockholders acting together
will be able to exert considerable influence over the election of the Company's
directors and the outcome of most corporate actions requiring stockholder
approval, such as certain amendments to the Company's Certificate of
Incorporation. Additionally, the directors and executive officers have
significant influence over the policies and operations of the Company's
management and the conduct of the Company's business. Such concentration of
ownership may have the effect of delaying, deferring or preventing a change of
control of the Company and consequently could affect the market price of the
Common Stock.

POTENTIAL VOLATILITY OF STOCK PRICE

Factors such as the announcement of acquisitions by the Company or its
competitors, quarter to quarter variations in the Company's operating results,
changes in earnings estimates by analysts, governmental regulatory action,
general trends and market conditions in the information technology industry, as
well as other factors, may have a significant impact on the market price of the
Common Stock. Moreover, trading volumes in the Company's Common Stock have been
low historically and could exacerbate price fluctuations in the Common Stock.
Further, the stock market has recently and in other periods experienced extreme
price and volume fluctuations, which have particularly affected the market
prices of the equity securities of many companies and which have often been
unrelated to the operating performance of such companies. These broad market
fluctuations may materially and adversely affect the market price of the Common
Stock. See "Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters."

POTENTIAL EFFECT OF ANTI-TAKEOVER PROVISIONS

The Company's Board of Directors has the authority to issue up to 5,000,000
shares of preferred stock and to determine the price, rights, preferences,
qualifications, limitations and restrictions, including voting rights, of those
shares without any further vote or action by the stockholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any preferred stock that may be issued in the
future. The issuance of preferred stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of delaying or preventing a third party from acquiring a
majority of the outstanding voting stock of the Company. Further, Section 203 of
the General Corporation Law of Delaware prohibits the Company from engaging in
certain business combinations with interested stockholders. These provisions may
have the effect of delaying or preventing a change in control of the Company
without action by the stockholders, and therefore could adversely affect the
market price of the Common Stock.

18
<PAGE>
RISKS ASSOCIATED WITH POTENTIAL "YEAR 2000" PROBLEMS OF THIRD PARTIES

It is possible that the currently installed computer systems, software
products or other business systems of the Company's distributors, manufacturers
or customers, working either alone or in conjunction with other software or
systems, will not accept input of, store, manipulate and output dates in the
year 2000 or thereafter without error or interruption (commonly know as the
"Year 2000 problem"). The Company's business systems, including its computer
systems, are not subject to the Year 2000 problem; however, the Company is
querying its distributors, manufacturers and customers as to their progress in
identifying and addressing problems that their computer systems may face in
correctly processing date information as the Year 2000 approaches and is
reached. However, there can be no assurance that the Company will identify all
such Year 2000 problems in the computer systems of its distributors,
manufacturers or customers in advance of their occurrence or that they will be
able to successfully rectify any problems that are discovered. The expenses of
the Company's efforts to identify and address such problems, or the expenses or
liabilities to which the Company may become subject as a result of such
problems, are not expected to have a material adverse effect on the Company's
business, financial position, results of operations or cash flows. In addition,
the purchasing patterns of existing and potential customers may be affected by
Year 2000 problems, which could cause fluctuations in the Company's sales
volumes.

ABSENCE OF DIVIDENDS

The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently anticipates that it will retain all available funds
for use in the operation of its business, and does not intend to pay any cash
dividends in the foreseeable future. The payment of any future dividends will be
at the discretion of the Company's Board of Directors and will depend upon,
among other factors, future earnings, operations, capital requirements, the
general financial condition of the Company and general business conditions. The
Company's ability to pay cash dividends is currently restricted by certain of
the Company's credit facilities, and the terms of future credit facilities or
other agreements may contain similar restrictions. See "Item 5. Market for
Registrant's Common Equity and Related Stockholder Matters."

ITEM 2. PROPERTIES

The Company leases approximately 35,000 square feet of office space for its
headquarters in El Segundo, California, under a lease expiring in May 2001. The
Company also leases approximately 7,000 square feet of space for its
configuration facility in Memphis, Tennessee, under a lease expiring November
1999. The Company owns an approximately 126,000 square foot facility in Ontario,
California, which will primarily be used for configuration, board-level repair
and maintenance services. The Company expects this facility to be operational by
the end of June 1998. This facility is subject to a mortgage, the current
outstanding principal of which is $4.0 million.

19
<PAGE>
The Company currently leases sixteen sales offices nationwide. The following
table identifies the Company's sales offices:

<TABLE>
<CAPTION>
APPROXIMATE DATE
FACILITY OPENED
- -------------------------------------------------------------------------- ------------------
<S> <C>
Corporate Headquarters and Sales Office:
El Segundo, California.................................................. April 1993
Configuration Facility:
Memphis, Tennessee...................................................... November 1994
Sales Offices:
Dallas, Texas........................................................... March 1993
Palo Alto, California................................................... April 1993
Seattle, Washington..................................................... June 1993
Portland, Oregon........................................................ July 1993
Austin, Texas........................................................... May 1994
New York, New York...................................................... July 1994
Denver, Colorado........................................................ August 1994
Salt Lake City, Utah.................................................... May 1996
Chicago, Illinois....................................................... July 1996
Sacramento, California.................................................. August 1996
Irvine, California...................................................... September 1996
Atlanta, Georgia........................................................ April 1997
Charlotte, North Carolina............................................... April 1997
Memphis, Tennessee...................................................... April 1997
Minneapolis, Minnesota.................................................. July 1997
</TABLE>

Management believes the Company's headquarters, sales offices and
configuration facilities are adequate to support its current level of
operations.

ITEM 3. LEGAL PROCEEDINGS

The Company was named as a defendant in a lawsuit filed on August 8, 1997 in
the Superior Court in the County of Los Angeles, California. (Case No.
BC175991). The case name is CIC SYSTEMS, INC. V. EN POINTE TECHNOLOGIES, INC.,
ET AL., and the complaint alleges that the Company, along with one individual
defendant who was a former employee of the plaintiff, conspired to target and
persuade the plaintiff's sales personnel to leave plaintiff's employ and become
employed by the Company and further alleges that the individual defendants, all
of whom are former employees of the plaintiff, diverted to the Company sales and
customers of the plaintiff, made false and misleading statements regarding the
plaintiff, and misappropriated the plaintiff's trade secrets and proprietary
information, all on behalf of the Company. The plaintiff is seeking unspecified
damages as well as injunctive relief. The Company is currently unable to
estimate the loss in the event of an unfavorable outcome. However, before
consideration of any potential insurance recoveries, the Company believes that
the claims in the suit will not have a material adverse effect on the Company's
business, financial position, results of operations or cash flows. The Company
has maintained various liability insurance policies during the periods covering
the claims above. While such policies may limit coverage under certain
circumstances, the Company believes that it is adequately insured. Should the
Company not be successful in defending against such lawsuit or not be able to
claim compensation under its liability insurance policies, the Company's
business, financial position, results of operations and cash flows may be
adversely affected.

The Company was named, along with Bob Din, as a defendant in a lawsuit filed
April 29, 1997 in the Superior Court for the County of Los Angeles (Case No.
BC170234). The case name for this filing is NOVAQUEST INFOSYSTEMS, ET AL. V. EN
POINTE TECHNOLOGIES, INC., ET AL., and the complaint alleges that the

20
<PAGE>
Company and Bob Din knowingly accepted trade secret information owned by the
plaintiffs and furthermore alleges that the Company interfered with the
plaintiffs' prospective economic advantage. The plaintiff is seeking unspecified
damages as well as injunctive relief. The Company is currently unable to
estimate the loss in the event of an unfavorable outcome. However, before
consideration of any potential insurance recoveries, the Company believes that
the claims in the suit will not have a material adverse effect on the Company's
business, financial position, results of operations or cash flows. The Company
has maintained various liability insurance policies during the periods covering
the claims above. While such policies may limit coverage under certain
circumstances, the Company believes that it is adequately insured. Should the
Company not be successful in defending against such lawsuit or not be able to
claim compensation under its liability insurance policies, the Company's
business, financial position, results of operations and cash flows may be
adversely affected.

The Company does not believe that any of the aforementioned claims have
merit, and intends to defend itself against all such claims.

The Company is also subject to other legal proceedings and claims that arise
in the normal course of business. While the outcome of these proceedings and
claims cannot be predicted with certainty, management does not believe that the
outcome of any of these matters will have a material adverse effect on the
Company's business, financial position or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year ended September 30, 1997.

21
<PAGE>
PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock is quoted on the Nasdaq National Market under the
symbol "ENPT." The following table sets forth, for the period indicated, the
high and low sale prices for the Common Stock as reported by the Nasdaq National
Market.

<TABLE>
<CAPTION>
RANGE OF SALES
PRICES
------------------
HIGH LOW
------- -------
<S> <C> <C>
Fiscal 1996
Third quarter (from May 8, 1996)......................................... $13 1/8 $ 8 3/4
Fourth quarter........................................................... 11 1/4 8 1/4
Fiscal 1997
First quarter............................................................ $15 $ 9 1/8
Second quarter........................................................... 13 5/8 8 1/2
Third quarter............................................................ 11 1/4 8 3/8
Fourth quarter........................................................... 24 1/2 8 7/8
Fiscal 1998
First quarter (through December 22, 1997)................................ $23 1/2 $ 8 5/8
</TABLE>

On December 22, 1997, the closing sale price for the Common Stock on the
Nasdaq National Market was $10.50 per share. As of December 22, 1997, there were
44 stockholders of record of the Common Stock.

The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently anticipates that it will retain all available funds
for use in the operation of its business, and does not intend to pay any cash
dividends in the foreseeable future. The payment of any future dividends will be
at the discretion of the Company's Board of Directors and will depend upon,
among other factors, future earnings, operations, capital requirements, the
general financial condition of the Company and general business conditions. The
Company's ability to pay cash dividends is restricted by certain of the
Company's credit facilities, and the terms of future credit facilities or other
agreements may contain similar restrictions. See "Item 1. Business: Factors
Which May Affect Future Operating Results--Absence of Dividends."

22
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA

The selected financial data set forth below as of September 30, 1996 and
1997 and for each of the years in the three year-period ended September 30, 1997
have been derived from the Company's Financial Statements and the related notes
thereto that have been audited by Coopers & Lybrand L.L.P., independent
accountants, which financial statements and report thereon are included
elsewhere in this Annual Report on Form 10-K.

The data set forth below should be read in conjunction with "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements of the Company and the Notes thereto
included elsewhere in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------
1993(1) 1994 1995 1996 1997
--------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................. $ 19,327 $ 109,987 $ 200,797 $ 345,093 $ 491,358
Cost of sales......................................... 17,288 101,057 184,761 316,165 447,276
--------- ---------- ---------- ---------- ----------
Gross profit........................................ 2,039 8,930 16,036 28,928 44,082
Operating expenses:
Selling and marketing expenses...................... 1,277 5,493 9,307 15,253 22,339
General and administrative expenses................. 688 2,159 3,755 5,948 10,905
Litigation settlement and defense, net.............. -- -- -- 525 --
--------- ---------- ---------- ---------- ----------
Operating income.................................. 74 1,278 2,974 7,202 10,838
Interest expense...................................... 192 1,121 1,843 1,673 1,239
Other income, net..................................... (77) (159) (61) (116) (194)
--------- ---------- ---------- ---------- ----------
Income (loss) before income taxes................. (41) 316 1,192 5,645 9,793
Provision (benefit) for income taxes.................. (21) 129 489 2,315 3,962
--------- ---------- ---------- ---------- ----------
Net income (loss)................................. $ (20) $ 187 $ 703 $ 3,330 $ 5,831
--------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ----------
Net income (loss) per share:
Primary............................................. $ (0.01) $ 0.06 $ 0.21 $ 0.77 $ 1.00
--------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ----------
Fully diluted....................................... $ (0.01) $ 0.06 $ 0.21 $ 0.77 $ 0.95
--------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ----------
Weighted average shares and share equivalents
outstanding (2):
Primary............................................. 2,137 3,197 3,410 4,302 5,811
--------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ----------
Fully diluted....................................... 2,137 3,197 3,410 4,302 6,155
--------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ----------

AS OF SEPTEMBER 30,
---------------------------------------------------------
1993 1994 1995 1996 1997
--------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital....................................... $ 290 $ 1,377 $ 2,286 $ 18,338 $ 24,753
Total assets.......................................... 9,784 24,462 36,792 64,923 90,862
Borrowings under line of credit and current portion of
notes payable....................................... 7,843 19,084 29,202 36,668 50,890
Notes payable......................................... 666 1,940 1,733 284 463
Stockholders' equity (deficit)........................ (11) 189 1,832 20,875 28,319
</TABLE>

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

(1) Fiscal 1993 consisted of approximately eight months from the Company's
inception on January 25, 1993.

(2) See Note 1 of Notes to Financial Statements.

23
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION

THE FOLLOWING DISCUSSION AND ANALYSIS OF THE COMPANY'S FINANCIAL CONDITION
AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND THE NOTES THERETO INCLUDED ELSEWHERE IN THIS ANNUAL REPORT ON
FORM 10-K.

OVERVIEW

The Company was incorporated in January 1993 and commenced operations in
March 1993 as a reseller of information technology products. The Company began
emphasizing its value-added offerings to its customers in fiscal 1997.
Value-added services accounted for 1.6% of the Company's net sales in fiscal
1997. The gross profit margins on the value-added services which the Company
currently offers are significantly higher than the gross profit margins on the
Company's information technology products reselling business.

The Company's net sales have increased from $110.0 million in fiscal 1994
(the Company's first full year of operations) to $491.4 million in fiscal 1997,
representing a compound annual growth rate of 64.7%. The growth in net sales has
principally been driven by sales to new customers and increased sales to
existing customers as well as geographic expansion through the opening of
additional sales offices. The Company's gross profit margins have expanded from
8.1% in fiscal 1994 to 9.0% in fiscal 1997, principally due to increased
purchasing volume resulting in better purchasing terms, a shift to higher-margin
product sales, and sales of higher-margin value-added services. The Company's
operating income increased from $1.3 million in fiscal 1994 to $10.8 million in
fiscal 1997, representing a compound annual growth rate of 103.9%. The growth in
operating income has been principally driven by increased sales and gross profit
margins and a decline in general and administrative expenses, excluding software
development costs, as a percentage of net sales.

Product revenues are recognized upon shipment and satisfaction of
significant vendor obligations, if any. Service revenues are recognized based on
contractual hourly rates as services are rendered or upon completion of
specified contract services. Net sales consist of product and service revenues,
less discounts. Cost of sales include product and service costs and current and
estimated allowances for returns of products not accepted by the Company's
distributors or manufacturers, less any incentive credits.

Because the Company's business model involves the resale of information
technology products held in inventory by certain distributors, the Company does
not maintain significant amounts of inventory on hand for resale. The Company
typically does not place an order for product purchases from distributors until
it has received a customer purchase order. Inventory is then drop-shipped by the
distributor to either the customer or the Company's configuration center in
Memphis, Tennessee. The distributor typically ships products within 24 hours
following receipt of a purchase order and, consequently, substantially all of
the Company's net sales in any quarter result from orders received in that
quarter. Although the Company maintains little, if any, inventory in stock for
resale, it records as inventory the merchandise being configured and products
purchased from distributors, but not yet shipped to customers.

Because the Company does not experience significant differences for tax and
financial reporting purposes, the Company's effective tax rate has not varied
significantly from the statutory rate in the past, and the Company does not
anticipate that its effective tax rate will vary significantly from the
statutory rate in the future.

24
<PAGE>
RESULTS OF OPERATIONS

The following table sets forth certain financial data as a percentage of net
sales for the periods indicated:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
-------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales..................................................... 100.0% 100.0% 100.0%
Cost of sales................................................. 92.0 91.6 91.0
----- ----- -----
Gross profit................................................ 8.0 8.4 9.0
Selling and marketing expenses................................ 4.6 4.4 4.6
General and administrative expenses........................... 1.9 1.7 2.2
Litigation settlement and defense, net........................ 0.0 0.2 0.0
----- ----- -----
Operating income............................................ 1.5 2.1 2.2
Interest expense.............................................. 0.9 0.5 0.2
Other income, net............................................. 0.0 0.0 0.0
----- ----- -----
Income before income taxes.................................. 0.6 1.6 2.0
Provision for income taxes.................................... 0.2 0.6 0.8
----- ----- -----
Net income.................................................. 0.4% 1.0% 1.2%
----- ----- -----
----- ----- -----
</TABLE>

COMPARISON OF FISCAL YEARS ENDED SEPTEMBER 30, 1997 AND 1996

NET SALES. Net sales increased $146.3 million, or 42.4%, to $491.4 million
in fiscal 1997 from $345.1 million in fiscal 1996. The increase in net sales was
attributable to sales to new customers, increased sales to existing customers
and increased sales of value-added services. The Company opened four sales
offices in fiscal 1997, which contributed $10.6 million in net sales. Net sales
under the IBM contract increased $47.9 million in fiscal 1997 to $145.5 million
and accounted for 29.6% of net sales in fiscal 1997 compared with 28.3% of net
sales in fiscal 1996.

GROSS PROFIT. Gross profit increased $15.2 million, or 52.4%, to $44.1
million in fiscal 1997 from $28.9 million in fiscal 1996, and increased as a
percentage of net sales to 9.0% in fiscal 1997 from 8.4% in fiscal 1996. The
improvement in gross profit margin was primarily attributable to increased
purchasing volume resulting in better purchasing terms, a shift to higher-margin
product sales and sales of higher-margin value-added services.

SELLING AND MARKETING EXPENSES. Selling and marketing expenses increased
$7.1 million, or 46.5%, to $22.3 million in fiscal 1997 from $15.3 million in
fiscal 1996, primarily as a result of increased sales volume. As a percentage of
net sales, selling and marketing expenses increased to 4.6% in fiscal 1997 from
4.4% in fiscal 1996, primarily due to the hiring of additional personnel and the
opening of four sales branch offices.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $5.0 million, or 83.3%, to $10.9 million in fiscal 1997 from $5.9
million in fiscal 1996. A significant factor contributing to the increase in
general and administrative expenses was an increase in software development
costs which increased to $2.3 million in fiscal 1997 from $0.3 million in fiscal
1996. In addition, the Company hired additional personnel to support the
increase in sales volume and other administrative duties. As a percentage of net
sales, general and administrative expenses increased to 2.2% in fiscal 1997 from
1.7% in fiscal 1996.

LITIGATION SETTLEMENT AND DEFENSE, NET. In April 1996, the Company entered
into a settlement agreement with a former employee relating to claims with
respect to the Company's use of certain proprietary software programs originally
developed by the employee prior to his employment with the Company (the
"Settlement"). As consideration for entering into the Settlement, the Company
agreed to pay the former employee installment payments totaling $1,225,000. The
remaining unpaid balance under

25
<PAGE>
the Settlement as of September 30, 1997 and 1996 was $287,511 and $447,512,
respectively. In August 1996, the Company entered into a separate settlement
agreement with its insurance carrier whereby the insurance carrier reimbursed
the Company for all amounts paid by the Company pursuant to the Settlement, as
well as for certain legal expenses incurred by the Company in connection with
the Settlement and underlying claims. In fiscal 1996, the Company expensed
$524,913 in litigation and settlement defense costs, net of insurance
recoveries.

OPERATING INCOME. Operating income increased $3.6 million, or 50.5%, to
$10.8 million in fiscal 1997 from $7.2 million in fiscal 1996, primarily as a
result of increased sales volume accompanied by improved gross profit margins.
As a percentage of net sales, operating income improved to 2.2% in fiscal 1997
from 2.1% in fiscal 1996.

INTEREST EXPENSE. Interest expense decreased $434,000, or 25.9%, to $1.2
million in fiscal 1997 from $1.7 million in fiscal 1996. The decrease in
interest expense was primarily due to improved borrowing rates following the
Company's May 1996 initial public offering that resulted in the weighted average
interest rate declining from 10.8% in fiscal 1996 to 8.2% in fiscal 1997.

NET INCOME. Net income increased $2.5 million, or 75.1%, to $5.8 million in
fiscal 1997 from $3.3 million in fiscal 1996. The increase in net income
resulted primarily from the 42.4% increase in net sales and the related 52.4%
increase in gross profit, as well as the reduction in interest expense. As a
percentage of net sales, net income improved to 1.2% in fiscal 1997 from 1.0% in
fiscal 1996.

COMPARISON OF FISCAL YEARS ENDED SEPTEMBER 30, 1996 AND 1995

NET SALES. Net sales increased $144.3 million, or 71.9%, to $345.1 million
in fiscal 1996 from $200.8 million in fiscal 1995. The increase in net sales was
attributable to sales to new customers and increased sales to existing
customers. The Company opened two sales offices in fiscal 1996, which
contributed $3.2 million in net sales. Net sales under the IBM contract
increased $73.6 million in fiscal 1996 to $97.6 million and accounted for 28.3%
of net sales in fiscal 1996 compared with 12.1% for fiscal 1995.

GROSS PROFIT. Gross profit increased $12.9 million, or 80.4%, to $28.9
million in fiscal 1996 compared to $16.0 million in fiscal 1995, and increased
as a percentage of net sales to 8.4% in fiscal 1996 from 8.0% in fiscal 1995.
The improvement in gross profit margin was primarily due to increased purchasing
volume resulting in better purchasing terms.

SELLING AND MARKETING EXPENSES. Selling and marketing expenses increased
$5.9 million, or 63.9%, to $15.3 million in fiscal 1996 from $9.3 million in
fiscal 1995, primarily as a result of increased sales volume. As a percentage of
net sales, however, selling and marketing expenses decreased slightly to 4.4% in
fiscal 1996 from 4.6% in fiscal 1995, primarily due to fixed costs being spread
over a higher sales volume and a lower commission rate paid on sales to
high-volume customers.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $2.2 million, or 58.4%, to $5.9 million in fiscal 1996 from $3.8
million in fiscal 1995, primarily as a result of the hiring of additional
personnel to support the increase in sales volume and other administrative
activities. As a percentage of net sales, general and administrative expenses
decreased slightly to 1.7% in fiscal 1996 from 1.9% in fiscal 1995.

OPERATING INCOME. Operating income increased $4.2 million, or 142.2%, to
$7.2 million in fiscal 1996 from $3.0 million in fiscal 1995, primarily as a
result of increased sales volume, improved gross profit margins and a reduction
in operating expenses as a percentage of net sales. As a percentage of net
sales, operating income increased to 2.1% in fiscal 1996 from 1.5% in fiscal
1995. Excluding the net litigation and settlement and defense charge, operating
income would have been $7.7 million in fiscal 1996, or 2.2% of net sales.

INTEREST EXPENSE. Interest expense decreased $170,000, or 9.2%, to $1.7
million in fiscal 1996 from $1.8 million in fiscal 1995. The decrease in
interest expense was primarily due to applying $14.7 million of the net proceeds
from the Company's initial public offering to pay down the line of credit.
Offsetting that reduction in debt were increased borrowings to support accounts
receivable growth of $24.1 million.

26
<PAGE>
NET INCOME. Net income increased $2.6 million, or 373.5%, to $3.3 million
in fiscal 1996 from $703,000 in fiscal 1995. The increase in net income resulted
primarily from the 71.9% increase in net sales, the related 80.4% increase in
gross profit and the reduction in operating expenses as a percentage of net
sales. As a percentage of net sales, net income improved to 1.0% in fiscal 1996
from 0.4% in fiscal 1995. Excluding the litigation and settlement charge, net
income would have been $3.6 million in fiscal 1996, or 1.1% of net sales.

QUARTERLY FINANCIAL RESULTS

The following tables sets forth certain unaudited quarterly financial data
and such data expressed as a percentage of net sales. The information has been
derived from the Company's unaudited financial statements that, in the opinion
of management, reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such quarterly information.
The operating results for any quarter are not necessarily indicative of the
results to be expected for any future period
<TABLE>
<CAPTION>
QUARTER ENDED
FISCAL 1996
--------------------------------------------------------------
DEC. 31, 1995 MAR. 31, 1996 JUNE 30, 1996 SEPT. 30, 1996
------------- ------------- ------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales.............................................. $77,016 $79,893 $88,938 $99,246
Cost of sales.......................................... 70,955 73,254 81,465 90,491
------------- ------------- ------------- -------
Gross profit......................................... 6,061 6,639 7,473 8,755
Selling and marketing expenses......................... 3,304 3,271 4,033 4,647
General and administrative expenses.................... 851 1,182 1,730 2,184
Litigation settlement and defense, net................. 134 458 576 (644)
------------- ------------- ------------- -------
Operating income..................................... 1,772 1,728 1,134 2,568
Interest expense....................................... 579 562 350 181
Other income, net...................................... (27) (22) (33) (34)
------------- ------------- ------------- -------
Income before income taxes........................... 1,220 1,188 817 2,421
Provision for income taxes............................. 518 505 358 935
------------- ------------- ------------- -------
Net income........................................... $ 702 $ 683 $ 459 $ 1,486
------------- ------------- ------------- -------
------------- ------------- ------------- -------
Fully diluted net income per share................... $ 0.21 $ 0.20 $ 0.10 $ 0.26
------------- ------------- ------------- -------
------------- ------------- ------------- -------
Fully diluted weighted average shares and share
equivalents outstanding............................ 3,391 3,391 4,756 5,715
------------- ------------- ------------- -------
------------- ------------- ------------- -------

FISCAL 1997
--------------------------------------------------------------

DEC. 31, 1996 MAR. 31, 1997 JUNE 30, 1997 SEPT. 30, 1997

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

<S> <C> <C> <C> <C>
Net sales.............................................. $111,666 $116,595 $128,400 $134,697

Cost of sales.......................................... 101,810 106,974 116,671 121,820

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

Gross profit......................................... 9,856 9,621 11,729 12,877

Selling and marketing expenses......................... 5,383 4,778 5,737 6,442

General and administrative expenses.................... 2,141 2,340 3,194 3,231

Litigation settlement and defense, net................. -- -- -- --

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

Operating income..................................... 2,332 2,503 2,798 3,204

Interest expense....................................... 332 283 311 312

Other income, net...................................... (57) (71) (44) (21)

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

Income before income taxes........................... 2,057 2,291 2,531 2,913

Provision for income taxes............................. 870 967 1,070 1,054

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

Net income........................................... $ 1,187 $ 1,324 $ 1,461 $ 1,859

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

Fully diluted net income per share................... $ 0.21 $ 0.23 $ 0.25 $ 0.30

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

Fully diluted weighted average shares and share
equivalents outstanding............................ 5,784 5,817 5,784 6,191

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

</TABLE>

27
<PAGE>
<TABLE>
<CAPTION>
FISCAL 1996
--------------------------------------------------------------
DEC. 31, 1995 MAR. 31, 1996 JUNE 30, 1996 SEPT. 30, 1996
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Net sales.............................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales.......................................... 92.1 91.7 91.6 91.2
----- ----- ----- -----
Gross profit......................................... 7.9 8.3 8.4 8.8
Selling and marketing expenses......................... 4.3 4.0 4.6 4.6
General and administrative expenses.................... 1.1 1.5 1.9 2.2
Litigation settlement and defense, net................. 0.2 0.6 0.6 (0.6)
----- ----- ----- -----
Operating income..................................... 2.3 2.2 1.3 2.6
Interest expense....................................... 0.7 0.7 0.4 0.2
Other income, net...................................... 0.0 0.0 0.0 0.0
----- ----- ----- -----
Income before income taxes........................... 1.6 1.5 0.9 2.4
Provision for income taxes............................. 0.7 0.6 0.4 0.9
----- ----- ----- -----
Net income........................................... 0.9% 0.9% 0.5% 1.5%
----- ----- ----- -----
----- ----- ----- -----

<CAPTION>
FISCAL 1997
--------------------------------------------------------------

DEC. 31, 1996 MAR. 31, 1997 JUNE 30, 1997 SEPT. 30, 1997

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

<S> <C> <C> <C> <C>
Net sales.............................................. 100.0% 100.0% 100.0% 100.0%

Cost of sales.......................................... 91.2 91.7 90.9 90.4

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

Gross profit......................................... 8.8 8.3 9.1 9.6

Selling and marketing expenses......................... 4.8 4.2 4.4 4.8

General and administrative expenses.................... 1.9 2.0 2.5 2.4

Litigation settlement and defense, net................. 0.0 0.0 0.0 0.0

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

Operating income..................................... 2.1 2.1 2.2 2.4

Interest expense....................................... 0.3 0.2 0.3 0.2

Other income, net...................................... 0.0 (0.1) 0.0 0.0

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

Income before income taxes........................... 1.8 2.0 1.9 2.2

Provision for income taxes............................. 0.7 0.9 0.8 0.8

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

Net income........................................... 1.1% 1.1% 1.1% 1.4%

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

</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

Operating activities used cash totaling $13.8 million in fiscal 1997
compared to $16.0 million used in fiscal 1996. The primary factor for the
decline in the use of cash in fiscal 1997 was the increase in net income. Net
cash used in operating activities has been significant due to the working
capital requirements resulting from the rapid growth of the Company and, more
specifically, the financing of increasing accounts receivable balances that are
a direct result of increased sales. The Company's accounts receivable balance at
September 30, 1997 and 1996, was $76.9 million and $55.7 million, respectively.
The number of days' sales outstanding in accounts receivable was 57 days and 59
days as of September 30, 1997 and 1996, respectively.

At September 30, 1997, restricted cash of $412,000 represented cash placed
by the Company in an escrow account as collateral for its obligations under a
purchase agreement with an Allied Distributor. The agreement requires the
Company to purchase $55.0 million of products from the Allied Distributor over
an 18-month period beginning October 1, 1996. As every $5.0 million in aggregate
purchases by the Company is reached, a pro rata portion of the funds are
released to the Company from the escrow account. Should the Company fail to meet
its purchase commitment in full, any funds remaining in the escrow account would
be forfeited to the Allied Distributor.

Investing activities used cash totaling $1.7 million in fiscal 1997 compared
to $2.2 million used in fiscal 1996. Investing activities related to the
purchase of computer equipment and office furniture and equipment. The reduction
in cash used for investing activities in fiscal 1997 was principally due to
software development costs no longer being capitalized.

28
<PAGE>
In fiscal 1998, the Company purchased a facility in Ontario, California that
will initially be used for configuration, board-level repair, and maintenance.
The Company expects the Ontario facility to be operational by the end of June
1998. Ultimately, the Company plans to equip and staff the plant for "build-
to-order" manufacturing capabilities and to become ISO 9002 certified. The
Company estimates that the cost of the plant fully equipped will be
approximately $8.7 million. The Company has obtained a mortgage for $4.0 million
of the facility costs which bears interest at 8.5% per annum, and is being
amortized over 15 years. The Company expects to finance the balance of the
facility costs through borrowings under the Company's lines of credit. The
Company anticipates incurring start-up expenses relating to the Ontario facility
of approximately $300,000 in the first two quarters of fiscal 1998.

Financing activities provided net cash totaling $15.7 million in fiscal 1997
compared to $21.1 million in fiscal 1996, mostly from borrowings on lines of
credit which have been used primarily to finance accounts receivable balances
which have grown as a result of increased sales.

As of September 30, 1997, the Company had approximately $3.7 million in
cash, including $0.4 million in restricted cash, and working capital of $24.8
million. The Company has several revolving credit facilities collateralized by
accounts receivable and all other assets of the Company, including a $70.0
million line of credit with IBMCC. As of September 30, 1997 and 1996, such lines
of credit provided for maximum aggregate borrowings of approximately $81.0
million and $48.6 million, respectively, of which approximately $50.7 million
and $36.5 million were outstanding, respectively. Borrowings under the IBMCC
Financing Agreement are collateralized by certain assets of the Company,
including accounts receivable, inventory and equipment. In addition, the lines
of credit contain certain financing and operating covenants relating to net
worth, liquidity, profitability, repurchase of indebtedness and prohibition on
payment of dividends as well as restrictions on the use of proceeds obtained
under such lines of credit. At September 30, 1997, the Company was in compliance
with the covenants under the Company's line of credit agreements. The IBMCC
Financing Agreement expires on April 13, 1998. IBMCC may terminate the IBMCC
Financing Agreement at any time upon the occurrence of, and subsequent failure
to cure, an "Event of Default" (as such term is defined in the IBMCC Financing
Agreement). In the event of such termination, the outstanding borrowings under
the IBMCC Financing Agreement become immediately due and payable in their
entirety. Outstanding borrowings under the IBMCC Financing Agreement bear
interest at prime less 0.25% (8.25% at November 30, 1997).

RECENTLY ANNOUNCED ACCOUNTING STANDARDS

In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share" ("SFAS No. 128"). SFAS No. 128 requires dual presentation of newly
defined basic and diluted earnings per share on the face of the income statement
for all entities with complex capital structures. This method is considered more
compatible with International Accounting Standards. SFAS No. 128 is effective
for all fiscal years ending after December 15, 1997. The Company is currently
evaluating the impact of SFAS No. 128.

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes guidelines for the reporting and display of
comprehensive income and its components in financial statements. Disclosure of
comprehensive income and its components will be required beginning with the
Company's fiscal year ending September 30, 1999.

Also in June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information." SFAS No. 131 requires that companies
disclose "operating segments" based on the way management disaggregates the
company for making internal operating decisions. The new standard will be
effective for the Company's 1999 fiscal year end. The Company has not yet
evaluated the impact, if any, of the new standard.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Reference is made to the financial statements included in this Report at
pages F-1 through F-17.

29
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

There is hereby incorporated by reference the information appearing under
the captions "ELECTION OF DIRECTORS" and "COMPLIANCE WITH SECTION 16(A) OF THE
SECURITIES EXCHANGE ACT OF 1934" from the Company's definitive proxy statement
for the 1998 Annual Meeting of the Stockholders to be filed with the Commission
on or before January 28, 1998.

ITEM 11. EXECUTIVE COMPENSATION

There is hereby incorporated by reference information appearing under the
caption "EXECUTIVE COMPENSATION" from the Company's definitive proxy statement
for the 1998 Annual Meeting of Stockholders to be filed with the Commission on
or before January 28, 1998.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

There is hereby incorporated by reference the information appearing under
the caption "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT"
from the Company's definitive proxy statement for the 1998 Annual Meeting of
Stockholders to be filed with the Commission on or before January 28, 1998.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

There is hereby incorporated by reference the information appearing under
the caption "EXECUTIVE COMPENSATION" from the Company's definitive proxy
statement for the 1998 Annual Meeting of Stockholders to be filed with the
Commission on or before January 28, 1998.

30
<PAGE>
PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this report:

(1) Financial Statements

The list of financial statements contained in the accompanying Index
to Financial Statements covered by Report of Independent Accountants
is herein incorporated by reference.

(2) Financial Statement Schedules

The list of financial statement schedules contained in the
accompanying Index to Financial Statements covered by Report of
Independent Accountants is herein incorporated by reference.

All other schedules are omitted because they are not applicable or
the required information is shown in the financial statements or
notes thereto.

(3) Exhibits

The list of exhibits on the accompanying Exhibit Index is herein
incorporated by reference.

(b) Reports on Form 8-K.

The Company filed no Current Reports on Form 8-K during the last quarter of
the period covered by this Report.

31
<PAGE>
EN POINTE TECHNOLOGIES, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Accountants.......................................................................... F-2

Balance Sheets as of September 30, 1996 and 1997........................................................... F-3

Statements of Operations for each of the Three Years in the Period Ended September 30, 1997................ F-4

Statements of Stockholders' Equity for each of the Three Years in the Period Ended September 30, 1997...... F-5

Statements of Cash Flows for each of the Three Years in the Period Ended September 30, 1997................ F-6

Notes to Financial Statements.............................................................................. F-7

Schedule II--Valuation and Qualifying Accounts............................................................. F-18
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

Board of Directors and Stockholders

En Pointe Technologies, Inc.

We have audited the accompanying balance sheets of En Pointe Technologies,
Inc. as of September 30, 1997 and 1996 and the related statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended September 30, 1997. We have also audited the financial statement schedule
listed in the index on page F-1. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of En Pointe Technologies, Inc.
as of September 30, 1997 and 1996, and the results of its operations and cash
flows for each of the three years in the period ended September 30, 1997 in
conformity with generally accepted accounting principles. In addition, in our
opinion, the financial statement schedule referred to above, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information required to be included therein.

COOPERS & LYBRAND L.L.P.

Los Angeles, California
November 11, 1997

F-2
<PAGE>
EN POINTE TECHNOLOGIES, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
1996 1997
------------- -------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents........................................................ $ 3,158,112 $ 3,314,625
Restricted cash.................................................................. 610,000 411,933
Accounts receivable, net of allowance for returns and doubtful accounts of
$901,600 and $1,162,256, respectively.......................................... 55,672,676 76,874,987
Inventories...................................................................... 1,806,073 4,663,235
Deferred tax assets.............................................................. 288,925 --
Prepaid expenses and other current assets........................................ 565,676 1,569,293
------------- -------------
Total current assets........................................................... 62,101,462 86,834,073
Property and equipment, net of accumulated depreciation and amortization......... 2,821,051 3,278,070
Other assets..................................................................... -- 750,000
------------- -------------
Total assets................................................................... $ 64,922,513 $ 90,862,143
------------- -------------
------------- -------------

LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Borrowings under lines of credit................................................. $ 36,503,838 $ 50,692,257
Accounts payable................................................................. 1,781,144 3,798,192
Accrued liabilities.............................................................. 2,425,099 2,709,149
Other current liabilities........................................................ 2,889,583 4,592,713
Current portion of notes payable................................................. 163,865 197,539
Deferred taxes................................................................... -- 91,127
------------- -------------
Total current liabilities...................................................... 43,763,529 62,080,977
Notes payable...................................................................... 283,647 462,656
------------- -------------
Total liabilities.............................................................. 44,047,176 62,543,633
------------- -------------
Commitments and contingencies

Stockholders' equity (Note 1):
Preferred stock, $.001 par value:
Shares authorized--5,000,000
No shares issued or outstanding................................................ -- --
Common stock, $.001 par value:
Shares authorized--15,000,000
Issued and outstanding--5,607,500 and 5,779,071, respectively.................. 5,608 5,779
Additional paid-in capital....................................................... 16,670,698 18,283,138
Retained earnings................................................................ 4,199,031 10,029,593
------------- -------------
Total stockholders' equity....................................................... 20,875,337 28,318,510
------------- -------------
Total liabilities and stockholders' equity....................................... $ 64,922,513 $ 90,862,143
------------- -------------
------------- -------------
</TABLE>

See Notes to Financial Statements.

F-3
<PAGE>
EN POINTE TECHNOLOGIES, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------
1995 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Net sales....................................................... $ 200,797,023 $ 345,092,672 $ 491,358,145
Cost of sales................................................... 184,761,452 316,164,858 447,276,335
-------------- -------------- --------------
Gross profit.................................................. 16,035,571 28,927,814 44,081,810
Selling and marketing expenses.................................. 9,306,632 15,253,420 22,339,458
General and administrative expenses............................. 3,755,389 5,947,808 10,904,973
Litigation settlement and defense, net.......................... -- 524,913 --
-------------- -------------- --------------
Operating income.............................................. 2,973,550 7,201,673 10,837,379
Interest expense................................................ 1,842,527 1,672,558 1,238,743
Other income, net............................................... (61,399) (115,839) (193,700)
-------------- -------------- --------------
Income before income taxes.................................... 1,192,422 5,644,954 9,792,336
Provision for income taxes...................................... 489,182 2,315,431 3,961,774
-------------- -------------- --------------
Net income.................................................... $ 703,240 $ 3,329,523 $ 5,830,562
-------------- -------------- --------------
-------------- -------------- --------------
Net income per share
Primary..................................................... $ 0.21 $ 0.77 $ 1.00
-------------- -------------- --------------
-------------- -------------- --------------
Fully diluted............................................... $ 0.21 $ 0.77 $ 0.95
-------------- -------------- --------------
-------------- -------------- --------------
Weighted average shares and share equivalents outstanding
Primary..................................................... 3,409,500 4,301,920 5,810,828
-------------- -------------- --------------
-------------- -------------- --------------
Fully diluted............................................... 3,409,500 4,301,920 6,154,550
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>

See Notes to Financial Statements.

F-4
<PAGE>
EN POINTE TECHNOLOGIES, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- --------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1994................ 3,350,000 $ 3,350 $ 18,908 $ 166,268 $ 188,526
Conversion of notes payable to stockholder
to additional paid-in capital............ -- -- 939,862 -- 939,862
Net income................................. -- -- -- 703,240 703,240
---------- --------- ------------- ------------- -------------
Balance at September 30, 1995................ 3,350,000 3,350 958,770 869,508 1,831,628
Issuance of common stock, net of offering
costs.................................... 2,250,000 2,250 15,542,693 -- 15,544,943
Shares issued for services performed
related to public offering............... 7,500 8 (8) -- --
Issuance of warrants....................... -- -- 100 -- 100
Amortization of deferred compensation...... -- -- 169,143 -- 169,143
Net income................................. -- -- -- 3,329,523 3,329,523
---------- --------- ------------- ------------- -------------
Balance at September 30, 1996................ 5,607,500 5,608 16,670,698 4,199,031 20,875,337
Issuance of common stock under stock option
and stock purchase plans................. 167,532 167 1,257,539 -- 1,257,706
Issuance of common stock on exercise of
warrants................................. 4,039 4 (4) -- --
Amortization of deferred
compensation............................. -- -- 90,381 -- 90,381
Income tax benefits related to stock
options.................................. -- -- 264,524 -- 264,524
Net income................................. -- -- 5,830,562 5,830,562
---------- --------- ------------- ------------- -------------
Balance at September 30, 1997................ 5,779,071 $ 5,779 $ 18,283,138 $ 10,029,593 $ 28,318,510
---------- --------- ------------- ------------- -------------
---------- --------- ------------- ------------- -------------
</TABLE>

See Notes to Financial Statements.

F-5
<PAGE>
EN POINTE TECHNOLOGIES, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Operating activities:
Net income....................................................... $ 703,240 $ 3,329,523 $ 5,830,562
Adjustments to reconcile net income to net cash used by operating
activities:
Depreciation and amortization.................................. 306,207 627,626 1,238,378
Litigation settlement.......................................... -- 478,922 --
Allowance for doubtful accounts................................ 90,500 390,000 347,256
Allowance for returns.......................................... 490,900 -- (86,600)
Deferred taxes................................................. (172,397) (48,980) (135,660)
Deferred compensation.......................................... -- 169,143 90,381
Changes in operating assets and liabilities:
Restricted cash.............................................. (500,000) 506,000 198,067
Accounts receivable.......................................... (10,698,287) (24,134,007) (21,462,967)
Inventories.................................................. (618,300) (174,364) (2,857,162)
Prepaid expenses and other current assets.................... (105,664) (258,807) (1,003,617)
Accounts payable............................................. (15,757) 683,971 2,017,048
Accrued expenses............................................. 631,842 110,229 284,050
Other current liabilities.................................... 558,920 2,276,595 1,733,366
------------- ------------- -------------
Net cash used by operating activities.......................... (9,328,796) (16,044,149) (13,806,898)
------------- ------------- -------------
Investing activities:
Software development costs....................................... (206,619) (456,072) --
Purchase of property and equipment............................... (627,332) (1,713,710) (1,695,397)
------------- ------------- -------------
Net cash used by investing activities.......................... (833,951) (2,169,782) (1,695,397)
------------- ------------- -------------
Financing activities:
Book overdraft................................................... (399,776) -- --
Net borrowings under lines of credit............................. 8,400,895 9,030,886 14,188,419
Proceeds from stockholder loans.................................. 150,000 -- --
Proceeds from notes payable...................................... 3,312,657 -- 402,383
Payment on notes payable to stockholders......................... (12,077) (150,000) --
Payment on notes payable......................................... (1,000,000) (3,344,067) (189,700)
Net proceeds from sale of common stock........................... -- 15,545,043 1,257,706
------------- ------------- -------------
Net cash provided by financing activities...................... 10,451,699 21,081,862 15,658,808
------------- ------------- -------------
Increase in cash................................................. 288,952 2,867,931 156,513
Cash at beginning of period...................................... 1,229 290,181 3,158,112
------------- ------------- -------------
Cash at end of period............................................ $ 290,181 $ 3,158,112 $ 3,314,625
------------- ------------- -------------
------------- ------------- -------------
Supplemental disclosures of cash flow information:
Interest paid.................................................... $ 1,838,511 $ 1,759,780 $ 1,288,230
------------- ------------- -------------
------------- ------------- -------------
Income taxes paid................................................ $ 151,486 $ 2,626,581 $ 5,988,138
------------- ------------- -------------
------------- ------------- -------------
Supplemental schedule of non-cash financing and investing
activities:
Conversion of notes payable to stockholders to additional paid-in
capital........................................................ $ 939,862
-------------
-------------
Notes issued under settlement agreement.......................... $ 478,922
-------------
-------------
Tax benefit related to stock options............................. $ 264,524
-------------
-------------
Receipt of stock in exchange for a license fee................... $ 750,000
-------------
-------------
</TABLE>

See Notes to Financial Statements.

F-6
<PAGE>
EN POINTE TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

ORGANIZATION

The Company was incorporated under the laws of the State of Texas on January
25, 1993 under the name Infosystems, Inc., which name was later changed to
InfoTech Systems, and commenced operations in March 1993. On September 21, 1995,
the Company changed its name to En Pointe Technologies, Inc.

In February 1996, the Company's Board of Directors (the "Board") authorized
the reincorporation of the Company in the State of Delaware with total
authorized shares of all classes of stock to be 20,000,000 shares, consisting of
15,000,000 shares of common stock, $.001 par value per share, and 5,000,000
shares of preferred stock, $.001 par value per share, to be effected on or
before the effective date of a registration statement for an initial public
offering ("IPO") of common stock. In connection with such reincorporation, the
Company authorized a forward stock split of 207.7 shares for each share of
issued and outstanding common stock of the Company. All share and per share
amounts have been adjusted to retroactively reflect this stock split. On May 8,
1996 the Company successfully completed its IPO of 2,250,000 shares at $8 per
share.

The Company is a reseller of computers and computer-related products and
services and currently has sales offices in 16 locations within the United
States.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

REVENUE RECOGNITION

Product revenues are recognized upon shipment and satisfaction of
significant vendor obligations, if any. Service revenues are recognized based on
contracted hourly rates, as services are rendered, or upon completion of
specified contracted services. Net sales consist of product and service revenues
less discounts. Cost of sales include product and service costs and current and
estimated allowances for returns not accepted by the Company's suppliers, less
any product credits. At September 30, 1996 and 1997, the allowance for returns
was approximately $386,600 and $300,000, respectively.

CASH AND CASH EQUIVALENTS

For purposes of the statement of cash flows, the Company considers all time
deposits and highly liquid investments with original maturities of three months
or less to be cash equivalents. The Company has bank balances, including cash
equivalents, which at times may exceed federally insured limits.

INVENTORIES

Inventories consist principally of merchandise being configured for customer
orders and merchandise paid for by the Company but not yet shipped by the
Company's vendors to its customers and are stated at the lower of cost (specific
identification method) or market.

F-7
<PAGE>
EN POINTE TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of three
to seven years. Leasehold improvements are amortized over the lessor of the
remaining lease term or their estimated useful lives. Upon sale, any gain or
loss is included in the statement of operations. Maintenance and minor
replacements are charged to operations as incurred.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of financial instruments including cash and cash
equivalents, restricted cash, accounts receivable and payable, accrued and other
current liabilities and current maturities of long-term debt approximate fair
value due to of their short maturity. The carrying amount of long-term debt is
also assumed to approximate fair value.

INTANGIBLE AND LONG-LIVED ASSETS

The carrying value of long-term assets is periodically reviewed by
management, and impairment losses, if any, are recognized when the expected
nondiscounted future operating cash flows derived from such assets are less than
their carrying value.

ADVERTISING

The Company reports the costs of all advertising in the periods in which
those costs are incurred. Advertising costs have not been a significant item of
expense for the Company.

INCOME TAXES

The Company accounts for income taxes under the liability method. Under this
method, deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws which will be in effect when the
differences are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts expected to be realized.

CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash deposits and trade
accounts receivable. The Company's cash deposits are placed with various
financial institutions.

For the years ended September 30, 1995, 1996 and 1997, one of the Company's
customers accounted for approximately 12%, 28% and 30% of net sales,
respectively. At September 30, 1996 and 1997 that customer accounted for 28% and
24% of accounts receivable, respectively. No other customer accounted for 10% or
more of net sales.

The Company performs ongoing credit evaluations of its customers' financial
condition and generally does not require collateral. Estimated credit losses and
returns, if any, have been provided for in the financial statements and have, to
date, generally been within management's expectations.

F-8
<PAGE>
EN POINTE TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
STOCK BASED EMPLOYEE COMPENSATION AWARDS

Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for the Awards of Stock-Based Compensation to Employees" encourages, but does
not require companies to record compensation cost for stock-based compensation
plans at fair value. The Company has adopted the disclosure requirements of SFAS
No. 123, which involves proforma disclosure of net income under the provisions
of SFAS No. 123, detailed descriptions of plan terms and assumptions used in
valuing stock option grants. The Company has chosen to continue to account for
stock-based employee compensation awards in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees".

EARNINGS PER SHARE

The computation of net income per common and common equivalent share is
based upon the weighted average number of common shares outstanding during the
period plus (in periods in which they have a dilutive effect) the effect of
common shares contingently issuable, primarily from outstanding stock options
and warrants.

Fully diluted earnings per share also reflect additional dilution related to
stock options and warrants due to the use of end of the period market prices,
whenever such ending period market prices exceed the average market prices for
the period.

RECENTLY ISSUED ACCOUNTING STANDARDS

In February, 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128 "Earnings per Share". SFAS No. 128 requires dual presentation of
newly defined basic and diluted earnings per share on the face of the income
statement for all entities with complex capital structures. This method is
considered more compatible with International Accounting Standards. SFAS No. 128
is effective for all fiscal years ending after December 15, 1997. The Company is
currently evaluating the impact of SFAS No. 128.

In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income."
The standard establishes guidelines for the reporting and display of
comprehensive income and its components in financial statements. Disclosure of
comprehensive income and its components will be required beginning with the
Company's 1999 fiscal year end.

Also in June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information." The standard requires that companies
disclose "operating segments" based on the way management disaggregates the
company for making internal operating decisions. The new standards will be
effective for the Company's 1999 fiscal year end. The Company has not yet
evaluated the impact, if any, of the new standard.

F-9
<PAGE>
EN POINTE TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. PROPERTY AND EQUIPMENT:

Property and equipment consist of the following:

<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
1996 1997
------------- -------------
<S> <C> <C>
Computer equipment.............................................. $ 2,598,369 $ 3,735,975
Software costs.................................................. 662,691 749,469
Office equipment................................................ 307,949 421,499
Leasehold improvements.......................................... 190,680 355,653
Automotive equipment............................................ -- 139,318
Furniture and fixtures.......................................... 196,401 246,529
------------- -------------
3,956,090 5,648,443
Less: Accumulated depreciation and amortization............... (1,135,039) (2,370,373)
------------- -------------
$ 2,821,051 $ 3,278,070
------------- -------------
------------- -------------
</TABLE>

3. LINES OF CREDIT:

At September 30, 1996 and 1997, the Company had outstanding borrowings of
$36,503,838 and $50,692,257, respectively, under lines of credit with various
financial institutions.

The line of credit agreements provide for total financing of up to
$48,550,000 and $81,000,000 at September 30, 1996 and 1997, respectively, at
annual interest rates of 1.0% over prime and prime less .25%, respectively.
Total borrowings under the line of credit agreements are collateralized by
eligible accounts receivable (as defined in the agreements) and substantially
all of the Company's assets. Borrowings are limited to specific percentages of
the Company's accounts receivable and inventory balances. The line of credit
agreements contain various covenants which provide, among other things, a
restriction on dividend payments and the requirement for the maintenance of
certain financial ratios. At September 30, 1997 the Company was in compliance
with the covenants under its line of credit agreements. The prime rate of
interest was 8.75%, 8.25%, and 8.50% at September 30, 1995, 1996, and 1997
respectively, and the weighted average interest rates for the years ended
September 30, 1995, 1996, and 1997 were 10.76%, 10.78%, and 8.17% respectively.

The principal line of credit for $70,000,000 expires on April 13, 1998, one
year after the anniversary of the agreement, or such other date as both parties
may agree from time to time.

F-10
<PAGE>
EN POINTE TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. NOTES PAYABLE:

Notes payable consist of the following:

<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1996 1997
----------- -----------
<S> <C> <C>
Note payable under legal settlement, non interest bearing, due April 9, 1997, includes
discount to present value at 5.60% interest per annum................................. $ 97,787 $ --

Note payable under legal settlement, non interest bearing, payable in monthly
installments of $7,500 due in full on April 9, 2001, includes discount to present
value at 6.40% interest per annum..................................................... 349,725 287,511

Installment note payable, collateralized by equipment, at 8.76% interest per annum,
payable in 36 monthly installments of $12,751......................................... -- 372,684
----------- -----------

447,512 660,195

Less, current portion................................................................... (163,865) (197,539)
----------- -----------

$ 283,647 $ 462,656
----------- -----------
----------- -----------
</TABLE>

Maturities of long-term debt as of September 30, 1997 are as follows:

5. EMPLOYEE BENEFIT PLAN:

The Company has an employee savings plan (the "401(k) Plan") that covers
substantially all full-time employees who are twenty-one years of age or older.
Company contributions to the 401(k) Plan are at the discretion of the Board of
Directors and vest over seven years of service. No contributions were made by
the Company to the 401(k) Plan during fiscal years 1995, 1996 and 1997.

6. INCOME TAXES:

The components of the income tax provision (benefit) are as follows:

<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------------------
1995 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
Current:
Federal............................................ $ 523,780 $ 1,846,325 $ 3,202,137
State.............................................. 137,799 510,813 895,297
----------- ------------ ------------
661,579 2,357,138 4,097,434
----------- ------------ ------------
Deferred:
Federal............................................ (137,627) (48,999) (122,839)
State.............................................. (34,770) 7,292 (12,821)
----------- ------------ ------------
(172,397) (41,707) (135,660)
----------- ------------ ------------
$ 489,182 $ 2,315,431 $ 3,961,774
----------- ------------ ------------
----------- ------------ ------------
</TABLE>

F-11
<PAGE>
EN POINTE TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

6. INCOME TAXES: (CONTINUED)
The provision for income taxes differs from the amount computed by applying
the federal statutory rate to income before provision for income taxes as
follows:

<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Federal statutory rate................................................... 34% 34% 34%
State taxes, net of federal benefits..................................... 6% 6% 6%
Non-deductible expenses.................................................. 1% 1% --
-- -- --
41% 41% 40%
-- -- --
-- -- --
</TABLE>

Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.

Significant components of deferred taxes were as follows:

<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1996 1995
----------- -------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable and returned goods allowance................ $ 358,361 $ 461,900
Expenses not currently deductible............................... 210,796 293,500
Depreciation.................................................... -- 21,854
State income taxes.............................................. 97,380 171,201
----------- -------------
666,537 948,455
----------- -------------
Deferred tax liabilities:
Prepaid sales commissions....................................... (99,392) (73,914)
Discount on receivables......................................... (16,157) (801,572)
Software development costs...................................... (262,063) (164,096)
----------- -------------
(377,612) (1,039,582)
----------- -------------
Net deferred tax asset (liability)................................ $ 288,925 $ (91,127)
----------- -------------
----------- -------------
</TABLE>

7. COMMITMENTS AND CONTINGENCIES:

The Company leases office facilities and various office equipment. These
leases extend over a period of up to five years and are accounted for as
operating leases. Estimated future minimum lease payments under operating leases
having initial or remaining noncancellable lease terms in excess of one year at
September 30, 1997 were approximately as follows:

Rent expense for the years ended September 30, 1995, 1996, and 1997 under
all operating leases was approximately $966,000, $1,104,000, and $1,665,000,
respectively.

F-12
<PAGE>
EN POINTE TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
The Company has entered into employment contracts with certain of its
officers. The agreements provide for annual base salary with bonuses at the
discretion of the Board of Directors. In addition, agreements with two officers
provide for bonuses of 3 1/2% and 2 1/2% of pre-tax profit, provided certain
minimum pre-tax profit levels are obtained. A third officer earns a quarterly
bonus of $31,250 contingent on the Company meeting certain financial targets.
The agreements have three to five year terms ending at various times through
fiscal 2001 and provide for guaranteed severance payments upon termination of
employment other than for cause.

On August 22, 1996 the Company entered into an agreement with a Distributor
that requires $55 million in products to be purchased from the Distributor over
an 18 month period at competitive market prices. Minimum quarterly purchases
beginning October 1, 1996 range from $3.6 million to $15 million. To guarantee
performance under the agreement, the Company placed $600,000 in an escrow
account, as of September 30, 1996, that is interest bearing. A pro rata portion
of the escrowed funds is released as $5 million purchase levels are achieved. As
of September 30, 1997, the amount remaining in the escrow account was $402,000.

8. STOCK OPTIONS AND WARRANTS

In March 1996, the Company instituted a qualified (Incentive Stock Option
Plan) and non-qualified stock option plan which provides currently that options
for a maximum of 960,000 shares of common stock may be granted to directors,
officers, and key employees with an exercise period not to exceed ten years. The
stock options are generally exercisable at fair market value computed at the
date of grant and generally vest on a pro-rata basis ending on the third, ninth
and twenty-seventh months following the grant date. In addition to the above
plan, on September 2, 1997, the Company issued options to the Company president
in connection with her employment agreement, under terms similar to that of the
Company's Incentive Stock Option Plan, to purchase 275,000 shares at $14.38 per
share, which was the market value of the common stock on the grant date. As of
September 30, 1996 and 1997, the shares available for grant under the plan were
74,500 and 426,231, respectively.

The following is a summary of stock option activity:

<TABLE>
<CAPTION>
STOCK OPTIONS
----------------------------------
TOTAL PRICE
NON EXERCISE RANGE
INCENTIVE INCENTIVE VALUE PER SHARES
--------- --------- ------------ --------------
<S> <C> <C> <C> <C>
Outstanding at September 30, 1995......... -- -- -- --
Granted................................. 104,000 190,000 $ 2,064,000 $6.40-$8.00
Exercised............................... -- -- -- --
Cancelled............................... (8,500) -- (68,000) $8.00
--------- --------- ------------ --------------
Outstanding at September 30, 1996......... 95,500 190,000 1,996,000 $6.40-$8.00
Granted................................. 257,600 285,000 6,459,575 $9.50-$14.38
Exercised............................... (43,397) (32,998) (574,351) $6.40-$9.50
Cancelled............................... (5,998) (13,334) (143,989) $7.20-$8.00
--------- --------- ------------ --------------
Outstanding at September 30, 1997......... 303,705 428,668 $ 7,737,235 $6.40-$14.38
--------- --------- ------------ --------------
--------- --------- ------------ --------------
</TABLE>

F-13
<PAGE>
EN POINTE TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

8. STOCK OPTIONS AND WARRANTS (CONTINUED)

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE REMAINING
OPTIONS EXERCISE CONTRACTUAL
EXERCISABLE PRICE LIFE
----------- ----------- ---------------
<S> <C> <C> <C>
September 30, 1996....................................... 88,681 $ 6.98 9.61
September 30, 1997....................................... 186,116 $ 7.87 9.21
</TABLE>

<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE FAIR VALUE
OPTIONS ISSUED AT MARKET: OUTSTANDING OPTION PRICE PRICE AT GRANT DATE
- -------------------------------------- ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
Outstanding at September 30, 1995
Granted........................... 104,000 $ 8.00 $ 8.00 $ 6.55
Cancelled......................... (8,500) $ 8.00 $ 8.00 --
----------- -------------- -----------
Outstanding at September 30, 1996... 95,500 $ 8.00 $ 8.00 --
Granted........................... 542,600 $ 9.50-$14.38 $ 12.04 $ 12.04
Exercised......................... (43,397) $ 8.00-$9.50 $ 8.82 --
Cancelled......................... (5,998) $ 8.00 $ 8.00 --
Outstanding at September 30, 1997... 588,705 $ 8.00-$14.38 $ 10.45
----------- -------------- -----------
----------- -------------- -----------
</TABLE>

<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE FAIR VALUE
OPTIONS ISSUED BELOW MARKET: OUTSTANDING OPTION PRICE PRICE AT GRANT DATE
- --------------------------------------- ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C>
Outstanding at September 30, 1995
Granted............................ 190,000 $ 6.40-$7.20 $ 6.48 $ 8.18
Cancelled.......................... -- -- -- --
----------- ------------- -----
Outstanding at September 30, 1996.... 190,000 $ 6.40-$7.20 $ 6.48 --
Granted............................ -- -- -- --
Exercised.......................... (32,998) $ 6.40-$7.20 $ 6.47 --
Cancelled.......................... (13,334) $ 7.20 $ 7.20 --
----------- ------------- -----
Outstanding at September 30, 1997.... 143,668 $ 6.40-$7.20 $ 6.42
----------- ------------- -----
----------- ------------- -----
</TABLE>

At September 30, 1997 warrants to purchase 210,540 shares of the Company's
common stock were also outstanding. The warrants were issued by the Company to
the underwriter of the initial public offering, and are exercisable at any time
over a five year life at an exercise price of $9.60 per share.

En Pointe has adopted the disclosure only provisions of SFAS No. 123,
"Accounting for Stock Based Compensation." If compensation expense for the stock
options had been determined using "fair value" at

F-14
<PAGE>
EN POINTE TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

8. STOCK OPTIONS AND WARRANTS (CONTINUED)
the grant date for awards in 1996 and 1997, consistent with the provisions of
SFAS No. 123, the Company's net earnings and earnings per share would have been
reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Net income as reported............................................ $ 3,329,523 $ 5,830,562
Net income pro forma.............................................. $ 2,623,953 $ 4,929,547
Earnings per share as reported.................................... $ 0.77 $ 1.00
Fully diluted earnings per share as reported...................... $ 0.77 $ 0.95
Earnings per share pro forma...................................... $ 0.61 $ 0.85
Fully diluted earnings per share pro forma........................ $ 0.61 $ 0.80
</TABLE>

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997 and 1996:

<TABLE>
<CAPTION>
EXPECTED RISK FREE
DIVIDEND EXPECTED INTEREST EXPECTED
YIELD VOLATILITY RATE LIVES
--------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
September 30, 1996................................. 0 67% 6.34% 2.5
September 30, 1997................................. 0 67% 6.16% 2.5
</TABLE>

9. EMPLOYEE STOCK PLAN

The Company also has an Employee Stock Purchase Plan (the "Plan") under
which there remains authorized and available for sale to employees an aggregate
of 158,864 shares of the Company's common stock. The Plan, which is intended to
qualify under Section 423 of the Code, permits eligible employees to purchase
common stock, subject to certain limitations, up to 20% of their compensation.
Purchases of stock under the Plan are made twice annually from amounts withheld
from payroll at 85% of the lower of the fair market value of the common stock at
the beginning or end of the six month offering period.

10. LITIGATION

The Company was named as a defendant in a lawsuit filed on August 8, 1997 in
the Superior Court in the County of Los Angeles, California (Case No. BC175991).
The case name is CIC Systems, Inc. v. En Pointe Technologies, Inc., et al., and
the complaint alleges that the Company, along with one individual defendant who
was a former employee of the plaintiff, conspired to target and persuade the
plaintiff's sales personnel to leave plaintiff's employ and become employed by
the Company and further alleges that the individual defendants, all of whom are
former employees of the plaintiff, diverted to the Company sales and customers
of the plaintiff, made false and misleading statements regarding the plaintiff,
and misappropriated the plaintiff's trade secrets and proprietary information,
all on behalf of the Company. The Company is currently unable to estimate the
loss in the event of an unfavorable outcome. However, before consideration of
any potential insurance recoveries, the Company, on the advice of counsel,
believes that the claims in the suit will not have a material adverse effect on
the Company's business, financial condition or results of operations. The
Company has maintained various liability insurance policies during the periods
covering the claims above. While such policies may limit coverage under certain
circumstances, the Company believes that it is adequately insured.

The Company was named, along with Bob Din, as a defendant in a lawsuit filed
April 29, 1997 in the Superior Court for the County of Los Angeles. The case
name for this filing is Novaquest Infosystems, et. al. v. En Pointe
Technologies, Inc., et al., and the complaint alleges that the Company and Bob
Din

F-15
<PAGE>
EN POINTE TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

10. LITIGATION (CONTINUED)
knowingly accepted trade secret information owned by the plaintiffs and
furthermore alleges that the Company interfered with the plaintiffs' prospective
economic advantage. The Company is currently unable to estimate the loss in the
event of an unfavorable outcome. However, before consideration of any potential
insurance recoveries, the Company, on the advice of counsel, believes that the
claims in the suit will not have a material adverse effect on the Company's
business, financial condition, or results of operations. The Company has
maintained various liability insurance policies during the periods covering the
claims above. While such policies may limit coverage under certain
circumstances, the Company believes that it is adequately insured.

In April 1996 the Company, Bob Din and Naureen Din entered into a settlement
agreement with a former employee of the Company, pursuant to which the former
employee has released the Company and Bob Din and Naureen Din from any and all
claims with respect to the Company's use of certain computerized information
system software originally developed by the former employee prior to his
employment with the Company (the "Settlement Agreement"). As consideration for
entering into the Settlement Agreement,the Company agreed to pay the former
employee payments totalling $1,225,000. The remaining unpaid balance as of
September 30, 1996 and 1997 was $447,512 and $287,511 respectively.

The Company filed suit against its insurance carrier in order to recoup both
legal costs incurred by the Company in connection with its defense of the
foregoing litigation as well as for amounts paid to the former employee pursuant
to the settlement. In August 1996 the insurance company settled with the Company
paying the full amount of the original settlement.

In addition to the above, the Company is involved with various claims and
litigation in the normal course of business. On the advice of counsel, and in
the opinion of management, the ultimate resolution of these matters will not
have a significant effect on the financial position and cash flows of the
Company.

11. SUBSEQUENT EVENT

Effective October 1997, the Company completed the purchase of a plant in
Ontario, California, for configuration and assembly of product. The plant was
purchased in response to industry changes in the distribution of product and to
improve customer service. Initial cost of the plant was $4.8 million with an
additional $2.2 million anticipated for improvements, and $1.7 million for
operating equipment. A mortgage note payable with the Habib Bank of Zurich for
$4.0 million was used to finance a portion of the plant and improvements. The
note matures on October 31, 2007 and is payable in monthly installments of
approximately $40,000, bearing interest at 8.5% per annum.

F-16
<PAGE>
EN POINTE TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

12. QUARTERLY FINANCIAL DATA (UNAUDITED)

Selected financial information for the quarterly periods for the fiscal
years ended September 30, 1996 and 1997 is presented below (in thousands, except
per share amounts):

<TABLE>
<CAPTION>
FISCAL 1996 QUARTER ENDED
----------------------------------------------
DECEMBER MARCH JUNE SEPTEMBER
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales.................................... $ 77,016 $ 79,893 $ 88,938 $ 99,246
Gross profit................................. 6,061 6,639 7,473 8,755
Net income................................... 702 683 459 1,486
Fully diluted net income per share........... 0.21 0.20 0.10 0.26
</TABLE>

<TABLE>
<CAPTION>
FISCAL 1997 QUARTER ENDED
----------------------------------------------
DECEMBER MARCH JUNE SEPTEMBER
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales.................................... $ 111,666 $ 116,595 $ 128,400 $ 134,697
Gross profit................................. 9,855 9,621 11,729 12,877
Net income................................... 1,187 1,324 1,461 1,859
Fully diluted net income per share........... 0.21 0.23 0.25 0.30
</TABLE>

In the third quarter of 1996, the Company settled its lawsuit with a former
employee for $1.2 million less partial recovery of $.6 million from its
insurance carrier or $.6 million net expense. In the fourth quarter of 1996, the
remaining insurance recovery of $.7 million was received, less related expenses
of $.1 million, or $.6 million net recovery income.

F-17
<PAGE>
SCHEDULE II
EN POINTE TECHNOLOGIES, INC.

VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COST AND END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
- --------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Year ended September 30, 1997
Allowance for doubtful accounts.............................. $ 515,000 $ 488,136 $ (140,880) $ 862,256
Allowance for returns........................................ $ 386,600 $ 27,360 $ (113,960) $ 300,000

Year ended September 30, 1996
Allowance for doubtful accounts.............................. $ 125,000 $ 410,000 $ (20,000) $ 515,000
Allowance for returns........................................ $ 386,600 $ -- $ -- $ 386,600

Year ended September 30, 1995
Allowance for doubtful accounts.............................. $ 60,000 $ 90,500 $ (25,500) $ 125,000
Allowance for returns........................................ $ 134,300 $ 490,900 $ (238,600) $ 386,600
</TABLE>

F-18
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Annual Report on Form 10-K to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of El Segundo, State of
California, on the 29th day of December, 1997.

EN POINTE TECHNOLOGIES, INC.

BY: /S/ BOB DIN
-----------------------------------------
Bob Din,
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER (PRINCIPAL EXECUTIVE
OFFICER)

POWER OF ATTORNEY

We, the undersigned directors and officers of En Pointe Technologies, Inc.
do hereby constitute and appoint Attiazaz "Bob" Din and Robert Mercer, or either
of them, with full power of substitution and resubstitution, our true and lawful
attorneys and agents, to do any and all acts and things in our name and behalf
in our capacities as directors and officers and to execute any and all
instruments for us and in our names in the capacities indicated below, which
said attorneys and agents, or either of them, or their substitutes, may deem
necessary or advisable to enable said corporation to comply with the Securities
Exchange Act of 1934, as amended, and any rules, regulations and requirements of
the Securities and Exchange Commission in connection with this Annual Report on
Form 10-K, including specifically, but without limitation, power and authority
to sign for us or any of us in our names and in the capacities indicated below,
any and all amendments; and we do hereby ratify and confirm all that the said
attorneys and agents, or either of them, shall do or cause to be done by virtue
hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Annual Report on Form 10-K has been signed below by the following
persons in the capacities and on the dates indicated.

SIGNATURE AND TITLE DATE
- -------------------------------------------------------- -------------------

By /s/ ATTIAZAZ "BOB" DIN December 29, 1997
--------------------------------------------
Attiazaz "Bob" Din
Chairman of the Board, Chief Executive Officer and
Director (Principal Executive Officer)

By /s/ ROBERT A. MERCER December 23, 1997
--------------------------------------------
Robert A. Mercer,
Chief Financial Officer (Principal Financial and
Principal Accounting Officer)

By /s/ NAUREEN DIN December 29, 1997
--------------------------------------------
Naureen Din,
Director

By /s/ ZUBAIR AHMED December 29, 1997
--------------------------------------------
Zubair Ahmed,
Director

By /s/ MANSOOR IJAZ December 25, 1997
--------------------------------------------
Mansoor Ijaz,
Director

By /s/ VERDELL GARROUTTE December 26, 1997
--------------------------------------------
Verdell Garroutte,
Director

32
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- -------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger between the Registrant and En Pointe Technologies, Inc., a Texas
corporation, effective February 29, 1996. Filed as Exhibit 2.1 to the Registration Statement on Form
S-1 (File No. 333-2046) and incorporated herein by reference.

3.1 Certificate of Incorporation of Registrant. Filed as Exhibit 3.1 to the Registration Statement on Form
S-1 (File No. 333-2046) and incorporated herein by reference.

3.2 Bylaws of Registrant. Filed as Exhibit 3.2 to the Registration Statement on Form S-1 (File No.
333-2046) and incorporated herein by reference.

4.1 Form of Underwriter's Warrant Agreement by and between the Registrant and the Boston Group, L.P. Filed
as Exhibit 1.1 to the Registration Statement on Form S-1 (File No. 333-2046) and incorporated herein by
reference.

10.1 En Pointe Technologies, Inc. 1996 Stock Incentive Plan. Filed as Exhibit 10.1 to the Registration
Statement on Form S-1 (File No. 333-2046) and incorporated herein by reference.

10.2 En Pointe Technologies, Inc. Employee Stock Purchase Plan. Filed as Exhibit 10.2 to the Registration
Statement on Form S-1 (File No. 333-2046) and incorporated herein by reference.

10.3 Form of Directors' and Officers' Indemnity Agreement. Filed as Exhibit 10.3 to the Registration
Statement on Form S-1 (File No. 333-2046) and incorporated herein by reference.

10.4 Employment Agreement between the Registrant and Ellis M. Posner, effective October 1, 1997.

10.5 Employment Agreement between the Registrant and Attiazaz "Bob" Din, dated March 1, 1996. Filed as
Exhibit 10.5 to the Registration Statement on Form S-1 (File No. 333-2046) and incorporated herein by
reference.

10.6 Amendment, dated as of April 2, 1997, to Employment Agreement between the Registrant and Attiazaz "Bob"
Din.

10.7 Employment Agreement between the Registrant and Javed Latif, dated March 8, 1996. Filed as Exhibit 10.6
to the Registration Statement on Form S-1 (File No. 333-2046) and incorporated herein by reference.

10.8 Employment Agreement between the Registrant and Kevin Schatzle, dated April 1, 1996. Filed as Exhibit
10.7 to the Registration Statement on Form S-1 (File No. 333-2046) and incorporated herein by
reference.

10.9 Employment Agreement between the Registrant and Susan Bailey, dated September 2, 1997.

10.10 Inventory and Working Capital Financing Agreement between the Registrant and IBM Credit Corporation
dated April 13, 1997.

10.11 Lease Agreement dated September 16, 1994, between Meridian Point Realty Trust '83, a California
business trust, and the Registrant, for the property located at 4132 Getwell, Building No. 16B, Airport
Industrial Park, Memphis, Tennessee. Filed as Exhibit 10.20 to the Registration Statement on Form S-1
(File No. 333-2046) and incorporated herein by reference.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- -------------------------------------------------------------------------------------------------------
<C> <S>
10.12 Information Processing Equipment Agreement between IBM and the Registrant dated November 16, 1995.
Filed as Exhibit 10.24 to the Registration Statement on Form S-1 (File No. 333-2046) and incorporated
herein by reference. Portions of this exhibit have been omitted pursuant to a grant of confidential
treatment pursuant to Rule 406 of the Securities Act of 1933, as amended.

10.13 Sublease dated August 1996 between NCR International, Inc. and the Registrant for the property located
at 100 N. Sepulveda Blvd., 19th Floor, El Segundo, California. Filed as Exhibit 10.28 to the Company's
Quarterly Report on Form 10-Q, filed on February 14, 1997.

10.14 Agreement for Sale of Computer Products between Merisel Fab, Inc. and the Registrant dated August 1996.
Filed as Exhibit 10.29 to the Company's Quarterly Report on Form 10-Q, filed on February 14, 1997.
Portions of this exhibit have been omitted pursuant to a grant of confidential treatment pursuant to
Rule 406 of the Securities Act of 1933, as amended.

10.15 Deed of Trust, Security Agreement, and Fixture Filing with Assignment of Rents and Agreements given on
November 4, 1997 by the Registrant to Chicago Title Insurance Company (the "Trustee") for the benefit
of Habib Bank Ag Zurich (the "Beneficiary") with respect to the property located at 1040 Vintage
Avenue, Unit B, Ontario, California.

11.1 Statement re: computation of per share earnings.

21.1 Subsidiaries of Registrant.

23.1 Consent of Coopers & Lybrand L.L.P.

24.1 Power of Attorney (see page 32).

27.1 Financial date schedule.
</TABLE>

<PAGE>

EXECUTIVE EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT ("Agreement") is executed as of the 10th day of
September, 1997, but effective as of the 1st day of October, 1997, by and
between Ellis Posner, an individual ("Employee"), and EN POINTE TECHNOLOGIES,
INC., a Delaware corporation and its subsidiary EN POINTE TECHNOLOGIES, INC., a
Delaware corporation (collectively, the "Company"), with reference to the
following facts:

A. Employee is an individual possessing unique management and executive
talents of value to the Company and has been the Vice President of Sales.

B. The Company desires to continue the employment of Employee as the
Senior Vice President of Sales of the Company, and Employee desires to accept
such employment, all on the terms and conditions set forth in this Agreement.

AGREEMENT

In consideration of the foregoing recitals and of the covenants and
agreements herein, the parties agree as follows:

1. The Company hereby engages Employee to perform the duties and render
the services set forth in Section 2 for a period commencing on October 1, 1997
(the "Start Date") and ending on the third anniversary of such date, (the
"Employment Period") and Employee hereby accepts said employment and agrees to
perform such services during the Employment Period. Unless this Agreement is
terminated pursuant to Section 4 or unless either party gives the other written
notice to the contrary at least six (6) months prior to an expiration date,
this Agreement, together with any changes which have occurred during the
employment period then expiring, shall automatically renew at the end of an
Employment Period for an additional one (1) year employment period.

2. DUTIES.

2.1 SENIOR VICE PRESIDENT OF SALES: Performing executive work of major
importance to the Company, with the primary focus being the profitable
management and profitable growth of the sales of the Company. During the
Employment Period, Employee shall devote his full business time and attention
to performing his duties as Senior Vice President of sales of the Company. He
shall 1) continue to build and supervise sales teams to profitably sell the
Company's products and services to customers in territories associated with all
of the Company's branches in the United States, including the headquarters
branch, and specifically including the Branch offices in the State of Texas,
(hereby collectively referred to as "the Branch Offices"); 2) manage the
overall direction, coordination, and evaluation of the Branch Offices to
achieve or exceed both the earnings-per-share and gross revenue targets of the
Company; 3) assist the Executive Vice President in formulating and
administering Company policies; 4) obtain profitable sales at the Branch
Offices; 5) review and analyze the activities, costs, operations of the Branch
Offices to define and to track their progress toward achieving their goals and
objectives; 6) carry out supervisory responsibilities in accordance with
Company policies, and applicable laws; 7) interview, hire and train sales
managers and staff; 9) plan, assign and direct the work of sales managers and
staff, appraise their performance, and reward and discipline them, and address
their complaints; 10) open new Branch Offices; 11) submit all required

<PAGE>

documentation in a timely and accurate manner. The above description of duties
is non-exhaustive. Employee shall work out of the Company's headquarters
location and shall report to the Executive Vice President.

Employee recognizes that the Board of Directors of the Company may be
required under its fiduciary duty to the Company and to its stockholders to
eliminate the position of Senior Vice President of Sales of this Company or to
appoint a different person as such officer of this Company. The parties agree
however, that any such elimination or replacement of Employee by the Company,
other than pursuant to Section 2.2 or Section 4.1 or 4.2(a) or 4.3(b) hereof,
shall constitute a termination of Employee's employment hereunder by the
Company without cause.

2.2 CHANGE OF CONTROL. Notwithstanding the terms of Section 2.1
above, if the Company or a significant portion thereof is sold or merged or
undergoes a change of control transaction (as defined in the Company's Stock
Option Agreement, a copy of which is attached hereto as Exhibit A), this
Agreement shall survive consummation of such transaction and shall continue in
effect for the remainder of the Employment Period, but Employee shall serve as
an officer of the entity which succeeds to the business or a substantial
portion of the business of the Company, and in such case shall bear a suitable
title and perform the duties and functions of such office of such publicly
traded or privately held successor, consistent with those customarily performed
by an officer of such a unit, division or entity comparable to the then
business of the Company, unit, division or entity. Employee may be required to
accept greater or lesser responsibility by any successor, and agrees to fully
cooperate and assist in any resulting transition for up to the remainder of the
Employment Period; and any adjustments required of Employee to complete the
transition to any successor, unit, division or entity, shall not violate this
Agreement so long as "good reason" does not arise under Sections 4.6(b)(ii),
(iii) or (v). This Agreement shall apply to the automatic modification in
duties resulting from such transaction as set forth above, however,
notwithstanding the foregoing, Employee may exercise any "good reason" rights
she may have under Section 4.6(b)(iv).

2.3 CONFLICT OF INTEREST. Employee agrees that during the term of
employment and for a period of twelve (12) months thereafter, employee will
not, directly or indirectly, compete with the Company in any way, or usurp any
Company opportunity in any way, nor will employee act as an officer, director,
employee, consultant, shareholder, lender or agent of any entity which is
engaged in any business in which the Company is now engaged or in which the
Company becomes engaged during the term of employment. The Company is now
engaged in the business of reselling computer hardware, software and
peripherals, primarily to corporate and governmental accounts, and in the
business of selling computer systems consulting, help and maintenance services,
also primarily to corporate and governmental accounts. The Company is not now
engaged in the business of computer systems consulting along the lines engaged
in by "Big 5 Accounting" firms such as Arthur Anderson Consulting or KPMG
Consulting, or firms such as IBM Global Services or CSC consulting; the Company
is now engaged in the business of computer systems consulting along the lines
engaged in by EDS. The Company is not now engaged in the business of
manufacturing computers or their primary components, nor is it now in the
business of reselling computers to non-endusers. The Company may become
engaged in the business of final assembly of computers and may become engaged
in the business of catalog, mail-order or internet sales of computer hardware,
software and peripherals. Employee also agrees that during the term of
employment and for a period of twelve (12) months thereafter, Employee will
not, directly or indirectly, whether on his own

-2-
<PAGE>

behalf or on behalf of another, offer employment or a consulting assignment
to any Company employee, nor will Employee, nor Employee's employer, directly
or indirectly, whether on his own behalf or on behalf of another, actually
employ or grant a consulting assignment to any Company employee. Employee
also agrees that during the term of employment and for a period of twelve
(12) months thereafter, Employee will not, directly or indirectly, whether on
his own behalf or on behalf of another, contact or solicit any of Company's
clients to do business with any entity other than Company.

3. COMPENSATION. As compensation for his services to be performed
hereunder, the Company shall provide Employee with the following compensation
and benefits:

3.1 (a) BASE SALARY. Employee's base salary shall be $149,000.00
per year, subject to an annual increase (if any) in the sole discretion of the
Board, payable in accordance with the Company's payroll practices as in effect
from time to time, and subject to such withholding as is required by law.

(b) DRAW. For periods after October 1, 1997, Employee shall be
entitled to draw, as an advance against salary and bonuses, the amount of seven
thousand five hundred eighty-three dollars and thirty-three cents ($7,583.33)
per month. For periods after October 1, 1998, draw advanced shall be
RECOVERABLE against Employee's total compensation (I.E., if draw paid exceeds
Bonus earned, any negative balance which is not recovered from total
compensation WILL be carried forward.) Any negative draw balance accrued for
periods before October 1, 1997, is waived by Company.

3.2 BONUS. Bonus applicable to the fiscal year beginning October 1,
1997, shall be calculated as follows:

(a) BRANCHES BONUS. A one-time "Branches Bonus" at the rate of
$12,500.00 per fiscal quarter shall be paid in each quarter of the eighteen
(18) month period beginning October 1, 1997, in which a new branch office is
opened. In order to be considered opened each such new branch office must be
staffed with no less than one manager plus five (5) salespeople. This Branches
Bonus is subject to a global cap of $50,000.00, i.e., this Branches Bonus can
apply to no more than four (4) branches. This Branches Bonus shall be deemed
earned at the time an eligible branch is opened and shall be payable at the end
of each quarter in which an eligible branch is opened.

(b) OTHER BONUS. Additionally:

(i) in each quarter of the fiscal year beginning October
1, 1997, only Employee will receive a bonus of $25,000.00. This bonus shall be
payable at the end of each such quarter. This bonus is guaranteed.

(ii) in each quarter of the fiscal year beginning October
1, 1997, only, in which the Company meets or exceeds 125% of (i) the earnings
per share targets, or 150% of (ii) the gross revenue targets, as set forth in
the Seidler Companies analysts report, a copy of which is attached hereto as
Exhibit B, Employee will receive a bonus of $12,500.00. This bonus shall be
payable at the end of each such quarter. This bonus does not carry forward
from quarter to quarter,

-3-
<PAGE>

and is not pro-ratable, i.e., if targets are not met, none of this latter
bonus applies for the relevant quarter.

Bonus applicable to subsequent periods, if any, shall be in the sole
discretion of the Board of Directors, and is not guaranteed. If any bonus is
declared or paid, it shall be subject to such withholding as is required by
law.

3.3 BENEFITS.

(a) VACATION. Employee shall be entitled to vacation time as
has been accrued each pay period since his date of first hire, less any
vacation taken, as follows: (i) for years 1 to 5 sine his date of first hire,
3.34 hours accrued per pay period (24 pay periods per year), subject to 80
hours per year maximum; (ii) for years after year 5 since his date of first
hire, 5 hours accrued per pay period (24 pay periods per year), subject to 120
hours per year maximum. In the event Employee does not use such vacation, he
shall receive, upon termination of the Employment Period, vacation pay for all
unused vacation calculated as having accrued at the applicable base salary for
each relevant period of his employment. However, Employee shall endeavor to
take vacation time in the year in which it is allocated to him.

(b) BUSINESS EXPENSES. The Company shall reimburse Employee
for reasonable business expenses incurred by Employee in the course of
performing services for the company and in compliance with procedures
established from time to time by the Company in the amount of no more than
three thousand five hundred dollars ($3,500.00) per month. This reimbursement
shall occur on a monthly basis, and is subject to Employee providing original
documentation in support of all business expenses reimbursement sought.

(c) OTHER BENEFITS. Company shall provide Employee with such
employment benefits as 401(k) participation, automobile allowance, medical
insurance and disability insurance, on the terms and to the extent generally
provided by the Company to its senior executive employees. 401(k)
participation, medical insurance and disability insurance shall commence 90
days after the Start Date. The amount of automobile allowance provided by the
Company to Employee shall be $1,000.00 per month.

(d) OTHER PERSONS. The parties understand that other officers
and employees may be afforded payments and benefits and employment agreements
which differ from those of Employee in this Agreement; but Employee's
compensation and benefits shall be governed solely by the terms of this
Agreement, which shall supersede all prior understandings or agreements between
the parties concerning terms and benefits of employment of Employee with the
Company. Other officers or employees shall not become entitled to any benefits
under this Agreement.

4. TERMINATION.

4.1 TERMINATION BY REASON OF PERMANENT DISABILITY. The Employment
Period shall terminate upon the permanent disability (as defined below) of
Employee.

4.2 TERMINATION BY COMPANY.

-4-
<PAGE>

(a) The Company may terminate the Employment Period for "cause"
by written notice to Employee.

(b) The Company may terminate the Employment Period for any
other reason, with or without cause, by written notice to Employee.

4.3 TERMINATION BY EMPLOYEE.

(a) Employee may terminate the Employment Period for "good
reason" at any time by written notice to the Company.

(b) Employee may terminate the Employment Period for any other
reason by written notice to the Company.

4.4 SEVERANCE PAY.

(a) In the event the Employment Period is terminated by the
Company for any reason other than pursuant to Section 4.2(a) or Section 4.3(b)
hereof or if the Employment Period is terminated because of the permanent
disability of Employee pursuant to Section 4.1, upon the effectiveness of any
such termination, the Company shall be obligated to pay to Employee (or her
executors, administrators or assigns, as the case may be) all unpaid salary,
benefits and bonuses (if any) accrued through the date of effectiveness of such
termination and, in addition, a cash severance payment equal to one year's
total base salary, at the rates set forth herein, and such other benefits as
may be required by law.

(b) In the event the Employment Period is terminated by the
Company pursuant to Section 4.2(a) hereof, or the Employment Period is
terminated by Employee pursuant to Section 4.3(b) hereof, the Company shall
have no obligation to pay any severance pay to Employee. The Company shall,
however, be obligated to pay to Employee (or his executors, administrators or
assigns, as the case may be) all unpaid salary, benefits and bonuses (if any)
accrued through the date of termination and shall provide such other benefits
as may be required by law.

4.5 TERMINATION BENEFITS. In the event of termination of the
Employment Period pursuant to Section 4.2 or 4.3(a), the Company shall provide
Employee, Employee's spouse and children, if any, with such normal medical
insurance, on the terms and to the extent generally provided by the Company to
its executive employees of the level comparable to Employee, for a period of
one year from the date of the termination of the Employment Period.

4.6 CERTAIN DEFINITIONS. For purposes of this Agreement:

(a) The term "cause" shall mean those acts identified in
Section 2924 of the California Labor Code, as that section exists on October 1,
1997, to wit, any willful breach of duty by the Employee in the course of his
employment, or in case of his habitual neglect of his duty or continued
incapacity to perform it.

(b) The term "good reason" shall mean the occurrence of one or
more of the following events without Employee's express written consent: (i)
removal of Employee from the position and responsibilities as set forth under
Section 2 above; (ii) a material reduction by the

-5-
<PAGE>

Company in the kind or level of employee benefits to which Employee is
entitled immediately prior to such reduction with the result that Employee's
overall benefit package is significantly reduced; (iii) the relocation of
Employee to a facility or a location outside of California; (iv) a change in
control of the Company, or, (v) any material breach by the Company of any
material provision of this Agreement which continues uncured for thirty (30)
days following written notice thereof.

(c) The term "permanent disability" shall mean Employee's
incapacity due to physical or mental illness, which results in Employee being
absent from the performance of his duties with the Company on a full-time basis
for a period of six (6) consecutive months. The existence or cessation of a
physical or mental illness which renders Employee absent from the performance
of his duties on a full-time basis shall, if disputed by the Company or
Employee, be conclusively determined by written opinions rendered by two
qualified physicians, one selected by Employee and one selected by the Company.
During the period of absence, but not beyond the expiration of the Employment
Period, Employee shall be deemed to be on disability leave of absence, with his
compensation paid in full. During the period of such disability leave of
absence, the Board of Directors may designate an interim officer with the same
title and responsibilities of Employee on such terms as it deems proper.

5. EMPLOYEE BENEFIT PLANS. Any employee benefit plans in which Employee
may participate pursuant to the terms of this Agreement shall be governed
solely by the terms of the underlying plan documents and by applicable law, and
nothing in this Agreement shall impair the Company's right to amend, modify,
replace, and terminate any and all such plans in its sole discretion as
provided by law. This Agreement is for the sole benefit of Employee and the
Company, and is not intended to create an employee benefit plan or to modify
the terms of any of the Company's existing plans.

6. MISCELLANEOUS.

6.1 ARBITRATION/GOVERNING LAW. To the fullest extent permitted by
law, any dispute, claim or controversy of any kind (including but not limited
to tort, contract and statute) arising under, in connection with, or relating
to this Agreement or Employee's employment, shall be resolved exclusively by
binding arbitration in Los Angeles County, California in accordance with the
commercial rules of the American Arbitration Association then in effect. The
Company and Employee agree to waive any objection to personal jurisdiction or
venue in any forum located in Los Angeles County, California. No claim,
lawsuit or action of any kind may be filed by either party to this Agreement
except to compel arbitration or to enforce an arbitration award; arbitration is
the exclusive dispute resolution mechanism between the parties hereto.
Judgment may be entered on the arbitrator's award in any court having
Jurisdiction. The validity, interpretation, effect and enforcement of this
Agreement shall be governed by the laws of the State of Texas.

6.2 ASSIGNMENT. This Agreement shall inure to the benefit of and
shall be binding upon the successors and the assigns of the Company, and all
such successors and assigns shall specifically assume this Agreement. Since
this Agreement is based upon the unique abilities of, and the Company's
personal confidence in Employee, Employee shall have no right to assign this
Agreement or any of his rights hereunder without the prior written consent of
the Company.

-6-
<PAGE>

6.3 SEVERABILITY. If any provision of this Agreement shall be found
invalid, such findings shall not affect the validity of the other provisions
hereof and the invalid provisions shall be deemed to have been severed
herefrom.

6.4 WAIVER OF BREACH. The waiver by any party of the breach of any
provision of this Agreement by the other party or the failure of any party to
exercise any right granted to it hereunder shall not operate or be construed as
the waiver of any subsequent breach by such other party nor the waiver of the
right to exercise any such right.

6.5 ENTIRE AGREEMENT. This instrument, together with the plans
referred to in Section 5, contains the entire agreement of the parties. It may
not be changed orally but only by an agreement in writing signed by the
parties.

6.6 NOTICES. Any notice required or permitted to be given hereunder
shall be in writing and may be personally served or sent by United States mail,
and shall be deemed to have been given when personally served or two days after
having been deposited in the United States mail, registered or certified mail,
return receipt requested, with first-class postage prepaid and properly
addressed as follows. For the purposes hereof, the addresses of the parties
hereto (until notice of a change thereof is given as provided in this Section
6.6) shall be as follows:

If to Employee: Ellis Posner
216 Sixth Street
Manhattan Beach, CA 90266

If to the Company: En Pointe Technologies, Inc.
100 N. Sepulveda Blvd., 19th Floor
El Segundo, California 90245
Attention: CEO

6.7 HEADINGS. The paragraph and subparagraph headings herein are
for convenience only and shall not affect the construction hereof.

6.8 FURTHER ASSURANCES. Each of the parties hereto shall, from time
to time, and without charge to the other parties, take such additional actions
and execute, deliver and file such additional instruments as may be reasonably
required to give effect to the transactions contemplated hereby.

6.9 ATTORNEYS' FEES. In the event any party hereto commences
arbitration or legal action in connection with this Agreement, the prevailing
party shall be entitled to its attorneys' fees, costs and expenses reasonably
incurred in such action, and the amount thereof shall be included in any
judgment or award granted under Section 6.1.

6.10 COUNTERPARTS. This Agreement may be executed simultaneously in
any number of counterparts, each of which shall be deemed an original but all
of which together shall constitute one and the same instrument.

6.11 SEPARATE COUNSEL. The Company has been represented by counsel
in the negotiation and execution of this Agreement and has relied on such
counsel with respect to any

-7-
<PAGE>

matter relating hereto. The Employee has been invited to have her own
counsel review and negotiate this Agreement and Employee has either obtained
his own counsel or has elected not to obtain counsel.

IN WITNESS WHEREOF, the parties hereto have hereunto set their hands as of
the day and year first above written.

"EMPLOYEE" "COMPANY"

EN POINTE TECHNOLOGIES, INC., a Delaware
corporation

By:
- ------------------------------ --------------------------------------
Ellis Posner

-8-

<PAGE>

AMENDMENT
TO
EMPLOYMENT AGREEMENT

This Amendment (the "Amendment") to that certain "Employment Agreement"
(as defined below) is entered into as of April 2, 1997 between ATTIAZAZ "BOB"
DIN ("Executive") and EN POINTE TECHNOLOGIES, INC., a Delaware corporation (the
"Company").

R E C I T A L S

A. Executive and the Company have previously entered into that certain
Employment Agreement dated as of March 1, 1996 (the "Employment Agreement").

B. Executive and the Company desire to amend the Employment Agreement as
hereinafter provided.

A G R E E M E N T

NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth herein, each of the parties hereto, intending to be
legally bound, hereby agree as follows:

1. The first sentence of Section 3 of the Agreement is hereby amended to
read as follows:

"Executive shall receive an annual base salary of $500,000 per annum."

2. Section 4 is hereby amended to read as follows:

"In addition to the base salary set forth in Section 3 above, the
Executive shall be entitled to a bonus to be determined as follows:

(i) The Executive shall be entitled to a bonus for each year during
the term of this Agreement equal to three and one-half percent
(3 1/2%) of the Company's pre-tax net income, which, for the purposes
of this Agreement, shall be computed without respect to the bonus
payable to Executive pursuant to this Section 4 and shall exclude any
gains or losses realized by the Company on the sale or other
disposition of its assets (other than in the ordinary course of
business). Such calculation of pre-tax net income shall be
determined by the independent auditors regularly retained by the
Company subject to the foregoing provisions of this Section 4 in
accordance with generally accepted accounting principals. Said
determination and payment of such bonus shall be made within ninety
(90) days following the end of the fiscal year of the Company and the
determination by the auditors shall be final, binding and conclusive
upon the parties hereto. In the event the audited financial
statements are not issued within such ninety-day period, then the
Company shall make any payments due hereunder (if any) based on its
best reasonable estimate of any such payments, which amount shall
then be reconciled by both parties once the audited financial
statements are issued.

(ii) Compensation of the Executive by salary payments shall not be
deemed exclusive and shall not prevent the Executive from
participating in any other compensation or benefit plan of the
Company. The salary and bonus payments hereunder shall not in any
way limit or reduce any other obligation of the Company hereunder or
under any other compensation or benefit plan or agreement under which
the Executive is entitled to receive payments or other benefits from
the Company, and no

<PAGE>

other compensation, benefit or payment hereunder or under any other
compensation or benefit plan or agreement under which the Executive
is entitled to receive payments or other benefits from the Company
shall in any way limit or reduce the obligation of the Company to pay
the Executive's salary hereunder.

(iii) The Executive shall be eligible to participate in any bonus
plan now or hereafter established and implemented by the Board (or
designated Committee) for the payment of bonuses to Executive or to
management personnel. In addition to the foregoing, the Executive
may be entitled to receive such additional bonus amounts as the Board
(or such Committee as may be designated by the Board) shall determine
in its discretion. In determining such additional amounts, if any,
the Board (or Committee) shall consider among other things
Executive's contribution to the accomplishment of the Company's
long-range business goals, the success of various corporate
strategies in which Executive participated, and Executive's unique
services in connection with the maintenance or increase in
shareholder values in the Company."

3. The first sentence of Section 8(b) of the Agreement is hereby amended
by substituting the term "one hundred eighty (180) days' prior written notice"
for the term "ninety (90) days' prior written notice".

4. The first sentence of Section 8(d) of the Agreement is hereby amended
by substituting the term "three (3) years" for the term "two (2) years".

5. The fifth sentence of Section 8(d) of the Agreement is hereby amended
to read as follows:

"In addition, all stock options and general stock appreciation rights
granted by the Company to Executive which otherwise would have vested
within three years following the Date of Termination for death or
disability shall accelerate and become fully vested and exercisable
on the Date of Termination for death or disability, and shall remain
exercisable for a period ending on the normal expiration date
specified in the option agreements."

6. Section 9(a)(ii) of the Agreement is hereby amended to read as
follows:

"WITHOUT "CAUSE." Upon one hundred-eighty (180) days' written notice
to Executive where the Board, by a majority vote of the full Board,
elects to terminate Executive for any reason, other than the reasons
referred to in subparagraph (i) above."

7. The first sentence of Section 10(a) of the Agreement is hereby
amended by substituting the term "one hundred twenty (120) days" for the term
"ninety (90) days".

8. Section 10(a)(v) of the Agreement is hereby amended to by deleting
the words "unreasonably difficult or".

9. Section 11(b)(i) of the Agreement is hereby amended to read as
follows:

"Executive shall continue to receive Executive's base salary (in
effect in the fiscal year in which the Date of Termination occurs)
under Section 3 for a benefit period of five (5) years following the
Date of Termination."

10. Section 12 of the Agreement is hereby amended by substituting the
term "five (5)" for the term "three (3)" in each instance where the latter term
occurs.

2
<PAGE>

11. The first sentence of Section 15(a) of the Agreement is hereby
amended to read as follows:

"Without the prior written consent of the Company, Executive will
not, directly or indirectly, engage for his own account in any
business, or own, manage, operate, control, be employed as an
employee or consultant, buy, participate in, or be connected in any
manner with the ownership, management, operation or control of any
firm, corporation, association, or other business entity which is in
the business of a retail reseller of computers and computer-related
products, which the parties acknowledge is the business of the
Company, provided that Executive may invest in a business competitive
with the Company to an extent not exceeding five percent (5%) of the
total outstanding shares at the time of such investment in each one
or more companies."

12. The second sentence of Section 15(d) is hereby amended to read as
follows:

"However, Executive shall use reasonable efforts to notify the
Company in advance of any proposed private sale by him after
termination of this Agreement of 100,000 or more share blocks, other
than in public trading over-the-counter or on an exchange, and shall
give the Company an opportunity to acquire such shares on the same
net terms offered by Executive to others."

13. Section 16 is hereby amended by substituting the term "five (5) year
post-termination benefit period" for the term "three (3) year post-termination
benefit period" in each instance where the latter term occurs.

14. The last sentence of Section 16 is hereby amended by substituting the
term "$100 million per year" for the term "$25 million per year".

15. Each of the foregoing amendments to the Agreement shall be effective
as of the date of this Amendment.

IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first above written.

EXECUTIVE: COMPANY:

EN POINTE TECHNOLOGIES, INC.

By:
- ------------------------------------- ---------------------------------
ATTIAZAZ "BOB" DIN
President and Chief Executive Officer

<PAGE>

EXECUTIVE EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT ("Agreement") is executed as of the 2nd day of
September, 1997, by and between Susan Bailey, an individual ("Employee"), and
EN POINTE TECHNOLOGIES, INC., a Delaware corporation ("Company"), with
reference to the following facts:

A. Employee is an individual possessing unique management and executive
talents of value to the Company.

B. The Company desires to employ Employee as the President of the
Company, and Employee desires to accept such employment, all on the terms and
conditions set forth in this Agreement.

AGREEMENT

In consideration of the foregoing recitals and of the covenants and
agreements herein, the parties agree as follows:

1. The Company hereby engages Employee to perform the duties and render
the services set forth in Section 2 for a period commencing on September 2,
1997 (the "Start Date") and ending on the third anniversary of such date, (the
"Employment Period") and Employee hereby accepts said employment and agrees to
perform such services during the Employment Period. Unless this Agreement is
terminated pursuant to Section 4 or unless either party gives the other written
notice to the contrary at least six (6) months prior to an expiration date,
this Agreement, together with any changes which have occurred during the
employment period then expiring, shall automatically renew at the end of an
Employment Period for an additional one (1) year employment period.

2. DUTIES.

2.1 PRESIDENT: Performing executive work of major importance to the
Company, with the primary focus being the profitable management and profitable
growth of the Company. During the Employment Period, Employee shall devote her
business time and attention to performing her duties as President of the
Company. Her duties shall include, but are not limited to: managing the
overall direction, coordination and evaluation of all functions at the
Corporate level; assisting the CEO in formulating and administering policies
for the Company; participating in formulating and administering company
policies and developing long range goals and objectives; negotiation with
established, third party and/or new vendors to achieve cost
containment/reduction; and, establishing or modifying operational systems to
improve management and profitability. Additionally, she shall perform such
duties as may reasonably be assigned to her by the Chief Executive Officer
("CEO") or Board of Directors of the Company. Employee's primary office shall
be at the Company's headquarters location and she shall report to the CEO.

If Employee so desires, the Company will nominate Employee for election to
the Board of Directors of the Company, as a member of the management slate at
each annual meeting of stockholders held during the Employment Period.
Employee recognizes that the Board of Directors of the Company may be required
under its fiduciary duty to the Company and to its stockholders to

<PAGE>

eliminate the position of President of this Company or to appoint a different
person as such officer of this Company. The parties agree however, that any
such elimination or replacement of Employee by the Company, other than
pursuant to Section 2.2 or Section 4.1 or 4.2(a) or 4.3(b) hereof, shall
constitute a termination of Employee's employment hereunder by the Company
without cause.

2.3 CONFLICT OF INTEREST. Employee agrees that during the term of
employment and for a period of eighteen (18) months thereafter, employee will
not, directly or indirectly, compete with the Company in any way, or usurp any
Company opportunity in any way, nor will employee act as an officer, director,
employee, consultant, shareholder, lender or agent of any entity which is
engaged in any business in which the Company is now engaged or in which the
Company becomes engaged during the term of employment. The Company is now
engaged in the business of reselling computer hardware, software and
peripherals, primarily to corporate and governmental accounts, and in the
business of selling computer systems consulting, help and maintenance services,
also primarily to corporate and governmental accounts. The Company is not now
engaged in the business of computer systems consulting along the lines engaged
in by "Big 5 Accounting" firms such as Arthur Anderson Consulting or KPMG
Consulting, or firms such as IBM Global Services or CSC consulting; the Company
is now engaged in the business of computer systems consulting along the lines
engaged in by EDS. The Company is not now engaged in the business of
manufacturing computers or their primary components, nor is it now in the
business of reselling computers to non-endusers. The Company may become
engaged in the business of final assembly of computers and may become engaged
in the business of catalog, mail-order or internet sales of computer hardware,
software and peripherals.

3. COMPENSATION. As compensation for her services to be performed
hereunder, the Company shall provide Employee with the following compensation
and benefits:

3.1 BASE SALARY. Employee's base salary shall be $250,000.00 per
year, subject to an annual increase (if any) in the sole discretion of the
Board, payable in accordance with the

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<PAGE>

Company's payroll practices as in effect from time to time, and subject to
such withholding as is required by law.

3.2 BONUS. Bonus applicable to the fiscal year beginning October 1,
1997, shall be calculated at the rate of $31,250.00 per fiscal quarter in which
the Company meets or exceeds both (i) earnings per share targets, and (ii)
gross revenue targets. Bonus applicable to the first two quarters only of the
fiscal year beginning October 1, 1997, shall be guaranteed, and shall be
payable at the end of each such quarter. Bonus applicable to the second two
quarters of the fiscal year beginning October 1, 1997, is not guaranteed, shall
be calculated as above, and shall be payable at the end of each such quarter.
Bonus applicable to subsequent years, if any, shall be in the sole discretion
of the Board of Directors. If any bonus is declared or paid, it shall be
subject to such withholding as is required by law.

3.3 BENEFITS.

(a) VACATION. Employee shall be entitled to four (4) weeks of
paid vacation during each year of the Employment Period consistent with the
Company's then policy for senior executive employees. Regardless of such
policy, however, Employee shall be entitled to a minimum of six (6) weeks of
fully paid vacation after the Employee has been employed by the Company for at
least six (6) years from the original date of employment with the Company. In
the event Employee does not use such vacation, she shall receive, upon
termination of the Employment Period, vacation pay for all unused vacation
calculated at the base salary rate set forth in Section 3.1 hereof. However,
Employee shall endeavor to take vacation time in the year in which it is
allocated to her.

(b) BUSINESS EXPENSES. The Company shall reimburse Employee
for all reasonable business expenses incurred by Employee in the course of
performing services for the company and in compliance with procedures
established from time to time by the Company.

(d) STOCK OPTIONS. Company shall grant Employee incentive
stock options for 275,000 shares of the Company, with the exercise price being
the market price at close of trading on the Start Date, and subject to the
other terms of the Company's stock option agreement, a copy of which is
attached hereto as Exhibit A. Vesting shall be as follows: one-third (1/3) of
the options three (3) months after Start Date, one-third (1/3) of the options
nine (9) months after Start Date, and one-third (1/3) of the options twenty-
seven (27) months after Start Date. The issuance of the options is subject to
shareholder approval of a modified Stock Option Plan and to approval by the
Company Board of Directors Compensation Committee, which approvals are to be
sought by no later than June 30, 1998.

-3-
<PAGE>

(e) OTHER PERSONS. The parties understand that other officers
and employees may be afforded payments and benefits and employment agreements
which differ from those of Employee in this Agreement; but Employee's
compensation and benefits shall be governed solely by the terms of this
Agreement, which shall supersede all prior understandings or agreements between
the parties concerning terms and benefits of employment of Employee with the
Company. Other officers or employees shall not become entitled to any benefits
under this Agreement.

(f) RELOCATION REIMBURSEMENT. Company shall reimburse Employee
for actual, documented relocation expenses not to exceed the gross amount of
$100,000.00 (this cap includes a tax gross-up for any such expenses taxable to
employee). Employee shall relocate her primary residence to the area of
Company's headquarters location within 2 years of September 2, 1997, unless
otherwise agreed to in writing by the parties.

4. TERMINATION.

4.1 TERMINATION BY REASON OF DEATH OR DISABILITY. The Employment
Period shall terminate upon the death or permanent disability (as defined
below) of Employee.

4.2 TERMINATION BY COMPANY.

(a) The Company may terminate the Employment Period for "cause"
by written notice to Employee.

(b) The Company may terminate the Employment Period for any
other reason, with or without cause, by written notice to Employee.

4.3 TERMINATION BY EMPLOYEE.

(a) Employee may terminate the Employment Period for "good
reason" at any time by written notice to the Company.

(b) Employee may terminate the Employment Period for any other
reason by written notice to the Company.

4.4 SEVERANCE PAY.

(a) In the event the Employment Period is terminated by the
Company for any reason other than pursuant to Section 4.2(a) or by Employee for
any reason other than pursuant to Section 4.3(b) hereof or if the Employment
Period is terminated because of the death or disability of Employee pursuant to
Section 4.1, upon the effectiveness of any such termination, the Company shall
be obligated to pay to Employee (or her executors, administrators or assigns,
as the case may be) all unpaid salary, benefits and bonuses (if any) accrued
through the date of effectiveness of such termination and, in addition, a cash
severance payment equal to eighteen (18) months' total base salary, at the
rates set forth herein, and such other benefits as may be required by law.

(b) In the event the Employment Period is terminated by the
Company pursuant to Section 4.2(a) hereof, or the Employment Period is
terminated by Employee pursuant to

-4-
<PAGE>

Section 4.3(b) hereof, the Company shall have no obligation to pay any
severance pay to Employee. The Company shall, however, be obligated to pay
to Employee (or her executors, administrators or assigns, as the case may be)
all unpaid salary, benefits and bonuses (if any) accrued through the date of
termination and shall provide such other benefits as may be required by law.

4.5 TERMINATION BENEFITS. In the event of termination of the
Employment Period pursuant to Section 4.2 or 4.3(a), the Company shall provide
Employee, Employee's spouse and children with such normal medical insurance, on
the terms and to the extent generally provided by the Company to its executive
employees of the level comparable to Employee, for a period of eighteen (18)
months from the date of the termination of the Employment Period.

4.6 CERTAIN DEFINITIONS. For purposes of this Agreement:

(a) The term "cause" shall mean those acts identified in
Section 2924 of the California Labor Code, as that section exists on September
2, 1997, to wit, any willful breach of duty by the Employee in the course of
her employment, or in case of her habitual neglect of her duty or continued
incapacity to perform it. Notwithstanding the generality of the foregoing,
this definition shall not cause any derogation of any rights relating to
"permanent disability" as defined in 4.6(c) below.

(b) The term "good reason" shall mean the occurrence of one or
more of the following events: (i) removal of Employee from the position and
responsibilities as set forth under Section 2 above; (ii) a material reduction
by the Company in the kind or level of employee benefits to which Employee is
entitled immediately prior to such reduction with the result that Employee's
overall benefit package is significantly reduced; (iii) the relocation of
Employee to a facility or a location outside of California; (iv) a change in
control of the Company, or, (v) any material breach by the Company of any
material provision of this Agreement which continues uncured for thirty (30)
days following written notice thereof.

(c) The term "permanent disability" shall mean Employee's
incapacity due to physical or mental illness, which results in Employee being
absent from the performance of her duties with the Company on a full-time basis
for a period of six (6) consecutive months. The existence or cessation of a
physical or mental illness which renders Employee absent from the performance
of her duties on a full-time basis shall, if disputed by the Company or
Employee, be conclusively determined by written opinions rendered by two
qualified physicians, one selected by Employee and one selected by the Company.
During the period of absence, but not beyond the expiration of the Employment
Period, Employee shall be deemed to be on disability leave of absence, with her
compensation paid in full. During the period of such disability leave of
absence, the Board of Directors may designate an interim officer with the same
title and responsibilities of Employee on such terms as it deems proper.

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<PAGE>

Company, and is not intended to create an employee benefit plan or to modify
the terms of any of the Company's existing plans.

6. MISCELLANEOUS.

6.2 ASSIGNMENT. This Agreement shall inure to the benefit of and
shall be binding upon the successors and the assigns of the Company, and all
such successors and assigns shall specifically assume this Agreement. Since
this Agreement is based upon the unique abilities of, and the Company's
personal confidence in Employee, Employee shall have no right to assign this
Agreement or any of her rights hereunder without the prior written consent of
the Company.

If to Employee: Susan Bailey
5415 Preserve Drive
Greenwood Village, CO 80121

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<PAGE>

If to the Company: En Pointe Technologies, Inc.
100 N. Sepulveda Blvd., 19th Floor
El Segundo, California 90245
Attention: CEO

6.7 HEADINGS. The paragraph and subparagraph headings herein are
for convenience only and shall not affect the construction hereof.

6.11 SEPARATE COUNSEL. The Company has been represented by counsel
in the negotiation and execution of this Agreement and has relied on such
counsel with respect to any matter relating hereto. The Employee has been
invited to have her own counsel review and negotiate this Agreement and
Employee has either obtained her own counsel or has elected not to obtain
counsel.

IN WITNESS WHEREOF, the parties hereto have hereunto set their hands as of
the day and year first above written.

"EMPLOYEE" "COMPANY"

EN POINTE TECHNOLOGIES, INC., a Delaware
corporation

By:
- ----------------------------- --------------------------------------
Susan Bailey Bob Din, Chief Executive Officer

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<PAGE>

<PAGE>

INVENTORY AND WORKING CAPITAL

FINANCING AGREEMENT

dated this ____ day of ___________, 1997

by and between

En Pointe Technologies, Inc.,

a Delaware corporation

and

IBM Credit Corporation

a Delaware corporation

Page 1 of 40

<PAGE>

INVENTORY AND WORKING CAPITAL
FINANCING AGREEMENT

TABLE OF CONTENTS

Section 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . 5
1.1 Special Definitions. . . . . . . . . . . . . . . . . . . 5
1.2 Other Defined Terms. . . . . . . . . . . . . . . . . . . 13
1.3 Attachments. . . . . . . . . . . . . . . . . . . . . . . 13

Section 2. CREDIT LINE/FINANCE CHARGES/OTHER CHARGES. . . . . . . 13
2.1 Credit Line. . . . . . . . . . . . . . . . . . . . . . . 13
2.2 Product Advances . . . . . . . . . . . . . . . . . . . . 13
2.3 A/R Advances . . . . . . . . . . . . . . . . . . . . . . 15
2.4 Finance and Other Charges. . . . . . . . . . . . . . . . 16
2.5 Statements Regarding Customer's Account. . . . . . . . . 17
2.6 Shortfall. . . . . . . . . . . . . . . . . . . . . . . . 17
2.7 Application of Payments. . . . . . . . . . . . . . . . . 17
2.8 Prepayment and Reborrowing By Customer . . . . . . . . . 18

Section 3. CREDIT LINE ADDITIONAL PROVISIONS. . . . . . . . . . . 18
3.1 Ineligible Accounts. . . . . . . . . . . . . . . . . . . 18
3.2 Reimbursement for Charges. . . . . . . . . . . . . . . . 20
3.3 Lockbox and Special Account. . . . . . . . . . . . . . . 20
3.4 Collections. . . . . . . . . . . . . . . . . . . . . . . 20
3.5 Application of Remittances and Credits . . . . . . . . . 20
3.6 Power of Attorney. . . . . . . . . . . . . . . . . . . . 21

Section 4. SECURITY - COLLATERAL. . . . . . . . . . . . . . . . . 22
4.1 Grant. . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.2 Further Assurances . . . . . . . . . . . . . . . . . . . 23

Section 5. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . 23
5.1 Conditions Precedent to the Effectiveness of This
Agreement. . . . . . . . . . . . . . . . . . . . . . . . 23
5.2 Conditions Precedent to Each Advance . . . . . . . . . . 24

Section 6. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . 25
6.1 Organization and Qualifications. . . . . . . . . . . . . 25
6.2 Rights in Collateral; Priority of Liens. . . . . . . . . 25
6.3 No Conflicts . . . . . . . . . . . . . . . . . . . . . . 25
6.4 Enforceability . . . . . . . . . . . . . . . . . . . . . 25
6.5 Locations of Offices . . . . . . . . . . . . . . . . . . 25
6.6 Fictitious Business Names. . . . . . . . . . . . . . . . 26
6.7 Organization . . . . . . . . . . . . . . . . . . . . . . 26
6.8 No Judgments or Litigation . . . . . . . . . . . . . . . 26
6.9 No Defaults. . . . . . . . . . . . . . . . . . . . . . . 26
6.10 Labor Matters. . . . . . . . . . . . . . . . . . . . . . 26
6.11 Compliance with Law. . . . . . . . . . . . . . . . . . . 26
6.12 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.13 Compliance with Environmental Laws . . . . . . . . . . . 27
6.14 Intellectual Property. . . . . . . . . . . . . . . . . . 27
6.15 Licenses and Permits . . . . . . . . . . . . . . . . . . 27
6.16 Investment Company . . . . . . . . . . . . . . . . . . . 28
6.17 Taxes and Tax Returns. . . . . . . . . . . . . . . . . . 28
6.18 Status of Accounts . . . . . . . . . . . . . . . . . . . 28
6.19 Affiliate/Subsidiary Transactions. . . . . . . . . . . . 28
6.20 Accuracy and Completeness of Information . . . . . . . . 28
6.21 Recording Taxes. . . . . . . . . . . . . . . . . . . . . 29
6.22 Indebtedness . . . . . . . . . . . . . . . . . . . . . . 29

Section 7. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . 29
7.1 Financial and Other Information. . . . . . . . . . . . . 29
7.2 Location of Collateral . . . . . . . . . . . . . . . . . 31
7.3 Changes in Customer. . . . . . . . . . . . . . . . . . . 31
7.4 Corporate Existence. . . . . . . . . . . . . . . . . . . 32
7.5 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.6 Environmental Matters. . . . . . . . . . . . . . . . . . 32
7.7 Collateral Books and Records/Collateral Audit. . . . . . 32
7.8 Insurance; Casualty Loss . . . . . . . . . . . . . . . . 33
7.9 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.10 Compliance With Laws . . . . . . . . . . . . . . . . . . 34
7.11 Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . 34

Page 2 of 40
<PAGE>

7.12 Intellectual Property. . . . . . . . . . . . . . . . . . 34
7.13 Maintenance of Property. . . . . . . . . . . . . . . . . 34
7.14 Collateral . . . . . . . . . . . . . . . . . . . . . . . 34
7.15 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . 36
7.16 Financial Covenants; Additional Covenants. . . . . . . . 36

Section 8. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . 36
8.1 Liens. . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.2 Disposition of Assets. . . . . . . . . . . . . . . . . . 36
8.3 Corporate Changes. . . . . . . . . . . . . . . . . . . . 36
8.4 Guaranties . . . . . . . . . . . . . . . . . . . . . . . 36
8.5 Restricted Payments. . . . . . . . . . . . . . . . . . . 37
8.6 Investments. . . . . . . . . . . . . . . . . . . . . . . 37
8.7 Affiliate/Subsidiary Transactions. . . . . . . . . . . . 37
8.8. ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.9 Additional Negative Pledges. . . . . . . . . . . . . . . 38
8.10 Storage of Collateral with Bailees and Warehousemen. . . 38
8.11 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . 38
8.12 Accounts . . . . . . . . . . . . . . . . . . . . . . . . 38
8.13 Indebtedness . . . . . . . . . . . . . . . . . . . . . . 38
8.14 Loans. . . . . . . . . . . . . . . . . . . . . . . . . . 38

Section 9. DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . 39
9.1 Event of Default . . . . . . . . . . . . . . . . . . . . 39
9.2 Acceleration . . . . . . . . . . . . . . . . . . . . . . 40
9.3 Remedies . . . . . . . . . . . . . . . . . . . . . . . . 41
9.4 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . 42

Section 10. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . 42
10.1 Term; Termination. . . . . . . . . . . . . . . . . . . . 42
10.2 Indemnification. . . . . . . . . . . . . . . . . . . . . 43
10.3 Additional Obligations . . . . . . . . . . . . . . . . . 43
10.4 LIMITATION OF LIABILITY. . . . . . . . . . . . . . . . . 43
10.5 Alteration/Waiver. . . . . . . . . . . . . . . . . . . . 43
10.6 Severability . . . . . . . . . . . . . . . . . . . . . . 44
10.7 One Loan . . . . . . . . . . . . . . . . . . . . . . . . 44
10.8 Additional Collateral. . . . . . . . . . . . . . . . . . 44
10.9 No Merger or Novations . . . . . . . . . . . . . . . . . 44
10.10 Paragraph Titles . . . . . . . . . . . . . . . . . . . . 45
10.11 Binding Effect; Assignment . . . . . . . . . . . . . . . 45
10.12 Notices. . . . . . . . . . . . . . . . . . . . . . . . . 45
10.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . 46
10.14 ATTACHMENT A MODIFICATIONS . . . . . . . . . . . . . . . 46
10.15 SUBMISSION AND CONSENT TO JURISDICTION AND CHOICE OF
LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . 46
10.16 JURY TRIAL WAIVER. . . . . . . . . . . . . . . . . . . . 47

Page 3 of 40
<PAGE>

INVENTORY AND WORKING CAPITAL
FINANCING AGREEMENT

This INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT (as amended,
supplemented or otherwise modified from time to time, this "Agreement") is
hereby made this ____ day of ____________, 1997, by and between IBM CREDIT
CORPORATION with a place of business at 5000 Executive Parkway, Suite 450, San
Ramon, CA 94583 ("IBM Credit"), and EN POINTE TECHNOLOGIES, INC., a Delaware
corporation, with a place of business at 100 N. Sepulveda Blvd., 19th Floor, El
Segundo, CA 90245 ("Customer").

W I T N E S S E T H

WHEREAS, IBM Credit has entered into that certain Agreement for Wholesale
Financing dated as of February 7, 1993 and that Amended and Restated Revolving
Loan and Security Agreement dated as of December 5, 1994 (together, as each may
have been amended from time to time, the "Financing Agreement") with En Pointe
Technologies, Inc., a Texas corporation ("Former En Pointe");

WHEREAS, pursuant to an Acknowledgement, Waiver, Consent and Amendment to
Amended and Restated Revolving Loan Agreement dated as of March 4, 1996,
Customer assumed all of Former En Pointe's obligations to IBM Credit under the
Financing Agreement as if Customer was an original signatory thereto;

WHEREAS, IBM Credit and Customer agree that this Agreement amends and
restates the Financing Agreement in its entirety;

WHEREAS, in the course of Customer's operations, Customer intends to
purchase from Persons approved in writing by IBM Credit for the purposes of this
Agreement (the "Authorized Suppliers") computer hardware and software products
manufactured or distributed by or bearing any trademark or trade name of such
Authorized Suppliers (the "Products") (as of the date hereof the Authorized
Suppliers are as set forth on Attachment E hereto);

WHEREAS, Customer has requested that IBM Credit continue to finance its
purchase of Products from such Authorized Suppliers and its working capital
requirements, and IBM Credit is willing to continue to provide such financing to
Customer subject to the terms and conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:

Section 1. DEFINITIONS; ATTACHMENTS

1.1 Special Definitions. The following terms shall have the following
respective meaning in this Agreement:

"A/R Advance": any loan or advance of funds made by IBM Credit to or on behalf
of Customer pursuant to Section 2.3 of this Agreement, including, as the context
may require, a WCO Advance, a PRO Advance and a Takeout Advance.

"A/R Advance Date": the Business Day on which IBM Credit makes an A/R Advance
under this Agreement.

"A/R Advance Term": shall be the collective or individual reference, as the
context may require, to a PRO Advance Term and a WCO Advance Term.

"A/R Finance Charges": as defined on Attachment A.

"Accounts": as defined in the U.C.C.

Page 4 of 40
<PAGE>

"Advance": any loan or other extension of credit by IBM Credit to or on behalf
of Customer pursuant to this Agreement including, without limitation, (i)
Product Advances and (ii) A/R Advances.

"Affiliate": with respect to the Customer, any Person meeting one of the
following: (i) at least 10% of such Person's equity is owned, directly or
indirectly, by Customer; (ii) at least 10% of Customer's equity is owned,
directly or indirectly, by such Person; or (iii) at least 10% of Customer's
equity and at least 10% of such Person's equity is owned, directly or
indirectly, by the same Person or Persons. All of Customer's officers,
directors, joint venturers, and partners shall also be deemed to be Affiliates
of Customer for purposes of this Agreement.

"Agreement": as defined in the caption.

"AT&T-CFC": AT&T Commercial Finance Corporation, with a place of business
located at 44 Whippany Road, Morristown, NJ 07962

"AT&T-CFC Intercreditor Agreement": that certain Intercreditor Agreement
executed on the 9th day of August, 1996 by and between AT&T-CFC and IBM Credit
and acknowledged by Customer, as it may be amended from time to time.

"Auditors": a nationally recognized firm of independent certified public
accountants selected by Customer and satisfactory to IBM Credit.

"Available Credit": at any time, (1) the Maximum Advance Amount less (2) the
Outstanding Advances at such time.

"Average Daily Balance": the sum of the Outstanding Product Advances or
Outstanding A/R Advances, as the case may be, as of the end of each day during a
calendar month, divided by the number of days in the calendar month.

"Borrowing Base": as defined in Attachment A.

"Business Day": any day other than a Saturday, Sunday or other day on which
commercial banks in New York, New York are generally closed or on which IBM
Credit is closed.

"Closing Date": the date on which the conditions precedent to the effectiveness
of this Agreement set forth in Section 5.1 hereof are satisfied or waived in
writing by IBM Credit.

"Code": the Internal Revenue Code of 1986, as amended or any successor statute.

"Collateral": as defined in Section 4.1.

"Collateral Management Report": a report to be delivered by Customer to IBM
Credit from time to time, as provided herein, signed by the chief executive
officer or chief financial officer of Customer, in the form of Attachment F
hereto, detailing and certifying, among other items: a summary of Customer's
inventory on hand financed by IBM Credit and Customer's Eligible Accounts, the
amounts and aging of all of Customer's Accounts, Customer's inventory on hand
financed by IBM Credit by quantity, type, model, Authorized Supplier's invoice
price to Customer and the total of the line item values for all inventory listed
on the report, the amounts and aging of Customer's accounts payable as of a
specified date, all of Customer's IBM Credit borrowing activity during a
specified period and the total amount of Customer's Borrowing Base as well as
Customer's Outstanding A/R Advances, Outstanding Product Advances, Available
Credit and any Shortfall Amount as of a specified date.

"Common Due Date": (1) the fifth day of a calendar month if the Product
Financing Period or A/R Advance Term, whichever

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<PAGE>

is applicable, expires on the first through tenth of such calendar month; (2)
the fifteenth day of a calendar month if the Product Financing Period or A/R
Advance Term, whichever is applicable, expires on the eleventh through twentieth
of such calendar month; and (3) the twenty-fifth day of a calendar month if the
Product Financing Period or A/R Advance Term, whichever is applicable, expires
on the twenty-first through the last day of such calendar month.

"Compliance Certificate": a certificate substantially in the form of
Attachment C.

"Credit Line": as defined in Section 2.1.

"Customer": as defined in the caption.

"Default": either (1) an Event of Default or (2) any event or condition which,
but for the requirement that notice be given or time lapse or both, would be an
Event of Default.

"Delinquency Fee Rate": as defined on Attachment A.

"Eligible Accounts": as defined in Section 3.1.

"Environmental Laws": all statutes, laws, judicial decisions, regulations,
ordinances, and other governmental restrictions relating to pollution, the
protection of the environment, occupational health and safety, or to emissions,
discharges or release of pollutants, contaminants, hazardous substances or
wastes into the environment.

"Environmental Liability": any claim, demand, obligation, cause of action,
allegation, order, violation, injury, judgment, penalty or fine, cost or
expense, resulting from the violation or alleged violation of any Environmental
Laws or the imposition of any Lien pursuant to any Environmental Laws.

"ERISA": the Employee Retirement Income Security Act of 1974, as amended, or
any successor statutes.

"Event of Default": as defined in Section 9.1.

"Financial Statements": the consolidated and consolidating balance sheets,
statements of operations, statements of cash flows (including, Without
limitation, securities, such as stocks and investment bonds) and statements of
changes in shareholder's equity of Customer and its Subsidiaries for the period
specified, prepared in accordance with GAAP and consistent with prior practices.

"Floor Plan Lender": any Person who now or hereinafter provides inventory
financing to Customer, provided that such Person executes an Intercreditor
Agreement (as defined in Section 5.1 of this Agreement) or a subordination
agreement with IBM Credit in form and substance satisfactory to IBM Credit.

"Free Financing Period": for each Product Advance, the period, if any, in which
IBM Credit does not charge Customer a financing charge. IBM Credit shall
calculate the Customer's Free Financing Period utilizing a methodology that is
consistent with the methodologies used for similarly situated customers of IBM
Credit. The Customer understands that IBM Credit may not offer or may cease to
offer a Free Financing Period for the Customer's purchases of Products.

"GAAP": generally accepted accounting principles in the United States as in
effect from time to time.

"Governmental Authority": any nation or government, any state or other
political subdivision thereof, and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
and any corporation or other entity owned or controlled (through

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<PAGE>

stock or capital ownership or otherwise) by any of the foregoing.

"Hazardous Substances": all substances, wastes or materials, to the extent
subject to regulation as "hazardous substances" or "hazardous waste" under any
Environmental Laws.

"IBM Credit": as defined in the caption.

"Indebtedness": with respect to any Person, (1) all obligations of such Person
for borrowed money or for the deferred purchase price of property or services
(other than trade liabilities incurred in the ordinary course of business and
payable in accordance with customary practices) or which is evidenced by a note,
bond, debenture or similar instrument, (2) all obligations of such Person under
capital leases, (3) all obligations of such Person in respect of letters of
credit, banker's acceptances or similar obligations issued or created for the
account of such Person, (4) liabilities arising under any interest rate
protection, future, option swap, cap or hedge agreement or arrangement under
which such Person is a party or beneficiary, (5) all obligations under
guaranties of such Person and (6) all liabilities secured by any Lien on any
property owned by such Person even though such Person has not assumed or
otherwise become liable for the payment thereof.

"Investment": with respect to any Person (the "Investor"), (1) any investment
by the Investor in any other Person, whether by means of share purchase, capital
contribution, purchase or other acquisition of a partnership or joint venture
interest, loan, time deposit, demand deposit or otherwise, and (2) any
guaranty by the Investor of any Indebtedness or other obligation of any other
Person.

"Lien(s)": any lien, claim, charge, pledge, security interest, deed of trust,
mortgage, other encumbrance or other arrangement having the practical effect of
the foregoing, including the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement.

"Material Adverse Effect": a material adverse effect (1) on the business,
operations, results of operations, assets, or financial condition of the
Customer, (2) on the aggregate value of the Collateral or the aggregate amount
which IBM Credit would be likely to receive (after giving consideration to
reasonably likely delays in payment and reasonable costs of enforcement) in the
liquidation of such Collateral to recover the Obligations in full, or (3) on the
rights and remedies of IBM Credit under this Agreement.

"Maximum Advance Amount": at any time, the lesser of (1) the Credit Line and (2)
the Borrowing Base at such time.

"Obligations": all covenants, agreements, warranties, duties, representations,
loans, advances, interest (including interest accruing on or after the filing of
any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to Customer, whether or not a claim
for post-filing or post-petition interest is allowed in such proceeding), fees,
reasonable expenses, indemnities, liabilities and Indebtedness of any kind and
nature whatsoever now or hereafter arising, owing, due or payable from Customer
to IBM Credit.

"Other Documents": all security agreements, mortgages, leases, instruments,
documents, guarantees, schedules of assignment, contracts and similar agreements
executed by Customer and delivered to IBM Credit, pursuant to this Agreement or
otherwise, and all amendments, supplements and other modifications to the
foregoing from time to time.

"Other Charges": as set forth in Attachment A.

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<PAGE>

"Outstanding Advances": at any time of determination, the sum of (1) the unpaid
principal amount of all Advances made by IBM Credit under this Agreement; and
(2) Outstanding Product Advances and (2) the Outstanding A/R Advances.

"Outstanding A/R Advances": at any time of determination, the sum of (1) the
unpaid principal amount of all A/R Advances made by IBM Credit under this
Agreement; and (2) any finance charge, fee, expense or other amount related to
A/R Advances charged to Customer's account with IBM Credit.

"Outstanding Product Advances": at any time of determination, the sum of (1)
the unpaid principal amount of all Product Advances made by IBM Credit under
this Agreement; and (2) any finance charge, fee, expense or other amount related
to Product Advances charged to Customer's account with IBM Credit.

"Payment Dates": the fifth, fifteenth and twenty-fifth day of each calendar
month.

"Permitted Indebtedness": any of the following:

(1) Indebtedness to IBM Credit;

(2) Indebtedness described in Section VII of Attachment B;

(3) Indebtedness to any Floor Plan Lender;

(4) Purchase Money Indebtedness;

(5) guaranties in favor of IBM Credit;

(6) capital leases for office and personal property used in the normal course of
business operations; and

(7) other Indebtedness consented to by IBM Credit in writing prior to incurring
such indebtedness.

"Permitted Liens": any of the following:

(1) Liens which are the subject of an Intercreditor Agreement, in effect from
time to time between IBM Credit and any other secured creditor;

(2) Purchase Money Security Interests;

(3) Liens described in Section I of Attachment B;

(4) Liens of warehousemen, mechanics, materialmen, workers, repairmen, common
carriers, landlords and other similar Liens arising by operation of law or
otherwise, not waived in connection herewith, for amounts that are not yet due
and payable or being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted if an adequate reserve or other appropriate
provisions shall have been made therefor as required to be in conformity with
GAAP and an adverse determination in such proceedings could not reasonably be
expected to have a Material Adverse Effect;

(5) attachment or judgment Liens individually or in the aggregate not in excess
of Fifty Thousand Dollars ($50,000.) (exclusive of (A) any amounts that are duly
bonded to the satisfaction of IBM Credit or (B) any amount fully covered by
insurance as to which the insurance company has acknowledged its obligation to
pay such judgment in full);

(6) easements, rights-of-way, restrictions and other similar encumbrances
incurred in the ordinary course of business which, in the aggregate, are not
substantial in amount and which do not materially detract from the value of the
property subject thereto or materially interfere with the ordinary conduct of
the business of Customer;

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<PAGE>

(7) extensions and renewals of the foregoing permitted Liens; provided that (A)
the aggregate amount of such extended or renewed Liens do not exceed the
original principal amount of the Indebtedness for which it secures, (B) such
Liens do not extend to any property other than property already previously
subject to the Lien and (C) such extended or renewed Liens are on terms and
conditions no more restrictive than the terms and conditions of the Liens being
extended or renewed;

(8) Liens arising from deposits or pledges to secure bids, tenders, contracts,
leases, surety and appeal bonds and other obligations of like nature arising in
the ordinary course of the Customer's business;

(9) Liens for taxes, assessments or governmental charges not delinquent or being
contested, in good faith, by appropriate proceedings promptly instituted and
diligently conducted if an adequate reserve or other appropriate provisions
shall have been made therefor as required in order to be in conformity with GAAP
and an adverse determination in such proceedings could not reasonably be
expected to have a Material Adverse Effect;

(10) Liens arising out of deposits in connection with workers' compensation,
unemployment insurance or other social security or similar legislation;

(11) Liens arising pursuant to this Agreement;

(12) capital leases for office and personal property used in the normal course
of business operations; and

(13) other Liens consented to by IBM Credit in writing prior to incurring such
Lien.

Person": any individual, association, firm, corporation, partnership, trust,
unincorporated organization or other entity whatsoever.

"Policies": all policies of insurance required to be maintained by Customer
under this Agreement or any of the Other Documents.

"Prime Rate": as of the date of determination, the average of the rates of
interest announced by Citibank, N.A., The Chase Manhattan Bank, N.A. and Bank of
America National Trust & Savings Association (or any other bank which IBM Credit
uses in the normal course of business of determining Prime Rate) as their prime
or base rate, as of the last Business Day of the calendar month immediately
preceding the date of determination, whether or not such announced rates are the
actual rates charged by such banking institutions to their most credit worthy
borrowers.

"PRO Advance": an A/R Advance, with a PRO Advance Term, made by IBM Credit to
itself on behalf of Customer to repay all or a portion of a Product Advance that
is due and payable.

"PRO Advance Term": for each PRO Advance, a period, in increments of ten days as
specified by Customer in the Request for A/R Advance with respect to such PRO
Advance, but in no event in excess of thirty days, commencing on the A/R Advance
Date for such PRO Advance.

"Product Advance": any advance of funds made or committed to be made by IBM
Credit for the account of Customer to an Authorized Supplier in respect of an
invoice delivered by such Authorized Supplier to IBM Credit describing Products
purchased by Customer, including any such advance made or committed to be made
as of the date hereof pursuant to the Financing Agreement.

"Product Financing Charge": as defined on Attachment A.

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<PAGE>

"Product Financing Period": for each Product Advance, a period of days equal to
that set forth in Attachment A from time to time, commencing on the invoice date
of such Product Advance.

"Purchase Money Indebtedness": any Indebtedness (including capital leases)
incurred to finance the acquisition of assets (other than assets manufactured or
distributed by or bearing any trademark or trade name of any Authorized
Supplier) to be used in the Customer's business not to exceed the lesser of (1)
the purchase price or acquisition cost of such asset and (2) the fair market
value of such asset.

"Purchase Money Security Interest": any security interest securing Purchase
Money Indebtedness, which security interest applies solely to the particular
asset acquired with the Purchase Money Indebtedness.

"Request for A/R Advance": as defined in Section 2.3.

"Requirement of Law": as to any Person, the articles of incorporation and
by-laws of such Person, and any law, treaty, rule or regulation or determination
of an arbitrator or a court or other governmental authority, in each case
applicable to or binding upon such Person or any of its property or to which
such Person or any of its property is subject.

"Shortfall Amount": as defined in Section 2.6.

"Subsidiary": with respect to any Person, any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other Persons performing similar
functions are at the time directly or indirectly owned by such Person.

"Takeout Advance": an A/R Advance made to existing creditors of Customer on
behalf of Customer, in an amount sufficient to discharge Customer's indebtedness
to such creditor.

"Termination Date": shall mean the first anniversary of the date of this
Agreement or such other date as IBM Credit and Customer may agree to from time
to time.

"Voting Stock": securities, the holders of which are ordinarily, in the absence
of contingencies, entitled to elect the corporate directors (or persons
performing similar functions).

"WCO Advance": an A/R Advance, with a WCO Advance Term.

"WCO Advance Term": for each WCO Advance, a period of one hundred eighty (180)
days commencing on the A/R Advance Date for such WCO Advance.

1.2 Other Defined Terms. Terms not otherwise defined in this Agreement which
are defined in the Uniform Commercial Code as in effect in the State of New York
(the "U.C.C.") shall have the meanings assigned to them therein.

1.3 Attachments. All attachments, exhibits, schedules and other addenda hereto,
including, without limitation, Attachment A and Attachment B, are specifically
incorporated herein and made a part of this Agreement.

Section 2. CREDIT LINE/FINANCE CHARGES/OTHER CHARGES

2.1 Credit Line. Subject to the terms and conditions set forth in this
Agreement, on and after the Closing Date to but not including the date that is
the earlier of (x) the date on which this Agreement is terminated pursuant to
Section 10.1 and (y) the date on which IBM Credit terminates the Credit Line
pursuant to Section 9.2, IBM Credit agrees to extend to the Customer a credit
line ("Credit Line") in

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<PAGE>

the amount set forth in Attachment A pursuant to which IBM Credit may make to
the Customer, from time to time, Advances in an aggregate amount at any one time
outstanding not to exceed the Maximum Advance Amount. Notwithstanding any other
term or provision of this Agreement, IBM Credit may, at any time and from time
to time, in its sole discretion (x) temporarily increase the amount of the
Credit Line above the amount set forth in Attachment A and decrease the amount
of the Credit Line back to the amount of the Credit Line set forth in Attachment
A, in each case upon written notice to the Customer and (y) make Advances
pursuant to this Agreement upon the request of Customer in an aggregate amount
at any one time outstanding in excess of the Credit Line.

2.2 Product Advances. (A) Subject to the terms and conditions of this
Agreement, IBM Credit shall make Product Advances in connection with Customer's
purchase of Products from Authorized Suppliers (as defined under WITNESSETH).
Customer hereby authorizes and directs IBM Credit to pay the proceeds of Product
Advances directly to the applicable Authorized Supplier in respect of invoices
delivered to IBM Credit for such Products by such Authorized Supplier and
acknowledges that each such Product Advance constitutes a loan by IBM Credit to
Customer pursuant to this Agreement as if the Customer received the proceeds of
the Product Advance directly from IBM Credit. Customer may at any time notify
IBM Credit in writing (via certified mail, recognized overnight courier, or
facsimile if followed by an original by other means) that a specific Authorized
Supplier has been terminated by Customer as an Authorized Supplier. IBM Credit
will use commercially reasonable effort to refuse all further Product Advance
requests from such Authorized Supplier. Notwithstanding the above, any Product
Advance request approved by IBM Credit prior to receiving such notification from
Customer shall not be affected.

(B) No finance charge shall accrue on any Product Advance during the Free
Financing Period, if any, applicable to such Product Advance. Customer shall
repay each Product Advance no later than the Common Due Date for such Product
Advance. Customer may, at its option, repay each Product Advance by requesting
IBM Credit to apply all or any part of the principal amount of an A/R Advance to
the Outstanding Product Advances. Customer's request for such application shall
be made in accordance with Section 2.3. When so requested and subject to the
terms and conditions of this Agreement, IBM Credit shall apply the amount so
requested to the amounts due in respect of the Outstanding Product Advances.
Nothing contained herein shall relieve Customer of its obligation to repay
Product Advances when due. Each Product Advance shall accrue a finance charge
on the Average Daily Balance thereof from the end of the Free Financing Period,
if any, for such Product Advance, or if no such Free Financing Period shall be
in effect, from the date of invoice for such Product Advance, in each case,
until such Product Advance shall become due and payable in accordance with the
terms of this Agreement, at a per annum rate equal to the lesser of (a) the
finance charge set forth in Attachment A to this Agreement as the "Product
Financing Charge" and (b) the highest rate from time to time permitted by
applicable law. In addition, for any Product Advance with respect to which a
Free Financing Period shall not be in effect, Customer shall pay a fee equal to
50 basis points of such Product Advance. Such fee shall be due and payable on
the Common Due Date for such Product Advance. If it is determined that amounts
received from Customer were in excess of the highest rate permitted by law, then
the amount representing such excess shall be considered reductions to principal
of Advances.

(C) Customer acknowledges that IBM Credit does not warrant the Collateral.
Customer shall be obligated to pay IBM Credit in full even if the Collateral is
defective or fails to conform to the warranties extended by the Authorized
Supplier. The Obligations of Customer shall not be af-

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<PAGE>

fected by any dispute Customer may have with any manufacturer, distributor
or Authorized Supplier. Customer will not assert any claim or defense which it
may have against any manufacturer, distributor or Authorized Supplier against
IBM Credit.

(D) Customer hereby authorizes IBM Credit to collect directly from any
Authorized Supplier any credits, rebates, bonuses or discounts owed by such
Authorized Supplier to Customer ("Supplier Credits"). Any Supplier Credits
received by IBM Credit may be applied by IBM Credit to the Outstanding Advances.
IBM Credit will apply such Supplier Credits promptly. Any Supplier Credits
collected by IBM Credit shall in no way reduce Customer's debt to IBM Credit in
respect of the Outstanding Advances until such Supplier Credits are applied by
IBM Credit.

(E) IBM Credit may apply payments to reduce finance charges first and then
principal. Further, unless (i) Customer has otherwise instructed IBM Credit to
apply such payment to a specific invoice or (ii) the invoice is being disputed
and Customer has notified IBM Credit of such dispute (in such case IBM Credit
will not apply any payment to the disputed portion of the invoice), IBM Credit
may apply payments to the oldest (earliest) invoice for the inventory financed
by it. If, however, Customer is in default under this Agreement, IBM Credit may
apply payments to reduce finance charges first and then principal, and to the
oldest (earliest) invoice for the inventory financed by it, irrespective of
Customer's instructions.

(F) Customer will indemnify and hold IBM Credit harmless from and against any
claims or demands asserted by any Person relating to or arising from the
Collateral for any reason whatsoever, including, without limitation, the
condition of the Collateral, any misrepresentation made about the Collateral by
any representative of Customer, or any act or failure to act by Customer except
to the extent such claims or demands are directly attributable to IBM Credit's
gross negligence or willful misconduct. Nothing contained in the foregoing shall
impair any rights or claims which the Customer may have against any
manufacturer, distributor or Authorized Supplier.

2.3 A/R Advances. (A) Whenever Customer shall desire IBM Credit to provide an
A/R Advance, Customer shall deliver to IBM Credit written notice of Customer's
request for such an Advance ("Request for A/R Advance"). For any requested A/R
Advance pursuant to which monies will be disbursed to Customer or any Person
other than IBM Credit, a Request for A/R Advance shall be delivered to IBM
Credit on or prior to 1:00 p.m. (Eastern Time) one Business Day prior to the
requested A/R Advance Date. The Request for A/R Advance shall specify (i) the
requested A/R Advance Date; (ii) the amount of the requested A/R Advance; (iii)
whether such A/R Advance is a WCO Advance or a PRO Advance; (iv) if applicable,
the PRO Advance Term for such A/R Advance; (v) for each PRO Advance, the month,
day and year of the Common Due Date, as set forth in Customer's applicable
billing statement from IBM Credit, for the Product Advance to which the PRO
Advance is to be applied; and (vi) if applicable, the amount of the requested
A/R Advance that should be applied to the Outstanding Product Advances (provided
that all PRO Advances shall be applied to Outstanding Product Advances).
Customer may deliver a Request for A/R Advance via facsimile. Any Request for
A/R Advance delivered to IBM Credit shall be irrevocable. Notwithstanding any
other provision of this Agreement, Customer shall not (i) request more than one
PRO Advance in respect of any Product Advance; and (ii) request a PRO Advance
for any Common Due Date on which Customer will take a discount offered by IBM
Credit for invoice amounts paid in full within fifteen days of the invoice date
under IBM Credit's High Turnover Option ("HTO") Program.

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<PAGE>

(B) Subject to the terms and conditions of this Agreement, on the A/R Advance
Date specified in a Request for A/R Advance, IBM Credit shall make the principal
amount of each A/R Advance available to the Customer in immediately available
funds to an account maintained by Customer (or in the case of a Takeout Advance,
as directed by Customer). If IBM Credit is making an A/R Advance hereunder on a
day on which Customer is to repay all or any part of an Outstanding Advance (or
any other amount owing hereunder), IBM Credit shall apply the proceeds of the
A/R Advance to such repayment and only an amount equal to the difference, if
any, between the amount of the A/R Advance and the amount being repaid shall be
made available to Customer as provided in the immediately preceding sentence.

(C) Each A/R Advance shall accrue a finance charge on the unpaid principal
amount thereof, at a per annum rate equal to the lesser of (a) the finance
charge set forth in Attachment A to this Agreement under the caption "A/R
Finance Charge" for such type of A/R Advance, and (b) the highest rate from time
to time permitted by applicable law. If it is determined that amounts received
from the Customer were in excess of such highest rate, then the amount
representing such excess shall be considered reductions to principal of
Advances.

(D) Unless otherwise due and payable at an earlier date, the unpaid principal
amount of each A/R Advance, other than a Takeout Advance, shall be due and
payable on the applicable Common Due Date. Unless otherwise notified by Customer
in writing prior to the day the principal amount of any WCO Advance becomes due
and payable, the Customer shall be deemed to have provided IBM Credit with a
Request for A/R Advance requesting a WCO Advance on the day such principal
amount is due and payable in an amount equal to the unpaid principal amount of
the WCO Advance so due. Subject to the terms and conditions of this Agreement,
the principal amount of such WCO Advance shall automatically renew for an
additional WCO Advance Term.

2.4 Finance and Other Charges. (A) Finance charges shall be calculated by
multiplying the applicable Delinquency Fee Rate, Product Financing Charge or A/R
Finance Charge provided for in this Agreement by Customer's applicable Average
Daily Balance. The Delinquency Fee Rate, the Product Financing Charge and the
various A/R Finance Charges provided for in this Agreement are each computed on
the basis of an actual day, 360 day year.

(B) The Customer hereby agrees to pay to IBM Credit the charges set forth as
"Other Charges" in Attachment A. The Customer also agrees to pay IBM Credit
additional charges for any returned items of payment received by IBM Credit.
The Customer hereby acknowledges that any such charges are not interest but that
such charges, if unpaid, will constitute part of the Outstanding Advances.

(C) The finance charges and Other Charges owed under this Agreement, and any
charges hereafter agreed to in writing by the parties, are payable monthly as
described on IBM Credit's bill or statement therefor or IBM Credit may, in its
sole discretion, add unpaid finance charges and Other Charges to the Customer's
outstanding Advances.

(D) If any amount owed under this Agreement, including, without limitation,
any Advance, is not paid when due (whether at maturity, by acceleration or
otherwise), the unpaid amount thereof will bear a late charge from and including
its due date to and including the date IBM Credit receives payment thereof, at a
per annum rate equal to the lesser of (a) the amount set forth in Attachment A
to this Agreement as the "Delinquency Fee Rate" and (b) the highest rate from
time to time permitted by applicable law. In addition, if any Shortfall Amount
shall not be paid when due pursuant to Section 2.6 hereof, Customer shall pay
IBM

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Credit an additional late charge equal to the product of the Shortfall Amount
multiplied by thirty (30) basis points. If it is determined that amounts
received from Customer were in excess of such highest rate, then the amount
representing such excess shall be considered reductions to principal of
Advances.

2.5 Statements Regarding Customer's Account. IBM Credit will send statements of
each transaction hereunder as well as monthly billing statements to Customer
with respect to Advances and other charges due on Customer's account with IBM
Credit. Each statement of transaction and monthly billing statement shall be
deemed, absent manifest error, to be correct and shall constitute an account
stated with respect to each transaction or amount described therein unless
within fourteen (14) calendar days after such statement of transaction or
billing statement is received by Customer, Customer provides IBM Credit written
notice objecting that such amount or transaction is incorrectly described
therein and specifying the error(s), if any, contained therein. IBM Credit may
at any time adjust such statements of transaction or billing statements to
comply with applicable law and this Agreement. IBM Credit shall use commercially
reasonable efforts to send such monthly billing statements to Customer no later
than the tenth (10th) Business Day of each month.

2.6 Shortfall. If, on any date, the Outstanding Advances shall exceed the
Maximum Advance Amount (such excess, the "Shortfall Amount"), then the Customer
shall on such date prepay the Outstanding Advances in an amount equal to such
Shortfall Amount.

2.7. Application of Payments. (A) The Customer hereby agrees that all checks
and other instruments delivered to IBM Credit on account of Customer's
Obligations shall constitute conditional payment until such items are actually
collected by IBM Credit. Following the occurrence of or during the continuation
of an Event of Default, the Customer waives the right to direct the application
of any and all payments at any time or times hereafter received by IBM Credit on
account of the Customer's Obligations. In the event payments are not applied by
IBM Credit pursuant to Section 2.2.(E) above, Customer agrees that IBM Credit
shall have the continuing exclusive right to apply and reapply any and all such
payments to Customer's Obligations in such manner as IBM Credit may deem
advisable notwithstanding any entry by IBM Credit upon any of its books and
records.

(B) IBM Credit agrees to use commercially reasonable efforts to cause funds
collected from the Lockbox to be swept on a daily basis; provided, however, that
in no event will such funds be swept less than once each week.

2.8 Prepayment and Reborrowing By Customer. (A) Customer may at any time
prepay, without notice or penalty, in whole or in part amounts owed under this
Agreement. IBM Credit may apply payments made to it (whether by the Customer or
otherwise) to pay finance charges and other amounts owing under this Agreement
first and then to the principal amount owed by the Customer.

(B) Subject to the terms and conditions of this Agreement, any amount prepaid
or repaid to IBM Credit in respect to the Outstanding Advances may be reborrowed
by Customer in accordance with the provisions of this Agreement.

Section 3. CREDIT LINE ADDITIONAL PROVISIONS

3.1 Ineligible Accounts. IBM Credit and Customer agree that IBM Credit shall
have the sole right to determine eligibility of Accounts from an Account debtor
for purposes of determining the Borrowing Base; however, without limiting such
right, the following Accounts will be deemed to be ineligible for purposes of
determining the Borrowing Base:

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(A) Accounts created from the sale of goods and/or performance of services on
non-standard terms or that allow for payment to be made more than thirty (30)
days from the date of such sale or performance of services;

(B) Accounts unpaid more than ninety (90) days from date of invoice;

(C) Accounts payable by an account debtor if fifty percent (50%) or more of
the aggregate outstanding balance of all such Accounts remain unpaid for more
than ninety (90) days from the date of invoice;

(D) Accounts payable by an account debtor that is an Affiliate of Customer, or
an officer, employee, agent, guarantor or stockholder of Customer, or an
Affiliate of Customer or is related to or has common shareholders, officers or
directors with Customer;

(E) Accounts arising from consignment sales;

(F) Except for state, local and United States government institutions and
public educational institutions, Accounts with respect to which the payment by
the account debtor is or may be conditional;

(G) Except for state, local and United States government institutions and
public educational institutions, Accounts with respect to which:

(i) the account debtor is not a commercial entity, or

(ii) the account debtor is not a resident of the
United States
and is not a subsidiary of International Business
Machines
Corporation ("IBM");

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<PAGE>

(H) Accounts payable by any account debtor to which Customer is or may become
liable for goods sold or services rendered by such account debtor to Customer;

(I) Accounts arising from the sale or lease of goods purchased for a
personal, family or household purpose;

(J) Accounts arising from the sale or other disposition of goods that has been
used for demonstration purposes or loaned or leased by the Customer to another
party;

(K) Accounts which are progress payment accounts or contra accounts;

(L) Accounts upon which IBM Credit does not have a valid, perfected, first
priority security interest;

(M) Accounts payable by an account debtor that is or Customer knows will
become, subject to proceedings under United States Bankruptcy Law or other law
for the relief of debtors;

(N) Accounts that are not payable in US dollars;

(O) Accounts payable by any Account debtor that is a remarketer of computer
hardware and software products and whose purchases of such products from
Customer have been financed by another person, other than IBM Credit, who pays
the proceeds of such financing directly to Customer on behalf of such debtor
("Third Party Financer") unless (i) such Third Party Financer does not have a
separate financing relationship with Customer or (ii) such Third Party Financer
has a separate financing relationship with Customer and has waived its right to
set off its obligations to Customer;

(P) Accounts arising from the sale or lease of goods which are billed to any
account debtor but have not yet been shipped by Customer;

(Q) Accounts with respect to which Customer has permitted or agreed to any
extension, compromise or settlement, or made any change or modification of any
kind or nature, including, but not limited to, any change or modification to the
terms relating thereto;

(R) Accounts that do not arise from undisputed bona fide transactions
completed in accordance with the terms and conditions contained in the invoices,
purchase orders and contracts relating thereto;

(S) Accounts that are discounted for the full payment term specified in
Customer's terms and conditions with its Account debtors, or for any longer
period of time;

(T) Accounts on cash on delivery (C.O.D.) terms;

(U) Accounts arising from maintenance or service contracts that are billed in
advance of full performance of service;

(V) Accounts arising from bartered transactions;

(W) Accounts arising from incentive payments, rebates, discounts, credits, and
refunds from a supplier; and

(X) Any and all other Accounts that IBM Credit deems, in its sole and
absolute discretion, to be ineligible.

The aggregate of all Accounts that are not ineligible Accounts shall hereinafter
be referred to as "Eligible Accounts".

3.2 Reimbursement for Charges. Customer agrees to pay for all costs and expenses
of Customer's bank in respect to collection of checks and other items of
payment, all fees re-

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lating to the use and maintenance of the Lockbox and the Special Account (each
as defined in Section 3.3) and with respect to remittances of proceeds of the
Advances hereunder.

3.3 Lockbox and Special Account. Customer shall establish and maintain
lockbox(es) (each, a "Lockbox") at the address(es) set forth in Attachment A
with the financial institution listed in Attachment A (the "Bank") pursuant to
an agreement between the Customer and the Bank in form and substance
satisfactory to IBM Credit. Customer shall also establish and maintain a deposit
account which shall contain only proceeds of Customer's Accounts ("Special
Account") with the Bank. Customer shall enter into and maintain a blocked
account agreement with the Bank for the benefit of IBM Credit in form and
substance satisfactory to IBM Credit pursuant to which, among other things, such
Bank shall agree that disbursements from the Special Account shall be made only
as IBM Credit shall direct.

3.4 Collections. Customer shall instruct all Account debtors to remit payments
directly to a Lockbox. In addition, Customer shall have such instruction printed
in conspicuous type on all invoices. Customer shall instruct Bank to deposit all
remittances to such Bank's Lockbox into its Special Account. Customer further
agrees that it shall not deposit or permit any deposits of funds other than
remittances paid in respect of the Accounts into the Special Account(s) or
permit any commingling of funds with such remittances in any Lockbox or Special
Account. Without limiting the Customer's foregoing obligations, if, at any time,
Customer receives a remittance directly from an Account debtor, then Customer
shall make entries on its books and records in a manner that shall reasonably
identify such remittances and shall keep a separate account on its record books
of all remittances so received and deposit the same into a Special Account.
Until so deposited into the Special Account, Customer shall keep all remittances
received in respect of Accounts separate and apart from Customer's other
property so that they are capable of identification as the proceeds of Accounts
in which IBM Credit has a security interest.

3.5 Application of Remittances and Credits. Customer shall apply all remittances
against the aggregate of Customer's outstanding Accounts no later than the end
of the Business Day on which such remittances are deposited into the Special
Account. Customer also agrees to apply each remittance against its respective
Account no later than three (3) Business Days from the date such remittance is
deposited into the Special Account. In addition, Customer shall promptly apply
any credits owing in respect to any Account when due.

3.6 Power of Attorney. Customer hereby irrevocably appoints IBM Credit, with
full power of substitution, as its true and lawful attorney-in-fact with full
power, in good faith and in compliance with commercially reasonable standards,
in the discretion of IBM Credit, to:

(A) sign the name of Customer on any document or instrument that IBM Credit
shall deem necessary or appropriate to perfect and maintain perfected the
security interest in the Collateral contemplated under this Agreement and the
Other Documents;

(B) endorse the name of Customer upon any of the items of payment of proceeds
related to the Collateral and deposit the same in the account of IBM Credit for
application to the Obligation; and

upon the occurrence and during the continuance of an Event of Default as defined
in Section 9.1 hereof:

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<PAGE>

(C) demand payment, enforce payment and otherwise exercise all Customer's
rights and remedies with respect to the collection of any Accounts;

(D) settle, adjust, compromise, extend or renew any Accounts;

(E) settle, adjust or compromise any legal proceedings brought to collect any
Accounts;

(F) sell or assign any Accounts upon such terms, for such amounts and at such
time or times as IBM Credit may deem advisable;

(G) discharge and release any Accounts;

(H) prepare, file and sign Customer's name on any Proof of Claim in
Bankruptcy or similar document against any Account debtor;

(I) prepare, file and sign Customer's name on any notice of lien, claim of
mechanic's lien, assignment or satisfaction of lien or mechanic's lien, or
similar document in connection with any Accounts;

(J) endorse the name of Customer upon any chattel paper, document,
instrument, invoice, freight bill, bill of lading or similar document or
agreement relating to any Account or goods pertaining thereto;

(K) endorse the name of Customer upon any of the items of payment of proceeds
and deposit the same in the account of IBM Credit for application to the
Obligation;

(L) sign the name of Customer to requests for verification of Accounts and
notices thereof to Account debtors;

(M) sign the name of Customer on any document or instrument that IBM Credit
shall deem necessary or appropriate to enforce any and all remedies it may have
under this Agreement, at law or otherwise; and

(N) make, settle and adjust claims under the Policies with respect to the
Collateral and endorse Customer's name on any check, draft, instrument or other
item of payment of the proceeds of the Policies with respect to the Collateral;
and

(O) take control in any manner of any term of payment or proceeds and for
such purpose to notify the postal authorities to change the address for delivery
of mail addressed to Customer to such address as IBM Credit may designate. In
the event IBM Credit takes control of Customer's mail and changes address for
delivery, IBM Credit agrees to segregate Customer's mail from payments and to
return promptly Customer's mail to Customer.

The power of attorney granted by this Section is for value and coupled with an
interest and is irrevocable so long as this Agreement is in effect or any
Obligations remain outstanding. Nothing done by IBM Credit pursuant to such
power of attorney will reduce any of Customer's Obligations other than
Customer's payment Obligations to the extent IBM Credit has received monies.

Section 4. SECURITY - COLLATERAL

4.1 Grant. To secure Customer's full and punctual payment and performance of the
Obligations when due (whether at the stated maturity, by acceleration or
otherwise), Customer hereby grants IBM Credit a security interest in all of
Customer's right, title and interest in and to the following property, whether
now owned or hereafter acquired or existing and wherever located:

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<PAGE>

(A) all inventory and equipment, and all parts thereof, attachments,
accessories and accessions thereto, products thereof and documents therefor;

(B) all accounts, contract rights, chattel paper, instruments, deposit
accounts, obligations of any kind owing to Customer, whether or not arising out
of or in connection with the sale or lease of goods or the rendering of services
and all books, invoices, documents and other records in any form evidencing or
relating to any of the foregoing;

(D) all rights now or hereafter existing in and to all mortgages, security
agreements, leases or other contracts securing or otherwise relating to any of
the foregoing; and

(E) all substitutions and replacements for all of the foregoing, all proceeds
of all of the foregoing and, to the extent not otherwise included, all payments
under insurance or any indemnity, warranty or guaranty, payable by reason of
loss or damage to or otherwise with respect to any of the foregoing.

All of the above assets shall be collectively defined herein as the
"Collateral".

Customer covenants and agrees with IBM Credit that: (a) the security constituted
to by this Agreement is in addition to any other security from time to time held
by IBM Credit and (b) the security hereby created is a continuing security
interest and will cover and secure the payment of all Obligations both present
and future of Customer to IBM Credit pursuant to this Agreement and Other
Documents.

4.2 Further Assurances. Customer shall, from time to time upon the request of
IBM Credit, execute and deliver to IBM Credit, or cause to be executed and
delivered, at such time or times as IBM Credit may request such other and
further documents, certificates and instruments that IBM Credit may deem
necessary to perfect and maintain perfected IBM Credit's security interests in
the Collateral and in order to fully consummate all of the transactions
contemplated under this Agreement and the Other Documents. Customer shall make
appropriate entries on its books and records disclosing IBM Credit's security
interests in the Collateral.

Section 5. CONDITIONS PRECEDENT

5.1 Conditions Precedent to the Effectiveness of This Agreement. The
effectiveness of this Agreement is subject to the receipt by IBM Credit of, or
waiver in writing by IBM Credit of compliance with, the following conditions
precedent:

(A) this Agreement executed and delivered by Customer and IBM Credit;

(B) (i) copies of the resolutions of the Board of Directors of Customer
certified by the secretary or assistant secretary of Customer authorizing the
execution, delivery and performance of this Agreement and each Other Agreement
executed and delivered in connection herewith, (ii) a certificate of the
secretary or an assistant secretary of Customer, in form and substance
satisfactory to IBM Credit, certifying the names and true signatures of the
officers of Customer authorized to sign this Agreement and the Other Documents
and (iii) copies of the articles of incorporation and by-laws of Customer
certified by the secretary or assistant secretary of Customer;

(C) certificates dated as of a recent date from the Secretary of State or
other appropriate authority evidencing the good standing of Customer in the
jurisdiction of its organization and in each other jurisdiction where the
ownership or lease of its property or the conduct of its business requires it to
qualify to do business;

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<PAGE>

(D) copies of all approvals and consents from any Person, in each case in form
and substance satisfactory to IBM Credit, which are required to enable Customer
to authorize, or required in connection with, (a) the execution, delivery or
performance of this Agreement and each of the Other Documents, and (b) the
legality, validity, binding effect or enforceability of this Agreement and each
of the Other Documents;

(E) a lockbox agreement executed by Customer and each Bank, in form and
substance satisfactory to IBM Credit;

(F) a blocked account agreement executed by Customer and each Bank in form and
substance satisfactory to IBM Credit;

(G) intercreditor agreements ("Intercreditor Agreement"), in form and
substance satisfactory to IBM Credit, executed by each other secured creditor of
Customer as set forth in Attachment A;

(H) a favorable opinion of counsel for Customer in substantially the form of
Attachment H;

(I) UCC-1 financing statements for each jurisdiction reasonably requested by
IBM Credit executed by Customer and each guarantor whose guaranty to IBM Credit
is intended to be secured by a pledge of its assets;

(J) the statements, certificates, documents, instruments, financing
statements, agreements and information set forth in Attachment A and Attachment
B; and

(K) all such other statements, certificates, documents, instruments, financing
statements, agreements and other information with respect to the matters
contemplated by this Agreement as IBM Credit shall have reasonably requested.

5.2 Conditions Precedent to Each Advance. No Advance will be required to be made
or renewed by IBM Credit under this Agreement unless, on and as of the date of
such Advance, the following statements shall be true to the satisfaction of IBM
Credit:

(A) The representations and warranties contained in this Agreement or in any
document, instrument or agreement executed in connection herewith, are true and
correct in all material respects on and as of the date of such Advance as though
made on and as of such date;

(B) No event has occurred and is continuing or after giving effect to such
Advance or the application of the proceeds thereof would result which would
constitute a Default;

(D) Both before and after giving effect to the making of such Advance, no
Shortfall Amount exists.

Except as Customer has otherwise disclosed to IBM Credit in writing prior to
each request, each request (or deemed request pursuant to Section 2.3 (D)) for
an Advance hereunder and the receipt (or deemed receipt) by the Customer of the
proceeds of any Advance hereunder shall be deemed to be a representation and
warranty by Customer that, as of and on the date of such Advance, the statements
set forth in (A) through (D) above are true statements. No such disclosures by
Customer to IBM Credit shall in any manner be deemed to satisfy the conditions
precedent to each Advance that are set forth in this Section 5.2 unless any such
condition precedent is waived by IBM Credit.

Section 6. REPRESENTATIONS AND WARRANTIES

To induce IBM Credit to enter into this Agreement, Customer represents and
warrants to IBM Credit as follows:

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6.1 Organization and Qualifications. Customer and each of its Subsidiaries (i)
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, (ii) has the power and authority
to own its properties and assets and to transact the businesses in which it
presently is engaged and (iii) is duly qualified and is authorized to do
business and is in good standing in each jurisdiction where it presently is
engaged in business and is required to be so qualified.

6.2 Rights in Collateral; Priority of Liens. Customer and each of its
Subsidiaries owns the property granted by it respectively as Collateral to IBM
Credit, free and clear of any and all Liens in favor of third parties except for
the Liens otherwise permitted pursuant to Section 8.1. The Liens granted by the
Customer and each of its Subsidiaries pursuant to this Agreement, the Guaranties
and the Other Documents in the Collateral constitute the valid and enforceable
first, prior and perfected Liens on the Collateral, except to the extent any
Liens that are prior to IBM Credit's Liens are (i) the subject of an
Intercreditor Agreement or (ii) Purchase Money Security Interests in product of
a brand that is not financed by IBM Credit.

6.3 No Conflicts. The execution, delivery and performance by Customer of this
Agreement and each of the Other Documents (i) are within its corporate power;
(ii) are duly authorized by all necessary corporate action; (iii) are not in
contravention in any respect of any Requirement of Law or any indenture,
contract, lease, agreement, instrument or other commitment to which it is a
party or by which it or any of its properties are bound; (iv) do not require the
consent, registration or approval of any Governmental Authority or any other
Person (except such as have been duly obtained, made or given, and are in full
force and effect); and (v) will not, except as contemplated herein, result in
the imposition of any Liens upon any of its properties.

6.4 Enforceability. This Agreement and all of the other documents executed and
delivered by the Customer in connection herewith are the legal, valid and
binding obligations of Customer, and are enforceable in accordance with their
terms, except as such enforceability may be limited by the effect of any
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or similar laws affecting creditors' rights generally or the general
equitable principles relating thereto.

6.5 Locations of Offices, Records and Inventory. The address of the principal
place of business and chief executive office of Customer is as set forth on
Attachment B or on any notice provided by Customer to IBM Credit pursuant to
Section 7.7(C) of this Agreement. The books and records of Customer, and all of
its chattel paper (other than the chattel paper delivered to IBM Credit pursuant
to Section 7.14(E)) and records of Accounts, are maintained exclusively at such
location. There is no jurisdiction in which Customer has any assets, equipment
or inventory (except for vehicles and inventory in transit for processing) other
than those jurisdictions identified on Attachment B or on any notice provided by
Customer to IBM Credit pursuant to Section 7.7(C) of this Agreement. Attachment
B, as amended from time to time by any notice provided by Customer to IBM Credit
in accordance with Section 7.7(C) of this Agreement, also contains a complete
list of the legal names and addresses of each warehouse at which the Customer's
inventory is stored. None of the receipts received by Customer from any
warehouseman states that the goods covered thereby are to be delivered to bearer
or to the order of a named person or to a named person and such named person's
assigns.

6.6 Fictitious Business Names. Customer has not used any corporate or
fictitious name during the five (5) years pre-

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ceding the date of this Agreement, other than those listed on Attachment B.

6.7 Organization. All of the outstanding capital stock of Customer has been
validly issued, is fully paid and nonassessable.

6.8 No Judgments or Litigation. Except as set forth on Attachment B, no
judgments, orders, writs or decrees are outstanding against Customer nor is
there now pending or, to the best of Customer's knowledge after due inquiry,
threatened, any litigation, contested claim, investigation, arbitration, or
governmental proceeding by or against Customer.

6.9 No Defaults. The Customer is not in default under any term of any
indenture, contract, lease, agreement, instrument or other commitment to which
it is a party or by which it, or any of its properties are bound. Customer has
no knowledge of any dispute regarding any such indenture, contract, lease,
agreement, instrument or other commitment. No Default or Event of Default has
occurred and is continuing.

6.10 Labor Matters. Except as set forth on any notice provided by Customer to
IBM Credit pursuant to Section 7.1(G) of this Agreement, the Customer is not a
party to any labor dispute. There are no strikes or walkouts or labor
controversies pending or threatened against the Customer which could reasonably
be expected to have a Material Adverse Effect.

6.11 Compliance with Law. Customer has not violated or failed to comply with
any Requirement of Law or any requirement of any self regulatory organization.

6.12 ERISA. Each "employee benefit plan", "employee pension benefit plan",
"defined benefit plan", or "multi-employer benefit plan", which Customer has
established, maintained, or to which it is required to contribute (collectively,
the "Plans") is in compliance with all applicable provisions of ERISA and the
Code and the rules and regulations thereunder as well as the Plan's terms and
conditions. There have been no "prohibited transactions" and no "reportable
event" has occurred within the last 60 months with respect to any Plan.
Customer has no "multi- employer benefit plan". As used in this Agreement the
terms "employee benefit plan", "employee pension benefit plan", "defined benefit
plan", and "multi- employer benefit plan" have the respective meanings assigned
to them in Section 3 of ERISA and any applicable rules and regulations
thereunder. The Customer has not incurred any "accumulated funding deficiency"
within the meaning of ERISA or incurred any liability to the Pension Benefit
Guaranty Corporation (the "PBGC") in connection with a Plan (other than for
premiums due in the ordinary course).

6.13 Compliance with Environmental Laws. Except as otherwise disclosed in
Attachment B:

(A) The Customer has obtained all government approvals required with respect
to the operation of their businesses under any Environmental Law.

(B) (i) the Customer has not generated, transported or disposed of any
Hazardous Substances; (ii) the Customer is not currently generating,
transporting or disposing of any Hazardous Substances; (iii) the Customer has no
knowledge that (a) any of its real property (whether owned, leased, or otherwise
directly or indirectly controlled) has been used for the disposal of or has been
contaminated by any Hazardous Substances, or (b) any of its business operations
have contaminated lands or waters of others with any Hazardous Substances; (iv)
the Customer and its respective assets are not subject to any Environmental
Liability and, to the best of the Customer's knowledge, any threatened
Environmental Liability; (v) the Customer has not received any notice of or
otherwise learned of any governmental investigation eval-

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uating whether any remedial action is necessary to respond to a release or
threatened release of any Hazardous Substances for which the Customer may be
liable; (vi) the Customer is not in violation of any Environmental Law; (vii)
there are no proceedings or investigations pending against Customer with respect
to any violation or alleged violation of any Environmental Law; provided
however, that the parties acknowledge that any generation, transportation, use,
storage and disposal of certain such Hazardous Substances in Customer's or its
Subsidiaries' business shall be excluded from representations (i) and (ii)
above, provided, further, that Customer is at all times generating,
transporting, utilizing, storing and disposing such Hazardous Substances in
accordance with all applicable Environmental Laws and in a manner designed to
minimize the risk of any spill, contamination, release or discharge of Hazardous
Substances other than as authorized by Environmental Laws.

6.14 Intellectual Property. Customer possesses such assets, licenses, patents,
patent applications, copyrights, service marks, trademarks, trade names and
trade secrets and all rights and other property relating thereto or arising
therefrom ("Intellectual Property") as are necessary or advisable to continue to
conduct its present and proposed business activities.

6.15 Licenses and Permits. Customer has obtained and holds in full force and
effect all franchises, licenses, leases, permits, certificates, authorizations,
qualifications, easements, rights of way and other rights and approvals which
are necessary for the operation of its businesses as presently conducted.
Customer is not in violation of the terms of any such franchise, license, lease,
permit, certificate, authorization, qualification, easement, right of way, right
or approval.

6.16 Investment Company. The Customer is not (i) an investment company or a
company controlled by an investment company within the meaning of the Investment
Company Act of 1940, as amended, (ii) a holding company or a subsidiary of a
holding company, or an Affiliate of a holding company or of a subsidiary of a
holding company, within the meaning of the Public Utility Holding Company Act of
1935, as amended, or (iii) subject to any other law which purports to regulate
or restrict its ability to borrow money or to consummate the transactions
contemplated by this Agreement or the Other Documents or to perform its
obligations hereunder or thereunder.

6.17 Taxes and Tax Returns. Customer has timely filed all federal, state, and
local tax returns and other reports which it is required by law to file, and has
either duly paid all taxes, fees and other governmental charges indicated to be
due on the basis of such reports and returns or pursuant to any assessment
received by the Customer, or made provision for the payment thereof in
accordance with GAAP. The charges and reserves on the books of the Customer in
respect of taxes or other governmental charges are in accordance with GAAP. No
tax liens have been filed against Customer or any of its property.

6.18 Status of Accounts. Each Account is based on an actual and bona fide sale
and delivery of goods or rendition of services to customers, made by Customer,
in the ordinary course of its business; the goods and inventory being sold and
the Accounts created are its exclusive property and are not and shall not be
subject to any Lien, consignment arrangement, encumbrance, security interest or
financing statement whatsoever (other than Permitted Liens). The Customer's
customers have accepted goods or services and owe and are obligated to pay the
full amounts stated in the invoices according to their terms. There are no
proceedings or actions known to Customer which are pending or threatened against
any Material Account Debtor (as defined in Section 7.14(B) of this Agreement) of
any of the Accounts which

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<PAGE>

could reasonably be expected to result in a Material Adverse Effect on the
obligor's ability to pay the full amounts due to Customer.

6.19 Affiliate/Subsidiary Transactions. Customer is not a party to or bound by
any agreement or arrangement (whether oral or written) to which any Affiliate or
Subsidiary of the Customer is a party except (i) in the ordinary course of and
pursuant to the reasonable requirements of Customer's business and (ii) upon
fair and reasonable terms no less favorable to Customer than it could obtain in
a comparable arm's-length transaction with an unaffiliated Person.

6.20 Accuracy and Completeness of Information. All factual information furnished
by or on behalf of the Customer to IBM Credit or the Auditors for purposes of or
in connection with this Agreement or any Other Document, or any transaction
contemplated hereby or thereby is or will be true and accurate in all material
respects on the date as of which such information is dated or certified and not
incomplete by omitting to state any material fact necessary to make such
information not misleading at such time.

6.21 Recording Taxes. All recording taxes, recording fees, filing fees and other
charges payable in connection with the filing and recording of this Agreement
have either been paid in full by Customer or arrangements for the payment of
such amounts by Customer have been made to the satisfaction of IBM Credit.

6.22 Indebtedness. Customer (i) has no Indebtedness, other than Permitted
Indebtedness; and (ii) has not guaranteed the obligations of any other Person
(except as permitted by Section 8.4).

Section 7. AFFIRMATIVE COVENANTS

Until termination of this Agreement and the indefeasible payment and
satisfaction of all Obligations: 7.1 Financial and Other Information. Customer
shall cause to be furnished to IBM Credit the following information within the
following time periods:

(A) as soon as available and in any event within ninety-five (95) days after
the end of each fiscal year of Customer (i) audited Financial Statements
(provided that, to the extent not otherwise audited by the Auditors, the
consolidating Financial Statements may be unaudited) as of the close of the
fiscal year and for the fiscal year, together with a comparison to the Financial
Statements for the prior year, in each case accompanied by (a) either an opinion
of the Auditors without a "going concern" or like qualification or exception, or
qualification arising out of the scope of the audit or, if so qualified, an
opinion which shall be in scope and substance reasonably satisfactory to IBM
Credit, (b) such Auditors' "Management Letter" to Customer, if any, (c) a
written statement signed by the Auditors stating that in the course of the
regular audit of the business of Customer and its consolidated Subsidiaries,
which audit was conducted by the Auditors in accordance with generally accepted
auditing standards, the Auditors have not obtained any knowledge of the
existence of any Default under any provision of this Agreement, or, if such
Auditors shall have obtained from such examination any such knowledge, they
shall disclose in such written statement the existence of the Default and the
nature thereof, it being understood that such Auditors shall have no liability,
directly or indirectly, to anyone for failure to obtain knowledge of any such
Default; and (ii) a Compliance Certificate along with a schedule, in
substantially the form of Attachment C hereto, of the calculations used in
determining, as of the end of such fiscal year, whether Customer is in
compliance with the financial covenants set forth in Attachment A;

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(B) as soon as available and in any event within fifty (50) days after the end
of each fiscal quarter of Customer (i) Financial Statements as of the end of
such period and for the fiscal year to date, together with a comparison to the
Financial Statements for the same periods in the prior year, all in reasonable
detail and duly certified (subject to normal year-end audit adjustments and
except for the absence of footnotes) by the chief executive officer or chief
financial officer of Customer as having been prepared in accordance with GAAP;
and (ii) a Compliance Certificate along with a schedule, in substantially the
form of Attachment C hereto, of the calculations used in determining, as of the
end of such fiscal quarter, whether Customer is in compliance with the financial
covenants set forth in Attachment A;

(C) as soon as available and in any event within fifty (50) days after the end
of each fiscal month of Customer (i) the balance sheet and profit and loss
statement as of the end of such period and for the fiscal year to date, together
with a comparison to the balance sheet and profit and loss statement for the
same periods in the prior year, all in reasonable detail and duly certified
(subject to normal year-end audit adjustments and except for the absence of
footnotes) by the chief executive officer or chief financial officer of Customer
as having been prepared in accordance with GAAP; and (ii) a Compliance
Certificate along with a schedule, in substantially the form of Attachment C
hereto, of the calculations used in determining, as of the end of such fiscal
month, whether Customer is in compliance with the financial covenants set forth
in Attachment A;

(D) as soon as available and in any event within forty-five (45) days after
the end of each fiscal year of Customer (i) projected Financial Statements,
broken down by quarter, for the current and following fiscal year; and (ii) if
composed, a narrative discussion relating to such projected Financial
Statements;

(E) if revised, as soon as available and in any event within thirty (30) days
after the end of each fiscal quarter of Customer, revised projected Financial
Statements, broken down by quarter, for (i) the current fiscal year from the
beginning of such fiscal quarter to the fiscal year end and (ii) the following
fiscal year;

(F) promptly after Customer obtains knowledge of (i) the occurrence of a
Default or Event of Default, or (ii) the existence of any condition or event
which would result in the Customer's failure to satisfy the conditions precedent
to Advances set forth in Section 5, a certificate of the chief executive officer
or chief financial officer of Customer specifying the nature thereof and the
Customer's proposed response thereto, each in reasonable detail;

(G) promptly after Customer obtains knowledge of (i) any proceeding(s) being
instituted or threatened to be instituted by or against Customer in any federal,
state, local or foreign court or before any commission or other regulatory body
(federal, state, local or foreign), or (ii) any actual or prospective change,
development or event which, in any such case, has had or could reasonably be
expected to have a Material Adverse Effect, a certificate of the chief executive
officer or chief financial officer of Customer specifying the nature thereof and
the Customer's proposed response thereto, each in reasonable detail;

(H) promptly after Customer obtains knowledge that (i) any order, judgment or
decree in excess of One Hundred Thousand Dollars ($100,000) shall have been
entered against Customer or any of its properties or assets, or (ii) it has
received any notification of a material violation of any Requirement of Law from
any Governmental Authority, a certificate of the chief executive officer or
chief financial officer of Customer specifying the nature thereof and the

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Customer's proposed response thereto, each in reasonable detail;

(I) promptly after Customer learns of any material labor dispute to which
Customer may become a party, any strikes or walkouts relating to any of its
plants or other facilities, and the expiration of any labor contract to which
Customer is a party or by which it is bound, a certifcate of the chief executive
officer or chief financial officer of Customer specifying the nature thereof and
the Customer's proposed response thereto, each in reasonable detail;

(J) within five (5) Business Days after request by IBM Credit, any written
certificates, schedules and reports together with all supporting documents as
IBM Credit may reasonably request relating to the Collateral or the Customer's
or any guarantor's business affairs and financial condition;

(K) by the fifth (5th) Business Day of each month, or as otherwise agreed in
writing, a Collateral Management Report as of a date no earlier than the last
day of the immediately preceding month;

(L) along with the Financial Statements set forth in Section 7.1(A) and (B),
the name, address and phone number of each of its Account debtors' primary
contacts for each Account on the Accounts aging report contained in its most
recent Collateral Management Report; and

(M) within five (5) days after the same are sent, copies of all financial
statements and reports which Customer sends to its stockholders.

Each certificate, schedule and report provided by Customer to IBM Credit shall
be signed by an authorized officer of Customer, and which signature shall be
deemed a representation and warranty that the information contained in such
certificate, schedule or report is true and accurate in all material respects on
the date as of which such certificate, schedule or report is made and does not
omit to state a material fact necessary in order to make the statements
contained therein not misleading at such time. Each financial statement
delivered pursuant to this Section 7.1 shall be prepared in accordance with
GAAP applied consistently throughout the periods reflected therein and with
prior periods.

7.2 Location of Collateral. The inventory, equipment and other tangible
Collateral shall be kept or sold at the addresses as set forth on Attachment B
or on any notice provided by Customer to IBM Credit in accordance with Section
7.7(C). Such locations shall be certified quarterly to IBM Credit substantially
in the form of Attachment G.

7.3 Changes in Customer. Customer shall provide thirty (30) days prior written
notice to IBM Credit of any change in Customer's name, chief executive office
and principal place of business, organization, form of ownership or corporate
structure; provided, however, that Customer's compliance with this covenant
shall not relieve it of any of its other obligations or any other provisions
under this Agreement or any Other Document limiting actions of the type
described in this Section.

7.4 Corporate Existence. Customer shall (A) maintain its corporate existence,
maintain in full force and effect all licenses, bonds, franchises, leases and
qualifications to do business, and all contracts and other rights necessary to
the profitable conduct of its business, (B) continue in, and limit its
operations to, the same general lines of business as presently conducted by it
unless otherwise permitted in writing by IBM Credit and (C) comply with all
Requirements of Law.

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7.5 ERISA. Customer shall promptly notify IBM Credit in writing after it
learns of the occurrence of any event which would constitute a "reportable
event" under ERISA or any regulations thereunder with respect to any Plan, or
that the PBGC has instituted or will institute proceedings to terminate any
Plan. Notwithstanding the foregoing, the Customer shall have no obligation to
notify IBM Credit as to any "reportable event" as to which the 30-day notice
requirement of Section 4043(b) has been waived by the PBGC, until such time as
such Customer is required to notify the PBGC of such reportable event. Such
notification shall include a certificate of the chief financial officer of
Customer setting forth details as to such "reportable event" and the action
which Customer proposes to take with respect thereto, together with a copy of
any notice of such "reportable event" which may be required to be filed with the
PBGC, or any notice delivered by the PBGC evidencing its intent to institute
such proceedings. Upon request of IBM Credit, Customer shall furnish, or cause
the plan administrator to furnish, to IBM Credit the most recently filed annual
report for each Plan.

7.6 Environmental Matters. (A) Customer and any other Person under Customer's
control (including, without limitation, agents and Affiliates under such
control) shall (i) comply with all Environmental Laws in all material respects,
and (ii) undertake to use commercially reasonable efforts to prevent any
unlawful release of any Hazardous Substance by Customer or such Person into,
upon, over or under any property now or hereinafter owned, leased or otherwise
controlled (directly or indirectly) by Customer.

(B) Customer shall notify IBM Credit, promptly upon its obtaining knowledge of
(i) any non-routine proceeding or investigation by any Governmental Authority
with respect to the presence of any Hazardous Substances on or in any property
now or hereinafter owned, leased or otherwise controlled (directly or
indirectly) by Customer, (ii) all claims made or threatened by any Person or
Governmental Authority against Customer or any of Customer's assets relating to
any loss or injury resulting from any Hazardous Substance, (iii) Customer's
discovery of evidence of unlawful disposal of or environmental contamination by
any Hazardous Substance on any property now or hereinafter owned, leased or
otherwise controlled (directly or indirectly) by Customer, and (iv) any
occurrence or condition which could constitute a violation of any Environmental
Law.

7.7 Collateral Books and Records/Collateral Audit. (A) Customer agrees to
maintain books and records pertaining to the Collateral in such detail, form and
scope as is consistent with good business practice, and agrees that such books
and records will reflect IBM Credit's interest in the Accounts.

(B) Customer agrees that IBM Credit or its agents may enter upon the premises
of Customer at any time and from time to time, during normal business hours and
upon reasonable notice under the circumstances, and at any time at all on and
after the occurrence and during the continuance of an Event of Default for the
purposes of (i) inspecting the Collateral, (ii) inspecting and/or copying (at
Customer's expense) any and all records pertaining thereto, (iii) discussing the
affairs, finances and business of Customer with any officers, employees and
directors of Customer or with the Auditors and (iv) verifying Eligible Accounts
and other Collateral. Customer also agrees to provide IBM Credit with such
reasonable information and documentation that IBM Credit deems necessary to
conduct the foregoing activities, including, without limitation, reasonably
requested samplings of purchase orders, invoices and evidences of delivery or
other performance. Upon the occurrence and during the continuance of an Event
of Default which has not been waived by IBM Credit in writing, IBM Credit may
conduct any

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of the foregoing activities in any manner that IBM Credit deems reasonably
necessary.

(C) Customer shall give IBM Credit thirty (30) days prior written notice of
any change in the location of any Collateral, the location of its books and
records or in the location of its chief executive office or place of business
from the locations specified in Attachment B, and will execute in advance of
such change and cause to be filed and/or delivered to IBM Credit any financing
statements, landlord or other lien waivers, or other documents reasonably
required by IBM Credit, all in form and substance reasonably satisfactory to IBM
Credit.

(D) Customer agrees to advise IBM Credit promptly, in reasonably sufficient
detail, of any substantial change relating to the type, quantity or quality of
the Collateral, or any event which could reasonably be expected to have a
Material Adverse Effect on the value of the Collateral or on the security
interests granted to IBM Credit therein.

7.8 Insurance; Casualty Loss. (A) Customer agrees to maintain with financially
sound and reputable insurance companies: (i) insurance on its properties, (ii)
public liability insurance against claims for personal injury or death as a
result of the use of any products sold by it and (iii) insurance coverage
against other business risks, in each case, in at least such amounts and against
at least such risks as are usually and prudently insured against in the same
general geographical area by companies of established repute engaged in the same
or a similar business. Customer will furnish to IBM Credit, upon its written
request, the insurance certificates with respect to such insurance. In addition,
all Policies so maintained are to name IBM Credit as an additional insured as
its interest may appear.

(B) Without limiting the generality of the foregoing, Customer shall keep and
maintain, at its sole expense, the Collateral insured for an amount not less
than the amount set forth on Attachment A from time to time opposite the caption
"Collateral Insurance Amount" against all loss or damage under an "all risk"
Policy with companies mutually acceptable to IBM Credit and Customer, with a
lender's loss payable endorsement or mortgagee clause in form and substance
reasonably satisfactory to IBM Credit designating that any loss payable
thereunder with respect to such Collateral shall be payable to IBM Credit. Upon
receipt of proceeds by IBM Credit the same shall be applied on account of the
Customer's Outstanding Product Advances first, then to the Outstanding A/R
Advances. Customer agrees to instruct each insurer to give IBM Credit, by
endorsement upon the Policy issued by it or by independent instruments furnished
to IBM Credit, at least ten (10) days written notice before any Policy shall be
altered or cancelled and that no act or default of Customer or any other person
shall affect the right of IBM Credit to recover under the Policies. Customer
hereby agrees to direct all insurers under the Policies to pay all proceeds with
respect to the Collateral directly to IBM Credit. If Customer fails to pay any
cost, charges or premiums, or if Customer fails to insure the Collateral, IBM
Credit may pay such costs, charges or premiums. Any amounts paid by IBM Credit
hereunder shall be considered an additional debt owed by Customer to IBM Credit
and are due and payable immediately upon receipt of an invoice by IBM Credit.

7.9 Taxes. Customer agrees to pay, when due, all taxes lawfully levied or
assessed against Customer or any of the Collateral before any penalty or
interest accrues thereon unless such taxes are being contested, in good faith,
by appropriate proceedings promptly instituted and diligently conducted and an
adequate reserve or other appropriate provisions have been made therefor as
required in order to be in conformity with GAAP and an adverse determination in
such

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proceedings could not reasonably be expected to have a Material Adverse Effect.

7.10 Compliance With Laws. Customer agrees to comply with all Requirements of
Law applicable to the Collateral or any part thereof, or to the operation of its
business.

7.11 Fiscal Year. Customer agrees to maintain its fiscal year as a year ending
September 30 unless Customer provides IBM Credit at least thirty (30) days prior
written notice of any change thereof.

7.12 Intellectual Property. Customer shall do and cause to be done all things
necessary to preserve and keep in full force and effect all registrations of
Intellectual Property which the failure to do or cause to be done could
reasonably be expected to have a Material Adverse Effect.

7.13 Maintenance of Property. Customer shall maintain all of its material
properties (business and otherwise) in good condition and repair (ordinary wear
and tear excepted) and pay and discharge all costs of repair and maintenance
thereof and all rental and mortgage payments and related charges pertaining
thereto and not commit or permit any waste with respect to any of its material
properties.

7.14 Collateral. Customer shall:

(A) from time to time, upon request by IBM Credit, provide IBM Credit with
access to copies of all invoices, delivery evidences and other such documents
relating to each Account;

(B) promptly upon Customer's obtaining knowledge thereof, furnish to and
inform IBM Credit of all material adverse information relating to the financial
condition of any Account debtor whose outstanding obligations to Customer
constitute two percent (2%) or more of the Accounts at such time (a "Material
Account debtor");

(C) promptly upon Customer's learning thereof, notify IBM Credit in writing of
any event which would cause any obligation of a Material Account debtor to
become an Ineligible Account;

(D) keep all goods rejected or returned by any account debtor and all goods
repossessed or stopped in transit by Customer from any account debtor segregated
from other property of Customer, holding the same in trust for IBM Credit until
Customer applies a credit against such account debtor's outstanding obligations
to Customer or sells such goods in the ordinary course of business, whichever
occurs earlier;

(E) stamp or otherwise mark chattel paper and instruments now owned or
hereafter acquired by it in conspicuous type to show that the same are subject
to IBM Credit's security interest and immediately thereafter deliver or cause
such chattel paper and instruments to be delivered to IBM Credit or any agent
designated by IBM Credit with appropriate endorsements and assignments to vest
title and possession in IBM Credit;

(F) use commercially reasonable efforts to collect all Accounts owed;

(G) promptly notify IBM Credit of any loss, theft or destruction of or damage
to any of the Collateral. Customer shall diligently file and prosecute its claim
for any award or payment in connection with any such loss, theft, destruction of
or damage to Collateral. Customer shall, upon demand of IBM Credit, make,
execute and deliver any assignments and other instruments sufficient for the
purpose of assigning any such award or payment to IBM Credit, free of any
encumbrances of any kind whatsoever;

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(H) consistent with reasonable commercial practice, observe and perform all
matters and things necessary or expedient to be observed or performed under or
by virtue of any lease, license, concession or franchise forming part of the
Collateral in order to preserve, protect and maintain all the rights of IBM
Credit thereunder;

(I) consistent with reasonable commercial practice, maintain, use and operate
the Collateral and carry on and conduct its business in a proper and efficient
manner so as to preserve and protect the Collateral and the earnings, incomes,
rents, issues and profits thereof; and

(J) at any time and from time to time, upon the request of IBM Credit, and at
the sole expense of Customer, Customer will promptly and duly execute and
deliver such further instruments and documents and take such further action as
IBM Credit may reasonably request for the purpose of obtaining or preserving the
full benefits of this Agreement and of the rights and powers herein granted,
including, without limitation, the filing of any financing or continuation
statements under the Uniform Commercial Code in effect in any jurisdiction with
respect to the security interests granted herein and the payment of any and all
recording taxes and filing fees in connection therewith.

7.15 Subsidiaries. IBM Credit may require that any Subsidiaries of Customer
become parties to this Agreement or any other agreement executed in connection
with this Agreement as guarantors or sureties. Customer will comply, and cause
all Subsidiaries of Customer to comply with Sections 7 and 8 of this Agreement,
as if such sections applied directly to such Subsidiaries.

7.16 Financial Covenants; Additional Covenants. Customer acknowledges and
agrees that Customer shall at all times maintain the financial covenants and
other covenants set forth in the attachments, exhibits and other addenda
incorporated in this Agreement.

Section 8. NEGATIVE COVENANTS

Until termination of this Agreement and the indefeasible payment and
satisfaction of all Obligations due hereunder:

8.1 Liens. The Customer will not, directly or indirectly mortgage, assign,
pledge, transfer, create, incur, assume, permit to exist or otherwise permit any
Lien or judgment to exist on any of its property, assets, revenues or goods,
whether real, personal or mixed, whether now owned or hereafter acquired, except
for Permitted Liens.

8.2 Disposition of Assets. The Customer will not, directly or indirectly, sell,
lease, assign, transfer or otherwise dispose of any assets other than (i) sales
of inventory in the ordinary course of business and short term rental of
inventory as demonstrations in amounts not material to Customer, and (ii)
voluntary dispositions of individual assets and obsolete or worn out property in
the ordinary course of business, provided, that the aggregate book value of all
such assets and property so sold or disposed of under this section 8.2 (ii) in
any fiscal year shall not exceed 5% of the consolidated assets of the Customer
as of the beginning of such fiscal year.

8.3 Corporate Changes. The Customer will not, without the prior written consent
of IBM Credit, directly or indirectly, merge, consolidate, liquidate, dissolve
or enter into or engage in any operation or activity materially different from
that presently being conducted by Customer.

8.4 Guaranties. The Customer will not, directly or indirectly, assume, guaranty,
endorse, or otherwise become liable upon the obligations of any other Person,
except (i) by

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the endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business, (ii) by the giving of
indemnities in connection with the sale of inventory or other asset dispositions
permitted hereunder, and (iii) for guaranties in favor of IBM Credit.

8.5 Restricted Payments. The Customer will not, directly or indirectly: (i)
declare or pay any dividend (other than dividends payable solely in common stock
of Customer) on, or make any payment on account of, or set apart assets for a
sinking or other analogous fund for, the purchase, redemption, defeasance,
retirement or other acquisition of, any shares of any class of capital stock of
Customer or any warrants, options or rights to purchase any such capital stock,
whether now or hereafter outstanding, or make any other distribution in respect
thereof, either directly or indirectly, whether in cash or property or in
obligations of Customer; or (ii) make any optional payment or prepayment on or
redemption (including, without limitation, by making payments to a sinking or
analogous fund) or repurchase of any Indebtedness (other than the Obligations).

8.6 Investments. The Customer will not, directly or indirectly, make, maintain
or acquire any Investment in any Person other than:

(A) interest bearing deposit accounts (including certificates of deposit)
which are insured by the Federal Deposit Insurance Corporation ("FDIC") or a
similar federal insurance program;

(B) direct obligations of the government of the United States of America or
any agency or instrumentality thereof or obligations guaranteed as to principal
and interest by the United States of America or any agency thereof;

(C) stock or obligations issued to Customer in settlement of claims against
others by reason of an event of bankruptcy or a composition or the readjustment
of debt or a reorganization of any debtor of Customer;

(D) commercial paper of any corporation organized under the laws of any State
of the United States or any bank organized or licensed to conduct a banking
business under the laws of the United States or any State thereof having the
short-term highest rating then given by Moody's Investor's Services, Inc. or
Standard & Poor's Corporation; and

(E) investments which at any time outstanding do not exceed in the aggregate
One Million Dollars ($1,000,000).

8.7 Affiliate/Subsidiary Transactions. The Customer will not, directly or
indirectly, enter into any transaction with any Affiliate or Subsidiary,
including, without limitation, the purchase, sale or exchange of property or the
rendering of any service to any Affiliate or Subsidiary of Customer except in
the ordinary course of business and pursuant to the reasonable requirements of
Customer's business upon fair and reasonable terms no less favorable to Customer
than could be obtained in a comparable arm's-length transaction with an
unaffiliated Person.

8.8. ERISA. The Customer will not (A) terminate any Plan so as to incur a
material liability to the PBGC, (B) permit any "prohibited transaction"
involving any Plan (other than a "multi-employer benefit plan") which would
subject the Customer to a material tax or penalty on "prohibited transactions"
under the Code or ERISA, (C) fail to pay to any Plan any contribution which they
are obligated to pay under the terms of such Plan, if such failure would result
in a material "accumulated funding deficiency", whether or not waived, (D) allow
or suffer to exist any occurrence and during the continuance of a "reportable
event" or any other event or condition, which presents a material risk of termi-

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nation by the PBGC of any Plan (other than a "multi-employer benefit plan"), or
(E) fail to notify IBM Credit as required in Section 7.5. As used in this
Agreement, the terms "accumulated funding deficiency" and "reportable event"
shall have the respective meanings assigned to them in ERISA, and the term
"prohibited transaction" shall have the meaning assigned to it in the Code and
ERISA. For purposes of this Section 8.8, the terms material liability, tax,
penalty, accumulated funding deficiency and risk of termination shall mean a
liability, tax, penalty, accumulated funding deficiency or risk of termination
which could reasonably be expected to have a Material Adverse Effect.

8.9 Additional Negative Pledges. Customer will not, directly or indirectly,
create or otherwise cause or permit to exist or become effective any contractual
obligation which may restrict or inhibit IBM Credit's rights or ability to sell
or otherwise dispose of the Collateral or any part thereof after the occurrence
and during the continuance of an Event of Default.

8.10 Storage of Collateral with Bailees and Warehousemen. Collateral shall not
be stored with a bailee, warehouseman or similar party without the prior written
consent of IBM Credit unless Customer will, concurrently with the delivery of
such Collateral to such party, cause such party to issue and deliver to IBM
Credit, warehouse receipts in the name of IBM Credit evidencing the storage of
such Collateral.

8.11 Use of Proceeds. The Customer shall not use any portion of the proceeds of
any Advances other than to acquire Products from Authorized Suppliers and for
its general working capital requirements in support of its normal daily business
operations.

8.12 Accounts. The Customer shall not permit or agree to any extension,
compromise or settlement or make any change or modification of any kind or
nature with respect to any Account, including any of the terms relating thereto,
which would affect IBM Credit's ability to collect payment on any Account in
whole or in part, except for such extensions, compromises or settlements made by
Customer in the ordinary course of its business, provided, however, that the
aggregate amount of such extensions, compromises or settlements does not exceed
five percent (5%) of the Customer's Accounts at any time.

8.13 Indebtedness. The Customer will not create, incur, assume or permit to
exist any Indebtedness, except for Permitted Indebtedness.

8.14 Loans. The Customer will not make any loans, advances, contributions or
payments of money or goods to any Subsidiary, Affiliate or parent corporation or
to any officer, director or stockholder of Customer or of any such corporation
(except for compensation for personal services actually rendered), except for
transactions expressly authorized in this Agreement, provided, however, that
each of Customer's directors may authorize advances, loans and payments of money
to Customer's employees only for purposes of business travel and employee
relocation expenses up to an amount not to exceed Three Hundred Thousand Dollars
($300,000) at any time, and each of Customer's officers may authorize advances,
loans and payments of money to Customer's employees only for purposes of
business travel and employee relocation expenses up to an amount of Fifty
Thousand Dollars ($50,000.) at any time.

Section 9. DEFAULT

9.1 Event of Default. Any one or more of the following events shall constitute
an Event of Default by the Customer under this Agreement and the Other
Documents:

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(A) The failure to make timely payment of the Obligations or any part thereof
when due and payable provided that there will be a cure period of five (5) days
for failure by Customer to pay on such due date during which period the Customer
will be charged at the Delinquency Fee Rate shown in Attachment A;

(B) Customer fails to comply with or observe any term, covenant or agreement
contained in this Agreement of any Other Document;

(C) Any representation, warranty, statement, report or certificate made or
delivered by or on behalf of Customer or any of its officers, employees or
agents or by or on behalf of any guarantor to IBM Credit was false in any
material respect at the time when made or deemed made;

(D) The occurrence of any event or circumstance which could reasonably be
expected to have a Material Adverse Effect;

(E) Customer, any Subsidiary or any guarantor shall generally not pay its
debts as such debts become due, become or otherwise declare itself insolvent,
file a voluntary petition for bankruptcy protection, have filed against it any
involuntary bankruptcy petition, cease to do business as a going concern, make
any assignment for the benefit of creditors, or a custodian, receiver, trustee,
liquidator, administrator or person with similar powers shall be appointed for
Customer, any Subsidiary or any guarantor or any of its respective properties or
have any of its respective properties seized or attached, or take any action to
authorize, or for the purpose of effectuating, the foregoing, provided, however,
that Customer, any Subsidiary or any guarantor shall have a period of forty-five
(45) days within which to discharge any involuntary petition for bankruptcy or
similar proceeding;

(F) The use of any funds borrowed from IBM Credit under this Agreement for any
purpose other than as provided in this Agreement;

(G) The entry of any judgment against Customer or any guarantor and such
judgment is not satisfied, dismissed, stayed or superseded by bond within thirty
(30) days after the day of entry thereof (and in the event of a stay or
supersedeas bond, such judgment is not discharged within thirty (30) days after
termination of any such stay or bond) or such judgment is not fully covered by
insurance as to which the insurance company has acknowledged its obligation to
pay such judgment in full;

(H) The dissolution or liquidation of Customer or any guarantor, or Customer
or any guarantor or its directors or stockholders shall take any action to
dissolve or liquidate Customer or any guarantor;

(I) Any "going concern" or like qualification or exception, or qualification
arising out of the scope of an audit by an Auditor of his opinion relative to
any Financial Statement delivered to IBM Credit under this Agreement;

(J) There issues a warrant of distress for any rent or taxes with respect to
any premises occupied by Customer in or upon which the Collateral, or any part
thereof, may at any time be situated and such warrant shall continue for a
period of ten (10) Business Days from the date such warrant is issued;

(K) Customer suspends business;

(L) The occurrence of any event or condition which enables the holder of any
Indebtedness arising in one or more related or unrelated transactions to
accelerate the maturity

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thereof or the failure of Customer to pay when due any such Indebtedness;

(M) Any guaranty of any or all of the Customer's Obligations executed by any
guarantor in favor of IBM Credit, shall at any time for any reason cease to be
in full force and effect or shall be declared to be null and void by a court of
competent jurisdiction or the validity or enforceability thereof shall be
contested or denied by any such guarantor, or any such guarantor shall deny that
it has any further liability or obligation thereunder or any such guarantor
shall fail to comply with or observe any of the terms, provisions or conditions
contained in any such guaranty;

(N) Customer is in default under the material terms of any of the Other
Documents after the expiration of any applicable cure periods;

(O) There shall occur a "reportable event" with respect to any Plan, or any
Plan shall be subject to termination proceedings (whether voluntary or
involuntary) and there shall result from such "reportable event" or termination
proceedings a liability of Customer to the PBGC which in the reasonable opinion
of IBM Credit will have a Material Adverse Effect;

(P) Any "person" (as defined in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended) acquires a beneficial interest in 50% or more of the
Voting Stock of Customer.

9.2 Acceleration. Upon the occurrence and during the continuance of an Event of
Default which has not been waived in writing by IBM Credit, IBM Credit may, in
its sole discretion, take any or all of the following actions, without prejudice
to any other rights it may have at law or under this Agreement to enforce its
claims against the Customer: (a) declare all Obligations to be immediately due
and payable (except with respect to any Event of Default set forth in Section
9.1(E) hereof, in which case all Obligations shall automatically become
immediately due and payable without the necessity of any notice or other demand)
without presentment, demand, protest or any other action or obligation of IBM
Credit; and

(b) immediately terminate the Credit Line hereunder.

9.3 Remedies. (A) Upon the occurrence and during the continuance of any Event of
Default which has not been waived in writing by IBM Credit, IBM Credit may
exercise all rights and remedies of a secured party under the U.C.C. Without
limiting the generality of the foregoing, IBM Credit may: (i) remove from any
premises where same may be located any and all documents, instruments, files and
records (including the copying of any computer records), and any receptacles or
cabinets containing same, relating to the Accounts, or IBM Credit may use (at
the expense of the Customer) such of the supplies or space of the Customer at
Customer's place of business or otherwise, as may be necessary to properly
administer and control the Accounts or the handling of collections and
realizations thereon; (ii) bring suit, in the name of the Customer or IBM Credit
and generally shall have all other rights respecting said Accounts, including
without limitation the right to accelerate or extend the time of payment,
settle, compromise, release in whole or in part any amounts owing on any
Accounts and issue credits in the name of the Customer or IBM Credit; (iii)
sell, assign and deliver the Accounts and any returned, reclaimed or repossessed
merchandise, with or without advertisement, at public or private sale, for cash,
on credit or otherwise, at IBM Credit's sole option and discretion, and IBM
Credit may bid or become a purchaser at any such sale; and (iv) foreclose the
security interests created pursuant to this Agreement by any available judicial
procedure, or to take possession of

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any or all of the Collateral without judicial process and to enter any premises
where any Collateral may be located for the purpose of taking possession of or
removing the same.

(B) Upon the occurrence and during the continuance of any Event of Default
which has not been waived in writing by IBM Credit, IBM Credit shall have the
right to sell, lease, or otherwise dispose of all or any part of the Collateral,
whether in its then condition or after further preparation or processing, in the
name of Customer or IBM Credit, or in the name of such other party as IBM Credit
may designate, either at public or private sale or at any broker's board, in
lots or in bulk, for cash or for credit, with or without warranties or
representations, and upon such other terms and conditions as IBM Credit in its
sole discretion may deem advisable, and IBM Credit shall have the right to
purchase at any such sale. If IBM Credit, in its sole discretion determines that
any of the Collateral requires rebuilding, repairing, maintenance or
preparation, IBM Credit shall have the right, at its option, to do such of the
aforesaid as it deems necessary for the purpose of putting such Collateral in
such saleable form as IBM Credit shall deem appropriate. The Customer hereby
agrees that any disposition by IBM Credit of any Collateral pursuant to and in
accordance with the terms of a repurchase agreement between IBM Credit and the
manufacturer or any supplier (including any Authorized Supplier) of such
Collateral constitutes a commercially reasonable sale. The Customer agrees, at
the request of IBM Credit, to assemble the Collateral and to make it available
to IBM Credit at places which IBM Credit shall select, whether at the premises
of the Customer or elsewhere, and to make available to IBM Credit the premises
and facilities of the Customer for the purpose of IBM Credit's taking possession
of, removing or putting such Collateral in saleable form. If notice of intended
disposition of any Collateral is required by law, it is agreed that ten (10)
Business Days notice shall constitute reasonable notification.

(C) Unless expressly prohibited by the licensor thereof, if any, IBM Credit
is hereby granted, upon the occurrence and during the continuance of any Event
of Default which has not been waived in writing by IBM Credit, an irrevocable,
non-exclusive license to use, assign, license or sublicense all computer
software programs, data bases, processes and materials used by the Customer in
its businesses or in connection with any of the Collateral.

(D) The net cash proceeds resulting from IBM Credit's exercise of any of the
foregoing rights (after deducting all charges, costs and expenses, including
reasonable attorneys' fees) shall be applied by IBM Credit to the payment of
Customer's Obligations, whether due or to become due, in such order as IBM
Credit may in it sole discretion elect. Customer shall remain liable to IBM
Credit for any deficiencies, and IBM Credit in turn agrees to remit to Customer
or its successors or assigns, any surplus resulting therefrom.

(E) The enumeration of the foregoing rights is not intended to be exhaustive
and the exercise of any right shall not preclude the exercise of any other
rights, all of which shall be cumulative.

9.4 Waiver. If IBM Credit seeks to take possession of any of the Collateral by
any court process Customer hereby irrevocably waives to the extent permitted by
applicable law any bonds, surety and security relating thereto required by any
statute, court rule or otherwise as an incident to such possession and any
demand for possession of the Collateral prior to the commencement of any suit or
action to recover possession thereof. In addition, Customer waives to the extent
permitted by applicable law all rights of set-off it may have against IBM
Credit. Customer further waives to the extent permitted by applicable law
presentment, demand and protest, and notices of non-payment, non-performance,
any

Page 35 of 40
<PAGE>

right of contribution, dishonor, and any other demands, and notices required by
law.

Section 10. MISCELLANEOUS

10.1 Term; Termination. (A) This Agreement shall remain in force until the
earlier of (i) the Termination Date, (ii) the date specified in a written notice
by the Customer that it intends to terminate this Agreement which date shall be
no less than ninety (90) days following the receipt by IBM Credit of such
written notice, and (iii) termination by IBM Credit after the occurrence and
during the continuance of an Event of Default. Upon the date that this Agreement
is terminated, all of Customer's Obligations shall be immediately due and
payable in their entirety, even if they are not yet due under their terms.

(B) Until the indefeasible payment in full of all of Customer's Obligations,
no termination of this Agreement or any of the Other Documents shall in any way
affect or impair (i) Customer's Obligations to IBM Credit including, without
limitation, any transaction or event occurring prior to such termination, or
(ii) IBM Credit's rights hereunder, including, without limitation IBM Credit's
security interest in the Collateral.

10.2 Indemnification. The Customer hereby agrees to indemnify and hold harmless
IBM Credit and each of its officers, directors, agents and assigns
(collectively, the "Indemnified Persons") against all losses, claims, damages,
liabilities or other expenses (including reasonable attorneys' fees and court
costs now or hereinafter arising from the enforcement of this Agreement, the
"Losses") to which any of them may become subject insofar as such Losses arise
out of or are based upon any event, circumstance or condition (a) occurring or
existing on or before the date of this Agreement relating to any financing
arrangements IBM Credit may from time to time have with (i) Customer, (ii) any
Person that shall be acquired by Customer or (iii) any Person that Customer may
acquire all or substantially all of the assets of, or (b) directly or
indirectly, relating to the execution, delivery or performance of this Agreement
or the consummation of the transactions contemplated hereby or thereby or to any
of the Collateral or to any act or omission of the Customer in connection
therewith. Notwithstanding the foregoing, the Customer shall not be obligated
to indemnify IBM Credit for any Losses incurred by IBM Credit which are a result
of IBM Credit's gross negligence or willful misconduct. The indemnity provided
herein shall survive the termination of this Agreement.

10.3 Additional Obligations. IBM Credit, without waiving or releasing any
Obligation or Default of the Customer, may perform any Obligations of the
Customer that the Customer shall fail or refuse to perform and IBM Credit may,
at any time or times hereafter, but shall be under no obligation so to do, pay,
acquire or accept any assignment of any security interest, lien, encumbrance or
claim against the Collateral asserted by any person. All sums paid by IBM Credit
in performing in satisfaction or on account of the foregoing and any expenses,
including reasonable attorney's fees, court costs, and other charges relating
thereto, shall be a part of the Obligations, payable on demand and secured by
the Collateral.

10.4 LIMITATION OF LIABILITY. NEITHER IBM CREDIT NOR ANY OTHER INDEMNIFIED
PERSON SHALL HAVE ANY LIABILITY WITH RESPECT TO ANY SPECIAL, INDIRECT OR
CONSEQUENTIAL DAMAGES SUFFERED BY CUSTOMER IN CONNECTION WITH THIS AGREEMENT,
ANY OTHER AGREEMENT OR ANY CLAIMS IN ANY MANNER RELATED THERETO. NOR SHALL IBM
CREDIT OR ANY OTHER INDEMNIFIED PERSON HAVE ANY LIABILITY TO CUSTOMER OR ANY
OTHER PERSON FOR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY IT OR THEM
HEREUNDER, EXCEPT FOR ITS OR THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.

Page 36 of 40
<PAGE>

10.5 Alteration/Waiver. This Agreement and the Other Documents may not be
altered or amended except by an agreement in writing signed by the Customer and
by IBM Credit. No delay or omission of IBM Credit to exercise any right or
remedy hereunder, whether before or after the occurrence of any Event of
Default, shall impair any such right or remedy or shall operate as a waiver
thereof or as a waiver of any such Event of Default. In the event that IBM
Credit at any time or from time to time dispenses with any one or more of the
requirements specified in this Agreement or any of the Other Documents, such
dispensation may be revoked by IBM Credit at any time and shall not be deemed to
constitute a waiver of any such requirement subsequent thereto. IBM Credit's
failure at any time or times to require strict compliance and performance by the
Customer of any undertakings, agreements, covenants, warranties and
representations of this Agreement or any Other Agreement shall not waive, affect
or diminish any right of IBM Credit thereafter to demand strict compliance and
performance thereof. Any waiver by IBM Credit of any Default by the Customer
under this Agreement or any of the Other Documents shall not waive or affect any
other Default by the Customer under this Agreement or any of the Other
Documents, whether such Default is prior or subsequent to such other Default and
whether of the same or a different type. None of the undertakings, agreements,
warranties, covenants, and representations of the Customer contained in this
Agreement or the Other Documents and no Default by the Customer shall be deemed
waived by IBM Credit unless such waiver is in writing signed by an authorized
representative of IBM Credit.

10.6 Severability. If any provision of this Agreement or the Other Documents or
the application thereof to any Person or circumstance is held invalid or
unenforceable, the remainder of this Agreement and the Other Documents and the
application of such provision to other Persons or circumstances will not be
affected thereby, the provisions of this Agreement and the Other Documents being
severable in any such instance.

10.7 One Loan. All Advances heretofore, now or at any time or times hereafter
made by IBM Credit to the Customer under this Agreement or the Other Documents
shall constitute one loan secured by IBM Credit's security interests in the
Collateral and by all other security interests, liens and encumbrances
heretofore, now or from time to time hereafter granted by the Customer to IBM
Credit or any assignor of IBM Credit.

10.8 Additional Collateral. All monies, reserves and proceeds received or
collected by IBM Credit with respect to Accounts and other property of the
Customer in possession of IBM Credit at any time or times hereafter are hereby
pledged by Customer to IBM Credit as security for the payment of Customer's
Obligations and shall be applied promptly by IBM Credit on account of the
Customer's Obligations; provided, however, IBM Credit may release to the
Customer such portions of such monies, reserves and proceeds as IBM Credit may
from time to time determine, in its sole discretion.

10.9 No Merger or Novations. (A) Notwithstanding anything contained in any
document to the contrary, it is understood and agreed by the Customer and IBM
Credit that the claims of IBM Credit arising hereunder and existing as of the
date hereof constitute continuing claims arising out of the Obligations of
Customer under the Financing Agreement and any Other Agreement. Customer
acknowledges and agrees that such Obligations outstanding as of the date hereof
have not been satisfied or discharged and that this Agreement is not intended to
effect a novation of the Customer's Obligations under the Financing Agreement or
any Other Agreement.

(B) Neither the obtaining of any judgment nor the exercise of any power of
seizure or sale shall operate to extinguish the Obligations of the Customer to
IBM Credit

Page 37 of 40
<PAGE>

secured by this Agreement and shall not operate as a merger of any covenant in
this Agreement, and the acceptance of any payment or alternate security shall
not constitute or create a novation and the obtaining of a judgment or judgments
under a covenant herein contained shall not operate as a merger of that covenant
or affect IBM Credit's rights under this Agreement.

10.10 Paragraph Titles. The Section titles used in this Agreement and the Other
Documents are for convenience only and do not define or limit the contents of
any Section.

10.11 Binding Effect; Assignment. This Agreement and the Other Documents shall
be binding upon and inure to the benefit of IBM Credit and the Customer and
their respective successors and assigns; provided, that the Customer shall have
no right to assign this Agreement or any of the Other Documents without the
prior written consent of IBM Credit.

10.12 Notices. Except as otherwise expressly provided in this Agreement, any
notice required or desired to be served, given or delivered hereunder shall be
in writing, and shall be deemed to have been validly served, given or delivered
(A) upon receipt if deposited in the United States mails, first class mail, with
proper postage prepaid, (B) upon receipt of confirmation or answerback if sent
by telecopy, or other similar facsimile transmission, (C) one Business Day after
deposit with a reputable overnight courier with all charges prepaid, or (D) when
delivered, if hand-delivered by messenger, all of which shall be properly
addressed to the party to be notified and sent to the address or number
indicated as follows:

(i) If to IBM Credit at:
IBM Credit Corporation
5000 Executive Parkway, Suite 450
San Ramon, CA 94583
Attention: Remarketer Finance Center Manager
Telecopy: (510) 277-5659

(ii) If to Customer at:
En Pointe Technologies, Inc.
100 N. Sepulveda Blvd., 19th Floor
El Segundo, CA 90245
Attention: Robert A. Mercer
Telecopy: (310) 725-1133

or to such other address or number as each party designates to the other in the
manner prescribed herein.

Page 38 of 40
<PAGE>

10.13 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto were upon the same instrument.

10.14 ATTACHMENT A MODIFICATIONS. IBM Credit may modify the Product Financing
Period set forth in Attachment A from time to time if on at least two occasions
during any three-month period a Shortfall Amount has become due and payable and
may modify the Collateral Insurance Amount set forth in Attachment A from time
to time, in each case, by providing Customer with a new Attachment A. Any such
new Attachment A shall be effective as of the date specified in the new
Attachment A.

10.15 SUBMISSION AND CONSENT TO JURISDICTION AND CHOICE OF LAW. TO INDUCE IBM
CREDIT TO ACCEPT THIS AGREEMENT AND THE OTHER DOCUMENTS, THE CUSTOMER HEREBY
IRREVOCABLY AND UNCONDITIONALLY:

(A) SUBMITS ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT AND ANY OTHER DOCUMENT, OR FOR THE RECOGNITION AND
ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND ANY FEDERAL DISTRICT
COURT IN NEW YORK.

(B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH COURTS
AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREINAFTER HAVE TO THE VENUE OF ANY
SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING
WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME.

(C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE
EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY
SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO CUSTOMER AT ITS ADDRESS
SET FORTH IN SECTION 10.12 OR AT SUCH OTHER ADDRESS OF WHICH IBM CREDIT SHALL
HAVE BEEN NOTIFIED PURSUANT THERETO;

(D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN
ANY OTHER JURISDICTION.

(E) AGREES THAT THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS (WITHOUT GIVING EFFECT TO CONFLICT OF
LAW PROVISIONS) OF THE STATE OF NEW YORK.

Page 39 of 40
<PAGE>

10.16 JURY TRIAL WAIVER. EACH OF IBM CREDIT AND THE CUSTOMER HEREBY IRREVOCABLY
WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING (INCLUDING ANY
COUNTERCLAIM) OF ANY TYPE IN WHICH IBM CREDIT AND THE CUSTOMER ARE PARTIES AS TO
ALL MATTERS ARISING DIRECTLY OR INDIRECTLY OUT OF THIS AGREEMENT OR ANY
DOCUMENT, INSTRUMENT OR AGREEMENT EXECUTED IN CONNECTION HEREWITH.

IN WITNESS WHEREOF, the Customer has read this entire Agreement, and has caused
its authorized representatives to execute this Agreement and has caused its
corporate seal to be affixed hereto as of the date first written above.

EN POINTE TECHNOLOGIES, INC.

By:
-----------------------------

Print Name:
---------------------

Title:
--------------------------

ACCEPTED this day of , 1997
--------- -------------------

IBM CREDIT CORPORATION

By:
-----------------------------

Print Name:
---------------------

Title:
--------------------------

Page 40 of 40

<PAGE>

Recording requested by:

HABIB BANK AG ZURICH

When recorded, mail to:

HABIB BANK AG ZURICH
110 East Ninth Street, AL10
Los Angeles, California 90079

DEED OF TRUST, SECURITY AGREEMENT, AND FIXTURE FILING
WITH ASSIGNMENT OF RENTS AND AGREEMENTS

TABLE OF CONTENTS

ARTICLE 1
DEFINITIONS

Section 1.1. Certain Defined Terms

ARTICLE 2
WARRANTY OF TITLE

ARTICLE 3
REPRESENTATIONS AND WARRANTIES

Section 3.1. Status of the Loan Parties
Section 3.2. Validity of Loan Documents
Section 3.3. Financial Statements
Section 3.4. Use of Proceeds of Loan
Section 3.5. Other Arrangements
Section 3.6. Other Information
Section 3.7. Litigation
Section 3.8. Other Warranties
Section 3.9. Taxes
Section 3.10. Compliance with Laws

ARTICLE 4
AFFIRMATIVE COVENANTS

Section 4.1. Obligations of Trustor
Section 4.2. Insurance
Section 4.3. Maintenance, Waste, and Repair
Section 4.4. Imposition; Impounds
Section 4.5. Compliance with Law

<PAGE>

Section 4.6. Books and Records
Section 4.7. Further Assurances
Section 4.8. Statement by Trustor
Section 4.9. Indemnity
Section 4.10. Reimbursement
Section 4.11. Litigation
Section 4.12. Tax Receipts
Section 4.13. Duplicate Plans
Section 4.14. Additional Information
Section 4.15. Right of Entry

ARTICLE 5
NEGATIVE COVENANTS

Section 5.1. Restrictive Uses
Section 5.2. Other Financing
Section 5.3. Transferability
Section 5.4. Replacement of Fixtures and Personalty

ARTICLE 6
ENVIRONMENTAL PROVISIONS

Section 6.1. Representations and Warranties
Section 6.2. Covenants
Section 6.3. Inspection and Receivership
Section 6.4. Release and Indemnity
Section 6.6. Effect of Site Assessment

ARTICLE 7
CASUALTIES AND CONDEMNATION

Section 7.1. Casualties
Section 7.2. Condemnation

ARTICLE 8
EVENTS OF DEFAULT AND REMEDIES OF BENEFICIARY

Section 8.1. Events of Default
Section 8.2. Power of Sale
Section 8.3. Proof of Default
Section 8.4. Protection of Security
Section 8.5. Receiver
Section 8.6. Curing the Defaults
Section 8.7. Inspection Rights
Section 8.8. Judgment on Environmental

<PAGE>

Section 8.9. Waive Lien
Section 8.10. Exception to Nonrecourse
Section 8.11. Remedies Cumulative

ARTICLE 9
SECURITY AGREEMENT

Section 9.1. Grant of Security Interest
Section 9.2. Remedies
Section 9.3. Expenses
Section 9.4. Fixture Filing
Section 9.5. Assignment of Agreements

ARTICLE 10
ASSIGNMENT OF LEASES AND RENTS

Section 10.1. Assignment
Section 10.2. License
Section 10.3. Effect of Assignment
Section 10.4. Leasing Covenants
Section 10.5. Application of Rents
Section 10.6. Estoppel Certificates
Section 10.7. Remedies
Section 10.8. Definitions

ARTICLE 11
MISCELLANEOUS

Section 11.1. Successor Trustee
Section 11.2. Change of Law
Section 11.3. No Waiver
Section 11.4. Abandonment
Section 11.5. Notices
Section 11.6. Survival
Section 11.7. Severability
Section 11.8. References to Foreclosure
Section 11.9. Joinder of Foreclosure
Section 11.10. Rights of Beneficiary and Trustee
Section 11.11. Copies
Section 11.12. ERISA Compliance
Section 11.13. Subordination
Section 11.14. No Merger
Section 11.15. Inspection of Property
Section 11.16. Performance by Trustor
Section 11.17. Personalty Security Instruments

<PAGE>

Section 11.18. Suits to Protect Property
Section 11.19. Junior Liens
Section 11.20. Further Advances
Section 11.21. Charges for Statements
Section 11.22. Entire Agreement
Section 11.23. Incorporation
Section 11.24. Waiver of Marshaling Rights
Section 11.25. Acceptance of Trust; Powers and Duties of Trustee
Section 11.26. Releases, Extensions, Modifications, and
Additional Security
Section 11.27. Reconveyance
Section 11.28. Subrogation
Section 11.29. Obligations of Trustor, Joint and Several
Section 11.30. Recourse to Separate Property
Section 11.31. Rules of Construction
Section 11.32. Successors in Interest
Section 11.33. No Offset
Section 11.34. Governing Law

**********************

This Deed of Trust, Security Agreement, and Fixture Filing with Assignment
of Rents and Agreements (this "Deed of Trust") is made as of October __, 1997,
by EN POINTE TECHNOLOGIES, INC., a Delaware corporation ("Trustor"), to CHICAGO
TITLE INSURANCE COMPANY, a California corporation ("Trustee"), for the benefit
of HABIB BANK AG ZURICH ("Beneficiary").

Witnesseth:

Trustor does irrevocably grant, transfer, and assign to Trustee, in trust,
with power of sale, all Trustor's right, title, and interest now owned or later
acquired in the real property ("Land") located in Ontario, California, commonly
known as 1040 Vintage Avenue, Unit "B", and more particularly described in
attached Exhibit A, incorporated by reference (Trustor agrees that any greater
title to the Land later acquired during the term of this Deed of Trust will be
subject to this Deed of Trust), together with the rents, issues, and profits,
subject however, to the right, power, and authority granted and conferred on
Trustor in this Deed of Trust to collect and apply the rents, issues, and
profits; and Trustor also irrevocably grants, transfers, and assigns to Trustee,
in trust, with power of sale, all of Trustor's right, title, and interest now
owned or later acquired to the following property (including the rights or
interests pertaining to the property) located at the Property:

(1) all buildings ("Buildings") and improvements now or later on the Land,
and all appurtenances, easements, water and water rights, and pumps and pumping
plants, and all shares of stock evidencing these; all machinery, equipment,
appliances, and fixtures for generating or distributing air, water, heat,
electricity, light, fuel, or refrigeration or for ventilating or sanitary

<PAGE>

purposes or for the exclusion of vermin or insects or for the removal of dust,
refuse, or garbage; all wall safes, built-in furniture, and installations,
shelving, lockers, partitions, doorstops, vaults, elevators, dumbwaiters,
awnings, window shades, venetian blinds, light fixtures, fire hoses and brackets
and boxes for them, fire sprinklers, alarm systems, draperies, drapery rods and
brackets, screens, linoleum, carpets, furniture, furnishings, fixtures,
plumbing, laundry tubs and trays, iceboxes, refrigerators, heating units,
stoves, water heaters, incinerators, and communication systems and installations
for which any Building is specially designed; all of these items, whether now or
later installed, being declared to be for all purposes of this Deed of Trust a
part of the Land, the specific enumerations in this Deed of Trust not excluding
the general;

(2) the rents, issues, profits, and proceeds; and

(3) the Property to the extent not included in clauses (1) and (2) above.

For the purpose of securing, in the order of priority that Beneficiary
determines

(1) payment of the indebtedness evidenced by a note of Trustor of the same
date as this Deed of Trust in the principal amount of Four Million Dollars
($4,000,000.00) ("Note"), payable to Beneficiary or to order, and all
extensions, modifications, or renewals of that Note;

(2) payment of the interest on that indebtedness according to the terms of
the Note;

(3) payment of all other sums (with interest as provided in this Deed of
Trust) becoming due and payable to Beneficiary or Trustee pursuant to the terms
of this Deed of Trust;

(4) performance of every obligation contained in this Deed of Trust, the
Note, any instrument now or later evidencing or securing any indebtedness
secured by this Deed of Trust, and any agreements, supplemental agreements, or
other instruments of security executed by Trustor as of the same date of this
Deed of Trust or at any time subsequent to the date of this Deed of Trust for
the purpose of further securing any indebtedness secured by this Deed of Trust,
or any part of it, or for the purpose of supplementing or amending this Deed of
Trust or any instrument secured by this Deed of Trust; and

(5) payment of all other obligations owed by Trustor to Beneficiary that by
their terms recite that they are secured by this Deed of Trust, including those
incurred as primary obligor or as guarantor.

ARTICLE 1.
DEFINITIONS

Section 1.1. Certain Defined Terms.

As used in this Deed of Trust the following terms will have the following
meanings:

<PAGE>

Assignment of Leases: The Assignment of Lessor's Interest in Leases and
Seller's Interest in Contracts for Sale dated as of the same date as this Deed
of Trust executed by Trustor in favor of Beneficiary.

Buildings: The Buildings as defined above in this Deed of Trust.

Collateral: The Collateral as defined in Section 9.1 of this Deed of Trust.

Default Rate: A rate of interest per annum equal to three percent (3%) per
annum above the Loan Rate.

Fixtures: All fixtures located on the Improvements (as defined in this Deed
of Trust) or now or later installed in, or used in connection with, any of the
Improvements, including, but not limited to, all partitions, screens, awnings,
motors, engines, boilers, furnaces, pipes, plumbing, elevators, cleaning and
sprinkler systems, fire-extinguishing apparatus and equipment, water tanks,
heating, ventilating, air-conditioning and air-cooling equipment, built-in
refrigerators, and gas and electric machinery, appurtenances, and equipment,
whether or not permanently affixed to the Land or the Improvements.

Hazardous Substance:

(a) any oil, flammable substance, explosive, radioactive material,
hazardous waste or substance, toxic waste or substance, or any other waste,
material, or pollutant that:

(i) poses a hazard to the Property or to persons on the Property,
or

(ii) causes the Property to be in violation of any Hazardous
Substance Law;

(b) asbestos in any form;
(c) urea formaldehyde foam insulation;

(d) transformers or other equipment that contain dielectric fluid
containing levels of polychlorinated biphenyls;

(e) radon gas;

(f) any chemical, material, or substance defined as or included in the
definition of hazardous substance, hazardous substances, hazardous wastes,
hazardous materials, extremely hazardous waste, restricted hazardous waste, or
toxic substances or words of similar import under any applicable local, state,
or federal law or under the regulations adopted or publications promulgated
pursuant to those laws, including, but not limited to, any Hazardous Substance
Law, Code of Civil Procedure Section 564, as amended from time to time, Code of
Civil Procedure Section 726.5, as amended from time to time, Code of Civil
Procedure Section 736, as amended from time to time, and Civil Code Section
2929.5, as amended from time to time;

<PAGE>

(g) any other chemical, material, or substance, exposure to which is
prohibited, limited, or regulated by any governmental authority or which may
pose a hazard to the health and safety of the occupants of the Property or the
owners or occupants of property adjacent to or surrounding the Property, or any
other person coming on the Property or any adjacent property; and

(h) any other chemical, material, or substance that may pose a hazard
to the environment.

Hazardous Substance Claim: Any enforcement, cleanup, removal, remedial, or
other governmental, regulatory, or private actions, agreements, or orders
threatened, instituted, or completed pursuant to any Hazardous Substance Law,
together with all claims made or threatened by any third party against Borrower
or the Property relating to damage, contribution, cost-recovery compensation,
loss, or injury resulting from the presence, release, or discharge of any
Hazardous Substance.

Hazardous Substance Law: Any federal, state, or local law, ordinance,
regulation, or policy relating to the environment, health, and safety, any
Hazardous Substance (including, without limitation, the use, handling,
transportation, production, disposal, discharge, or storage of the substance),
industrial hygiene, soil, groundwater, and indoor and ambient air conditions or
the environmental conditions on the Property, including, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
[42 USCS Sections 9601 et seq.], as amended from time to time; the Hazardous
Substances Transportation Act [49 USCS Sections 1801 et seq.], as amended from
time to time; the Resource Conservation and Recovery Act [42 USCS Sections 6901
et seq.], as amended from time to time; the Federal Water Pollution Control Act
[33 USCS Sections 1251 et seq.], as amended from time to time; the Hazardous
Substance Account Act [Health and Safety Code Sections 25300 et seq.], as
amended from time to time; the Hazardous Waste Control Law [Health and Safety
Code Sections 25100 et seq.], as amended from time to time; the Medical Waste
Management Act [Health and Safety Code Sections 25015 et seq.], as amended from
time to time; and the Porter-Cologne Water Quality Control Act [Water Code
Sections 13000 et seq.], as amended from time to time.

Impositions: All real estate and personal property taxes and other taxes
and assessments, water and sewer rates and charges, and all other governmental
charges and any interest or costs or penalties with respect to those charges,
assessments, or taxes, ground rent and charges for any easement or agreement
maintained for the benefit of the Property, general and special, ordinary and
extraordinary, foreseen or unforeseen, of any kind that at any time prior to or
after the execution of the Loan Documents may be assessed, levied, imposed, or
become a lien on the Property or the rent or income received from the Property,
or any use or occupancy of the Property; and any charges, expenses, payments, or
assessments of any nature, if any, that are or may become a lien on the Property
or the rent or income received from the Property.

<PAGE>

Improvements: All Buildings, improvements, and appurtenances on the Land,
and all improvements, additions, and replacements of those improvements and
other buildings and improvements, at any time later constructed or placed on the
Land.

Indebtedness: The principal of and interest on, and all other amounts,
payments, and premiums due under, the Note and any extensions or renewals
(including, without limitation, extensions or renewals at a different rate of
interest, regardless of whether evidenced by a new or additional promissory note
or notes), and all other indebtedness of Trustor to Beneficiary under or secured
by the Security Documents (defined in this Deed of Trust), together with all
other sums owed by Trustor to Beneficiary, including those incurred as primary
obligor or as guarantor, that recite that they are secured by the Security
Documents.

Land: The Land as defined in this Deed of Trust.

Leases: All leasehold interests, including subleases and tenancies
following attornment, affecting or covering any portion of the Property.

Loan: The loan secured by this Deed of Trust and evidenced by the Note.

Loan Agreement: The General Credit Agreement of the same date as this Deed
of Trust executed between Trustor and Beneficiary.

Loan Documents: The Note, the Loan Agreement, the Security Documents, and
all other documents evidencing, securing, or relating to the Loan.

Loan Parties: Trustor and any guarantors of the loan or any obligations
under the loan, together with their respective affiliates and their respective
employees, representatives, and agents.
Material Adverse Change: Any material and adverse change in:

(i) the business or properties or condition (financial or otherwise)
of Trustor, or

(ii) the condition or operation of the Property.

Note: The Note as defined in this Deed of Trust.

Obligations: All of the covenants, promises, and other obligations (other
than the Indebtedness):

(i) made or owing by Trustor to or due to Beneficiary under or as set
forth in the Loan Documents, and

(ii) made or owing by Trustor to every other Person, a breach of which
would or may affect Trustor's ownership, development, or operation of the
Property, except any covenants, promises, and other obligations of Trustor to
Beneficiary under the Certification Agreement.

<PAGE>

Person: Any natural person, corporation, firm, association, government,
governmental agency, or any other entity, whether acting in an individual,
fiduciary, or other capacity.

Personalty: Trustor's interest in all accounts, contract rights, and
general intangibles (specifically including any insurance proceeds and
condemnation awards) arising out of the ownership, development, or operation of
the Property, and all furniture, furnishings, equipment, machinery, construction
materials and supplies, leasehold interests in personal property, and all other
personal property (other than Fixtures) now or later on the Property, together
with all present and future attachments, accessions, replacements,
substitutions, and additions, and the cash and noncash proceeds.

Property: The Land, the Improvements, the Fixtures, and the Personalty,
together with:

(a) all rights, privileges, tenements, hereditaments, rights-of-way,
easements, and appurtenances of the Land or the Improvements now or later
belonging to the Property, and all right, title, and interest of Trustor in any
streets, ways, alleys, strips, or gores of land adjoining the Land; and

(b) all of Trustor's right, title, and interest in the Land, the
Improvements, the Fixtures, and the Personalty, including any award for any
change of grade of streets affecting the Land, the Improvements, the Fixtures,
or the Personalty.

Receiver: Any trustee, receiver, custodian, fiscal agent, liquidator, or
similar officer.

Release: Any spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, dumping, or disposing into the
environment, including continuing migration, of Hazardous Substances that goes
into the soil, surface water, or groundwater of the Property, whether or not
caused by, contributed to, permitted by, acquiesced to, or known to Trustor.

Security Documents: This Deed of Trust, the Assignment of Leases and all
other documents now or later securing any part of the payment of the
Indebtedness or the observance or performance of the Obligations.

Title Policy: The title insurance policy issued by Commonwealth Land Title
Insurance Company to Beneficiary.

ARTICLE 2.
WARRANTY OF TITLE

Trustor warrants that:

(a) Trustor is the lawful owner of the Property,

<PAGE>

(b) Trustor will maintain and preserve the lien of this Deed of Trust
until the Indebtedness has been paid in full,

(d) Trustor will forever warrant and defend the grant made in this
Deed of Trust against all claims and demands, except as are specifically set
forth in this Deed of Trust.

ARTICLE 3.
REPRESENTATIONS AND WARRANTIES

Trustor represents and warrants to Beneficiary that as of the date of this
Deed of Trust:

Section 3.1. Status of the Loan Parties.

(a) Trustor has the requisite power and authority to own and manage its
properties, to carry on its business as now being conducted, and to own,
develop, and operate the Property.

(b) Trustor is qualified to do business in every jurisdiction in which the
nature of its business or its properties makes qualification necessary.
(c) Trustor is in compliance with all laws, regulations, ordinances, and
orders of public authorities applicable to it.

Section 3.2. Validity of Loan Documents.

(a) The execution, delivery, and performance by the Loan Parties of the
Loan Documents and the borrowings evidenced by the Note:

(i) are within the power of the Loan Parties,

(ii) have been duly authorized by all requisite corporate or
partnership actions, as appropriate,

(iii) have received all necessary governmental approval, and

(iv) will not violate any provision of law, any order of any court or
agency of government, the charter documents of any Loan Party, or any indenture,
agreement, or any other instrument to which any Loan Party is a party or by
which any Loan Party or any of its property is bound, nor will they conflict
with, result in a breach of, or constitute (with due notice and lapse of time) a
default under any indenture, agreement, or other instrument, or result in the
creation or imposition of any lien, charge, or encumbrance of any nature on any
of the property or assets of any Loan Party, except as contemplated by the
provisions of the Loan Documents.

<PAGE>

(b) Each of the Loan Documents, when executed and delivered to Beneficiary,
will constitute a valid obligation, enforceable in accordance with its terms.

Section 3.3. Financial Statements.

(a) All compilation financial statements and data that have been given to
Beneficiary with respect to any Loan Party:

(i) are complete and correct in all material respects;

(ii) accurately present the financial condition of that Loan Party on
each date as of which they have been furnished, and accurately present the
results of the operations of that Loan Party for the periods for which they have
been furnished; and

(iii) have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods covered.

(b) All balance sheets and the notes with respect to the Loan Parties
furnished to Beneficiary disclose all liabilities of the Loan Parties, fixed and
contingent, as of their respective dates, as well as all obligations of those
Loan Parties under any guaranties.
(c) There has been no Material Adverse Change in the financial condition or
operations of Trustor since:

(i) the date of the most recent financial statement given to
Beneficiary with respect to Trustor of the Property, or

(ii) the date of the financial statements given to Beneficiary
immediately prior to the date of this Deed of Trust, other than changes in the
ordinary course of business, none of which constitute a Material Adverse Change,
either individually or in the aggregate.

Section 3.4. Use of Proceeds of Loan.

Trustor will use the funds or the Property advanced pursuant to the Note to
develop, maintain, and operate the Property.

Section 3.5. Other Arrangements.

Trustor is not a party to any agreement or instrument materially and
adversely affecting Trustor's present or proposed business, properties, assets,
operation, or condition, financial or otherwise; and Trustor is not in default
in the performance, observance, or fulfillment of any of the material
obligations, covenants, or conditions in any agreement or instrument to which
Trustor is a party that materially affect Trustor's present or proposed
business, properties, assets, operation, or condition, financial or otherwise.

<PAGE>

Section 3.6. Other Information.

All other reports, papers, data, and information given to Beneficiary with
respect to Trustor and the Property are accurate and correct in all material
respects and complete insofar as completeness may be necessary to give
Beneficiary a true and accurate knowledge of the subject matter.

Section 3.7. Litigation.

There is not now pending against or affecting any Loan Party, nor to the
knowledge of any Loan Party is there threatened, any action, suit, or proceeding
at law or in equity or before any administrative agency that, if adversely
determined, would materially impair or affect:

(a) the financial condition or operations of Trustor, or

(b) the condition or operation of the Property.

Section 3.8. Other Warranties.

(a) The Property is not used principally or primarily for agricultural or
grazing purposes, and

(b) Trustor is engaged in the development and operation of Improvements.

Section 3.9. Taxes.

Trustor has filed all federal, state, county, and municipal income tax
returns required to have been filed and has paid all taxes that have become due
pursuant to those returns or pursuant to any assessments received by Trustor,
and Trustor does not know of any basis for any additional assessment against
Trustor in respect of those taxes.

Section 3.10. Compliance with Laws.

Except as otherwise provided in this Deed of Trust, to the best of
Trustor's knowledge, the Property and the proposed and actual use of the
Property comply with all laws, ordinances, rules, and regulations of all local,
regional, county, state, and federal governmental authorities having
jurisdiction (including, but not limited to, the Americans With Disabilities
Act), and there is no action or proceeding pending or, to the knowledge of
Trustor after due inquiry, threatened before any court, quasi-judicial body, or
administrative agency at the time of any disbursement by Beneficiary relating to
the validity of the Loan or the proposed or actual use of the Property. All
rights to appeal any decision rendered will have expired prior to the date of
this Deed of Trust.

ARTICLE 4.
AFFIRMATIVE COVENANTS

<PAGE>

Until the entire Indebtedness has been paid in full, Trustor covenants to
and agrees with Beneficiary as follows:

Section 4.1. Obligations of Trustor.

Trustor will pay the Indebtedness and Trustor will continue to be liable
for the payment of the Indebtedness until it has been paid in full. Trustor

(a) will timely perform all the covenants, agreements, terms, and
conditions to be performed by Trustor:

(i) under this Deed of Trust;

(ii) as seller under each contract of sale of, and as lessor under
each lease of, for any portion of the Property for which a contract of sale or
lease has been approved in writing by Beneficiary;

(iii) as required of Trustor under each document and agreement
constituting one of the Security Documents;

(iv) under all other agreements between Trustor and Beneficiary in
accordance with the respective terms of the agreement; and

(v) as required of Trustor under all other agreements to which Trustor
is a party with respect to the Property;

(b) will not cancel, surrender, modify, amend, or permit the cancellation,
surrender, modification, or amendment of any of the previously mentioned
agreements or any of the covenants, agreements, terms, or conditions contained
in any of them without the prior written consent, in each case, of Beneficiary,
except with respect to leases handled in the ordinary course of business; and

(c) will keep Beneficiary indemnified against all actions, proceedings,
costs (including, without limitation, Beneficiary's reasonable counsel fees and
disbursements), claims, and damages incurred or sustained by Beneficiary in
respect of the nonpayment of any charges or the nonobservance or nonperformance
of any of the covenants, agreements, terms, or conditions in any of the
previously mentioned agreements.

Section 4.2. Insurance.

(a) Trustor, at its sole cost and expense, will keep the Property insured
for the mutual benefit of Trustor and Beneficiary against loss or damage by
fire, and against loss or damage by other risks embraced by coverage of the type
now known as the broad form of extended coverage, including, but not limited to,
riot and civil commotion, vandalism, malicious mischief,

<PAGE>

burglary, theft, and mysterious disappearance, and against any other risks or
hazards that Beneficiary may from time to time reasonably designate, in an
amount not less than one hundred percent (100%) of the then full replacement
cost of the Improvements, without deduction for physical depreciation. The
policies of insurance carried in accordance with this section will contain the
Replacement Cost Endorsement.

(b) Trustor, at its sole cost and expense, but for the mutual benefit of
Trustor and Beneficiary, will maintain during the term of this Deed of Trust
other insurance, and in any amounts, as may from time to time be reasonably
required by Beneficiary against other insurable risks, including, without
limitation, business interruption insurance.

(c) Trustor, at its sole cost and expense, will obtain and maintain public
liability insurance covering the Property and the ownership, use, occupancy, and
maintenance of the Property.

(d) All policies of insurance required pursuant to this Deed of Trust will
be satisfactory in form and substance to Beneficiary and will be approved by
Beneficiary as to amounts, form, risk coverage, deductibles, insurer, loss
payable, and cancellation provisions, which approval will not be unreasonably
withheld.

(e) Effective on the occurrence of any uncured Event of Default, all of
Trustor's right, title, and interest in all policies of property insurance and
any unearned premiums paid are assigned to Beneficiary, who may assign them to
any purchaser of the Property at any foreclosure sale.

Section 4.3. Maintenance, Waste, and Repair.

Trustor will maintain the Improvements now or later existing in good and
tenantable repair, and will not structurally alter them without the prior
written consent of Beneficiary, or remove or demolish them in whole or in part,
nor will Trustor suffer any waste of the Property or make any change in the use
of the Property that will in any way increase any ordinary fire or other hazard
insurance premiums or permit anything that may in any way impair the security of
this Deed of Trust. Trustor will not abandon the Property or leave the Property
unprotected, vacant, or deserted. Notwithstanding the foregoing, Trustor may
make tenant improvements in the ordinary course of business.

Section 4.4. Imposition; Impounds.

(a) Impositions Affecting the Property. Trustor will pay when due all
Impositions that are or that may become a lien on the Property or are assessed
against the Property or its rents, royalties, profits, and income.

(b) Taxes Affecting Trustor. Trustor will file all federal, state,
provincial, county, and municipal income tax returns required to be filed and
will pay all taxes that become due pursuant to the returns or pursuant to any
assessments received by Trustor.

<PAGE>

Section 4.5. Compliance with Law.

Trustor will preserve and keep in full force its existence, rights, and
powers. Trustor will promptly and faithfully comply with all present and future
laws, ordinances, rules, regulations, and requirements of every governmental
authority or agency and of every board of fire underwriters (or similar body
exercising similar functions) having jurisdiction that may be applicable to it
or to the Property or to the use or manner of occupancy, possession, operation,
maintenance, alteration, or repair of the Property or any part of it, whether
the law, ordinance, rule, order, regulation, or requirement necessitates
structural changes or improvements or interferes with the use or enjoyment of
the Property.

Section 4.6. Books and Records.

Trustor will maintain complete books of account and other records
reflecting the results of Trustor's operations (in conjunction with its other
operations as well as its operation of the Property), in a form satisfactory to
Beneficiary, and furnish to Beneficiary any information about the financial
condition of Trustor, and the sales and operations of the Property as
Beneficiary reasonably requests, including, but not limited to, the following
information:

(a) a statement of revenues and expenses relating to the sales, rentals,
and operations of the Property for the month just ended;

(b) a copy of the annual compilation report for the fiscal year for
Trustor, including a balance sheet of Trustor as of the end of the fiscal year,
and statements of income and retained earnings and of change in financial
position of Trustor for the fiscal year, in each case certified in a manner
acceptable to Beneficiary by independent public accountants acceptable to
Beneficiary;

(c) copies of all financial statements, reports, and notices (including tax
returns) sent by Trustor to its partners or any governmental authority
succeeding to any of its functions; and

(d) copies of any reports by independent public accountants submitted to
Trustor concerning its properties or operations if there is a discrepancy in the
reports.

Beneficiary will have the right, at all reasonable times and on reasonable
notice, to audit Trustor's books of account and records, all of which will be
made available to Beneficiary and Beneficiary's representatives for that
purpose, from time to time, on Beneficiary's request.

Section 4.7. Further Assurances.

Trustor, at Trustor's expense and at any time on the reasonable request of
Beneficiary, will execute, acknowledge, and deliver any additional papers and
instruments (including, without limitation, a declaration of no setoff) and any
further assurances of title and will do or cause to be done all further acts and
things that may be proper or reasonably necessary to carry out the purpose of
this Deed of Trust and of the Loan Documents and to subject to the liens any
property

<PAGE>

intended by the terms to be covered and any renewals, additions, substitutions,
replacements, or betterments.

Section 4.8. Statement by Trustor.

Trustor, on ten (10) days' written request, will furnish a statement of the
amount due or outstanding on the Note and a statement of any offsets,
counterclaims, or defenses to the payment.

Section 4.9. Indemnity.

(a) If any action or proceeding (whether judicial, regulatory, or
administrative) is threatened or commenced, except an action to foreclose this
Deed of Trust or to collect the Indebtedness:

(i) that affects the Property or any portion of it;

(ii) in which Beneficiary is or could be made a party; or

(iii) in which it becomes necessary to defend or uphold the lien of
this Deed of Trust,

then all costs, fees, and expenses incurred by Beneficiary with respect to the
action or proceeding (including, without limitation, reasonable attorney fees
and expenses) will, within ten (10) days after the submission of bills for the
costs to Trustor, be paid directly to the billing party by Trustor.

(b) In addition, Trustor agrees to pay all costs, including, without
limitation, reasonable attorney fees and expenses, incurred by Beneficiary in
enforcing the terms of this Deed of Trust or the terms of any of the Loan
Documents, whether or not suit is filed. Trustor agrees to indemnify and hold
Beneficiary harmless from all liability, loss, damage, or expense (including,
without limitation, attorney fees) that it may incur under this Deed of Trust,
or in connection with the making of any of the loans or financial arrangements
secured by this Deed of Trust, the enforcement of any of Beneficiary's rights or
remedies, any action taken by Beneficiary under this Deed of Trust, or by reason
or in defense of any claims and demands that may be asserted against Beneficiary
arising out of the Collateral.

(c) On the failure of Trustor to make timely payment pursuant to the terms
of Section 4.9(a) of this Deed of Trust, the payment may be paid by Beneficiary.
Sums of money paid by Beneficiary, and sums owed to Beneficiary pursuant to
Section 4.9(b) of this Deed of Trust, together with interest at the Default Rate
from the date Beneficiary makes the payment or incurs the loss, will be secured
by this Deed of Trust, prior to any right, title, or interest in or claim on the
Property attaching or accruing subsequent to the lien of this Deed of Trust, and
will be payable by Trustor to Beneficiary on demand.

<PAGE>

(d) The provisions of this Section 4.9 will survive the termination of this
Deed of Trust and the repayment of the Indebtedness.

Section 4.10. Reimbursement.

Beneficiary will have the right to declare immediately due any amount paid
by it for any tax, stamp tax, assessment, water rate, sewer rate, insurance
premium, repair, rent charge, debt, claim, inspection, or lien having priority
over this Deed of Trust, or over any other agreement given to secure the
Indebtedness.

Section 4.11. Litigation.

Trustor will promptly give written notice to Beneficiary of any litigation
that materially affects the Trustor's loan or that materially affects the
Property commenced or threatened affecting Trustor or the Property other than
unlawful detainer proceedings brought by Trustor.

Section 4.12. Tax Receipts.

Subject to the provisions of Section 4.4 of this Deed of Trust, Trustor
will exhibit to Beneficiary, within seven (7) days after demand, and if in
receipt of Trustor bills (that will be receipted from and after the date
receipted bills are obtainable) showing the payment to the extent then due of
all taxes, assessments (including those payable in periodic installments), water
rates, sewer rates, or any other Imposition that may have become a lien on the
Property or any Personalty prior to the lien of this Deed of Trust.

Section 4.13. Duplicate Plans.

Trustor will submit to Beneficiary a duplicate set of plans and
specifications for approval before any material improvements, repairs, or
alterations are begun that affect the Property, with the exception of tenant
improvements in the ordinary course of business.

Section 4.14. Additional Information.

Trustor will furnish to Beneficiary, within seven (7) days after written
request, all information that Beneficiary may reasonably request concerning the
performance by Trustor of the covenants of the Loan Documents, and Trustor will
permit Beneficiary or its representatives at all reasonable times to make
investigation or examination concerning that performance.

<PAGE>

Section 4.15. Right of Entry.

Trustor grants to Beneficiary and its agents, employees, consultants, and
contractors the right to enter on the Property for the purpose of making any
inspections, reports, tests (including, without limitation, soils borings,
groundwater testing, wells, or soils analysis), inquiries, and reviews that
Beneficiary, in its sole and absolute discretion, deems necessary to assess the
then current condition of the Property. Beneficiary will provide Trustor with
three (3) Business Days' notice of the entry. Trustor's consent will not be
unreasonably withheld for entry or for the performance of tests. All costs,
fees, and expenses (including, without limitation, those of Beneficiary's
outside counsel and consultants) incurred by Beneficiary with respect to the
inspections, reports, tests, inquiries, and reviews, together with all related
preparation, consultation, analyses, and review, will be paid by Trustor to
Beneficiary on demand, will accrue interest at the Default Rate until paid, and
will be secured by this Deed of Trust, prior to any right, title, or interest in
or claim on the Property attaching or accruing subsequent to the lien of this
Deed of Trust. However, Beneficiary shall not bore deeper than the deepest
footing.

ARTICLE 5.
NEGATIVE COVENANTS

Until the entire Indebtedness has been paid in full, Trustor covenants to
and agrees with Beneficiary as follows:

Section 5.1. Restrictive Uses.

Trustor covenants not to initiate, join in, or consent to any change in any
zoning ordinance, private restrictive covenant, assessment proceedings, or other
public or private restriction limiting or restricting the uses that may be made
of the Property or any part of it without the prior written consent of
Beneficiary, which consent not to be unreasonably withheld.

Section 5.2. Other Financing.

Except for the liens securing the Indebtedness, Trustor will not create or
permit to continue in existence any mortgage, pledge, encumbrance, lien, or
charge of any kind (including purchase money and conditional sale liens) on any
of the Property except for:

(a) liens for taxes not yet delinquent, and

(b) any other liens or charges that are specifically approved in writing by
Beneficiary prior to the recordation, consent not to be unreasonably withheld.
Any transaction in violation of this section will cause all Indebtedness,
irrespective of the maturity dates, at the option of the holder and without
demand or notice, to immediately become due, together with any prepayment
premium in accordance with the terms of the Note.

Section 5.3. Transferability.

<PAGE>

One of the inducements to Beneficiary for making the Loan is the identity
of Trustor. The existence of any interest in the Property other than the
interests of Trustor and Beneficiary and any encumbrance permitted in this Deed
of Trust, even though subordinate to the security interest of Beneficiary, and
the existence of any interest in Trustor other than those of the present owners,
would impair the Property and the security interest of Beneficiary, and,
therefore, Trustor will not sell, convey, assign, transfer, alienate, or
otherwise dispose of its interest in the Property, either voluntarily or by
operation of law, or agree to do so, without the prior written consent of
Beneficiary. Consent to one transaction by Beneficiary will not be deemed a
waiver of the right to require consent to further or successive transactions. If
Trustor is a partnership, any change or addition of a general partner of
Trustor, change of a partnership interest of Trustor, or sale, transfer, or
disposition of fifty-one percent (51%) or more of the voting stock or
partnership interest of any partner of Trustor or of any corporation or
partnership that directly or indirectly owns or controls any partner of Trustor,
including, without limitation, each parent company of a partner of Trustor and
each parent company of any parent company of a partner of Trustor, will
constitute a sale of the Property for purposes of this section. Any transaction
in violation of this section will cause all Indebtedness, irrespective of the
maturity dates, at the option of the holder and without demand or notice,
immediately to become due, together with any prepayment premium in accordance
with the terms of the Note.

Section 5.4. Replacement of Fixtures and Personalty.

Trustor will not permit any of the Fixtures or Personalty to be removed at
any time from the Property without the prior written consent of Beneficiary
unless actually replaced by articles of equal suitability and value owned by
Trustor free and clear of any lien or security interest except as may be
approved in writing by Beneficiary. Notwithstanding the foregoing, Trustor may
make tenant improvements in the ordinary course of business.

ARTICLE 6.
ENVIRONMENTAL PROVISIONS

Section 6.1. Representations and Warranties.

Except as disclosed in writing to, and acknowledged in writing by, Lender,
Trustor represents and warrants that to the best of Trustor's knowledge:

(a) during the period of Trustor's ownership of the Property

(i) there has been no use, generation, manufacture, storage,
treatment, disposal, discharge, Release, or threatened Release of any Hazardous
Substance by any person on or around the Property; and

(ii) there have been no Hazardous Substances transported over or
through the Property;

<PAGE>

(b) after diligent inquiry, Trustor 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 by any prior
owners or prior occupants of the Property or by any third parties onto the
Property; or

(ii) any actual or threatened litigation or claims of any kind by any
person relating to these matters;

(c) no Hazardous Substances in excess of permitted levels or reportable
quantities under applicable Hazardous Substance Laws are present in or about the
Property or any nearby real property that could migrate to the Property;

(d) no Release or threatened Release exists or has occurred;

(e) no underground storage tanks of any kind are or ever have been located
in or about the Property;

(f) the Property and all operations and activities at, and the use and
occupancy of, the Property, comply with all applicable Hazardous Substance Laws;

(g) Trustor and every User has, and is now in strict compliance with, every
permit, license, and approval required by all applicable Hazardous Substance
Laws for all activities and operations at, and the use and occupancy of, the
Property;

(h) to the best of Trustor's knowledge, after diligent inquiry, there are
no Hazardous Substance Claims pending or threatened with regard to Property or
against Trustor or any Guarantor;

(i) the Property has not been nor is it within 2,000 feet of any other
property designated as hazardous waste property or border zone property pursuant
to Health and Safety Code Sections 25220 et seq., and no proceedings for a
determination of this designation are pending or threatened;

(j) to the best of its knowledge after diligent inquiry, there exists no
occurrence or condition on any real property adjoining or within 2,000 feet of
the Property that would cause the Property or any part of it to be designated as
hazardous waste property or border zone property under the provisions of Health
and Safety Code Sections 25220 et seq. and any regulation adopted in accordance
with that section;

(k) that the current use of the Property is commercial leases;

(l) any written disclosure submitted by or on behalf of Trustor to
Beneficiary concerning any Release or threatened Release, past or present
compliance by Trustor, or any User or other

<PAGE>

person of any Hazardous Substance Laws applicable to the Property, the past and
present use and occupancy of the Property, and any environmental concerns
relating to the Property, was true and complete when submitted and continues to
be true and complete as of the date of this Deed of Trust.

Section 6.2. Covenants.

Trustor agrees, except in the ordinary course of business and in strict
compliance with all applicable Hazardous Substance Laws, as follows:

(a) not to cause or permit the Property to be used as a site for the use,
generation, manufacture, storage, treatment, Release, discharge, disposal,
transportation, or presence of any Hazardous Substance without consent of
Beneficiary, not to be unreasonably withheld;

(b) not to cause, contribute to, permit, or acquiesce in any Release or
threatened Release;

(d) to comply with and to cause the Property and every User of the Property
to comply with all Hazardous Substance Laws;

(e) to immediately notify Beneficiary in writing and to provide Beneficiary
with a reasonably detailed description of:

(i) any noncompliance of the Property with any Hazardous Substance
Laws;

(ii) any Hazardous Substance Claim;

(iii) any Release or Threatened Release;

(iv) the discovery of any occurrence or condition on any real property
adjoining or in the vicinity of the Property that would cause the Property or
any part of it to be designated as hazardous waste property or border zone
property under the provisions of Health and Safety Code Sections 25220 et seq.
and any regulation adopted in accordance with that section;

(f) in the event that Trustor discovers a Release or the presence of any
Hazardous Substance on or about the Property in violation of any Hazardous
Substance Law, to:

(i) notify Lender of that discovery together with a reasonably
detailed description;

(ii) promptly after a request by Beneficiary, engage a qualified
environmental engineer reasonably satisfactory to Beneficiary to investigate
these matters and prepare and submit to Beneficiary a written report containing
the findings and conclusions resulting from that investigation, all at the sole
expense of Trustor; and

<PAGE>

(iii) take, at Trustor's sole expense, all necessary actions to
remedy, repair, clean up, or detoxify any Release or Hazardous Substance,
including, but not limited to, any remedial action required by any Hazardous
Substance Laws or any judgment, consent, decree, settlement, or compromise in
respect of any Hazardous Substance Claims, these actions to be performed:

(A) in accordance with Hazardous Substance Laws;

(B) in a good and proper manner;

(D) in accordance with plans and specifications for these actions
approved in writing by Beneficiary; and

(E) using licensed and insured qualified contractors approved in
writing by Beneficiary;

(g) immediately furnish to Beneficiary copies of all written
communications received by Trustor from any governmental authority or other
person or given by Trustor to any person and any other information Beneficiary
may reasonably request concerning any Release, threatened Release, Hazardous
Substance Claim, or the discovery of any Hazardous Substance on or about the
Property in violation of any Hazardous Substance Law; and

(h) keep Beneficiary generally informed regarding any Release,
threatened Release, Hazardous Substance Claim, or the discovery of any Hazardous
Substance on or about the Property in violation of any Hazardous Substance Law.

Section 6.3. Inspection and Receivership Rights.

Upon Beneficiary's reasonable belief of the existence of a past or present
Release or threatened Release not previously disclosed by Trustor in connection
with the making of the Loan or the execution of this Deed of Trust or upon
Beneficiary's reasonable belief that Trustor has failed to comply with any
environmental provision of this Deed of Trust or any other Loan Document and
upon reasonable prior notice (except in the case of an emergency) to Trustor,
Beneficiary or its representatives, employees, and agents, may from time to time
and at all reasonable times (or at any time in the case of an emergency) enter
and inspect the Property and every part of it (including all samples of building
materials, soil, and groundwater, and all books, records, and files of Trustor
relating to the Property) and perform those acts and things that Beneficiary
deems necessary or desirable to inspect, investigate, assess, and protect the
security of this Deed of Trust, for the purpose of determining:

(a) the existence, location, nature, and magnitude of any past or present
Release or threatened Release;

<PAGE>

(b) the presence of any Hazardous Substances on or about the Property in
violation of any Hazardous Substance Law; and

(c) the compliance by Trustor of every environmental provision of this Deed
of Trust and every other Loan Document.
In furtherance of the purposes above, without limitation of any of its other
rights, Beneficiary may:

(i) obtain a court order to enforce Beneficiary's right to enter and
inspect the Property under Civil Code Section 2929.5, to which the decision of
Beneficiary as to whether there exists a Release, a threatened Release, any
Hazardous Substances on or about the Property in violation of any Hazardous
Substance Law, or a breach by Trustor of any environmental provision of this
Deed of Trust or any other Loan Document, will be deemed reasonable and
conclusive as between the parties; and

(ii) have a receiver appointed under Code of Civil Procedure Section
564 to enforce Beneficiary's right to enter and inspect the Property for the
purpose set forth above.

All reasonable costs and expenses incurred by Beneficiary with respect to the
audits, tests, inspections, and examinations that Beneficiary or its agents,
representatives, or employees may conduct, including the fees of the engineers,
laboratories, contractors, consultants, and attorneys, will be paid by Trustor.
All reasonable costs or expenses incurred by Trustee and Beneficiary pursuant to
this subsection (including without limitation court costs, consultant's fees,
and attorney fees, whether incurred in litigation and whether before or after
judgment) will bear interest at the Default Rate from the date they are incurred
until those sums have been paid in full. Except as provided by law, any
inspections or tests made by Beneficiary or its representatives, employees, and
agents will be for Beneficiary's purposes only and will not be construed to
create any responsibility or liability on the part of Beneficiary to Trustor or
to any other person. Beneficiary will have the right, but not the obligation, to
communicate with any governmental authority regarding any fact or reasonable
belief of Beneficiary that constitutes or could constitute a breach of any of
Trustor's obligations under any environmental provision contained in this Deed
of Trust or any Loan Document.

Section 6.4. Release and Indemnity. Trustor

(a) releases and waives any future claims against Beneficiary for indemnity
or contribution in the event Trustor becomes liable for cleanup or other costs
under any Hazardous Substance Laws or under any Hazardous Substance Claim;

(b) agrees to reimburse Beneficiary, on demand, for all costs and expenses
incurred by Beneficiary in connection with any review, approval, consent, or
inspection relating to the environmental provisions in this Deed of Trust
together with interest, after demand, at the Default Rate; and

<PAGE>

(c) agrees to indemnify, defend, and hold Beneficiary and Trustee harmless
from all losses, costs, claims, damages, penalties, liabilities, causes of
action, judgments, court costs, attorney fees and other legal expenses, costs of
evidence of title, cost of evidence of value, and other expenses (collectively,
"Expenses"), including, but not limited to, any Expenses incurred or accruing
after the foreclosure of the lien of this Deed of Trust, which either may suffer
or incur and which directly or indirectly arises out of or is in any way
connected with the breach of any environmental provision either in this Deed of
Trust or in any Loan Document or as a consequence of any Release or threatened
Release on the presence, use, generation, manufacture, storage, disposal,
transportation, Release, or threatened Release of any Hazardous Substance on or
about the Property, including the soils and groundwaters, caused or permitted by
Trustor, any prior owner or operator of the Property, any adjoining landowner or
any other party, including, without limitation, the cost of any required or
necessary repair, cleanup, remedy, or detoxification of any Hazardous Substance
and the preparation of any closure, remedial action, or other required plans,
whether that action is required or necessary by reason of acts or omissions
occurring prior to or following the recordation of this Deed of Trust. Trustor's
obligations will survive the satisfaction, release, or cancellation of the
Indebtedness, the release and reconveyance or partial release and reconveyance
of this Deed of Trust, and the foreclosure of the lien of this Deed of Trust or
deed in lieu of the Deed of Trust.

Section 6.5. Request for Information.

Trustor and Beneficiary agree that:

(a) this Section 6.5 is intended as Beneficiary's written request for
information and Trustor's written response concerning the environmental
condition of the Property as provided by Code of Civil Procedure Section 726.5;
and

(b) each representation, warranty, covenant, or indemnity made by Trustor
in this Article or in any other provision of this Deed of Trust or any Loan
Document that relates to the environmental condition of the Property is intended
by Trustor and Beneficiary to be an environmental provision for purposes of Code
of Civil Procedure Section 736 and will survive the payment of the Indebtedness
and the termination or expiration of this Deed of Trust and will not be affected
by Lender's acquisition of any interest in the Property, whether by full credit
bid at foreclosure, deed in lieu of that, or otherwise. If there is any transfer
of any portion of Trustor's interest in the Property, any successor-in-interest
to Trustor agrees by its succession to that interest that the written request
made pursuant to this Article will be deemed remade to the successor-in-interest
without any further or additional action on the part of Beneficiary and that by
assuming the debt secured by this Deed of Trust or by accepting the interest of
Trustor subject to the lien of this Deed of Trust, the successor remakes each of
the representations and warranties in this Deed of Trust and agrees to be bound
by each covenant in this Deed of Trust, including, but not limited to, any
indemnity provision.

Section 6.6. Effect of Site Assessment.

<PAGE>

Even though Trustor may have provided Beneficiary with an environmental
site assessment or other environmental report together with other relevant
information regarding the environmental condition of the Property, Trustor
acknowledges and agrees that Beneficiary is not accepting the Property as
security for the Loan based on that assessment, report, or information. Rather
Beneficiary has relied on the representations and warranties of Trustor in this
Deed of Trust, and Beneficiary is not waiving any of its rights and remedies in
the environmental provisions of this Deed of Trust or any other Loan Document.

ARTICLE 7.
CASUALTIES AND CONDEMNATION

Section 7.1. Casualties.

(a) Trustor will promptly notify Beneficiary in writing after any loss or
damage caused by fire or other casualty to the Property in excess of $100,000,
and prior to the making of any repairs. Trustor will furnish to Beneficiary
within ninety (90) days after the loss or damage the following:

(i) evidence satisfactory to Beneficiary of the cost of repair or
reconstruction;

(ii) evidence satisfactory to Beneficiary that sufficient funds are
available or committed for the benefit of Beneficiary, including insurance
proceeds, payment and performance bonds, or otherwise, to complete the repair or
reconstruction; and

(iii) evidence satisfactory to Beneficiary that the repair or
reconstruction may be completed in accordance with all applicable laws, rules,
regulations, and ordinances and that all necessary permits and approvals have
been or will be obtained.

If Trustor does not furnish this evidence to Beneficiary within the
ninety-day period, or if Beneficiary in its sole discretion determines that
repair or reconstruction is not economically feasible, then within thirty (30)
days after the expiration of the ninety-day period, Beneficiary will have the
option (in this Deed of Trust, Repayment Option") to have all insurance proceeds
applied against the Indebtedness. If Beneficiary elects the Repayment Option,
Trustor will immediately transfer to Beneficiary all insurance proceeds received
by it, if any, to the extent of the Indebtedness, and Beneficiary will apply the
insurance proceeds received by it, if any, against the Indebtedness. If the
insurance proceeds held by Trustor and Beneficiary will exceed the Indebtedness,
any excess insurance proceeds will belong and be paid over to or be retained by
Trustor.

(b) If Beneficiary does not elect the Repayment Option within the specified
time period, Trustor will with all diligence repair or otherwise reconstruct the
damage to the Property, all according to the original plans and specifications
for the improvements and elevations or any modified plans and specifications
conforming to the then laws and regulations as will first have been approved in
writing by Beneficiary and any occupants of the Improvements having the right

<PAGE>

to approve. Beneficiary will use all insurance proceeds, if any, received by it
relating to the damage or destruction to reimburse Trustor from time to time for
expenditures made for repair of the damage or for the erection of any building,
structure, or improvements in their place if permitted as follows:

(i) At the end of each month against Trustor's architect's
certificate, an amount that will be that proportion of the insurance proceeds
held in trust that eighty-five percent (85%) of the payments to be made to the
contractors or materialmen for work done, materials supplied, and services
rendered during that month bears to the total contract price.

(ii) At the completion of the work, the balance of the proceeds
required for completing the payments for the work will be paid to or for the
account of Trustor, provided that at the time of the payment:

(1) there are no liens (as evidenced by an endorsement
satisfactory to Beneficiary issued by Trustee) against the Property by reason of
the work, or proof satisfactory to Beneficiary has been submitted that all costs
of the work have been paid; and

(2) Trustor's architect will certify that all required work is
completed and is proper and of a quality and class of the original work required
by the original plans and specifications and in accordance with the approved
plans and specifications.

If the insurance proceeds exceed the costs of completing the work, the
excess insurance proceeds will belong and be retained by or be paid over to
Beneficiary to be applied against the Indebtedness. If the costs of completing
the work exceed the insurance proceeds, Trustor will pay the balance of the
costs of completing the work within thirty (30) days after the completion.

Section 7.2. Condemnation.

Trustor, immediately upon obtaining knowledge of the institution of any
proceedings for the condemnation of the Property or any portion of it, will
notify Trustee and Beneficiary of the pendency of the proceedings. Trustee and
Beneficiary may participate in any proceedings and Trustor from time to time
will deliver to Beneficiary all instruments requested by Beneficiary to permit
participation. If there are condemnation proceedings, the award or compensation
payable is assigned to and will be paid to Beneficiary. Beneficiary will be
under no obligation to question the amount of any award or compensation and may
accept it in the amount in which it is paid. In any condemnation proceedings,
Beneficiary may be represented by counsel selected by Beneficiary. The proceeds
of any award or compensation received will, at the option of Beneficiary, either
be applied, without premium, to the prepayment of the Note or be paid over to
Trustor for restoration of the Improvements in accordance with the provisions of
Section 7.1 of this Deed of Trust.

ARTICLE 8.
EVENTS OF DEFAULT AND REMEDIES OF BENEFICIARY

<PAGE>

Section 8.1. Events of Default.

The following events are each an Event of Default :

(a) Default in the payment of any sum of principal or interest when due
under the Note or any other sum due under the Loan Documents.

(b) The failure (without cure during the applicable period, if any, for
cure) of any Loan Party to observe, perform, or discharge any obligation, term,
covenant, or condition of Loan Documents, any agreement relating to the
Property, or any agreement or instrument between any Loan Party and Beneficiary.

(c) The assignment by Trustor, as lessor or sublessor, as the case may be,
of the rents or the income of the Property or any part of it (other than to
Beneficiary) without first obtaining the written consent of Beneficiary.

(d) The following events:

(i) The filing of any claim or lien against the Property or any part
of it, whether or not the lien is prior to this Deed of Trust, and the continued
maintenance of the claim or lien for a period of thirty (30) days without
discharge, satisfaction, or adequate bonding in accordance with the terms of
this Deed of Trust;

(ii) the existence of any interest in the Property other than those of
Trustor, Beneficiary, and any tenants of Trustor; or

(iii) the sale, hypothecation, conveyance, or other disposition of the
Property except in accordance with Sections 5.2 or 5.3 of this Deed of Trust,
any of which will be an Event of Default because Trustor's obligation to own and
operate the Property is one of the inducements to Beneficiary to make the Loan;

(e) Any representation or warranty made by any Loan Party or any other
Person under this Deed of Trust or in, under, or pursuant to the Loan Documents,
is false or misleading in any material respect as of the date on which the
representation or warranty was made.

(f) Any of the Loan Documents, at any time after their respective execution
and delivery and for any reason, cease to be in full force or are declared null
and void, or the validity or enforceability is contested by any Loan Party or
any stockholder or partner of any Loan Party, or any Loan Party denies that it
has any or further liability or obligation under any of the Loan Documents to
which it is a party.

(g) Any representation made by any Loan Party in the Certification
Agreement is false or misleading in any material respect as of the date made, or
any breach or default in any of Trustor's obligations under the Certification
Agreement;

<PAGE>

(h) The occurrence of any Material Adverse Change.

If one or more Event of Default occurs and is continuing, then Beneficiary
may declare all the Indebtedness to be due and the Indebtedness will become due
without any further presentment, demand, protest, or notice of any kind, and
Beneficiary may:

(i) in person, by agent, or by a receiver, and without regard to the
adequacy of security, the solvency of Trustor, or the existence of waste, enter
on and take possession of the Property or any part of it in its own name or in
the name of Trustee, sue for or otherwise collect the rents, issues, and
profits, and apply them, less costs and expenses of operation and collection,
including reasonable attorney fees, upon the Indebtedness, all in any order that
Beneficiary may determine. The entering on and taking possession of the
Property, the collection of rents, issues, and profits, and the application of
them will not cure or waive any default or notice of default or invalidate any
act done pursuant to the notice;

(ii) commence an action to foreclose this Deed of Trust in the manner
provided by law for the foreclosure of mortgages of real property;

(iii) deliver to Trustee a written declaration of default and demand
for sale, and a written notice of default and election to cause the Property to
be sold, which notice Trustee or Beneficiary will cause to be filed for record;

(iv) with respect to any Personalty, proceed as to both the real and
personal property in accordance with Beneficiary's rights and remedies in
respect of the Land, or proceed to sell the Personalty separately and without
regard to the Land in accordance with Beneficiary's rights and remedies; or

(v) exercise any of these remedies in combination or any other remedy
at law or in equity.
Section 8.2. Power of Sale.

(a) If Beneficiary elects to foreclose by exercise of the power of sale in
this Deed of Trust, Beneficiary will also deposit with Trustee this Deed of
Trust, the Note, and any receipts and evidence of expenditures made and secured
as Trustee may require. If notice of default has been given as then required by
law, and after lapse of the time that may then be required by law, after
recordation of the notice of default, Trustee, without demand on Trustor, will,
after notice of sale having been given as required by law, sell the Property at
the time and place of sale fixed by it in the notice of sale, either as a whole
or in separate parcels as Trustee determines, and in any order that it may
determine, at public auction to the highest bidder. Trustee may postpone sale of
all or any portion of the Property by public announcement at the time and place
of sale, and from time to time after that may postpone the sale by public
announcement at the time fixed by the preceding postponement, and without
further notice make the sale at the time fixed by the last postponement; or
Trustee may, in its discretion, give a new notice of sale. Beneficiary may
rescind any notice of default at any time before Trustee's sale by executing a
notice of rescission and

<PAGE>

recording it. The recordation of the notice will constitute a cancellation of
any prior declaration of default and demand for sale and of any acceleration of
maturity of Indebtedness affected by any prior declaration or notice of default.
The exercise by Beneficiary of the right of rescission will not constitute a
waiver of any default then existing or subsequently occurring, or impair the
right of Beneficiary to execute other declarations of default and demand for
sale, or notices of default and of election to cause the Property to be sold,
nor otherwise affect the Note or this Deed of Trust, or any of the rights,
obligations, or remedies of Beneficiary or Trustee. After sale, Trustee will
deliver to the purchaser its deed conveying the property sold, but without any
covenant or warranty, express or implied. The recitals in the deed of any
matters or facts will be conclusive proof of their truthfulness. Any Person,
including Trustor, Trustee, or Beneficiary, may purchase at that sale. If
allowed by law, Beneficiary, if it is the purchaser, may turn in the Note at the
amount owing on it toward payment of the purchase price (or for endorsement of
the purchase price as a payment on the Note if the amount owing exceeds the
purchase price). Trustor expressly waives any right of redemption after sale
that Trustor may have at the time of sale or that may apply to the sale.

(b) Trustee, upon the sale, will make (without any covenant or warranty,
express or implied), execute and, after due payment made, deliver to a purchaser
and its heirs or assigns a deed or other record of interest, as the case may be,
to the Property sold, which will convey to the purchaser all the title and
interest of Trustor in the Property and will apply the proceeds of the sale in
payment:

(i) first, of the expenses of the sale together with the expenses of
the trust, including, without limitation, attorney fees, that will become due on
any default made by Trustor, and also any sums that Trustee or Beneficiary have
paid for procuring a search of the title to the Property subsequent to the
execution of this Deed of Trust; and

(ii) second, in payment of the Indebtedness then remaining unpaid, and
the amount of all other monies with interest in this Deed of Trust agreed or
provided to be paid by Trustor.

Trustee will pay the balance or surplus of the proceeds of sale to Trustor and
its successors or assigns as its interests may appear.

Section 8.3. Proof of Default.

If there is a sale of the Property, or any part of it, and the execution of
a deed for it, the recital of default and of recording notice of breach and
election of sale, and of the elapsing of the required time between the recording
and the following notice, and of the giving of notice of sale, and of a demand
by Beneficiary that the sale should be made, will be conclusive proof of the
default, recording, election, elapsing of time, and the due giving of notice,
and that the sale was regularly and validly made on proper demand by
Beneficiary. Any deed with these recitals will be effectual and conclusive
against Trustor, its successors, and assigns, and all other Persons. The receipt
for the purchase money recited or in any deed executed to the purchaser will be
sufficient discharge to the purchaser from all obligations to see to the proper
application of the purchase money.

<PAGE>

Section 8.4. Protection of Security.

If an uncured Event of Default occurs and is continuing, Beneficiary or
Trustee, without limitation to do so, without notice to or demand upon Trustor,
and without releasing Trustor from any obligations or defaults may:

(a) enter on the Property in any manner and to any extent that either deems
necessary to protect the security of this Deed of Trust;

(b) appear in and defend any action or proceeding purporting to affect, in
any manner, the Obligations or the Indebtedness, the security of this Deed of
Trust, or the rights or powers of Beneficiary or Trustee;

(c) pay, purchase, or compromise any encumbrance, charge, or lien that in
the judgment of Beneficiary or Trustee is prior or superior to this Deed of
Trust; and

(d) pay necessary expenses, employ counsel, and pay reasonable attorney
fees.

Trustor agrees to repay on demand all sums expended by Trustee or Beneficiary
pursuant to this section with interest at the Default Rate, and those sums, with
interest, will be secured by this Deed of Trust.

Section 8.5. Receiver.
If an uncured Event of Default occurs and is continuing, Beneficiary, as a
matter of strict right and without notice to Trustor or anyone claiming under
Trustor and without regard to the then value of the Property, will have the
right to apply ex parte to any court having jurisdiction to appoint a Receiver
of the Property, with such notice as is required by any court of competent
jurisdiction. Any Receiver will have all the powers and duties of receivers in
similar cases and all the powers and duties of Beneficiary in case of entry as
provided in this Deed of Trust, and will continue as such and exercise all those
powers until the date of confirmation of sale, unless the receivership is
terminated sooner.

Section 8.6. Curing the Defaults.

If Trustor at any time fails to perform or comply with any of the terms,
covenants, and conditions required on Trustor's part to be performed and
complied with under this Deed of Trust, the Note, any of the other Loan
Documents, or any other agreement that, under the terms of this Deed of Trust,
Trustor is required to perform, then Beneficiary, after seven (7) Business Days'
notice to Trustor, and without waiving or releasing Trustor from any of the
Obligations, may, subject to the provisions of any of the agreements:

(a) make from its own funds any payments payable by Trustor and take out,
pay for, and maintain any of the insurance policies provided for; and

<PAGE>

(b) perform any other acts on the part of Trustor to be performed and enter
on the Property for that purpose.
The making by Beneficiary of payments out of Beneficiary's own funds will not,
however, be deemed to cure the default by Trustor, and they will not be cured
unless and until Trustor reimburses Beneficiary for the payments. All sums paid
and all reasonable costs and expenses incurred by Beneficiary in connection with
the performance of any act, together with interest on unpaid balances at the
Default Rate from the respective dates of Beneficiary's making of each payment,
will be added to the principal of the Indebtedness, will be secured by the
Security Documents and by the lien of this Deed of Trust, prior to any right,
title, or interest in or claim on the Property attaching or accruing subsequent
to the lien of this Deed of Trust, and will be payable by Trustor to Beneficiary
on demand. For any nonmonetary default, cure shall be commenced within seven
days written notice, and completed as soon as reasonably practicable.

Section 8.7. Inspection Rights.

On reasonable notice (and at reasonable intervals), and without releasing
Trustor from any obligation to cure any default of Trustor, Beneficiary or its
agents, representatives, and employees acting by themselves or through a
court-appointed receiver, may, from time to time and at all reasonable times
enter and inspect the Property and every part of it (including all samples of
building materials, soil, and groundwater, and all books, records, and files of
Trustor relating to the Property) and perform any acts and things as Beneficiary
deems necessary or desirable to inspect, investigate, assess, and protect the
security of this Deed of Trust, for the purpose of determining:

(a) the existence, location, nature, and magnitude of any past or present
Release or threatened Release,

(b) the presence of any Hazardous Substances on or about the Property in
violation of any Hazardous Substance Law, and

In furtherance of these purposes, without limitation of any of its other
rights, Beneficiary may:

(a) obtain a court order to enforce Beneficiary's right to enter and
inspect the Property under Civil Code Section 2929.5, to which the decision of
Beneficiary as to whether there exists a Release, threatened Release, any
Hazardous Substances on or about the Property in violation of any Hazardous
Substance Law, or a breach by Trustor of any environmental provision of this
Deed of Trust or any other Loan Document, will be deemed reasonable and
conclusive as between Trustor, Trustee, and Beneficiary; and

(b) have a receiver appointed under Code of Civil Procedure Section 564 to
enforce Beneficiary's right to enter and inspect the Property for Hazardous
Substances.

<PAGE>

All costs and expenses incurred by Beneficiary with respect to the audits,
tests, inspections, and examinations that Beneficiary or its agents,
representatives, or employees may conduct, including the fees of the engineers,
laboratories, contractors, consultants, and attorneys, will be paid by Trustor.
All costs or expenses incurred by Trustee and Beneficiary pursuant to this
subsection (including, without limitation, court costs, consultants fees, and
attorney fees, whether incurred in litigation and whether before or after
judgment) will bear interest at the Default Rate from the date they are incurred
until they have been paid in full. Except as provided by law, any inspections or
tests made by Beneficiary or its representatives, employees, and agents, will be
for Beneficiary's purposes only and will not be construed to create any
responsibility or liability on the part of Beneficiary to Trustor or to any
other person. Beneficiary will have the right, but not the obligation, to
communicate with any governmental authority regarding any fact or reasonable
belief of Beneficiary that constitutes or could constitute a breach of any of
Trustor's obligations under any environmental provision in this Deed of Trust or
any Loan Document.

Section 8.8. Judgment on Environmental Provision.

Beneficiary or its agents, representatives, and employees may seek a
judgment that Trustor has breached its covenants, representations, or warranties
in Article 6 of this Deed of Trust or any other covenants, representations, or
warranties that are deemed to be environmental provisions pursuant to Code of
Civil Procedure Section 736 (each an Environmental Provision"), by commencing
and maintaining an action or actions in any court of competent jurisdiction
pursuant to Code of Civil Procedure Section 736, whether commenced prior to or
after foreclosure of the lien of this Deed of Trust. Beneficiary or its agents,
representatives, and employees may also seek an injunction to cause Trustor to
abate any action in violation of any Environmental Provision and may seek the
recovery of all costs, damages, expenses, fees, penalties, fines, judgments,
indemnification payments to third parties, and other out-of-pocket costs or
expenses actually incurred by Beneficiary (collectively, "Environmental Costs")
incurred or advanced by Beneficiary relating to the cleanup, remedy, or other
response action required by any Hazardous Substances Law, or any Hazardous
Substance Claim, or which Beneficiary believes necessary to protect the
Property. All Environmental Costs incurred by Beneficiary under this subsection
(including, without limitation, court costs, consultant fees, and attorney fees,
whether incurred in litigation and whether before or after judgment) will bear
interest at the Default Rate from the date of expenditure until those sums have
been paid in full. Beneficiary will be entitled to bid, at any trustee's or
foreclosure sale of the Property, the amount of the costs, expenses, and
interest in addition to the amount of other Indebtedness.

Section 8.9. Waive Lien.

Beneficiary or its agents, representatives, and employees may waive its
lien against the Property or any portion of it, including the Improvements and
the Personal Property, to the extent that the Property is found to be
environmentally impaired in accordance with Code of Civil Procedure Section
726.5, and to exercise all rights and remedies of an unsecured creditor against
Trustor and all of Trustor's assets and property for the recovery of any
Environmental Costs, including, but not limited to, seeking an attachment order
under Code of Civil Procedure Section

<PAGE>

483.010. As between Beneficiary and Trustor, for purposes of Code of Civil
Procedure Section 726.5, Trustor will have the burden of proving that Trustor
or any related party (or any affiliate or agent of Trustor or any related
party) was not in any way negligent in permitting the Release or threatened
Release of the Hazardous Substances.

Section 8.10. Exception to Nonrecourse.

Trustor agrees that regardless of anything in this Deed of Trust or in the
Loan Documents, the Environmental Costs will be exceptions to any nonrecourse or
exculpatory provision of the Loan Documents, and Trustor will be fully and
personally liable for the Environmental Costs. That liability will not be
limited to the obligations secured by this Deed of Trust, and Trustor's
obligations will survive the foreclosure, deed in lieu of foreclosure, release,
reconveyance, or any other transfer of the Property or this Deed of Trust, for
acts or omissions of Trustor. For the purposes of any action brought under this
subsection, Trustor waives the defense of laches and any applicable statute of
limitations.

Section 8.11. Remedies Cumulative.

All remedies of Beneficiary provided for in this Deed of Trust are
cumulative and will be in addition to all other rights and remedies provided in
the other Loan Documents or provided by law, including any banker's lien and
right of offset. The exercise of any right or remedy by Beneficiary will not in
any way constitute a cure or waiver of default, will not invalidate any act done
pursuant to any notice of default, nor will it prejudice Beneficiary in the
exercise of any of its rights unless, in the exercise of those rights,
Beneficiary collects the total amount of the Indebtedness.

ARTICLE 9.
SECURITY AGREEMENT

Section 9.1. Grant of Security Interest.

Trustor also grants to Beneficiary a security interest in all of Trustor's
right, title, and interest now owned or later acquired to the following property
(collectively, "Collateral") now or later affixed to or located on the Property,
or used in connection with the operation of the Property or the Improvements and
all the proceeds of that property: the Personalty; the Fixtures; all machinery,
equipment, engines, appliances, and fixtures for generating or distributing air,
water, heat, electricity, light, fuel, or refrigeration, or for ventilating or
sanitary purposes, or for the exclusion of vermin or insects, or for the removal
of dust, refuse, or garbage; all wallbeds, wall safes, built-in furniture and
installations, shelving, lockers, partitions, doorstops, vaults, motors,
elevators, dumbwaiters, awnings, window shades, venetian blinds, light fixtures,
fire hoses and brackets and boxes for them, fire sprinklers, alarm systems,
draperies, drapery rods and brackets, mirrors, mantles, screens, linoleum,
carpets and carpeting, plumbing, bathtubs, sinks, basins, pipes, faucets, water
closets, laundry equipment, washers, dryers, iceboxes, refrigerators, heating
units, stoves, ovens, ranges, dishwashers, disposals, water heaters,
incinerators, furniture, fixtures, and furnishings; all communication systems;
all specifically designed installations and

<PAGE>

furnishings; all building materials, supplies, and equipment now or later
delivered to the Property; all office equipment, including, without limitation,
all computers, computer systems, hardware and software, access codes, access
keys, computer programs, file names, typewriters, duplicating machines, word
processing equipment, adding machines, calculators, dictating equipment,
printing presses, and related equipment; all inventories and supplies,
including, without limitation, office supplies, soap, light bulbs, toilet paper,
and linens; all clocks, television sets, radios, and other electronic or
audio/video equipment; all podiums, microphones, movie and slide projectors and
screens, and other property relating to conference and convention facilities;
all security and cleaning deposits collected from any tenants or lessees of any
part of the Property, all deposits collected from purchasers pursuant to
contracts for sale of the Property or any portion of the Property; and, subject
to the other provisions of this Deed of Trust, all proceeds of any fire and
builders' risk insurance policy, or of any policy insuring the Property (and the
contents of the Improvements) against any other perils, all awards made in
eminent domain proceedings, or purchased in lieu of that, made with respect to
the Property, and any compensation, award, payment, or relief given by any
governmental agency or other source because of damage to the Property resulting
from earthquake, flood, windstorm, or any emergency or any other event or
circumstance. The specific enumerations in this Deed of Trust do not exclude the
general.

The security interest also includes all additions to, substitutions for,
changes in, or replacements of the whole or any part of these articles of
property, together with all contract rights of Trustor in construction
contracts, bonds, agreements for purchase and sale of the Property, all policies
of insurance arising out of the improvement or ownership of the Property, and
all accounts, contract rights, chattel paper, instruments, general intangibles,
and other obligations of any kind now or later existing, arising out of, or in
connection with the operation or development of the Property. The security
interest also includes all rights now or later existing in all security
agreements, leases, and other contracts securing or otherwise relating to any
accounts, contract rights, chattel paper, instruments, general intangibles, or
obligations; all causes of action and recoveries now or later existing for any
loss or diminution in value of the Property; all proceeds of any of the
Collateral; and, to the extent not otherwise included, all payments under
insurance (whether Beneficiary is the loss payee), or any indemnity, warranty,
or guaranty payable by reason of loss or damage to or otherwise with respect to
any of the Collateral.

Section 9.2. Remedies.

This Deed of Trust constitutes a security agreement with respect to the
Collateral in which Beneficiary is granted a security interest. Beneficiary has
all of the rights and remedies of a secured party under the California Uniform
Commercial Code as well as all other rights and remedies available at law or in
equity. Trustor agrees to execute and deliver on demand, and irrevocably
constitutes and appoints Beneficiary the attorney-in-fact of Trustor to execute,
deliver, and file, any security agreements, financing statements, continuation
statements, or other instruments that Beneficiary may request to impose,
perfect, or continue the perfection of the lien or security interest created by
this Deed of Trust. On the occurrence of any Event of Default (taking into
account any applicable period of grace or cure), Beneficiary will have the right
to sell at any public or private sales as permitted by applicable law any of the
Collateral that is personal property. Beneficiary will also have any other
rights and remedies, whether at law, in equity, or by

<PAGE>

statute that are available to secured creditors. Any disposition may be
conducted by an employee or agent of Beneficiary or Trustee. Any Person,
including both Trustor and Beneficiary, will be eligible to purchase any part or
all of the Collateral at any disposition.

Section 9.3. Expenses.

Expenses of retaking, holding, and preparing for sale, selling, or the like
will be borne by Trustor and will include Beneficiary's and Trustee's attorney
fees and legal expenses. Trustor, on demand of Beneficiary, will assemble the
Collateral and make it available to Beneficiary at the Property, a place deemed
to be reasonably convenient to Beneficiary and Trustor. Beneficiary will give
Trustor at least ten (10) days' prior written notice of the time and place of
any public sale or other disposition of the Collateral or of the time of or
after which any private sale or any other intended disposition is to be made. If
the notice is sent to Trustor in the manner provided for the mailing of notices
in this Deed of Trust, it is deemed reasonable notice to Trustor.

Section 9.4. Fixture Filing.

(a) This Deed of Trust constitutes a financing statement filed as a fixture
filing in the Official Records of the County Recorder of the county in which the
Property is located with respect to all Fixtures included within the term
Property as used in this Deed of Trust and with respect to any goods,
Collateral, or other personal property that may now be or later become fixtures.

(b) It is understood and agreed that, to protect Beneficiary against the
effect of Uniform Commercial Code Section 9313, if any fixture owned by Trustor
on the Property, or any part of any fixture, is replaced or added to, or any new
fixture owned by Trustor is installed by Trustor, and in each case the fixture
has a cost or fair market value in excess of One Thousand Dollars ($1,000.00),
but not with respect to tenant improvement work made in the ordinary course of
business and the fixture is or may be subject to a security interest held by a
seller or any other party, the following will apply:

(i) Trustor or any owner of all or any part of the Property will,
before the replacement, addition, or installation of any fixture, obtain the
prior written approval of Beneficiary, and give Beneficiary written notice that
a security agreement with respect to the fixture has been or will be
consummated, and the notice will contain the following information:

(A) a description of the fixtures to be replaced, added to,
installed, or substituted;

(B) a recital of the location at which the fixtures will be
replaced, added to, installed, or substituted;

<PAGE>

(D) the date of the purchase of the fixtures.

Neither this subsection nor any consent by Beneficiary pursuant to this
subsection will constitute an agreement to subordinate any right of Beneficiary
in fixtures or other property covered by this Deed of Trust.

(ii) Beneficiary may at any time pay the balance due under the
security agreement and the amount paid will be:
(A) secured by this Deed of Trust and will be a lien on the
Property, enjoying the same priorities as this Deed of Trust,

(B) added to the amount of the Note or other obligation secured
by this Deed of Trust, and

(C) payable on demand with interest at the Default Rate from the
time of the payment; and if Trustor is in default for ten (10) days after
demand, the entire principal sum secured with all unpaid interest will, at the
Beneficiary's option, become immediately due, regardless of any contrary
provision in this Deed of Trust or the Note; or Beneficiary will have the
privilege of acquiring by assignment from the holder of the security interest
any contract rights, accounts receivable, chattel paper, negotiable or
nonnegotiable instruments, or other evidence of Trustor's indebtedness for the
fixtures, and, on acquiring these interests by assignment, will have the right
to enforce the security interest as an assignee, in accordance with the
California Uniform Commercial Code and other applicable law.

(iii) Whether Beneficiary has paid or taken an assignment of the
security interest, if at any time Trustor is in default for a period of ten (10)
days under the security agreement covering the fixtures, that default will be
considered a material breach of Trustor's covenants under this Deed of Trust,
and will, at Beneficiary's option, constitute a default under this Deed of
Trust, and the principal sum secured will, at Beneficiary's option, become
immediately due.

(iv) The provisions of subsections (ii) and (iii) above will not apply
if the goods that may become fixtures are of at least equivalent value and
quality as any property being replaced and if the rights of the party holding
the security interest have been expressly subordinated, at no cost to
Beneficiary, to the lien of this Deed of Trust in a manner satisfactory to
Beneficiary, including, without limitation, at Beneficiary's option, providing
to Beneficiary a satisfactory opinion of counsel that this Deed of Trust
constitutes a valid and subsisting first lien on the fixtures that is not
subordinate to the lien of the security interest under any applicable law,
including, without limitation, the provisions of Uniform Commercial Code Section
9313.

Section 9.5. Assignment of Agreements.

(a) As partial security for the Loan, Trustor sells, assigns, transfers,
sets over, and delivers to Beneficiary all of Trustor's right, title, and
interest in all agreements, permits, and contracts pertaining to the use or
operation of the Property, including, but not limited to, environmental impact
reports; negative declarations; map approvals; grading and construction permits;

<PAGE>

conditional use permits; applications for all permits; management agreements;
all development rights in the Property that Trustor may now or later acquire
(including, without limitation, development rights arising in connection with
any action by a governmental entity, including, by way of illustration, but not
of limitation, inducement resolutions of county, municipal, or other
governmental entities); agreements with contractors, suppliers, and construction
managers; and agreements pertaining to the transfer of development rights or
permitted floor area under applicable laws or ordinances (collectively,
"Agreements"), as they may be amended or otherwise modified from time to time,
including, without limitation, the right of Trustor to terminate any of the
Agreements, to perform under them, and to compel performance and otherwise
exercise all remedies under them, together with the immediate and continuing
right to collect and receive all sums that may become due to Trustor, or which
Trustor may now or later become entitled to demand or claim, arising or issuing
out of the Agreements, including, without limitation, claims of Trustor for
damages arising out of breach of or default under any of the Agreements and all
rights of Trustor to receive proceeds of any insurance, indemnity, warranty, or
guaranty with respect to any of the Agreements. However, so long as no Event of
Default has occurred and is continuing, Trustor will have the right under a
license granted to collect and retain all sums that may become payable to
Trustor under the Agreements.

(b) Trustor covenants and agrees to punctually observe, perform, and
discharge the obligations, terms, covenants, conditions, and warranties to be
observed, performed, and discharged by it under the Agreements. Beneficiary,
upon an uncured Event of Default, at its option and upon written notice to
Trustor, will have the right to declare the assignment in this Section 9.5 to be
absolute, and, in addition, Beneficiary will have the complete right then or
later to exercise and enforce all of the rights and remedies provided by law.

(c) The acceptance by Beneficiary of the assignment in this Article 9.5,
with all the rights, powers, privileges, and authority granted will not, prior
to the exercise of Beneficiary's right to declare the assignment in this Article
9.5 to be absolute, obligate Beneficiary to assume any obligations under the
Agreements or to take any action under them, or to expend any money or incur any
expense or perform or discharge any obligation, duty, or liability under the
Agreements, or to assume any obligation or responsibility for the nonperformance
of the provisions by Trustor.

ARTICLE 10.
ASSIGNMENT OF LEASES AND RENTS

Section 10.1. Assignment.

Trustor irrevocably assigns to Beneficiary

(a) all of Trustor's right, title, and interest in all leases; licenses;
agreements relating to the management, leasing, or operation of the Property;
and other agreements of any kind relating to the use or occupancy of the
Property, whether now existing or entered into after the date of this Deed of
Trust ("Leases"), and

<PAGE>

(b) the rents, issues, and profits of the Property, including, without
limitation, all amounts payable and all rights and benefits accruing to Trustor
under the Leases ("Payments"), for the purposes and on the terms and conditions
below.
The term Leases will also include all guarantees of and security for the
lessees' performance, and all amendments, extensions, renewals, or modifications
that are permitted. This is a present and absolute assignment, not an assignment
for security purposes only, and Beneficiary's right to the Leases and Payments
is not contingent on, and may be exercised without, possession of the Property.

Section 10.2. License.

Beneficiary confers on Trustor a license ("License") to collect and retain
the Payments as they become due until the occurrence of an uncured Event of
Default. Upon an uncured Event of Default, the License will be automatically
revoked and Beneficiary may collect and retain the Payments upon five business
days' notice and without taking possession of the Property. Trustor irrevocably
authorizes and directs the lessees under the Leases to rely on and comply with
any notice or demand by Beneficiary for the payment to Beneficiary of any rental
or other sums that may at any time become due under the Leases, or for the
performance of any of the lessees' undertakings under the Leases. The lessees
will have no right or duty to inquire as to whether any Default has actually
occurred or is then existing.

Section 10.3. Effect of Assignment.

The assignment will not impose on Beneficiary any duty to produce rents,
issues, or profits from the Property, or cause Beneficiary to be:

(a) a mortgagee-in-possession for any purpose;

(b) responsible for performing any of the obligations of the lessor under
any of the Leases; or

(c) responsible for any waste committed by lessees or any other parties,
any dangerous or defective condition of the Property, or any negligence in the
management, upkeep, repair, or control of the Property.

Section 10.4. Leasing Covenants.

Trustor covenants and agrees as follows:

(a) At Trustor's sole cost to:

(i) perform all obligations of the lessor under the Leases and enforce
performance by the lessees of their obligations under the Leases;

<PAGE>

(ii) subject to the provisions of Section 10.4(b)(iv) below, enforce
all remedies available to Trustor in case of default by the lessees under any of
the Leases and prosecute and defend any action, arbitration, or other
controversy relating to any of the Leases or to Trustor's interest in any of the
Leases;

(iii) give Beneficiary prompt notice of any material default that
occurs under any of the Leases, whether by the lessees or Trustor;

(iv) exercise diligent, good-faith efforts to keep all portions of the
Property leased at all times and at rentals not less than the fair market rental
value;

(v) promptly upon execution, deliver to Beneficiary fully executed
counterpart originals of the Leases; and

(b) except with Beneficiary's prior written consent, not to:

(i) execute any other assignment relating to any of the Leases or the
Payments;

(ii) discount any rent or other sums due under the Leases or collect
them in advance, other than to collect rent one (1) month in advance of the time
when it becomes due;

(iii) terminate, modify, or amend any of the material terms of the
Leases or release or discharge the lessees from any obligations;

(iv) consent to any assignment or subletting by any lessee; or

(v) subordinate any of the Leases to any other deed of trust or
encumbrance.

Any attempted action in violation of the provisions of Section 10.4(b) will be
voidable at Beneficiary's election.

Section 10.5. Application of Rents.

Beneficiary, in its sole discretion, may apply, or require the application
of, all amounts received pursuant to the assignment to the payment of any one or
more of the Obligations in any order that Beneficiary may elect.

Section 10.6. Estoppel Certificates.

Within twenty (20) days after request by Beneficiary, Trustor will deliver
to Beneficiary and to any party designated by Beneficiary estoppel certificates
executed by Trustor and by each of the lessees, in recordable form, certifying:

(a) that the assignment and the Leases are in full force;

<PAGE>

(b) the date of each lessee's most recent payment of rent;

(c) that there are no defenses or offsets outstanding, or stating those
claimed by Trustor or lessees under the assignment or the Leases,; and

(d) any other information reasonably requested by Beneficiary.

Section 10.7. Remedies.

In addition to any other remedies in this Deed of Trust, Beneficiary will
have the following rights and remedies upon the occurrence of an uncured Event
of Default:

(a) To receive the Payments and any other amounts arising or accruing under
the Leases or from the Property;

(b) To collect, sue for, settle, compromise, and give releases for the
Payments and pursue any remedies for the enforcement of the Leases or Trustor's
rights under the Leases; and

(c) To take possession of the Property, and hold, manage, lease, and
operate it on any terms and for any period of time that Beneficiary may deem
proper and, either with or without taking possession of the Property, in its own
name, make from time to time all alterations, renovations, repairs, or
replacements that Beneficiary may deem proper.

Section 10.8. Definitions.

The terms lessor and lessors as used in this Deed of Trust will include all
owners, landlords, licensors, and other parties in a similar position with
respect to the Leases. The terms lessee and lessees will include any tenants and
licensees and any other parties in a similar position and will also include any
guarantors of or other obligors under the Leases.

ARTICLE 11.
MISCELLANEOUS

Section 11.1. Successor Trustee.

Beneficiary may remove Trustee or any successor trustee at any time and
appoint a successor trustee by recording a written substitution in the county
where the Property is located, or in any other manner permitted by law. Upon
that appointment, all of the powers, rights, and authority of Trustee will
immediately become vested in the successor.

Section 11.2. Change of Law.

If any law is passed, after the date of this Deed of Trust, that deducts
from the value of the Property, for the purposes of taxation, any lien on it, or
changes in any way the laws now in force

<PAGE>

for the taxation of mortgages, deeds of trust, or debts secured by mortgage or
deed of trust (other than laws imposing taxes on income) or the manner of the
collection of any taxes so as to affect adversely and materially the rights of
Beneficiary as holder of the Note and Beneficiary under this Deed of Trust, the
Indebtedness will become due at Beneficiary's option, exercised by thirty (30)
days' notice to Trustor unless Trustor, within that thirty (30) day period, if
permitted by law, assumes the payment of any tax or other charge imposed on
Beneficiary for the period remaining until full payment by Trustor of the
Indebtedness.

Section 11.3. No Waiver.

No waiver by Beneficiary of any default or breach by Trustor will be
implied from any omission by Beneficiary to take action on account of that
default if the default persists or is repeated. Also, no express waiver will
affect any default other than the default in the waiver and the waiver will be
operative only for the time and to the extent stated. Waivers of any covenant,
term, or condition in this Deed of Trust will not be construed as a waiver of
any subsequent breach of the same covenant, term, or condition. The consent or
approval by Beneficiary for any act by Trustor requiring further consent or
approval will not be deemed to waive or render unnecessary the consent or
approval for any subsequent similar act.

Section 11.4. Abandonment.

Subject to any chattel mortgages, security agreements, or other liens on
title that may exist with the consent of Beneficiary, or any provided for in
this Deed of Trust, all Personalty that upon foreclosure of the Property is
owned by Trustor and is used in connection with the operation of the Property
will be deemed at Beneficiary's option to have become on that date a part of the
Property and abandoned to Beneficiary in its then condition.

Section 11.5. Notices.

All notices, advices, demands, requests, consents, statements,
satisfactions, waivers, designations, refusals, confirmations, or denials that
may be required or contemplated under this Deed of Trust for any party to serve
on or give to any other will be in writing, and, if not in writing, will not be
deemed to have been given. Also, they must be either personally served or sent
with return receipt requested by registered or certified mail with postage
(including registration or certification charges) prepaid in a securely enclosed
and sealed envelope as follows:

(a) If to Trustor, addressed to En Pointe Technologies, Inc., 100 North
Sepulveda Boulevard, 19th Floor, El Segundo, California 90245.

(b) If to Beneficiary, addressed to Habib Bank AG Zurich, 110 East Ninth
Street, AL10, Los Angeles, California 90079.

Section 11.6. Survival.

<PAGE>

The covenants and agreements in this Deed of Trust will bind and inure to
the benefit of Beneficiary and Trustor and their successors and assigns. It is
agreed that Beneficiary may assign to or grant a participation in any one or
more lenders, free from any right of counterclaim, recoupment, or setoff by
Trustor, Beneficiary's rights and obligations in whole or in part under the Loan
Documents. Nothing in this Article 11.6 is intended to limit other provisions in
the Loan Documents that by their terms survive the repayment of the Indebtedness
or the termination of any Loan Document.

Section 11.7. Severability.

If any term, provision, covenant, or condition of this Deed of Trust or any
application of it is held by a court of competent jurisdiction to be invalid,
void, or unenforceable, in whole or in part, all terms, provisions, covenants,
and conditions of this Deed of Trust and all applications of it not held
invalid, void, or unenforceable will continue in full force and will not be
affected, impaired, or invalidated.

Section 11.8. References to Foreclosure.

References in this Deed of Trust to foreclosure and related phrases are
references to the appropriate procedure in connection with Trustee's private
power of sale, any judicial foreclosure proceeding, and any deed given in lieu
of foreclosure.

Section 11.9. Joinder of Foreclosure.

If Beneficiary holds any other or additional security for the payment of
any Indebtedness or performance of any Obligation, its sale or foreclosure, on
any default in the payment or performance, in Beneficiary's sole discretion, may
be prior to, subsequent to, or joined or otherwise contemporaneous with any sale
or foreclosure. In addition to the rights in this Deed of Trust specifically
conferred, Beneficiary, at any time and from time to time, may exercise any
right or remedy now or later given by law to beneficiaries under deeds of trust
generally, or to the holders of any obligations of the kind secured.

Section 11.10. Rights of Beneficiary and Trustee.

At any time and from time to time, without liability and upon five business
days' notice, and without releasing or otherwise affecting the liability of any
person for payment of any Indebtedness,

(a) Beneficiary, at its sole discretion and only in writing, may extend the
time for or release any Person now or later liable for payment of any
Indebtedness, or accept or release additional security, or subordinate the lien
or charge of this Deed of Trust, or

(b) Trustee, on written request of Beneficiary and presentation of the
Note, any additional notes secured by this Deed of Trust, and this Deed of Trust
for endorsement, may reconvey any

<PAGE>

part of the Property, consent to the making of any map or plat of it, join in
granting any easement on it, or join in any agreement of extension or
subordination.

On Beneficiary's written request and surrender of the Note, any additional notes
secured by this Deed of Trust, and this Deed of Trust to Trustee for
cancellation, and on payment to Trustee of its fees and expenses, Trustee will
reconvey without warranty the then trust property. The recitals in any
reconveyance will be conclusive proof of the truthfulness of them, and the
grantee in any reconveyance may be described as the person legally entitled.

Section 11.11. Copies.

Trustor will promptly give to Beneficiary copies of all

(a) notices of violation that Trustor receives from any governmental agency
or authority, and

(b) notices of default that Trustor receives under any agreement relating
to the borrowing of money by Trustor from any Person.

Section 11.12. ERISA Compliance.

Trustor will at all times comply with the provisions of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), with respect to
any retirement or other employment benefit plan to which it is a party as
employer. As soon as possible after Trustor knows, or has reason to know, that
any Reportable Event (defined in ERISA) with respect to any plan of Trustor has
occurred, it will furnish to Beneficiary a statement in writing setting forth
details about the Reportable Event and the action, if any, that Trustor proposes
to take, together with a copy of the notice of the Reportable Event furnished to
the Pension Benefit Guaranty Corporation. In addition, if at any time the loan
evidenced by the Note is deemed in whole or in part to be a transaction
prohibited by the provisions of ERISA, Trustor will immediately reimburse
Beneficiary on demand for all taxes levied against or costs incurred by
Beneficiary or Trustee by reason of the Reportable Event.

Section 11.13. Subordination.

At the option of Beneficiary, this Deed of Trust will become subject and
subordinate, in whole or in part (but not with respect to priority of
entitlement to any insurance proceeds, damages, awards, or compensation
resulting from damage to the Property or condemnation or exercise of power of
eminent domain), to any contracts of sale or any leases of the Property on the
execution by Beneficiary and recording of a unilateral declaration to that
effect in the official records of the county and state where the Property is
located. Beneficiary may require the issuance of any title insurance
endorsements to the Title Policy in connection with any subordination that
Beneficiary, in its judgment, determines are appropriate, and Trustor will be
obligated to pay any cost or expense incurred in connection with the issuance.

<PAGE>

Section 11.14. No Merger.

So long as any of the Indebtedness remains unpaid or Beneficiary has any
further obligation under the Loan Documents, unless Beneficiary otherwise
consents in writing, the fee estate of Trustor in the Property or any part of it
will not merge, by operation of law or otherwise, with any leasehold or other
estate in the Property or any part of it, but will always be kept separate and
distinct, regardless of the union of the fee estate and the leasehold or other
estate in Trustor or any other Person.

Section 11.15. Inspection of Property.

Beneficiary is authorized by itself or its agents, employees, or workers,
to enter at any reasonable time on prior written notice to Trustor on any part
of the Property for the purpose of inspecting it, and for the purpose of
performing any of the acts it is authorized to perform under the terms of this
Deed of Trust. Trustor agrees to cooperate with Beneficiary to facilitate any
inspection.

Section 11.16. Performance by Trustor.

Trustor will faithfully perform every covenant to be performed by Trustor
under any lien or encumbrance, including, without limiting the generality of
this Deed of Trust, mortgages, deeds of trust, leases, declarations or
covenants, conditions and restrictions, and other agreements that affect the
Property, in law or in equity, that Beneficiary reasonably believes may be prior
and superior to or on a parity with the lien or charge of this Deed of Trust. A
breach of or a default under any lien or encumbrance that exists after any
applicable grace period in the pertinent instrument has expired without that
breach or default having been cured, will constitute an Event of Default under
this Deed of Trust. If Trustor fails to do so, Beneficiary, without demand or
notice and in its sole judgment, may do any things required by Trustor by any of
the provisions in this Deed of Trust and incur and pay expenses in connection
with that. Nothing in this section affects Trustor's obligations pursuant to
Sections 5.2 and 5.3 of this Deed of Trust or limits Beneficiary's rights.

Section 11.17. Personalty Security Instruments.

Trustor agrees that if Beneficiary at any time holds additional security
for any obligations secured by this Deed of Trust, it may enforce the terms of
it or otherwise realize on it, at its option, either before or concurrently or
after a sale is made under this Deed of Trust, and may apply the proceeds on the
Indebtedness secured without affecting the status or waiving any right to
exhaust any other security, including the security under this Deed of Trust, and
without waiving any breach or default or any right or power, whether exercised
under this Deed of Trust or in any other security.

Section 11.18. Suits to Protect Property.

<PAGE>

Trustor agrees to appear in and defend any action or proceeding purporting
to affect the security of this Deed of Trust or any additional or other security
for the obligations secured, the interest of Beneficiary or the rights, powers,
or duties of Trustee, and to pay all costs and expenses, including, without
limitation, cost of evidence of title and attorney fees, in any action or
proceeding in which Beneficiary or Trustee may appear or be made a party,
including, but not limited to, foreclosure or other proceeding commenced by
those claiming a right to any part of the Property under subordinate liens, in
any action to partition or condemn all or part of the Property, whether pursued
to final judgment, and in any exercise of the power of sale in this Deed of
Trust, whether the sale is actually consummated.

Section 11.19. Junior Liens.

Trustor agrees:

(a) that as of the date of this Deed of Trust there are no encumbrances to
secure debts junior to this Deed of Trust and

(b) that there are to be none as of the date when this Deed of Trust
becomes of record.

Section 11.20. Further Advances.

On the request of Trustor or its permitted successors in ownership of the
Land, Beneficiary may, at its option, at any time before full payment of the
Indebtedness, make further advances to Trustor or the successors in ownership,
with interest and late charges to be secured by this Deed of Trust. However, the
amount of principal secured by this Deed of Trust and remaining unpaid will not
at the time of and including any advance exceed the original principal sum
secured. Also, if Beneficiary, at its option, makes a further advance or
advances, Trustor or the successors in ownership agree to execute and deliver to
Beneficiary a note, payable on or before the maturity of the Indebtedness
secured and bearing any other terms that Beneficiary will require.

Section 11.21. Charges for Statements.

Trustor agrees to pay Beneficiary's reasonable charge, to the maximum
amount permitted by law, for any statement regarding the obligations secured by
this Deed of Trust requested by Trustor or on its behalf.

Section 11.22. Entire Agreement.

This Deed of Trust and the other Loan Documents set forth the entire
understanding between Trustor and Beneficiary and they will not be amended
except by a written instrument duly executed by each of Trustor and Beneficiary.
Any previous representations, warranties, agreements, and understandings among
the parties regarding the subject matter of the Loan or the Loan Documents,
whether written or oral, are superseded by this Deed of Trust and the other Loan
Documents.

<PAGE>

Section 11.23. Incorporation.

All terms of the Loan Documents are incorporated in this Deed of Trust by
this reference. All persons who may have or acquire an interest in the Property
will be deemed to have notice of the terms of the Loan Documents and to have
notice, if provided for, that the rate of interest on one or more Obligations
may vary from time to time.

Section 11.24. Waiver of Marshaling Rights.

Trustor, for itself and for all parties claiming through or under Trustor,
and for all parties who may acquire a lien on or interest in the Property,
waives all rights to have the Property or any other property that is now or
later may be security for any Obligation ("Other Property") marshaled on any
foreclosure of this Deed of Trust or on a foreclosure of any other security for
any of the Obligations. Beneficiary will have the right to sell, and any court
in which foreclosure proceedings may be brought will have the right to order a
sale of, the Property and any of the Other Property as a whole or in separate
parcels, in any order that Beneficiary may designate.

Section 11.25. Acceptance of Trust; Powers
and Duties of Trustee.

Trustee accepts this trust when this Deed of Trust is recorded. From time
to time on written request of Beneficiary and presentation of this Deed of Trust
for endorsement, and without affecting the personal liability of any person for
payment of any indebtedness or the performance of any obligations, Trustee may,
without liability and without notice:

(a) reconvey all or any part of the Property;

(b) consent to the making of any map or plat; and

(c) join in any grant of easement, any declaration of covenants,
conditions, and restrictions, any extension agreement, or any agreement
subordinating the lien or charge of this Deed of Trust. Except as may be
required by applicable law, Trustee or Beneficiary may from time to time apply
to any court of competent jurisdiction for aid and direction in the execution of
the trust and the enforcement of the rights and remedies available, and may
obtain orders or decrees directing, confirming, or approving acts in the
execution of the trust and the enforcement of the remedies. Trustee has no
obligation to notify any party of any pending sale or any action or proceeding,
including, without limitation, actions in which Trustor, Beneficiary, or Trustee
will be a party, unless held or commenced and maintained by Trustee under this
Deed of Trust. Trustee will not be obligated to perform any act required of it
under this Deed of Trust unless the performance of the act is requested in
writing and Trustee is reasonably indemnified and held harmless against any
loss, cost, liability, or expense.

Section 11.26. Releases, Extensions,
Modifications, and Additional Security.

<PAGE>

Upon five days' written notice to or the consent, approval, or agreement of
any persons or entities having any interest at any time in the Property or in
any manner obligated under the Obligations ("Interested Parties"), Beneficiary
may, from time to time, release any person or entity from liability for the
payment or performance of any Obligation; take any action or make any agreement
extending the maturity or otherwise altering the terms or increasing the amount
of any Obligation; or accept additional security or release the Property or
other security for any Obligation. None of these actions will release or reduce
the personal liability of any of the Interested Parties, or release or impair
the lien of this Deed of Trust, or the priority of it on the Property. However,
no action taken or agreement made by Beneficiary to extend the maturity or
otherwise alter the terms or increase the amount of any Obligation will be
binding on Trustor without Trustor's consent.

Section 11.27. Reconveyance.

Upon the payment and performance of all Obligations, including, without
limitation, Beneficiary's receipt of all sums owing and outstanding under the
Note, Beneficiary will deliver to Trustee a written request for reconveyance,
and will surrender to Trustee for cancellation this Deed of Trust and any note
or instrument evidencing the Obligations. However, Beneficiary will have no
obligation to deliver the written request and documents until Beneficiary has
been paid by Trustor, in immediately available funds, all escrow, closing, and
recording costs, the costs of preparing and issuing the reconveyance, and any
trustee's or reconveyance fees. On Trustee's receipt of the written request by
Beneficiary and the documents, Trustee will reconvey, without warranty, the
Property or that portion then held. To the extent permitted by law, the
reconveyance may describe the grantee as the person or persons legally entitled
and the recitals of any matters or facts in any reconveyance will be conclusive
proof of the truthfulness of them. Neither Beneficiary nor Trustee will have any
duty to determine the rights of persons claiming to be rightful grantees of any
reconveyance. When the Property has been fully reconveyed, the last reconveyance
will operate as a reassignment of all future rents, issues, and profits of the
Property to the person legally entitled.

Section 11.28. Subrogation.

Beneficiary will be subrogated to the lien of all encumbrances, whether
released of record, paid in whole or in part by Beneficiary pursuant to this
Deed of Trust, or by the proceeds of any loan secured by this Deed of Trust.

Section 11.29. Obligations of Trustor,
Joint and Several.

If more than one person has executed this Deed of Trust as Trustor, the
obligations of all those persons will be joint and several.

<PAGE>

Section 11.30. Recourse to Separate Property.

Any married person who executes this Deed of Trust as a Trustor agrees that
any money judgment that Beneficiary or Trustee obtains pursuant to the terms of
this Deed of Trust or any other obligation of that married person secured by
this Deed of Trust may be collected by execution on that person's separate
property, and any community property of which that person is a manager.

Section 11.31. Rules of Construction.

When the identity of the parties or other circumstances make it
appropriate, the singular number includes the plural.

Section 11.32. Successors in Interest.

The terms, covenants, and conditions in this Deed of Trust will be binding
on and inure to the benefit of the heirs, successors, and assigns of the
parties. However, this section does not waive the provisions of Article 6.1.

Section 11.33. No Offset.

Trustor will pay to Beneficiary all amounts owing under the Note, this Deed
of Trust, or any of the other Obligations without deduction or offset of any
kind.

Section 11.34. Governing Law.

The parties expressly agree that this Deed of Trust (including, without
limitation, all questions regarding permissive rates of interest) will be
governed by or construed in accordance with the laws of California and federal
law, where applicable.

In Witness Whereof, Trustor has executed this Deed of Trust as of the day
and year first above written.

EN POINTE TECHNOLOGIES, INC., a Delaware
corporation

By:
--------------------------

<PAGE>

PROMISSORY NOTE SECURED BY DEED OF TRUST

Los Angeles, California
October __, 1997

In consideration of a loan from HABIB BANK AG ZURICH (hereinafter "Lender")
the undersigned (hereinafter "Borrower"), Borrower hereby promises to pay to the
order of Lender at its office in Los Angeles, California, or at any other place
that may be designated in writing by Lender, in lawful money of the United
States of America, the sum of four million dollars ($4,000,000.00), plus any and
all interest thereon as stated herein. The unpaid balance of the loan will bear
interest at the rate of the National Prime Rate, which at the time of execution
of this Promissory Note is 8.50% per annum, and which is based on the Prime Rate
published in the Wall Street Journal, plus 0.25%, calculated on the basis of a
360 day year and the number of days elapsed.

Principal and interest shall be paid monthly and due monthly commencing
thirty days from the date of this Note. The amount of the payments shall be
determined by a fifteen-year amortization of the original amount of the loan.
The first such payment shall be in the amount of $39,977.95. All remaining
principal and any accrued unpaid interest shall be due on October 31, 2007
("Maturity Date").

This Note is secured by the Deed of Trust, Security Agreement, and Fixture
Filing, with Assignment of Rents and Agreements of the same date as this Note,
executed by Borrower, as trustor, in favor of Lender, as beneficiary ("Deed of
Trust"), and encumbering the real property described in the Deed of Trust
("Property"). The holder of this Note will be entitled to the benefits of the
security provided by the Deed of Trust and will have the right to enforce the
covenants and agreements of Borrower contained in the Deed of Trust. This Note
is nonrecourse, and Borrower has no liability for any deficiency following sale
of the Property.

From and after the Maturity Date, or an earlier date on which all sums
owing under this Note become due by acceleration or otherwise, all sums owing
under this Note will bear interest until paid in full at a rate equal to three
percent (3%) per annum in excess of the rate of interest specified above
("Default Rate").

All payments on this Note will be applied first to the payment of any
costs, fees, late charges, or other charges incurred in connection with the
indebtedness evidenced by this Note; next, to the payment of accrued interest;
then to the reduction of the principal balance; or in any other order that
Lender requires. Lender shall initially advance the sum of three million two
hundred ninety thousand dollars ($3,290,000.00) and shall fund the balance of
seven hundred ten thousand dollars ($710,000.00) upon completion of the
improvements at the property that is security for the loan. Monthly payments
shall be based upon the amortization of a four million dollar loan, but
allocation of principal and interest shall be based upon the amount of principal
actually advanced, and shall be calculated on the basis of a 360 day year and
the number of actual days elapsed.

If:

<PAGE>

(a) Borrower fails to pay when due any sums payable under this Note;

(b) an uncured Event of Default (defined in the Deed of Trust) occurs;
or

(c) any other event or condition occurs that, under the terms of the
Deed of Trust, gives rise to a right of acceleration of sums owing under this
Note,

then Lender, at its sole option, will have the right to declare all sums owing
under the Note immediately due. However, if any document related to this Note
provides for the automatic acceleration of payment of sums owing under this
Note, all sums owing will be automatically due in accordance with the terms of
that document.

Borrower will have the right to pay, without penalty or premium, on any
monthly payment date, all or any portion of the outstanding principal amount of
this Note prior to the Maturity Date. Lender will apply all prepayments first
to the payment of any costs, fees, late charges, or other charges incurred in
connection with the indebtedness evidenced by this Note; next, to the payment of
accrued interest; then to the outstanding principal amount of this Note in
inverse order of maturity, or, at the option of Lender, in the regular order of
maturity; or in any other order that Lender requires.

Borrower will pay to Lender all sums owing under this Note without
deduction, offset, or counterclaim of any kind, provided however that Borrower
does not waive the right to assert any counterclaim by way of a judicial action.
The relationship of Borrower and Lender under this Note is solely that of
borrower and lender, and the loan evidenced by this Note and secured by the Deed
of Trust will in no manner make Lender the partner or joint venturer of
Borrower.

If any attorney is engaged by Lender to enforce or construe any provision
of this Note, the Deed of Trust, or the other Loan Documents (defined in the
Deed of Trust) or as a consequence of any uncured Event of Default, with or
without the filing of any legal action or proceeding, then Borrower will
immediately pay to Lender on demand all reasonable attorney fees and other costs
incurred by Lender, together with interest from the date of the demand until
paid at the Default Rate.

No previous waiver or failure or delay by Lender in acting with respect to
the terms of this Note, the Deed of Trust, or the other Loan Documents will
constitute a waiver of any breach, default, or failure of condition under this
Note, the Deed of Trust, or the other Loan Documents. A waiver of any term of
this Note, the Deed of Trust, or the other Loan Documents must be made in
writing and will be limited to the express written terms of the waiver. If
there are any inconsistencies between the terms of this Note and the terms of
any of the other Loan Documents, the terms of this Note will prevail.

All notice required or permitted in connection with this Note will be in
writing and will be given at the place and in the manner provided in the Deed of
Trust for the giving of notices.
The persons executing this instrument represent and confirm that this loan
and the related Deed of Trust are duly authorized by Borrower. Borrower waives
presentment; demand; notice of dishonor; notice of default or delinquency;
notice of acceleration; notice of protest and nonpayment; notice of costs,
expenses, or losses and interest; notice of interest on interest and

<PAGE>

late charges; and diligence in taking any action to collect any sums owing under
this Note or in proceeding against any of the rights or interests to properties
securing payment of this Note. Time is of the essence with respect to every
provision of this Note. This Note will be construed and enforced in accordance
with California law, except to the extent that Federal laws pre-empt state law,
and all persons and entities in any manner obligated under this Note consent to
the jurisdiction of any Federal or State Court within California having proper
venue and also consent to service of process by any means authorized by
California or Federal law.

EN POINTE TECHNOLOGIES, INC. a Delaware
corporation

By
----------------------------

<PAGE>

EN POINTE TECHNOLOGIES, INC.
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
EXHIBIT 11.1

PRIMARY Year ended September 30,
----------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net income $ 703,240 $3,329,523 $5,830,562
---------- ---------- ----------
---------- ---------- ----------

Basis for computation of primary earnings
per common and common equivalent share:

Weighted average number of shares
outstanding during period 3,350,000 4,184,385 5,680,760

Weighted average (incremental) common
share equivalent after considering the effects
of options and warrants exercised and
canceled during the period and after assumed
repurchase of treasury shares 59,500 117,535 130,068
---------- ---------- ----------

Total weighted shares 3,409,500 4,301,920 5,810,828
---------- ---------- ----------
---------- ---------- ----------

Earnings per share $ 0.21 $ 0.77 $ 1.00
---------- ---------- ----------
---------- ---------- ----------

FULLY DILUTED Year ended September 30,
----------------------------------------
1995 1996 1997
---------- ---------- ----------
Net income $ 703,240 $3,329,523 $5,830,562
---------- ---------- ----------
---------- ---------- ----------

Basis for computation of primary earnings
per common and common equivalent share:

Weighted average number of shares
outstanding during period 3,350,000 4,184,385 5,680,760

Total weighted shares 3,409,500 4,301,920 6,154,550
---------- ---------- ----------
---------- ---------- ----------

Earnings per share $ 0.21 $ 0.77 $ 0.95
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

<PAGE>

Exhibit 21.1 Subsidiaries of Registrant

1. Price Point, Inc.

2. En Pointe Technologies Sales, Inc.

3. En Pointe Technologies Canada, Inc.

<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the registration statement
of En Pointe Technologies, Inc. on Forms S-8 (File Nos. 333-06395, 333-10583 and
333-33323) of our report dated November 11, 1997, on our audits of the financial
statements and financial statement schedule of En Pointe Technologies, Inc. as
of September 30, 1997 and 1996 and for each of the three years in the period
ended September 30, 1997, which report is included in this Annual Report on Form
10-K. We also consent to the reference to our firm under the caption "Selected
Financial Data".

<TABLE>
<S> <C>
/s/ COOPERS & LYBRAND L.L.P.
----------------------------
Coopers & Lybrand L.L.P.
</TABLE>

Los Angeles, California
December 24, 1997

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 3,315
<SECURITIES> 0
<RECEIVABLES> 78,037
<ALLOWANCES> 1,162
<INVENTORY> 4,663
<CURRENT-ASSETS> 86,834
<PP&E> 5,648
<DEPRECIATION> 2,370
<TOTAL-ASSETS> 90,862
<CURRENT-LIABILITIES> 62,081
<BONDS> 0
0
0
<COMMON> 6
<OTHER-SE> 28,313
<TOTAL-LIABILITY-AND-EQUITY> 90,862
<SALES> 491,358
<TOTAL-REVENUES> 491,358
<CGS> 447,276
<TOTAL-COSTS> 480,521
<OTHER-EXPENSES> (194)
<LOSS-PROVISION> 255
<INTEREST-EXPENSE> 1,239
<INCOME-PRETAX> 9,792
<INCOME-TAX> 3,962
<INCOME-CONTINUING> 5,831
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,831
<EPS-PRIMARY> 1.00
<EPS-DILUTED> .95

</TABLE>