TELULAR CORP, 10-Q, 1997-08-14

TELULAR CORP
10-Q, 1997-08-14
TELEPHONE & TELEGRAPH APPARATUS

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<PAGE> 1
United States
Securities and Exchange Commission
Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 1997.

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to .

Commission File Number 0-23212

TELULAR CORPORATION
(Exact name of Registrant as specified in its charter)

Delaware 36-3885440
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

647 North Lakeview Parkway
Vernon Hills, Illinois
60061
(Address of principal executive offices)
(Zip Code)

(847) 247-9400
(Registrant's telephone number, including area code)

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
--- ---

The number of shares outstanding of the Registrant's common stock, par value
$.01, as of June 30, 1997, the latest practicable date, was 31,546,262 shares.

<PAGE> 2

TELULAR CORPORATION
INDEX

PART I - FINANCIAL INFORMATION PAGE NO.
----------

Item 1. Financial Statements:

Consolidated Balance Sheets
June 30, 1997 and September 30, 1996 3

Consolidated Statements of Operations
Three Months Ended June 30, 1997 and June 30, 1996 4
Nine Months Ended June 30, 1997 and June 30, 1996 5

Consolidated Statement of Stockholders' Equity
Period from September 30, 1996 to June 30, 1997 6

Consolidated Statements of Cash Flows
Nine Months Ended June 30, 1997 and June 30, 1996 7

Notes to the Consolidated Financial Statements 8

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11

PART II - OTHER INFORMATION

Item 2. Changes in Securities. 17

Item 6. Exhibits and Reports on Form 8-K 18

Signatures 20

<PAGE> 3
TELULAR CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1997 1996
------------------- --------------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 32,636 $ 12,838
Receivables:
Trade, net of allowance for doubtful accounts of
$566 and $900 at June 30, 1997
and September 30, 1996, respectively 2,989 6,328
Related parties 608 4,088
------------------- --------------------
3,597 10,416
Inventories, net 13,877 12,792
Prepaid expenses and other current assets 274 181
------------------- --------------------
Total current assets 50,384 36,227
Property and equipment, net 3,400 2,325
Other assets:
Intangible assets, net 547 180
Investment in affiliate 3,732 3,146
Deposits and other 382 61
------------------- --------------------
4,661 3,387
------------------- --------------------
Total assets $ 58,445 $ 41,939
=================== ====================

LIABILITIES, REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable:
Trade $ 3,905 $ 1,794
Related parties 3,542 6,197
Accrued liabilities 2,920 1,678
------------------- --------------------
Total current liabilities 10,367 9,669

Convertible debentures - 1,500
------------------- --------------------
Total liabilities 10,367 11,169

Commitments and contingencies - -

Redeemable Preferred Stock:
Series A convertible preferred stock, $.01 par value
at June 30, 1997; $20,136 liquidation preference at
June 30, 1997; 21,000 and no shares authorized
at June 30, 1997 and September 30, 1996,
respectively; 20,000 shares issued and outstanding
at June 30, 1997 20,943 -

Stockholders' equity:
Preferred stock, $.01 par value; 9,979,000 and 10,000,000
shares authorized at June 30, 1997 and September 30, 1996;
none outstanding - -
Common stock; $.01 par value; 75,000,000 shares
authorized; 31,546,262 and 31,016,675 outstanding
at June 30, 1997 and September 30, 1996, respectively 321 316
Additional paid-in capital 110,771 108,311
Deficit (82,350) (76,250)
Treasury stock, 560,000 shares at cost (1,607) (1,607)
------------------- --------------------
Total stockholders' equity 27,135 30,770
------------------- --------------------
Total liabilities, redeemable preferred stock and stockholders' equity $ 58,445 $ 41,939
=================== ====================
</TABLE>

3
See accompanying notes

<PAGE> 4
TELULAR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,

1997 1996
------------------ ------------------
(unaudited) (unaudited)
<S> <C> <C>
Net sales to third parties $ 5,237 $ 3,158

Net sales to related parties 43 1,592
------------------ ------------------

Total net sales 5,280 4,750

Cost of sales 4,750 3,572
------------------ ------------------

530 1,178

Engineering and development expenses 2,014 1,108
Selling and marketing expenses 1,004 1,260
General and administrative expenses 1,476 1,835
Provision for doubtful accounts - 659
Amortization 103 40
Restructuring and impairment charges - 1,112
------------------ ------------------

Income (loss) from operations (4,067) (4,836)

Other income 94 341
------------------ ------------------

Net income (loss) $ (3,973) $ (4,495)

Less - amortization of preferred stock beneficial
conversion discount (2,000) 0
------------------ ------------------

Loss applicable to common shares $ (5,973) $ (4,495)
================== ==================

Net income (loss) per common share $ (0.19) $ (0.15)
================== ==================

Weighted average number of common shares outstanding 31,542,630 30,478,543
================== ==================
</TABLE>

See accompanying notes

<PAGE> 5
TELULAR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,

1997 1996
----------------- ----------------
(unaudited) (unaudited)
<S> <C> <C>
Net sales to third parties $ 17,402 $ 11,041

Net sales to related parties 17,676 2,311
----------------- ----------------

Total net sales 35,078 13,352

Cost of sales 27,128 13,881
----------------- ----------------

7,950 (529)

Engineering and development expenses 4,741 3,876
Selling and marketing expenses 3,033 5,078
General and administrative expenses 4,340 5,732
Provision for doubtful accounts 230 839
Amortization 143 565
Restructuring and impairment charges - 11,019
----------------- ----------------

Income (loss) from operations (4,537) (27,638)

Other income 573 514
----------------- ----------------

Net Income (loss) $ (3,964) $ (27,124)

Less - amortization of preferred stock beneficial
conversion discount (2,000) -
----------------- ----------------

Loss applicable to common shares $ (5,964) $ (27,124)
================= ================

Net income (loss) per common share $ (0.19) $ (1.02)
================= ================

Weighted average number of common shares outstanding 31,479,306 26,476,097
================= ================
</TABLE>

See accompanying notes

<PAGE> 6
TELULAR CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
Additional Total
Preferred Common Paid-In Treasury Stockholders'
Stock Stock Capital Deficit Stock Equity
----------- ---------- ---------- ---------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1996 $ - $ 316 $ 108,311 $ (76,250) $ (1,607) $ 30,770

Proceeds from the conversion of
debentures and issuances of
common stock - 4 1,828 - - 1,832

Stock issued in connection with the
equity investment in Wireless Domain - 1 489 - - 490

Stock issued in connection with
compensation expense and services - - 143 - - 143

Cummulative dividend on redeemable
preferred stock - - - (138) - (136)

Amortization of preferred stock
beneficial conversion discount - - - (2,000) - (2,000)

Net loss for period from October 1,
1996 to June 30, 1997 - - - (3,364) - (3,964)
----------- ---------- ----------- ---------- --------------- -----------------

Balance at June 30, 1997 $ - $ 321 $ 110,771 $ (82,350) $ (1,607) $ 27,135
=========== ========== =========== ========== =============== =================
</TABLE>

See accompanying notes

6
<PAGE> 7
TELULAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
1997 1996
-------------- -----------------
OPERATING ACTIVITIES: (unaudited) (unaudited)
<S> <C> <C>
Net loss ($3,964) ($27,124)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities
Restructuring and inpairment charges - 8,493
Depreciation 729 899
Amortization 241 565
Interest on debentures - 157
Stock issued for compensation and services 143 99
Equity in net loss of affiliate 72 -
Loss on sale of assets 22 -
Changes in assets and liabilities:
Receivables, net 6,820 4,382
Inventories, net (1,085) 2,010
Prepaid expenses, deposits and other (889) 39
Accounts payable (544) (729)
Accrued liabilities 1,243 (719)
-------------- -----------------
Net cash provided by (used in) operating activities 2,788 (11,928)

INVESTING ACTIVITIES:
Acquisition of property and equipment (1,835) (1,200)
Investment in affiliate (250) (1,000)
Proceeds from disposal of equipment 9 503
-------------- -----------------
Net cash used in investing activities (2,076) (1,697)

FINANCING ACTIVITIES:
Proceeds from the issuance of common stock 279 456
Payments on revolving line of credit - (10,000)
Proceeds from the issuance of redeemable preferred stock 18,807 -
Proceeds from convertible debentures - 18,000
-------------- -----------------
Net cash provided by financing activities 19,086 8,456
-------------- -----------------

Net increase (decrease) in cash and cash equivalents 19,798 (5,169)

Cash and cash equivalents, beginning of period 12,838 21,552
-------------- -----------------
Cash and cash equivalents, end of period $32,636 $16,383
============== =================
</TABLE>

See accompanying notes

7
<PAGE> 8

TELULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation
have been included. Operating results for the nine months ended June 30,
1997 are not necessarily indicative of the results that may be expected
for the full fiscal year ending September 30, 1997. For further
information, refer to the consolidated financial statements for the
fiscal year ended September 30, 1996.

2. INVENTORIES

The components of inventories consist of the following (000's):

<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1997 1996
--------- -------------
(unaudited)
<S> <C> <C>
Raw materials $ 9,493 $11,196
Work in process 504 467
Finished goods 4,733 2,328
------- -------------
14,730 13,991
Less: Reserve for obsolescence 853 1,199
------- -------------
$13,877 $12,792
======= =============
</TABLE>

3. INVESTMENT IN WIRELESS DOMAIN CORPORATION (FORMERLY TELEPATH CORPORATION)

On June 28, 1996, the Company entered into an agreement to acquire a
one-third interest in Wireless Domain Corporation ("Wireless Domain") in
exchange for $1 million in cash and common stock of the Company valued at
approximately $2.2 million. The agreement calls for the Company to
increase its equity position in Wireless Domain to 50% by August of 1997
by purchasing an additional one-sixth of Wireless Domain for 150,000
shares of the Company's common stock as well as payments totaling $0.5
million in two separate transactions. The first of three investments in
Wireless Domain occurred during the third quarter of fiscal year 1996.
In January 1997, the Company made the second investment by exchanging
$0.25 million in cash and 75,000 shares of the Company's common stock
(approximate value of $0.5 million) for an additional one-twelfth of
Wireless Domain. Under the agreement the Company purchases various
product development services from Wireless Domain. The Company spent
$0.8 million and $1.9 million on such services from Wireless Domain
during the three months and nine months ended June 30, 1997,
respectively.

<PAGE> 9

TELULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997

4. CONVERTIBLE DEBENTURES

On December 11, 1995, the Company issued $18 million in convertible
debentures (the "Debentures") at 4% per annum, which were to mature on
December 11, 1997. The Debentures were issued under the provisions of
Regulation S as promulgated under the United States Securities Act of
1933, as amended. Holders of the Debentures were entitled, at their
option any time after issuance until December 10, 1997, to convert
principal and interest accrued thereon, in whole or in part, into shares
of common stock using defined conversion formulas based on NASDAQ closing
bids for the Company's common stock. The Company was entitled, at its
option any time commencing one year after issuance (and under certain
circumstances prior to that date) through maturity, to require the
holders to convert the principal and accrued interest into shares of
common stock of the Company using defined conversion formulas based on
NASDAQ closing bids for the Company's common stock. By November 30,
1996, the entire issuance of convertible debentures and all interest
accrued thereon were converted into approximately 7,033,000 shares of
common stock.

5. REDEEMABLE PREFERRED STOCK

During the third fiscal quarter of 1997, the Company issued 20,000 shares
(10,000 shares April 16, 1997 and 10,000 shares on June 6, 1997) of
Series A Convertible Preferred Stock (the "Preferred Stock") for $18.8
million which is net of issuance cost of $1.2 million. The Preferred
Stock automatically converts to Common Stock on April 16, 1999, or
October 16, 1999, depending on the conversion price and includes the
equivalent of a 5% annual stock dividend. Holders of the Preferred Stock
are entitled, at their option, subject to trading volume and other
restrictions, to convert Preferred Stock into shares of Common Stock
using defined conversion formulas based on the NASDAQ closing bid prices
for the Company's Common Stock. In addition, the holders have the option
to redeem the Preferred Stock upon the occurrence of a (i) consolidation
or merger with another company; (ii) sale or transfer of substantially
all assets; or (iii) 50% change in ownership. The redemption price upon
holder redemption is the greater of $1,250 per share and the cash
equivalent of the defined conversion formula on the date of redemption.
The Company is entitled to require the holders to convert the Preferred
Stock and accrued dividends into shares of common stock of the Company
using a defined conversion formula based upon the NASDAQ closing bid
prices for the Company's common stock. In addition, the Company has the
right to redeem the Preferred Stock after April 15, 1999 for $1,200 per
share plus 120% of the accrued dividends. Holders of the Preferred Stock
are not entitled to vote on matters submitted for vote to the
stockholders of the Company.

The Preferred Stock reflects a beneficial conversion feature that allows
holders to convert the security to common stock of the Company at a
discount. The amount of the discount is determined using NASDAQ closing
bid prices for the Company's common stock. During the third quarter, the
Company recorded $2.0 million of amortization of preferred stock
beneficial conversion discount. The offset entry to amortization of
preferred stock beneficial conversion discount increased redeemable
preferred stock by $2.0 million. This amount will accrete to the
Company's common stock and additional paid in capital accounts as shares
of redeemable preferred stock are converted into shares of common stock
of the Company. No shares of Preferred Stock have been converted to
common stock as of August 14, 1997.

<PAGE> 10

TELULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997

6. REVOLVING LINE OF CREDIT

On April 23, 1997, the Company entered into a Loan and Security Agreement
with Sanwa Business Credit Corporation that, among other things, provides
a revolving credit facility with a loan limit of $20.0 million (the
"Loan"). Borrowings under the Loan are subject to borrowing base
requirements and other restrictions. Under the Loan and Security
Agreement, the Company is required to comply with certain affirmative and
negative covenants. The Loan matures on April 23, 2000. At the
Company's election, the Loan carries interest at the bank's prime rate
plus 1.0% or the Eurodollar rate (Libor) plus 3.00%. The Company has not
borrowed any amounts pursuant to the loan as of August 14, 1997.

7. CONTINGENCIES

The Company is involved in legal proceedings that arise in the ordinary
course of business. While any litigation contains an element of
uncertainty, based upon discussion with the Company's counsel, management
believes that the outcome of such proceedings will not have a material
adverse effect on the Company's consolidated financial position and
results of operations.

<PAGE> 11

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The Company designs, develops, manufactures and markets products based on its
proprietary interface technologies, which allow most standard wireline customer
premises equipment -- phones, facsimile machines, computer modems, PBXs, and
key systems, among others -- to operate over wireless telecommunications
networks. Currently, the Company is devoting a substantial portion of its
resources to international market development, extension of its core product
line to new wireless standards, expansion, protection and licensing of its
intellectual property rights, and development of underlying radio technology.

The Company is investing in new product development for both analog and digital
fixed wireless terminals. As with any emerging market, it is difficult to
predict the timing of the market demand. If anticipated sales in any quarter
do not occur as expected, expenditure and inventory levels could be
disproportionately high, and the Company's operating results for that quarter,
and potentially for future quarters, could be adversely affected. Certain
factors that could significantly impact expected results are described in
"Cautionary Statements Pursuant to the Securities Litigation Reform Act" which
is attached as exhibit 99 to the Form 10-K filed for the period ended September
30, 1996.

RELATIONSHIP WITH MOTOROLA, INC.

In November 1993, the Company entered into a strategic agreement with Motorola
Inc. ("Motorola"), whereby Motorola, through its Cellular Subscriber Group,
acquired an interest in the Company and received an option to increase its
holdings. Motorola exercised the option in April 1994 and now owns
approximately 15% of the outstanding shares of common stock. Motorola also
obtained the right to representation on the Company's Board of Directors. In
addition, the Company purchases components from and sells finished goods to
Motorola. For further information about the Company and Motorola, refer to
Form 10-K filed for the period ended September 30, 1996.

RESTRUCTURING

On January 22, 1996, the Company announced a restructuring program (the
"Restructuring Program) which was implemented during the second and third
quarters of fiscal 1996. The difficulty in predicting demand for the Company's
products, due in part to immature foreign markets, underscored the importance
of properly aligning costs and expenses to attainable levels of revenue.
Manufacturing and engineering consolidation, outsourcing and the elimination of
non-core product lines were the focus of the restructuring. The Company's
Puerto Rico and Buffalo Grove manufacturing operations were phased out during
the second fiscal quarter, and production was consolidated at the Company's
Atlanta, Georgia facility (The Company moved its offices and operations to
Vernon Hills, Illinois in May of 1997). The Restructuring Program reduced
general, administrative and manufacturing costs Company-wide. The number of
employees decreased from over 250 in January 1996 to less than 110 at the end
of November 1996. Restructuring and impairment charges amounting to
approximately $11.0 million were incurred during the second and third fiscal
quarters of 1996. The Company will experience approximately $1.2 million in
reduced amortization charges in each of the next five years as the result of
intangible assets written off as restructuring or impairment charges. Also,
wages decreased as part of the restructuring, but may increase in future
periods if the demand for the Company's products meets management's
expectations.

<PAGE> 12

RESULTS OF OPERATIONS

THIRD QUARTER FISCAL 1997 COMPARED TO THIRD QUARTER FISCAL 1996

Net Sales. Third quarter fiscal 1997 sales increased by approximately 11% from
$4.8 million for the three months ended June 30, 1996 to $5.3 million for the
three months ended June 30, 1997. Sales of fixed wireless terminals (FWTs)
increased 8% and sales of wireless security alarm products increased 3%. There
were no significant shipments to Motorola for the wireless local loop (WLL)
project in Hungary during the third quarter of fiscal 1997.

Gross Profit. Third quarter fiscal 1997 gross profit decreased by $0.6 million
compared to the same period of fiscal 1996. The decrease was primarily due to
the increased expenses associated with the move of operations from Atlanta,
Georgia to Vernon Hills, Illinois. For the third quarter of fiscal 1997, the
Company's gross margin percentage was 10% compared to 25% gross profit margin
in fiscal 1996.

Engineering and Development Expenses. Engineering and development expenses of
$2 million, increased approximately 82% over the third quarter of fiscal 1996,
which resulted from the Company's increased focus on developing analog and
digital fixed wireless terminals that will operate on additional radio
standards.

Selling and Marketing expenses. Selling and marketing expenses for the third
quarter of fiscal 1997 decreased 20% compared to the same quarter of fiscal
1996. The decrease was primarily a result of the Company's realignment of its
worldwide sales organization.

General and Administrative Expenses (G&A). G&A for the third quarter decreased
32% compared to the same quarter of fiscal 1996. The decrease is primarily
attributable to the reduction or elimination of expenditures, primarily through
headcount reductions, achieved through the Restructuring Program.

Provision for doubtful accounts. The provision for doubtful accounts expense
decreased from the same quarter of fiscal 1996 due to improvement in the
Company's collections experience.

Other Income. Third quarter 1997 other income was $0.3 million less compared
to the same fiscal quarter of 1996. The Company provided $0.3 million of
reserves for fixed asset impaired as a result of its relocation during the
three months ended June 30, 1997.

Net Income (loss). The Company recorded a net loss of $4.0 million for the
third quarter in fiscal 1997 compared to a loss of $4.5 million in the same
quarter of fiscal 1996. The 1996 period included $1.1 million of restructuring
and impairment charges.

Loss applicable to common shares. After recording the amortization of the
preferred stock beneficial conversion discount (see financial statement
footnote 5) of $2.0 million during the third fiscal quarter of 1997, loss
applicable to common shares was $6.0 million or $0.19 per share for the three
months ended June 30, 1997 compared to $4.5 million or $0.15 per share for the
same period in 1996.

<PAGE> 13

RESULTS OF OPERATIONS (CONTINUED)

FISCAL NINE MONTHS ENDED JUNE 30, 1997 COMPARED TO SAME FISCAL NINE MONTHS IN
1996

Net Sales. Fiscal 1997 year to date sales increased by 163% from $13.4 million
for the nine months ended June 30, 1996, to $35.1 million for the nine months
ended June 30, 1997. Sales of fixed wireless terminals (FWTs) accounted for
the largest share of the increase. Shipments to Motorola for the wireless
local loop (WLL) project in Hungary represented 50% of fiscal 1997 year to date
sales. Sales of FWTs, excluding the Hungary project, increased 55% and sales
of wireless security alarm products increased 30% over the prior year.

Gross Profit. Fiscal 1997 year to date gross profit increased by $8.5 million
compared to the same period of fiscal 1996. The increase was primarily due to
the substantial increase in sales volumes in fiscal 1997 as compared to fiscal
1996. The Company incurred $0.8 million of expenses to increase its
manufacturing capacity and to move to a new facility to increase efficiency
during the first nine months of fiscal 1997. For the same nine months, the
Company's gross margin percentage was 23% compared to negative (4%) gross
profit margin in the first nine months of fiscal 1996. During 1996, a $2.5
million charge for inventory determined to be excess or obsolete as part of the
Company's restructuring and consolidation of manufacturing facilities accounted
for the negative gross margin.

Engineering and Development Expenses. Engineering and development expenses
increased 22% to $4.7 million for the first nine months of fiscal 1997 compared
to the same period in fiscal 1996, which resulted from the Company's increased
focus on developing analog and digital fixed wireless terminals that will
operate on additional radio standards.

Selling and Marketing expenses. Selling and marketing expenses for the first
nine months of fiscal 1997 decreased 40% compared to the same period of fiscal
1996. This decrease was primarily a result of the Company's realignment of its
worldwide sales organization.

General and Administrative Expenses (G&A). G&A for the first nine months of
fiscal 1997 decreased 28% compared to the same quarter of fiscal 1996. The
decrease is primarily attributable to the reduction or elimination of
expenditures, primarily through headcount reductions, achieved through the
Restructuring Program.

Amortization Charges. Amortization charges for the first nine months of fiscal
1997 decreased by 75% compared to the same period in fiscal 1996. Intangible
assets written off as part of restructuring and impairment charges during the
third quarter of fiscal 1996 significantly reduced the intangible asset balance
and related amortization charges in fiscal 1997 compared to fiscal 1996.

Net Income (loss). The Company recorded a net loss of $4.0 million for the
first nine months of fiscal 1997, compared to a loss of $27.1 million in the
same period of fiscal 1996. The 1996 period included $11.0 million of
restructuring and impairment charges.

Loss applicable to common shares. After recording the amortization of the
preferred stock beneficial conversion discount (see financial statement
footnote 5) of $2.0 million during the third fiscal quarter of 1997, loss
applicable to common shares was $6.0 million or $0.19 per share for the nine
months ended June 30, 1997 compared to $27.1 million or $1.02 for the same
period in 1996.

<PAGE> 14

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 1997, the Company had $32.6 million in cash and cash equivalents
with a working capital surplus of $40.0 million.

From an operating standpoint, the Company generated $2.8 million of cash during
the nine months ended June 30, 1997 compared to the $11.9 million cash used
during the same fiscal period last year.

Cash used for capital spending and other investing activities was approximately
$2.1 million during the nine months ended June 30, 1997 compared to $1.7
million during the same fiscal period last year. In January 1997, the Company
increased its investment in Wireless Domain Corporation (formerly Telepath
Corporation) by approximately $0.7 million. The additional investment,
comprised of cash of $250,000 and 75,000 shares of the Company's common stock,
raised Telular's stake in Wireless Domain Corporation to approximately 43%.
The Company spent approximately $1.8 million in capital expenditures during the
first half of fiscal 1997, primarily for leasehold improvements and
production/engineering equipment for new products.

Financing activities provided for $19.1 million during the first nine months of
fiscal 1997, compared to $8.4 million during the same fiscal period in 1996.
The current period amount is from the issuance of redeemable preferred stock
($18.8 million) and the sale of stock through the Company's stock option plan
($0.3 million). In the prior year, the Company raised $8 million from the sale
of convertible debentures, net of payments against the Company's revolving line
of credit (see below).

On April 23, 1997, the Company entered into a Loan and Security Agreement with
Sanwa Business Credit Corporation that, among other things, provides a credit
facility with a loan limit of $20.0 million (the "Loan"). Borrowings under the
Loan are subject to borrowing base requirements and other restrictions. Under
the Loan and Security Agreement, the Company is required to comply with certain
affirmative and negative covenants. The Loan matures on April 23, 2000. This
facility replaces a Loan and Security Agreement with LaSalle National Bank
that, among other things, provides a credit facility with a loan limit of $20.0
million. The agreement, which terminated on May 1, 1997, required the Company
to maintain a $10 million compensating balance.

During the third fiscal quarter of 1997, the Company issued 20,000 shares
(10,000 shares April 16, 1997 and 10,000 shares on June 6, 1997) of Series A
Convertible Preferred Stock (the "Preferred Stock") for $18.8 million which is
net of issuance cost of $1.2 million. The Preferred Stock automatically
converts to Common Stock on April 16, 1999, or October 16, 1999, depending on
the conversion price and includes the equivalent of a 5% annual stock dividend.
Holders of the Preferred Stock are entitled, at their option, subject to
trading volume and other restrictions, to convert Preferred Stock into shares
of Common Stock using defined conversion formulas based on the NASDAQ closing
bid prices for the Company's Common Stock. In addition, the holders have the
option to redeem the Preferred Stock upon the occurrence of a (i) consolidation
or merger with another company; (ii) sale or transfer of substantially all
assets; or (iii) 50% change in ownership. The redemption price upon holder
redemption is the greater of $1,250 per share and the cash equivalent of the
defined conversion formula on the date of redemption. The Company is entitled
to require the holders to convert the Preferred Stock and accrued dividends
into shares of common stock of the Company using a defined conversion formula
based upon the NASDAQ closing bid prices for the Company's common stock. In
addition, the Company has the right to redeem the Preferred Stock after April
15, 1999 for $1,200 per share plus 120% of the accrued dividends. Holders of
the Preferred Stock are not entitled to vote on matters submitted for vote to
the stockholders of the Company.

<PAGE> 15

LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)

The Preferred Stock reflects a beneficial conversion feature that allows
holders to convert the security to common stock of the Company at a discount.
The amount of the discount is determined using NASDAQ closing bid prices for
the Company's common stock. During the third quarter, the Company recorded
$2.0 million of amortization of preferred stock beneficial conversion discount.
The offset entry to amortization of preferred stock beneficial conversion
discount increased redeemable preferred stock by $2.0 million. This amount
will accrete to the Company's common stock and additional paid in capital
accounts as shares of redeemable preferred stock are converted into shares of
common stock of the Company. No shares of Preferred Stock have been converted
to common stock as of August 14, 1997.

The Company will use much of the capital recently raised to fund new product
development. Beyond its specific research and product development needs,
expected future uses of cash include working capital requirements, marketing
and sales support programs in anticipation of future revenues and certain
capital expenditures. Based upon its current operating plan, the Company
believes its existing capital resources, including the credit facility and
proceeds from the issuance of Preferred Stock, should enable it to maintain its
current and planned operations. Cash requirements may vary and are difficult
to predict given the nature of the developing markets targeted by the Company.
The amount of royalty income from the Company's licensees is unpredictable, but
could have an impact on the Company's actual cash flow.

The Company requires letters of credit or qualification for export credit
insurance underwritten by third party credit insurance companies or the
Export-Import Bank of the United States on a substantial portion of its
international sales orders. Also, to mitigate the effects of currency
fluctuations on the Company's results of operations, the Company endeavors to
conduct all of its international transactions in U.S. dollars. To date, the
Company's sales have not been adversely affected by currency fluctuations;
however, as the Company's international operations grow, foreign exchange or
the inflation of a foreign currency may pose greater risks for the Company, and
the Company may be required to develop and implement additional strategies to
manage these risks.

<PAGE> 16

OUTLOOK

The statements contained in this outlook are based on current expectations.
These statements are forward looking, and actual results may differ materially.

The Company expects fiscal 1997 sales levels to significantly exceed fiscal
1996 sales levels, primarily due to the completion of Phase I shipments for the
WLL project in Hungary. The Company will be shipping additional product for
Phase II of the Hungary project during its forth quarter ending September 30,
1997 and is exploring a number of opportunities, including the supply of FWTs
for Phase III of the Hungary project. With respect to the Hungary project, the
Company announced on June 30, 1997 that Phase II will be, and Phase III is
likely to be, significantly smaller than Phase I. The Company expects the
demand for FWTs to continue to grow and is cultivating other revenue
opportunities that it believes will contribute to future revenue growth.

To capitalize on the anticipated growth in the market for FWTs, the Company
launched an ambitious product development plan during fiscal 1996. The
strategy has been, and continues to be, to introduce fixed wireless terminals
over the next three years that will address the radio standards serving 85
percent of all cellular subscribers by the year 2000. The Company plans to
continue to devote substantial resources to product development. Pursuant to
the terms of its agreement with Wireless Domain Corporation (formerly TelePath
Corporation) the Company plans to increase its equity position in Wireless
Domain Corporation to 50% by August of 1997 through the issuance of shares of
the Company's common stock and cash payments. This relationship provides the
Company, subject to terms of the agreement with Wireless Domain, with access to
24 additional engineers.

Based upon observed trends, the Company believes that the market for FWTs is
undergoing substantial growth. The Company is seeking to capitalize on the
anticipated growth by devoting resources across the Company to meet the
anticipated needs of the market.

Statements contained in this filing, other than historical statements, consist
of forward looking information. The Company's actual results may vary
considerably from those discussed in the "Outlook" section and elsewhere in
this filing as a result of various risks and uncertainties. For example, there
are a number of uncertainties as to the degree and duration of the revenue
momentum, which could impact the Company's ability to be profitable as lower
sales may likely result in lower margins. In addition, product development
expenditures, which are expected to benefit future periods, are likely to have
a negative impact on near term earnings. Other risks and uncertainties, which
are discussed in Exhibit 99 to the Company's Annual Report on Form 10-K for the
period ended September 30, 1996, include the risk that technological change
will render the Company's technology obsolete, the risk of litigation, the
Company's ability to develop new and foreign markets, the Company's dependence
on contractors and Motorola, the Company's ability to maintain quality control,
the risk of doing business in developing markets, the Company's dependence on
research and development, the uncertainty of additional funding, the effect of
changes in management, and uncertainty in the development of wireless service
generally.

<PAGE> 17

PART II - OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES

Under the terms of the Series A Convertible Preferred Stock issued on April 16,
1997 and June 6, 1997, for so long as such stock is outstanding, dividends may
be paid on the Common Stock only out of retained earnings of the Company
generated after April 1, 1997.

Under the terms of the Loan and Security Agreement with Sanwa Business Credit
Corporation that provides a credit facility up to $20 million, the Company is
prohibited from paying dividends during the term of the loan.

<PAGE> 18

PART II - OTHER INFORMATION (CONTINUED)

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits (listed by number according to Exhibit table of Item 601 in
Regulation S-K)

<TABLE>
<CAPTION>
NUMBER DESCRIPTION REFERENCE
<S> <C> <C>
3.1 Certificate of Incorporation Filed as Exhibit 3.1 to
Registration Statement on
Form S-1 Registration No.
33-72096, as amended
(the "Form S-1")

3.2 Amendment No. 1 to Certificate Filed as Exhibit 3.2
of Incorporation to the Form S-1

3.3 Amendment No. 2 to Certificate Filed as Exhibit 3.3
of Incorporation to the Form S-1

3.4 Amendment No. 3 to Certificate Filed as Exhibit 3.4
of Incorporation to Form 10-Q filed
May 15, 1997

3.5 By-Laws Filed as Exhibit 3.4 to
the Form S-1

4.1 Certificate of Designations, Preferences, Filed as Exhibit 99.2
and Rights of Series A Convertible Preferred to Form 8-K filed
Stock April 25, 1997

4.2 Loan and Security Agreement with Filed herewith
Sanwa Business Credit Corporation

10.1 Securities Purchase Agreement dated April 16, Filed as Exhibit 99.1 to
1997, by and between Telular Corporation Form 8-K filed April 25, 1997
and the purchasers of the Series A
Convertible Preferred Stock

10.2 Registration Rights Agreement dated April 16, Filed as Exhibit 99.3 to
1997, by and between Telular Corporation and Form 8-K filed April 25, 1997
the purchasers of the Series A Convertible
Preferred Stock

10.3 Securities Purchase Agreement dated June 6, Filed as Exhibit 99.3 to Registration
1997, by and between Telular Corporation and Statement on Form S-3 Registration No.
the purchasers of the Series A Convertible 333-27915, amended by Amendment No. 1
Preferred Stock filed June 13, 1997, and further amended
by Amendment No. 2 filed July 8, 1997
(the "Form S-3")

10.4 Registration Rights Agreement dated June 6, Filed as Exhibit 99.4 to Form S-3
1997, by and between Telular Corporation and
the purchasers of the Series A Convertible
Preferred Stock

11 Statement regarding computation Filed herewith
of per share earnings
</TABLE>

18
<PAGE> 19

PART II - OTHER INFORMATION (CONTINUED)

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)

(b) Reports on Form 8-K

The Company filed one (1) report on Form 8-K during the three months ended
June 30, 1997:

(i) On April 25, 1997, the Company reported it had
issuance of Series A Convertible Preferred Stock and filed
related documents.

<PAGE> 20

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant duly caused this Report of Form 10-Q to be signed on its behalf by
the undersigned, thereunto duly authorized.

Telular Corporation

Date August 14, 1997 By: /s/ Kenneth E. Millard
------------------------------------------
Kenneth E. Millard
President & Chief Executive Officer

Date August 14, 1997 /s/ Jeffrey L. Herrmann
------------------------------------------
Jeffrey L. Herrmann
Vice President & Chief Financial Officer

<PAGE> 21
EXHIBIT INDEX

3.2 Amendment No. 1 to Certificate Filed as Exhibit 3.2
of Incorporation to the Form S-1

3.3 Amendment No. 2 to Certificate Filed as Exhibit 3.3
of Incorporation to the Form S-1

3.4 Amendment No. 3 to Certificate Filed as Exhibit 3.4
of Incorporation to Form 10-Q filed
May 15, 1997

3.5 By-Laws Filed as Exhibit 3.4 to
the Form S-1

4.1 Certificate of Designations, Preferences, Filed as Exhibit 99.2
and Rights of Series A Convertible Preferred to Form 8-K filed
Stock April 25, 1997

4.2 Loan and Security Agreement with Filed herewith
Sanwa Business Credit Corporation

10.4 Registration Rights Agreement dated June 6, Filed as Exhibit 99.4 to Form S-3
1997, by and between Telular Corporation and
the purchasers of the Series A Convertible
Preferred Stock

11 Statement regarding computation Filed herewith
of per share earnings
</TABLE>

<PAGE> 1
EXHIBIT 4.2

LOAN AND SECURITY AGREEMENT

BY AND AMONG

TELULAR CORPORATION,

as Borrower,

THE LENDERS NAMED HEREIN

as Lenders,

AND

SANWA BUSINESS CREDIT CORPORATION,

as Agent and Lender

Dated as of

April 23, 1997
<PAGE> 2

Table of Contents

<TABLE>
<S> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 General Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
1.3 Other Terms Defined in Illinois Uniform Commercial Code . . . . . . . . . . . . . . . . . . 22
1.4 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
1.5 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

2. CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.2 Maximum Principal Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.3 Evidence of Revolving Loan Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.4 Payment Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.5 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.6 Method of Borrowing; Manner and Method of Making Interest
and Other Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.7 Term of this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.8 Audit Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2.9 Closing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2.10 Termination Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2.11 Unused Line Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2.12 Other Fees, Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2.13 Loan Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
2.14 Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
2.15 Lender Guaranty Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2.16 Other Lender Guaranty Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2.17 Taxes; Changes in Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
2.18 Notification of Advances, Interest Rates and Prepayment . . . . . . . . . . . . . . . . . . 39
2.19 Changes in Capital Adequacy Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . 39
2.20 Special Provisions Governing LIBOR Rate Loans . . . . . . . . . . . . . . . . . . . . . . . 39

3. REPORTING AND ELIGIBILITY REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
3.1 Monthly Reports and Borrowing Base Certificates . . . . . . . . . . . . . . . . . . . . . . 41
3.2 Eligible Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
3.3 Account Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
3.4 Verification of Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
3.5 Collection of Accounts and Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
3.6 Appointment of the Agent as Borrower's Attorney-in-Fact . . . . . . . . . . . . . . . . . . 45
3.7 Account Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
3.8 Instruments and Chattel Paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
3.9 Notice to Account Debtors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
3.10 Eligible Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
3.11 Inventory Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
3.12 Inventory Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
3.13 Safekeeping of Inventory and Inventory Covenants . . . . . . . . . . . . . . . . . . . . . . 47

</TABLE>

i
<PAGE> 3

<TABLE>
<S> <C>
3.14 Equipment Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
3.15 Equipment Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
3.16 Maintenance of Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
3.17 Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
3.18 Maintenance of Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
3.19 Intellectual Property and General Intangibles . . . . . . . . . . . . . . . . . . . . . . . 49

4. CONDITIONS TO ADVANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
4.1 Conditions to All Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
4.2 Conditions to Initial Advance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

5. COLLATERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
5.1 Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
5.2 Preservation of Collateral and Perfection of Liens Thereon . . . . . . . . . . . . . . . . . 53
5.3 Consigned Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

6. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
6.1 Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
6.2 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
6.3 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
6.4 Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
6.5 Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
6.6 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
6.7 Places of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
6.8 Other Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
6.9 Tax Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
6.10 Indebtedness and Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
6.11 Use of Proceeds and Margin Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
6.12 Government Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
6.13 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
6.14 Litigation and Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
6.15 Other Agreements and Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
6.16 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
6.17 Compliance with Laws and Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
6.18 Patents, Trademarks and Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
6.19 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
6.20 Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
6.21 Adverse Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
6.22 Investment Company Act; Public Utility Holding Company Act . . . . . . . . . . . . . . . . . 61
6.23 Broker's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
6.24 Licenses and Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
6.25 Environmental Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
6.26 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
6.27 Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
6.28 Customer and Trade Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

</TABLE>

<PAGE> 4

<TABLE>
<S> <C>
6.29 Corporate and Contractual Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
6.30 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
6.31 Deposit and Disbursement Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

7. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
7.1 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
7.2 Inspections and Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
7.3 Conduct of Business; Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . . 66
7.4 Claims and Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
7.5 Borrower's Liability Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
7.6 Borrower's Property Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
7.7 Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
7.8 Notice of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
7.9 Landlord and Warehouseman Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
7.10 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
7.11 Interest Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
7.12 Minimum Availability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
7.13 Minimum Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

8. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
8.1 Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
8.2 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
8.3 Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
8.4 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
8.5 Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
8.6 Collateral Locations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
8.7 Disposal of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
8.8 Capital Expenditures Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
8.9 Employee Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
8.10 Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
8.11 Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
8.12 Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
8.13 Changes in Charter, Bylaws or Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . 75
8.14 Lease Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
8.15 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
8.16 Other Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
8.17 Sale and Leaseback . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
8.18 Impairment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
8.19 Corporate Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

9. DEFAULT, RIGHTS AND REMEDIES OF THE AGENT AND THE LENDERS. . . . . . . . . . . . . . . . . . . . . 76
9.1 Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
9.2 Rights and Remedies Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
9.3 Entry Upon Premises and Access to Information . . . . . . . . . . . . . . . . . . . . . . . 77
9.4 Sale or Other Disposition of Collateral by the Agent . . . . . . . . . . . . . . . . . . . . 77

</TABLE>

iii
<PAGE> 5

<TABLE>
<S> <C>
9.5 Grant of License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
9.6 Waiver of Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
9.7 Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

10. OTHER RIGHTS AND OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
10.1 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
10.2 Several Obligations; Nature of Lender's Rights . . . . . . . . . . . . . . . . . . . . . . . 78
10.3 Expenditures by the Agent and the Lenders . . . . . . . . . . . . . . . . . . . . . . . . . 79
10.4 Custody and Preservation of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
10.5 Reliance by the Agent and Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
10.6 Parties and Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
10.7 Applicable Law; Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
10.8 Submission to Jurisdiction; Waiver of Jury and Bond . . . . . . . . . . . . . . . . . . . . 80
10.9 Marshalling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
10.10 Section Titles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
10.11 Incorporation by Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
10.12 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
10.13 Retention of the Borrower's Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
10.14 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
10.15 Equitable Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
10.16 Survival of Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
10.17 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
10.18 Exceptions to Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
10.19 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
10.20 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

11. ASSIGNMENT AND PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
11.1 Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
11.2 Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

12. AGENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
12.1 Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
12.2 Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
12.3 General Immunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
12.4 No Responsibility for Revolving Loan, Recitals, etc. . . . . . . . . . . . . . . . . . . . . 85
12.5 Action on Instructions of Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
12.6 Employment of Agents and Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
12.7 Reliance on Documents; Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
12.8 Agent's Reimbursement and Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . 86
12.9 Rights as a Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
12.10 Lender Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
12.11 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
12.12 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

13. AMENDMENTS AND WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

</TABLE>

<PAGE> 6

<TABLE>
<S> <C>
14. SET OFF AND SHARING OF PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
14.1 Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
14.2 Ratable Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
</TABLE>

v
<PAGE> 7

INDEX OF EXHIBITS AND SCHEDULES

EXHIBITS

Exhibit 1.1 Form of Assignment and Acceptance
Exhibit 1.2 Form of Borrowing Base Certificate
Exhibit 2.3 Form of Revolving Loan Note
Exhibit 2.5 Form of Conversion/Continuation Notice
Exhibit 2.6 Form of Borrowing Notice
Exhibit 3.1-1 Form of Monthly Report
Exhibit 3.1-2 Form of Monthly Report Certificate
Exhibit 3.2 Foreign Account Debtors
Exhibit 3.14 Equipment Locations and Leased Equipment
Exhibit 3.17 Real Estate
Exhibit 4.2(n) Form of Power of Attorney
Exhibit 6.1-1 Jurisdictions of Qualification
Exhibit 6.1-2 Stock of Borrower and Subsidiaries
Exhibit 6.4-1 Pro Forma Financial Statements
Exhibit 6.4-2 Additional Liabilities
Exhibit 6.4-3 Projections
Exhibit 6.7 Places of Business
Exhibit 6.8 Past Trade Names
Exhibit 6.12 Government Contracts
Exhibit 6.14 Pending or Threatened Litigation
Exhibit 6.16 Labor Matters
Exhibit 6.18 Patents, Trademarks and Licenses
Exhibit 6.19 ERISA Obligations
Exhibit 6.20 Property
Exhibit 6.25 Pending Environmental Matters
Exhibit 6.26 Documents Filed with the Securities and Exchange
Commission
Exhibit 6.30 Subsidiaries
Exhibit 6.31 Bank Accounts
Exhibit 7.5 Liability Insurance
Exhibit 7.6 Form of Insurance Endorsement
Exhibit 8.1 Existing Liens
Exhibit 8.2 Existing Indebtedness and Liabilities
Exhibit 8.4 Investments
Exhibit 8.5 Existing Guaranties
Exhibit 8.6 Collateral Locations
Exhibit 8.15 Transactions with Affiliates

SCHEDULES

Schedule 1 Commitments of Lenders
Schedule 4.2(r) Material Commitments and Transactions

vi
<PAGE> 8

LOAN AND SECURITY AGREEMENT

This LOAN AND SECURITY AGREEMENT is dated as of April 23, 1997
by and among TELULAR CORPORATION, a Delaware corporation (the "Borrower"), each
of the Lenders and SANWA BUSINESS CREDIT CORPORATION, as Agent for the Lenders.

W I T N E S S E T H:

WHEREAS, in connection with the repayment of certain
pre-existing indebtedness of the Borrower and the continued working capital
needs of the Borrower subsequent to such repayment, the Borrower desires to
borrow up to Twenty Million Dollars ($20,000,000) from the Lenders, and the
Lenders are willing to make certain loans to the Borrower of up to such amount,
upon the terms and conditions set forth herein;

NOW, THEREFORE, in consideration of the terms and conditions
contained herein, and of any loans or extensions of credit heretofore, now or
hereafter made to or for the benefit of the Borrower by the Agent and the
Lenders, the parties hereto hereby agree as follows:

1. DEFINITIONS.

1.1 General Terms. When used herein, the following terms
shall have the following meanings:

"Account Debtor" shall mean any Person who is or may
become obligated on or under an Account.

"Accounting Changes" shall mean (a) changes in
accounting principles required by the promulgation of any rule, regulation,
pronouncement or opinion by the Financial Accounting Standards Board of the
American Institute of Certified Public Accountants (or successor thereto or any
agency with similar functions) or (b) changes in accounting principles
concurred in by the Borrower's certified public accountants.

"Accounts" shall mean all presently existing and
hereafter arising or acquired accounts, accounts receivable, margin accounts,
futures positions, book debts, contracts, notes, drafts, acceptances, and other
forms of obligations (other than forms of obligations evidenced by Chattel
Paper, Documents or Instruments) now or hereafter owned or held by or payable
to the Borrower relating in any way to Inventory or arising from the sale of
Inventory or the rendering of services by the Borrower or howsoever otherwise
arising, including the right to payment of any interest or finance charges with
respect thereto, together with all merchandise represented by any of the
Accounts; all such merchandise that may be reclaimed or repossessed or returned
to the Borrower; all of the Borrower's rights as an unpaid vendor, including,
without limitation, stoppage in transit, reclamation, rescission, replevin, and
sequestration; all pledged assets and all letters of credit, guaranty claims,
Liens held by or granted to the Borrower to secure payment of any Accounts; all
proceeds and products of all of the foregoing described properties and
interests in properties; and all proceeds of insurance with respect thereto,
including, without limitation, the proceeds of any applicable casualty or
credit insurance or fidelity bond, whether payable in cash or

<PAGE> 9

in kind; and all customer lists, ledgers, books of account, records, computer
programs, computer disks or tape files (including, without limitation, all
microfilm), computer printouts, computer runs, and other computer prepared
information relating to any of the foregoing.

"Accounts Trial Balance" shall have the meaning
ascribed thereto in subsection 3.1.

"Acquisition" shall mean any transaction, or any
series of related transactions, consummated after the Closing Date by which the
Borrower or any Subsidiary (a) acquires, directly or indirectly, all or
substantially all of the assets or business of any Person or a substantial
portion thereof, whether through purchase of assets, merger, licensing
arrangement or otherwise or (b) directly or indirectly acquires at least (i) a
majority (in number of votes of the securities or warrants, options or other
rights to acquire such securities) of a Person which have ordinary voting power
for the election of directors or (ii) a majority (by percentage of voting
power) of the outstanding partnership or other interests of a Person or (c)
makes any Person a Subsidiary, or causes any assets of such Person to be merged
into the Borrower or such Subsidiary pursuant to a merger, purchase of assets
or other reorganization providing for the delivery or issuance to the holders
of such Person's then outstanding securities or capital interests, in exchange
for such securities, of cash or securities of the Borrower or such Subsidiary,
or any combination thereof.

"Adcor" shall mean Telular Adcor Security Products,
Inc., a Georgia corporation.

"Affiliate" shall mean any Person (including any
member of the immediate family of any such natural person) (a) that directly or
indirectly, through one or more intermediaries, controls or is controlled by,
or is under common control with the Borrower or any Subsidiary, including,
without limitation, the officers and directors of the Borrower or such
Subsidiary, (b) that directly or beneficially owns or holds fifteen percent
(15%) or more of any equity interest in the Borrower or any Subsidiary, or (c)
fifteen percent (15%) or more of whose voting stock (or in
the case of a Person which is not a corporation, fifteen percent (15%) or more
of any equity interest) is owned directly or beneficially or held by the
Borrower or any Subsidiary. Affiliate shall not be deemed to include the Agent
or any Lender. As used herein, the term "control" (including, with correlative
meanings, the terms "controlling," "controlled by" and "under common control
with") shall mean possession, directly or indirectly, of the power to direct
the management or policies of a Person, whether through ownership of
securities, by contract or otherwise.

"Agent" shall mean Sanwa Business Credit Corporation,
a Delaware corporation, in its capacity as agent for the Lenders and not in its
individual capacity as a Lender, and any successor in such capacity appointed
pursuant to subsection 12.11.

"Agreement" shall mean this Loan and Security
Agreement, as the same may hereafter be amended, restated, modified or
supplemented from time to time.

"Assignment and Acceptance" shall mean an assignment
and acceptance entered into by a Lender and an Eligible Assignee and accepted
by the Agent in accordance with

<PAGE> 10

subsection 11.1 and in substantially the form of Exhibit 1.1.

"Audit Fee" shall have the meaning ascribed thereto
in subsection 2.8.

"Bankruptcy Code" shall mean Title 11, United States
Code, as amended from time to time.

"Base Rate" shall mean the fluctuating interest rate
equal to one percent 1% per annum in excess of the Prime Rate from time to time
in effect.

"Base Rate Loans" shall mean the Revolving Loan or
portion thereof bearing interest at the Base Rate.

"Blocked Account Agreements" shall have the meaning
ascribed thereto in subsection 3.5.

"Blocked Accounts" shall have the meaning ascribed
thereto in subsection 3.5.

"Borrower's Account" shall mean the account
maintained with LaSalle Northwest National Bank, Account No. 5200351863 or such
other account as the Borrower and the Agent may from time to time hereafter
designate.

"Borrowing Availability" shall have the meaning
ascribed thereto in subsection 2.1(a).

"Borrowing Base" shall mean an amount equal to:

(1) eighty five percent (85%) of the face
amount then outstanding of existing Eligible Accounts, plus

(2) fifty percent (50%) of the book value of the
Borrower's then existing finished goods portion of Eligible Inventory
and forty percent (40%) of the book value of the Borrower's then existing
raw materials portion of the Eligible Inventory (the book value of Eligible
Inventory to be determined at the lower of cost (determined on a
first-in-first-out ("FIFO") basis) or market); provided that the portion of
the aggregate outstanding amount of the principal balance of the Revolving
Loan plus the Lender Guaranty Reserve at any one time attributable to
Eligible Inventory as derived from the foregoing formula shall not exceed
the Inventory Sublimit; provided further that, notwithstanding the
definition of "Inventory Sublimit," under no circumstances shall more than
fifty percent (50%) of the aggregate outstanding amount of the principal
balance of the Revolving Loan plus the Lender Guaranty Reserve at any one
time be attributable to Eligible Inventory as derived from the foregoing
formula.

3
<PAGE> 11

"Borrowing Base Certificate" shall mean a certificate
in substantially the form of Exhibit 1.2, duly certified by the chief financial
officer or treasurer of the Borrower.

"Borrowing Notice" shall have the meaning ascribed
thereto in subsection 2.5(e).

"Business Day" shall mean (i) for all purposes other
than as described in clause (ii) below, any day other than a Saturday, Sunday
or other day on which banks in Chicago, Illinois are authorized or required to
be closed and (ii) with respect to all notices, determinations, borrowings,
rate selections and payments in connection with LIBOR Rate Loans, any day that
is a Business Day described in clause (i) above and that is also a day on which
dealings in U.S. dollar deposits are carried on in the applicable interbank
LIBOR market.

"Capital Expenditures" shall mean, for any fiscal
period, without duplication, all expenditures (whether made in the form of cash
including, without limitation, deposits or other Property) by the Borrower or
any Subsidiary during such period for, or contracts for expenditures with
respect to, any fixed assets or improvements, or for renewals, replacements,
substitutions or additions thereto and which are capitalized rather than
expensed on such Person's financial statements prepared in accordance with
Generally Accepted Accounting Principles.

"Cash Equivalents" shall mean (i) bank certificates
of deposit, bankers' acceptances, deposit accounts or time deposits (but only
with banks organized under the laws of the United States or of any State
thereof (x) which do not have set-off rights against the foregoing, other than
set-offs for nominal service charges and similar fees incurred in the ordinary
course, and (y) which have combined capital and surplus in excess of Fifty
Million Dollars ($50,000,000)), (ii) commercial paper maturing within one (1)
year from the date issued and rated at least A-1 or the equivalent thereof by
Standard & Poors Corporation, or P-1 or the equivalent thereof by Moody's
Investors Service, Inc., (iii) obligations maturing within one (1) year from
the date of acquisition issued or directly and fully guaranteed by the United
States government or any agency thereof and (iv) investments in money market
funds substantially all of the assets of which are comprised of securities of
the types described in clauses (i) through (iii) above.

"Change" means (a) any change after the date of this
Agreement in the Risk-Based Capital Guidelines, or (b) any adoption of or
change in any other law, governmental or quasi-governmental rule, regulation,
policy, guideline, interpretation, or directive (whether or not having the
force of law) after the date of this Agreement which affects the amount of
capital required or expected to be maintained by any Lender or any corporation
controlling any Lender.

"Change of Control" shall mean, except as permitted
by subsection 8.3(ii), the failure of the Borrower to own, free and clear of
all Liens (other than Liens in favor of the Agent for the benefit of the
Lenders) one hundred percent (100%) of the outstanding Stock of each of its
Subsidiaries which shall become a borrower hereunder or a guarantor of the
Obligations hereunder.

"Charges" shall mean all federal, state, county,
city, municipal, local, foreign or other governmental taxes (including, without
limitation, taxes owed to the PBGC at the time due

<PAGE> 12

and payable), duties, levies, assessments, charges, liens, claims or
encumbrances upon or relating to (i) the Collateral, (ii) the Obligations,
(iii) the employees, payroll, income or gross receipts of the Borrower, (iv)
the ownership or use of any Property of the Borrower, or (v) any other aspect
of the Borrower's business.

"Chattel Paper" shall mean any "chattel paper," as
such term is defined in the Code, now owned or hereafter acquired
by the Borrower, wherever located.

"Closing Date" shall mean the date of this Agreement.

"Closing Fee" shall have the meaning ascribed
thereto in subsection 2.9.

"Code" shall have the meaning ascribed thereto in
subsection 1.3.

"Collateral" shall mean all property and interests in
property now owned or hereafter acquired by the Borrower in or upon which a
Lien is granted to the Agent, for the benefit of the Lenders, by the Borrower,
whether under this Agreement or the other Financing Agreements including,
without limitation, Accounts, Chattel Paper, Documents, General Intangibles,
Fixtures, Instruments, Inventory, Intellectual Property, Equipment, Real Estate
and leased real property.

"Collecting Banks" shall have the meaning ascribed
thereto in subsection 3.5.

"Commitment" shall mean, with respect to each Lender,
the commitment of each Lender to make the Revolving Loan as of the Closing Date
in the amounts set forth on Schedule 1; Schedule 1 shall be amended from time
to time to give effect to the addition of any new Lenders pursuant to
subsection 11.1.

"Conversion/Continuation Notice" shall have the
meaning ascribed thereto in subsection 2.5(f).

"Default" shall mean an event which through the
passage of time or the service of notice, or both, would mature into an Event
of Default.

"Default Rate" shall mean (a) in the case of
principal or interest on the Revolving Loan, the sum of (i) the Base Rate or
LIBOR Rate, as applicable, from time to time in effect, plus (ii) two percent
(2%), (b) in the case of all other Obligations (other than Lender Guaranty
Fees), the sum of (i) the Base Rate from time to time in effect, plus two
percent (2%) and (c) in the case of Lender Guaranty Fees, the sum of (i) the
Lender Guaranty Fee otherwise applicable hereunder, plus two percent (2%).
With respect to the Base Rate, such interest rate shall be a fluctuating rate
and each change in such interest rate shall take effect simultaneously with the
corresponding change in the Base Rate.

"Depository Account" shall have the meaning ascribed
thereto in subsection 3.5.

5
<PAGE> 13

"Documents" shall mean any "documents" as such term
is defined in the Code, now owned or hereafter acquired by the Borrower,
wherever located.

"EBITDA" shall mean, for any applicable fiscal
period, determined for the Borrower and its Subsidiaries on a consolidated
basis, Net Income for such period, plus to the extent deducted in determining
Net Income, interest expense, income taxes and franchise taxes paid, plus to
the extent deducted in determining Net Income, amortization, depreciation and
other similar non-cash charges, plus, to the extent deducted in determining Net
Income, research and development expense, but not exceeding the aggregate net
proceeds (including cash and the fair market value of property other than cash
as determined in good faith by the Borrower's Board of Directors) received by
the Borrower in such period from any Person other than a Subsidiary as a result
of the issuance of capital stock of the Borrower (including capital stock
issued upon conversion of Indebtedness or the exercise of warrants or options
and any additional contributions to capital of the Borrower received from any
stockholder of the Borrower), all as determined in accordance with GAAP
consistently applied; provided that, if in any Fiscal Year the aggregate net
proceeds received by the Borrower from the issuance of capital stock of the
Borrower is in excess of the aggregate research and development expense for
such Fiscal Year, such excess may be carried over to the succeeding Fiscal Year
or Fiscal Years, as the case may be, for purposes of determining the amount of
research and development expense to be included in EBITDA for that Fiscal Year.

"Eligible Accounts" shall have the meaning ascribed
thereto in subsection 3.2.

"Eligible Assignee" means: (i) a Lender; (ii) an
affiliate of a Lender; (iii) a commercial bank organized under the laws of the
United States, or any State thereof, and having a combined capital and surplus
of at least $500,000,000; (iv) a savings and loan association or savings bank
organized under the laws of the United States, or any State thereof, and having
a combined capital and surplus of at least $500,000,000; (v) a commercial bank
organized under the laws of any other country that is a member of the OECD or
has concluded special lending arrangements with the International Monetary Fund
associated with its General Arrangements to Borrow or a political subdivision
of any such country, and having a combined capital and surplus of at least
$500,000,000, so long as such bank is acting through a branch or agency located
in the United States; (vi) a finance company, insurance company or other
financial institution, investment company or fund (whether a corporation,
partnership, trust or other entity) that is engaged in making, purchasing or
otherwise investing in commercial loans in the ordinary course of
its business and having a combined capital and surplus of at least $50,000,000
and (vii) any other Person approved by the Agent and the Borrower; provided
that neither the Borrower nor any Affiliate of the Borrower shall qualify as an
Eligible Assignee under this definition. Notwithstanding the above language,
no Lender may make any such assignment to any Person known to such Lender to be
a competitor of the Borrower or any of its Subsidiaries.

"Eligible Inventory" shall have the meaning ascribed
thereto in subsection 3.10.

"Environmental Laws" shall mean and includes the
following as now in effect or hereafter amended: the Comprehensive
Environmental Response Compensation and Liability

<PAGE> 14

Act, ("CERCLA"), 42 U.S.C. Section 9601 et. seq.; the Solid Waste Disposal Act,
as amended by the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C.
Section 6901 et. seq.; the Toxic Substances Control Act ("TSCA"), 15 U.S.C.
Section 2601, et. seq.; the Clean Air Act, 42 U.S.C. Section 7401 et. seq.; the
Federal Water Pollution Control Act ("Clean Water Act"), 33 U.S.C. Section 1251
et. seq.; the Emergency Planning and Community Right-to-Know Act, 42 U.S.C.
Section 11001 et. seq.; the Hazardous Materials Transportation Act, 49 U.S.C.
Section 1801 et. seq.; the Atomic Energy Act, 42 U.S.C. Section 2011 et. seq.;
the Safe Drinking Water Act, 42 U.S.C. Section 300f et. seq. and the state law
equivalents; any so- called "Superfund" or "Superlien" law; and any statute,
ordinance, code, rule, regulation, order, decree or requirement under
international, federal, state, regional, provincial or local law (including,
without limitation, administrative orders and consent decrees) in effect and as
amended regulating, relating to or imposing liability or standards of conduct
concerning public health and safety, protection of the environment, or any
pollutant or contaminant or hazardous, toxic or dangerous substance, waste,
chemical or material, as now or any time hereafter may be existing.

"Environmental Matters" shall have the meaning
ascribed thereto in subsection 6.25(b).

"Equipment" shall mean all of the Borrower's
machinery and equipment, including, without limitation, processing equipment,
conveyors, machine tools, data processing and computer equipment with software
and peripheral equipment (other than software constituting part of the
Accounts), and all engineering, processing and manufacturing equipment, office
machinery, furniture, materials handling equipment, tools, attachments,
accessories and other equipment of every kind and nature, trade fixtures and
fixtures not forming a part of real property, all whether now owned or
hereafter acquired, and wherever situated, together with all appurtenances,
additions and accessions thereto, replacements therefor, all parts therefor,
all substitutes for any of the foregoing, and all manuals, drawings,
instructions, warranties and rights with respect thereto, and all products and
proceeds thereof and condemnation awards and insurance proceeds with respect
thereto.

"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended from time to time, and all rules and
regulations promulgated thereunder.

"ERISA Affiliate" shall mean any Subsidiary or any
other Person, trade or business that is, or was at any time during the previous
six (6) years, along with the Borrower or any Subsidiary, in the same
controlled group of corporations, under common control, or otherwise, treated
as a single employer for any purpose under Section 414 of the IRC.

"Event of Default" shall mean the occurrence or
existence of any one or more of the following conditions or events:

(a) the Borrower fails to (i) make any
payment of principal of any Note or on any reimbursement obligation under or
with respect to any Lender Guaranty when due, or (ii) pay any other
Obligations under any Financing Agreement within five (5) days after the same
is due by the terms thereof or is declared due by the Agent or the Lenders,
or (iii) deliver any Borrowing Base Certificate or Monthly Report as required
herein within five (5) days after the same becomes due;

<PAGE> 15

(b) the Borrower fails or neglects to perform,
keep or observe any of the covenants, conditions or agreements contained in
any of the subsections of this Agreement or in any of the other Financing
Agreements to which it is a party (other than occurrences referred to or
embodied in other provisions of this definition constituting immediate Events
of Default) for a period of fifteen (15) days after the earlier of (i) the
Borrower's receipt of notice from the Agent or (ii) actual knowledge of such
breach by any Responsible Officer;

(c) any warranty or representation now or
hereafter made by the Borrower or any Subsidiary in connection with this
Agreement or any of the other Financing Agreements shall be untrue or
incorrect in any material respect, or any schedule, certificate, statement,
report, financial data, notice or other writing furnished at any time by the
Borrower or any Subsidiary to the Agent or any Lender shall be untrue or
incorrect in any material respect, as of the date on which the warranty,
representation or the facts set forth therein are stated, certified or deemed
made;

(d) the Borrower fails to perform, keep or
observe any of the covenants contained in clause (iii) of subsection 7.8, in
subsections 3.5, 7.5, 7.6, 7.11 through 7.13 or in Section 8;

(e) any of the Collateral or the Property of
the Borrower or any Subsidiary with an aggregate value of Four Hundred
Thousand Dollars ($400,000) or more is attached, seized, subjected to a writ
or distress warrant, or levied upon, or come within the possession or control
of any judgment creditor, receiver, trustee, custodian or assignee for the
benefit of creditors of the Borrower or any Subsidiary and on or before the
tenth (10th) day thereafter such Collateral or Property is not returned to
the Borrower or such Subsidiary or such writ, distress warrant or levy is not
dismissed, stayed, vacated, bonded or lifted;

(f) the Borrower or any Subsidiary makes a
general assignment for the benefit of creditors; convenes a meeting of its
creditors, or any class thereof, for purposes of effecting a moratorium upon
or extension or composition of its debts; applies for, seeks, consents to, or
acquiesces in the appointment of a receiver, trustee or custodian to take
possession of all or any substantial portion of its Property; commences any
bankruptcy, reorganization or insolvency case or proceeding or other
proceeding under the Bankruptcy Code or any other federal, state or other law
for relief of debtors; or the Borrower or such Subsidiary proposes,
authorizes or consents to the taking of any of the foregoing actions;

(g) the Borrower or any Subsidiary fails to
obtain the dismissal, within sixty (60) days after the commencement thereof,
of any bankruptcy, reorganization or insolvency proceeding, or other
proceeding under the Bankruptcy Code or any other law for the relief of
debtors instituted against it; fails actively to oppose any such proceeding;
or in any such proceeding, defaults or files an answer admitting the material
allegations upon which the proceeding was based or states in any filing in
such proceeding its willingness to have an order for relief entered or its
desire to seek liquidation, reorganization or adjustment of any of its debts;

<PAGE> 16

(h) without the application, approval or
consent of the Borrower or a Subsidiary, any receiver, trustee, examiner,
liquidator, custodian or similar official is appointed to take possession of
all or any substantial portion of the Property of the Borrower or such
Subsidiary, or any committee of the Borrower's or the Subsidiary's creditors
or any class thereof, is formed and takes action to enforce such creditors'
rights, or the filing of any motion, complaint or other pleading in any
bankruptcy, reorganization or insolvency case or proceeding of any Person
other than the Borrower or a Subsidiary that seeks the consolidation of the
Borrower's or any Subsidiary's assets and liabilities with the assets and
liabilities of such Person and such motion shall remain undismissed for sixty
(60) days or more or such court shall enter an order granting the relief
sought in such motion;

(i) other than as permitted by this Agreement,
the Borrower or any Subsidiary voluntarily or involuntarily dissolves or is
dissolved, liquidates or is liquidated;

(j) the Borrower or any Subsidiary ceases to
be Solvent or admits in writing that it is not Solvent or admits in writing
its present or prospective inability to pay its debts as they become due;

(k) the Borrower or any Subsidiary is enjoined,
restrained, or in any way prevented by the order of any court or any
administrative or regulatory agency from conducting all or any material part
of its business representing fifteen percent (15%) or more of the business of
the Borrower and its Subsidiaries taken as a whole (based upon gross revenues
for the most recent twelve months ending on the date of such occurrence);

(l) any default or breach of (i) any payment
obligation or (ii) any other obligation or liability that is not waived by
the holders under any agreement evidencing Indebtedness of the Borrower or
any Subsidiary in an aggregate amount in excess of Five Hundred Thousand
Dollars ($500,000) shall occur and shall continue after any applicable grace
period specified in any such document if the effect of such default or breach
is to accelerate, or to permit the acceleration of, the maturity of all or
any part of any such Indebtedness or any such Indebtedness shall be declared
to be due and payable, or be required to be prepaid (other than by a
regularly scheduled required prepayment), prior to the stated maturity
thereof;

(m) a breach by the Borrower or any Subsidiary
occurs under any agreement, document or instrument (other than an agreement,
document or instrument evidencing Indebtedness), whether heretofore, now or
hereafter existing between the Borrower or such Subsidiary and any other
Person that could reasonably be expected to have a Material Adverse Effect
and such breach continues for more than thirty (30) days after such breach
first occurs;

(n) any material damage to, or loss, theft, or
destruction of, any of the Collateral with a value in excess of One Million
Dollars ($1,000,000), whether or not insured;

<PAGE> 17

(o) entry of a judgment or judgments in an
aggregate amount in excess of One Hundred Thousand ($100,000) against or the
Borrower or any Subsidiary which are not (i) stayed, bonded, vacated, paid or
discharged within thirty (30) days after entry or (ii) covered by insurance;

(p) the loss, suspension, revocation or
failure to obtain or renew any license or permit now held or hereafter
acquired by or the Borrower or any Subsidiary, which loss, suspension,
revocation or failure to renew could reasonably be expected to have a
Material Adverse Effect;

(q) any criminal action, suit or proceeding is
initiated against the Borrower or any Subsidiary under any federal or state
racketeering statute (including, without limitation, the Racketeer Influenced
and Corrupt Organization Act of 1970, as amended);

(r) a Change in Control occurs;

(s) any security interest created under any
Financing Agreement shall cease to be a valid and perfected first priority
security interest or Lien (subject to Permitted Liens) in any of the
Collateral purported to be covered thereby for any reason other than the
failure of the Agent to take any action within its control;

(t) other than with the consent of the Agent,
at any time after the execution and delivery thereof, any material provision
of any Financing Agreements shall cease for any reason to be in full force
and effect or is declared null and void or any of the Financing Agreements
shall cease to give the Agent, for the benefit of the Lenders, the Liens,
rights, powers and privileges purported to the created thereby, superior and
prior to the rights of all third Persons and subject to no other Liens (other
than Permitted Liens) or the Borrower or any Subsidiary shall disavow its
respective obligations thereunder or shall deny that it has any further
obligations thereunder or shall contest or challenge the validity or
enforceability of any thereof, the legality or enforceability of any of the
Obligations or the perfection or priority of any Lien granted to the Agent,
or gives notice to such effect;

(u) the occurrence of any breach or failure by
the Borrower under the terms of the Series A Preferred Stock Documents that
results in an obligation of the Borrower to make any cash payment to any
holder of Series A Preferred Stock (as defined in the Series A Preferred
Stock Documents); or

(v) the occurrence of a "Major Transaction" or
"Triggering Event" (as such terms are defined in the Series A Preferred Stock
Documents).

The occurrence or existence of any of the foregoing events
shall constitute an immediate Event of Default unless notice by the Agent or a
cure period is specifically required by the description of such event before
such event matures into an Event of Default.

<PAGE> 18

"Excess Interest" shall have the meaning ascribed
thereto in subsection 2.5(d).

"Facility" shall mean any of the Borrower's
facilities located in Vernon Hills, Illinois, Buffalo Grove, Illinois, Atlanta,
Georgia and any other facility established by the Borrower hereafter in
accordance with the terms of this Agreement.

"Federal Funds Rate" shall mean, for any day, the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System only arranged by Federal Funds brokers as
published as of such day by the Federal Reserve Bank of New York, or if such
rate is not so published, the rate then used by first class banks in extending
overnight loans to other first class banks.

"Financial Statements" shall have the meaning
ascribed thereto in subsection 6.4.

"Financing Agreements" shall mean, collectively, this
Agreement, the Revolving Notes, the Telular Pledge Agreement, the Intellectual
Property Security Agreement, and all other agreements, instruments and
documents, including, without limitation, security agreements, loan agreements,
notes, guaranties, mortgages, deeds of trust, agreements, documents,
instruments, pledges, powers of attorney, consents, assignments, contracts,
notices, leases, financing statements and all other written matter, whether
heretofore, now, or hereafter executed by or on behalf of the Borrower, any
Subsidiary or any other Person and delivered to the Agent or any Lender in
connection with this Agreement, together with all agreements and documents
between the Borrower or any Subsidiary and the Agent or any Lender referred to
therein or contemplated thereby, as the same may hereafter be amended, modified
or supplemented from time to time.

"Fiscal Month" shall mean any of the monthly fiscal
periods of the Borrower.

"Fiscal Quarter" shall mean any of the quarterly
fiscal periods of the Borrower.

"Fiscal Year" shall mean the fiscal year of the
Borrower ending on September 30 each year.

"Fixtures" shall mean all "fixtures" as such term is
defined in the Code, now owned or hereafter acquired, wherever located.

"Funding Date" shall mean the date of each funding
under the Revolving Loan or issuance of a Letter of Credit or a Lender Guaranty
therefor, which date in all cases shall be a Business Day.

"General Intangibles" shall mean all of the
Borrower's presently owned or hereafter acquired general intangibles,
including, without limitation, goodwill, choses in action, causes of action,
franchises, methods, sales literature, drawings, specifications, descriptions,
name plates, catalogs, dealer contracts, supplier contracts, distributor
agreements, customer lists, contract

<PAGE> 19

rights, confidential information, consulting agreements, employment agreements,
engineering contracts, leasehold interests in real and personal property,
insurance policies (including business interruption insurance), licenses,
permits, and such other Property which uniquely reflect the goodwill of the
business of the Borrower; deposit accounts, letters of credit, and General
Intangibles relating to other items of Collateral, including, without
limitation, rights to refunds or indemnification; reversionary or other rights
of the Borrower to excess Plan assets upon termination or amendment thereof;
and proceeds of all of the foregoing, including without limitation, insurance
proceeds, including proceeds of business interruption insurance, income tax
refunds, and claims for tax or other refunds against any city, county, state,
or federal government, or any agency or authority or other subdivision thereof.

"Generally Accepted Accounting Principles" or "GAAP"
shall mean, as of the date of any determination with respect thereto, generally
accepted accounting principles as used by the Financial Accounting Standards
Board and/or the American Institute of Certified Public Accountants,
consistently applied and maintained throughout the periods indicated.

"Governmental Authority" shall mean any nation or
government or any other political subdivision thereof, any state or other
political subdivision thereof, and any agency, authority, court, central bank,
instrumentality, department or other law, regulation or rulemaking entity
exercising executive, legislative, judicial, taxing, regulatory or
administrative functions of or pertaining to government.

"Guaranty" of a Person shall mean any agreement by
which such Person guarantees, endorses or otherwise in any way becomes or is
responsible for any obligations of any other Person or otherwise assures any
creditor of such other Person against loss (whether directly or indirectly, by
agreement to purchase the indebtedness of any other Person or through
commitments to purchase goods, supplies or services, to maintain working
capital or other balance sheet covenants or conditions, or by way of
commitments to purchase securities, make capital contributions, advances or
loans for the purpose of paying or discharging any indebtedness or obligation
of such other Person or otherwise).

"Hazardous Materials" shall mean the following:
hazardous substances; hazardous wastes; polychlorinated biphenyls ("PCB"'s") or
any substance or compound containing PCB's; asbestos or any asbestos-containing
materials in any form or condition; radon; any other radioactive materials
including any source, special nuclear or by-product material; petroleum, crude
oil or any fraction thereof which is liquid at standard conditions of
temperature and pressure (60 degrees Fahrenheit and 14.7 pounds per square inch
absolute); and any other pollutant or contaminant or hazardous, toxic or
dangerous chemicals, materials or substances, as all such terms are used in
their broadest sense and defined by Environmental Laws.

"Indebtedness" of a Person shall mean at a particular
time (i) indebtedness for borrowed money or for the deferred purchase price of
property or services (other than current accounts payable arising in the
ordinary course of business on terms customary in the trade) in respect of
which such Person is liable, contingently or otherwise, as guarantor, obligor
or otherwise or any commitment by which such Person assures a creditor against
loss, including contingent

<PAGE> 20

reimbursement obligations with respect to letters of credit, (ii) indebtedness
guaranteed in any manner by such Person, including guaranties in the form of an
agreement to repurchase or reimburse; provided that the amount of indebtedness
represented by any guaranty of limited recourse shall be the lesser of the
amount of indebtedness so guaranteed or the value of the asset to which the
recourse of such indebtedness is limited, (iii) obligations under leases which
shall have been or should be, in accordance with Generally Accepted Accounting
Principles, recorded as capital leases in respect of which obligations such
Person is liable, contingently or otherwise, as obligor, guarantor or
otherwise, or in respect of which obligations such Person assures a creditor
against loss, (iv) any unfunded obligation of, or withdrawal liability incurred
but not paid by, such Person with respect to a Multiemployer Plan, (v) net
liabilities under Rate Hedging Obligations and (vi) all accounts payable of
such Person, which are not being contested in good faith by appropriate
proceedings and which are more than ninety (90) days past due.

"Initial Term" shall have the meaning ascribed
thereto in subsection 2.7.

"Instrument" shall mean any "instrument," as such
term is defined in the Code, now owned or hereafter acquired by the Borrower,
wherever located, other than instruments that constitute, or are a part of a
group of writings that constitute, Chattel Paper.

"Intellectual Property" of a Person shall mean all of
such Person's present and future designs, patents, patent rights and
applications therefor, technology, trademarks and registrations or applications
therefor, trade names, inventions, copyrights and all applications and
registrations therefor, advertising matter, software or computer programs,
license rights, trade secrets, methods, processes, knowhow, drawings,
specifications, descriptions, and all memoranda, notes, and records with
respect to any research and development, whether now owned or hereafter
acquired by such Person and proceeds of all of the foregoing, including,
without limitation, proceeds of insurance policies thereon.

"Intellectual Property Security Agreement" shall mean
that certain Continuing Security Interest and Conditional Assignment of
Patents, Trademarks, Copyrights and Licenses, dated as of the Closing Date, by
the Borrower in favor of the Agent, for the benefit of the Lenders, with
respect to its Intellectual Property, as the same may hereafter be amended,
restated, modified or supplemented from time to time.

"Interest Coverage Ratio" shall mean, for any fiscal
period, the ratio of EBITDA to Interest Expense.

"Interest Expense" shall mean, for any fiscal
period, the aggregate of all cash interest payable by the Borrower and its
Subsidiaries on a consolidated basis including the interest portion of any
capitalized lease obligations but excluding interest on any intercompany
Indebtedness permitted by subsection 8.21, all as determined in accordance with
GAAP and in a manner consistent with the Financial Statements.

"Interest Period" shall mean, with respect to a
LIBOR Rate Loan, a period of one, two or three months, as available, commencing
on a Business Day, selected by the Borrower

<PAGE> 21

pursuant to subsection 2.6. Such Interest Period shall end on the day in the
relevant succeeding calendar month which corresponds numerically to the
beginning day of such Interest Period; provided that if there is no such
numerically corresponding day in such succeeding month, such Interest Period
shall end on the last Business Day of such succeeding month. If an Interest
Period would otherwise end on a day which is not a Business Day, such Interest
Period shall end on the next succeeding Business Day; provided that if such
next succeeding Business Day falls in a new month, such Interest Period shall
end on the immediately preceding Business Day. In the case of immediately
succeeding Interest Periods, each successive Interest Period shall commence on
the day on which the immediately preceding Interest Period expires.
Notwithstanding any of the foregoing, no Interest Period shall extend beyond
the Revolving Loan Maturity Date.

"International" shall mean Telular International,
Inc., an Illinois corporation.

"Inventory" shall mean all of the inventory of every
kind and description, now or at any time hereafter owned by or in the custody
or possession, actual or constructive, of the Borrower, wherever located,
including, without limitation, all merchandise, raw materials, parts, supplies,
work-in-process and finished goods intended for sale, together with all the
containers, packing, packaging, shipping and similar materials related thereto,
and including such inventory as is temporarily out of the Borrower's custody or
possession, including inventory on the premises of other Persons and items in
transit, and including any goods reclaimed, returned or repossessed upon any
Accounts, Documents, Instruments or Chattel Paper relating to or arising from
the sale of inventory, and all substitutions and replacements therefor, and all
additions and accessions thereto, and all ledgers, books of account, records,
computer printouts, computer runs, microfilm, microfiche and other
computer-prepared information relating to any of the foregoing, and any and all
proceeds of any of the foregoing, including, without limitation, proceeds of
insurance policies thereon.

"Inventory Sublimit" shall mean $6,000,000; provided
that, commencing with the Fiscal Quarter ending December 31, 1997, upon
delivery of the financial statements for a Fiscal Quarter in accordance with
subsection 7.1(ii) accompanied by a certificate of the chief financial officer
of the Borrower certifying that the Tangible Net Worth for such Fiscal Quarter
was equal to or greater than one hundred twenty percent (120%) of the required
Tangible Net Worth under subsection 7.13 for such Fiscal Quarter, the Inventory
Sublimit shall be increased to $8,000,000 for the period from the fifth
Business Day after the date of delivery of such certificate through the date
immediately preceding the fifth Business Day after the date of delivery of
financial statements for the next Fiscal Quarter required pursuant to
subsection 7.1(ii).

"Investment" of a Person shall mean any loan,
advance, extension of credit (other than accounts receivable arising in the
ordinary course of business on terms customary in the trade), deposit account
or contribution of capital by such Person to any other Person or any investment
in, or purchase or other acquisition of, the stock, partnership interests,
notes, debentures or other securities of any other Person made by such Person.
The amount of any Investment shall be the original cost of such Investment plus
the costs of all additions thereto.

"IRC" shall mean the Internal Revenue Code of 1986,
as amended from time to time, and all rules and regulations promulgated
thereunder.

<PAGE> 22

"Issuing Bank" shall mean any bank or financial
institution which is approved by the Borrower and the Agent and which issues
Letters of Credit for the account of the Borrower pursuant to subsection 2.1.

"Lenders" shall mean the financial institutions
signatory hereto and, subject to the terms and conditions hereof, their
respective successors and assigns.

"Lender Guaranties" and "Lender Guaranty" shall have
the respective meanings ascribed thereto in subsection 2.1(c).

"Lender Guaranty Fees" shall have the meaning
ascribed thereto in subsection 2.15.

"Lender Guaranty Liability" means, as to each Lender
Guaranty, all liabilities of the Lenders with respect to the transaction for
which such Lender Guaranty was issued, whether contingent or otherwise,
including: (a) the amount available to be drawn or which may become available
to be drawn; (b) all amounts which have been paid or made available by the
Issuing Bank or the Lenders to the extent not reimbursed by the Borrower; and
(c) all unpaid interest, fees and expenses with respect thereto.

"Lender Guaranty Reserve" means, at any date of
determination, a reserve in an amount equal to (a) the aggregate amount of
Lender Guaranty Liability with respect to Lender Guaranties outstanding at such
time, plus (b) the aggregate amount theretofore paid by the Lenders under the
Lender Guaranties for which the Lenders have not been reimbursed by the
Borrower or which has not been debited to the Loan Account pursuant to
subsection 2.1(c)(i).

"Letter of Credit" shall mean a standby letter of
credit or documentary letter of credit issued by an Issuing Bank at the request
of the Borrower and for the account of the Borrower and for which the Lenders
incur Lender Guaranties.

"Liabilities" shall mean liabilities of the Borrower
and its Subsidiaries which are or should be reflected on a consolidated balance
sheet of the Borrower in accordance with Generally Accepted Accounting
Principles.

"LIBOR Rate" shall mean, for each Interest Period, a
rate of interest equal to the sum of:

(a) the quotient of (i) the rate of interest
determined by Agent to be the rate at which deposits in U.S. Dollars for the
relevant Interest Period are offered based on information presented on the
Telerate Screen as of 11:00 a.m. (London time) on the applicable LIBOR Rate
Determination Date in the approximate amount of the LIBOR Rate Loan and
having a maturity approximately equal to such Interest Period; provided that
if at least two such offered rates appear on the Telerate Screen in respect
of such Interest Period, the arithmetic mean of all such rates (as determined
by Agent) will be the rate used; provided further, that if the Telerate

<PAGE> 23

System ceases to provide LIBOR quotations, such rate shall be the
average rate of interest determined by Agent at which deposits in U.S.
Dollars are offered for the relevant Interest Period by The Sanwa Bank,
Limited (or its successor) to banks with combined capital and surplus in
excess of $500,000,000 in the London interbank market as of 11:00 a.m.
(London time) on the applicable LIBOR Rate Determination Date in the
approximate amount of the LIBOR Rate Loan and having a maturity approximately
equal to such Interest Period, divided by

(ii) one minus the rate (expressed as a decimal)
of reserve requirements in effect on the LIBOR Rate Determination Date
(including, without limitation, all basic, supplemental, marginal and
emergency reserves under any regulations of the Board of Governors of the
Federal Reserve System or other governmental authority having jurisdiction
with respect thereto, as now and from time to time in effect) for
Eurocurrency funding (currently referred to as "Eurocurrency liabilities" in
Regulation D) which are required to be maintained by a member bank of the
Federal Reserve System;

plus, (b) three percent (3%) per annum.

The LIBOR Rate shall be adjusted to the nearest one-sixteenth percent (1/16%)
or, if there is no nearest one-sixteenth percent (1/16%), to the next higher
one-sixteenth percent (1/16%).

"LIBOR Rate Determination Date" shall mean each date
for calculating the LIBOR Rate for purposes of determining the interest rate
applicable to any LIBOR Rate Loan made pursuant to subsection 2.6. The LIBOR
Rate Determination Date shall be the second Business Day prior to the first day
of the related Interest Period for a LIBOR Rate Loan.

"LIBOR Rate Loans" shall mean the Revolving Loan or
portion thereof bearing interest at the LIBOR Rate.

"Lien" shall mean, with respect to the Property of
any Person, any statutory or contractual lien, security interest, mortgage,
pledge, claim, encumbrance, charge, hypothecation, assignment, deposit
arrangement, filing of, or agreement to give, a financing statement,
encumbrance or preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever, whether voluntary or involuntary
(including, without limitation, the interest of a vendor or lessor under any
conditional sale, capitalized lease or other title retention agreement), in, of
or on any of the Property of such Person in favor of any other Person.

"Litigation" shall have the meaning ascribed thereto
in subsection 6.14.

"Loan Account" shall have the meaning ascribed
thereto in subsection 2.13.

"Loan Year" shall mean the period of twelve (12)
consecutive months commencing on the Closing Date and each succeeding period of
twelve (12) consecutive months commencing on each anniversary of the Closing
Date during the Initial Term and any Renewal

<PAGE> 24

Term.

"Material Adverse Effect" shall mean a material
adverse effect upon (a) the Agent's Lien priority in, or the value of, the
Collateral, or (b) the business, properties, operations or financial condition
of the Borrower and its Subsidiaries taken as a whole as a result of the
occurrence or existence of any single event or condition or series of events or
conditions in the aggregate, or (c) the ability of the Borrower or any
Subsidiary to perform its obligations under any of the Financing Agreements to
which it is a party, or (d) the validity or enforceability of any of the
Financing Agreements or the rights, powers and remedies of the Agent or any
Lender to enforce or collect the Obligations. In determining whether any
individual event could reasonably be expected to have in a Material Adverse
Effect, notwithstanding that such event does not of itself have such effect, a
Material Adverse Effect shall be deemed to have occurred if the cumulative
effect of such event and all other then existing events could reasonably be
expected to have a Material Adverse Effect.

"Minimum Availability" shall mean, as of any date of
determination, the sum of (i) unrestricted cash on hand and Cash Equivalents
and (ii) unused Borrowing Availability.

"Monthly Report" shall have the meaning ascribed
thereto in subsection 3.1.

"Motorola" shall mean Motorola Corporation and any
Subsidiary thereof that executes the Motorola Letter.

"Motorola Letter" shall mean that certain no-offset
letter, dated as of the Closing Date, among Motorola, the Borrower and the
Agent, in form and substance satisfactory to the Agent, as amended, restated,\
supplemented or otherwise modified from time to time.

"Multiemployer Plan" shall mean any multiemployer
plan within the meaning of Section 4001(a)(3) of ERISA to which the Borrower or
any ERISA Affiliate contributes, is obligated to contribute or was required to
contribute within the immediately preceding six (6) years.

"Net Income" shall mean, for any applicable fiscal
period, determined for the Borrower and its Subsidiaries on a consolidated
basis, the consolidated net income after income taxes and franchise taxes and
shall have the meaning given such term by Generally Accepted Accounting
Principles; provided that there shall be specifically excluded therefrom
tax-adjusted (i) gains or losses from the sale of fixed assets (other than
royalties on Intellectual Property), (ii) net income or loss of any Person that
is not a Subsidiary in which the Borrower or such Subsidiary has an ownership
interest, except to the extent of cash received by the Borrower or such
Subsidiary in a cash distribution, and (iii) any gains or losses arising from
extraordinary items, as defined by Generally Accepted Accounting Principles.

"Note" or "Notes" shall mean one or more of the
Revolving Loan Notes, or a combination thereof.

"Obligations" shall mean all of the Borrower's
obligations, liabilities and

<PAGE> 25

indebtedness to the Agent and the Lenders and/or to any affiliate of the Agent
or the Lenders of any and every kind and nature, whether heretofore, now or
hereafter owing, arising, due or payable and howsoever evidenced, created,
incurred, acquired, or owing, whether primary, secondary, direct, indirect,
contingent, fixed or otherwise (including, without limitation, obligations of
performance) and whether arising or existing under written agreement, oral
agreement or operation of law including, without limitation, all of the
Borrower's indebtedness, liabilities and obligations to the Agent and the
Lenders or any Participant under this Agreement and the other Financing
Agreements.

"Participant" shall mean any Person now or from time
to time hereafter participating with any Lender in the Revolving Loan made by
such Lender pursuant to this Agreement.

"PBGC" shall mean the Pension Benefit Guaranty
Corporation or any successor thereto.

"Pension Plan" shall mean any Plan that is or was a
defined benefit plan (other than a Multiemployer Plan) defined in Section 3(35)
of ERISA.

"Permitted Discretion" means the Agent's commercially
reasonable judgment, based upon factors which: (i) are reasonably likely to
materially adversely affect (a) the value of the Collateral, (b) the
enforceability or priority of the Agent's Liens thereon or (c) the amount which
the Agent and the Lenders would be reasonably likely to receive (after giving
consideration to delays in payment and costs of enforcement) in the liquidation
of such Collateral; (ii) indicates that any Monthly Report, Borrowing Base
Certificate or financial information delivered to the Agent by the Borrower is
incomplete, inaccurate or misleading in any material respect; (iii) materially
increases the likelihood of an imminent bankruptcy, reorganization or other
insolvency proceeding involving the Borrower; or (iv) creates or reasonably
could be expected to create a Default or an Event of Default.

"Permitted Investments" shall have the meaning
ascribed thereto in subsection 8.4.

"Permitted Liens" shall have the meaning ascribed
thereto in subsection 8.1.

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

"Plan" shall mean any employee benefit plan within
the meaning of Section 3(3) of ERISA under which the Borrower or any ERISA
Affiliate contributes, is obligated to contribute or was required to contribute
within the immediately preceding six (6) years.

"Prime Rate" shall mean the highest "prime rate" of
interest reported, from

<PAGE> 26

time to time, by The Wall Street Journal; provided, however, that in the event
that The Wall Street Journal ceases reporting a "prime rate", "Prime Rate",
"Prime Rate" shall mean the per annum rate of interest reported as the "Bank
Prime Loan" rate for the most recent weekday for which such rate is reported in
Statistical Release H.15 (519) published from time to time by the Board of
Governors of the Federal Reserve System; provided further that in the event
that both of the aforesaid indices cease to be published or to report rates of
the aforesaid types, the "Prime Rate" shall be determined from a comparable
index chosen by the Agent in good faith. The "Prime Rate" shall change
effective on the date of the publication of any change in the applicable index
by which such "Prime Rate" is determined.

"Pro Rata Share" shall mean the percentage obtained
by dividing (a) the Commitments of a Lender by (b) the aggregate Commitments of
all Lenders. The Lenders' Pro Rata Shares shall be adjusted from time to time
to give effect to the addition of any new Lenders pursuant to subsection 11.1.
The sum of the Pro Rata Shares of all Lenders at any date of determination
shall equal one hundred percent (100%).

"Projections" shall mean the projected balance
sheets, profit and loss statements, and cash flow statements of the Borrower
and its Subsidiaries on a consolidated basis, together with appropriate
supporting details and a statement of underlying assumptions.

"Property" of a Person shall mean any and all assets
or property, whether real, personal, tangible, intangible, or mixed, of such
Person, or other assets or property leased or operated by such Person.

"Rate Hedging Obligations" of a Person shall mean any
and all obligations of such Person, whether absolute or contingent and
howsoever and whensoever created, arising, evidenced or acquired (including all
renewals, extensions and modifications thereof and substitutions therefore),
under (i) any and all agreements, devices or arrangements designed to protect
at least one of the parties thereto from the fluctuations of interest rates,
exchange rates or forward rates applicable to such party's Property,
liabilities or exchange transactions, including, but not limited to,
dollar-denominated or cross-currency interest rate exchange agreements, forward
currency exchange agreements, interest rate cap or collar protection
agreements, forward rate currency or interest rate options, puts and warrants,
and (ii) any and all cancellations, buy backs, reversals, terminations or
assignments of any of the foregoing.

"Rate Option" shall mean the Base Rate or the LIBOR
Rate, as applicable.

"Real Estate" of a Person shall mean the real
property, mineral rights, leasehold or other interests in real property
together with any purchase options and other rights related to such leaseholds
or other interests owned, leased, used or operated now or hereafter by such
Person, all Fixtures and personal property used in conjunction therewith and
such Person's rights to leases, rents and profits with respect thereto.

"Renewal Term" shall have the meaning ascribed
thereto in subsection 2.7.

<PAGE> 27

"Required Lenders" shall mean (i) Lenders having in
the aggregate more than fifty percent (50%) of the Total Revolving Loan
Facility, or (ii) if the Revolving Credit Facility has been terminated, Lenders
having in the aggregate more than fifty percent (50%) of the aggregate
outstanding amount of the Revolving Loan.

"Responsible Officer" shall mean the chief executive
officer, the president, the treasurer, the chief financial officer or any other
elected officer of the Borrower.

"Restricted Payment" of a Person shall mean: (a) any
dividend or other distribution, direct or indirect, on account of any shares of
any class of Stock of such Person now or hereafter outstanding; (b) any
redemption, conversion, exchange, retirement, sinking fund or similar payment,
purchase or other acquisition for value direct or indirect of any shares of any
class of Stock of such Person now or hereafter outstanding; or (c) any payment
made to retire, or to obtain the surrender of, any outstanding warrants,
options or other rights to acquire shares of any class of Stock of such Person
now or hereafter outstanding.

"Revolving Loan" shall have the meaning ascribed
thereto in subsection 2.1.

"Revolving Loan Maturity Date" shall mean April 23,
2000, subject to subsection 2.7.

"Revolving Loan Notes" shall have the meaning
ascribed thereto in subsection 2.3.

"Risk-Based Capital Guidelines" means (a) the
risk-based capital guidelines in effect in the United States on the date of
this Agreement and (b) the corresponding capital regulations promulgated by
regulatory authorities outside the United States implementing the July 1988
report of the Basle Committee on Banking Regulation and Supervisory Practices
entitled "International Convergence of Capital Measurements and Capital
Standards" and any amendments to such regulations adopted prior to the date of
this Agreement.

"SBCC" shall mean Sanwa Business Credit Corporation,
a Delaware corporation, in its individual capacity, and its successors.

"Securities Act" shall mean the Securities Act of
1933, as amended.

"Series A Preferred Stock Documents" shall mean,
collectively, (i) that certain Securities Purchase Agreement dated as of April
16, 1997 by and among the Borrower and the investors signatories thereto, (ii)
that certain Registration Rights Agreement dated as of April 16, 1997 by and
among the Borrower and the buyers signatories thereto, and (iii) that certain
Certificate of Designations, Preferences and Rights of Series A Convertible
Preferred Stock of the Borrower dated as of April 16, 1997.

"Service" shall mean the Internal Revenue Service and
any successor thereof.

<PAGE> 28

"Solvent" shall mean, when used with respect to any
Person on any date of determination, that (i) the fair saleable value of such
Person's Property is in excess of the total amount of the present value of its
Liabilities (including for purposes of this definition all liabilities, whether
or not reflected on a balance sheet prepared in accordance with Generally
Accepted Accounting Principles, and whether direct or indirect, fixed or
contingent, liquidated or unliquidated, secured or unsecured, disputed or
undisputed), (ii) such Person is able to pay its debts or obligations in the
ordinary course as they mature, and (iii) such Person has capital sufficient to
carry on its business as conducted and as proposed to be conducted. In
computing the amount of contingent, unliquidated or disputed liabilities at any
time, such liabilities will be computed at the amount which, in light of all of
the facts and circumstances existing at such time, represents the amount that
can reasonably be expected to become an actual or matured liability.
"Solvency" shall have a correlative meaning.

"Stock of a Person" shall mean all shares, options,
general or limited partnership interests or other equivalents (regardless of
how designated), participation or other equivalents (however designated) of
such Person of or in a corporation, partnership or equivalent entity, whether
voting or non-voting, including, without limitation, common stock, warrants,
preferred stock, convertible debentures or any other debt or equity security,
and all other agreements, instruments and documents of such Person convertible,
in whole or in part, into any one or more of the foregoing.

"Subsidiary" of a Person shall mean (i) any
corporation of which more than fifty percent (50%) of the outstanding
securities having ordinary voting power to elect a majority of the board of
directors or other Persons performing similar functions is at any time of
determination, directly or indirectly, owned or controlled by such Person or by
one or more of its Subsidiaries or by such Person and one or more of its
Subsidiaries, or (ii) any partnership, association, trust, grantor trust, joint
venture or similar business organization more than fifty percent (50%) of the
equity or partnership interests having ordinary voting power or power of
direction of which shall at any time of determination be so owned or
controlled. Unless otherwise expressly provided or the context requires
otherwise, all references herein to a "Subsidiary" shall mean a direct or
indirect Subsidiary of the Borrower.

"Tangible Net Worth" shall mean, at any date of
determination, the aggregate amount of total stockholders' equity of the
Borrower and its Subsidiaries determined in accordance with Generally Accepted
Accounting Principles plus any equity investment in Telepath, less the net book
value of all assets of the Borrower and its Subsidiaries on a consolidated
basis which would be treated as intangibles under Generally Accepted Accounting
Principles including, without limitation, all investments in unconsolidated
Subsidiaries and all equity investments in Persons (other than Telepath) which
are not Subsidiaries and all prepaid expenses and deferred charges, research
and development costs, treasury stock, franchise rights, licenses, permits,
non-compete agreements, premiums on purchased assets, unamortized debt discount
and expense, goodwill, patents, trademarks, tradenames, copyrights, patent
applications, trademark applications, copyright applications, organization or
developmental expenses and other intangible items.

"Taxes" shall mean taxes, liens, imposts,
deductions, Charges or withholdings,

<PAGE> 29

and all liabilities with respect thereto imposed by any Governmental Authority
(together with any fines, interest, penalties or other additions thereto),
excluding (i) taxes imposed on or measured by the net income of any Lender by
the United States of America or the jurisdiction where such Lender's principal
office or a lending office is located, and (ii) any transfer taxes imposed as a
results of the transfer of any Notes.

"Telepath" shall mean Wireless Domain, Inc. f/k/a
Telepath Corporation, a New York corporation.

"Telerate Screen" shall mean the display designated
as Screen 3750 on the Telerate System or such other screen on the Telerate
System as shall display the London interbank offered rates for deposits in U.S.
dollars quoted by selected banks.

"Telular Pledge Agreement" shall mean that certain
Pledge Agreement, dated as of the Closing Date, by the Borrower in favor of the
Agent, for the benefit of the Lenders, as the same may hereafter be amended,
restated, modified or supplemented from time to time.

"Termination Date" shall mean the earlier of (i) the
Revolving Loan Maturity Date then in effect and (ii) the date of termination in
whole of the Revolving Credit Commitments pursuant to subsection 9.1.

"Total Revolving Loan Facility" shall mean Twenty
Million Dollars ($20,000,000).

"Unused Line Fee" shall have the meaning ascribed
thereto in subsection 2.11.

1.2 Accounting Terms. Any accounting terms used in this
Agreement which are not specifically defined herein shall have the meanings
customarily given them in accordance with Generally Accepted Accounting
Principles. All determinations of the book value of Inventory contemplated
hereby shall be at the lower of cost (on a first-in, first-out basis) or
market.

1.3 Other Terms Defined in Illinois Uniform Commercial
Code. All other terms contained in this Agreement (and which are not otherwise
specifically defined herein) shall have the meanings provided in the Uniform
Commercial Code of the State of Illinois or the laws of any other state which
are required to be applied in connection with the issue of perfection or
non-perfection of Liens on the Collateral (the "Code") to the extent the same
are used or defined therein.

1.4 Effective Date. All references to "the date
hereof," "the date of this Agreement," "the effective date hereof," "effective
as of the date hereof" or "of even date herewith" contained herein or in the
other Financing Agreements shall be deemed to refer to the Closing Date of this
Agreement.

1.5 References. The foregoing definitions shall be
equally applicable to both the singular and plural forms of the defined terms.
Unless otherwise expressly provided or unless the context requires otherwise,
all references in this Agreement to Sections, subsections, Schedules and

<PAGE> 30

Exhibits shall mean and refer to Sections, subsections, Schedules and Exhibits
of this Agreement. References to Persons include their respective permitted
successors and assigns or, in the case of a governmental authority, Persons
succeeding to the relevant functions of such Persons. All references to
statutes shall include all related rules and regulations and shall include all
amendments of same and any successor or replacement statutes and regulations.

2. CREDIT.

2.1 Revolving Credit Facility.

(a) Revolving Loan. Provided there does not then exist a
Default or an Event of Default, and subject to the terms and conditions herein
set forth, each Lender agrees severally (and not jointly) to make its Pro Rata
Share of advances to the Borrower, on a revolving credit basis (the "Revolving
Loan") in an aggregate amount at any time outstanding not to exceed the lesser
of (i) the Total Revolving Loan Facility or (ii) the Borrowing Base, in each
case less the Lender Guaranty Reserve outstanding at such time ("Borrowing
Availability").

The Agent reserves the right, upon ten (10) days' prior
written notice to the Borrower, in its Permitted Discretion (i) to adjust any
eligibility criteria or establish new eligibility criteria, (ii) modify the
advance rates against Eligible Inventory and Eligible Accounts, and (iii)
establish reserves against Borrowing Availability. The provisions of
subsection 2.10 shall not apply to any prepayment in full of the Obligations
made within one hundred twenty (120) days after the Agent shall have imposed
any such adjustment or revision of eligibility criteria, modification of
advance rates or new reserves if the aggregate effect of any such action is to
reduce the Borrowing Base in effect immediately prior to such actions by
fifteen percent (15%) or more.

(b) Advances. Until all amounts outstanding in respect
of the Revolving Loan shall become due and payable on the Termination Date,
within the foregoing limits and subject to the terms, provisions and
limitations set forth herein, the Borrower may from time to time borrow, repay
and reborrow under this subsection 2.1. The Agent shall be entitled to rely
upon, and shall be fully protected under this Agreement from any liability to
any Person in relying upon, any such notice reasonably believed by the Agent to
be genuine and to assume that each Person executing and delivering the same was
duly authorized by the Borrower. Each advance to the Borrower shall, on the day
of such advance, be deposited, in immediately available funds, into the
Borrower's Account, unless otherwise requested by the Borrower in writing.

(i) Subject to the terms and conditions of this
Agreement, as part of the Revolving Loan and in addition to advances under the
Revolving Loan, upon the request of the Borrower, SBCC, on behalf of each
Lender according to such Lender's Pro Rata Share, may issue or arrange for the
issuance of Letters of Credit for the account of the Borrower and/or guaranty
payment to the Issuing Banks which issue Letters of Credit for the account of
the Borrower (all such Letters of Credit issued by SBCC are collectively
referred to herein as "Lender Guaranties" and individually as a "Lender
Guaranty"); provided that SBCC shall

<PAGE> 31

not be under any obligation to issue any Lender Guaranty if (i) any order,
judgment or decree of any government authority or other regulatory body shall
purport by its terms to enjoin or restrain SBCC or any Lender from issuing such
Lender Guaranty, or any law or governmental rule, regulation, policy, guideline
or directive (whether or not having the force of law) from any governmental
authority or other regulatory body with jurisdiction over SBCC or any Lender
shall prohibit the issuance of Lender Guaranties in particular or shall impose
upon SBCC or any Lender with respect to such Lender Guaranties any restriction
or reserve or capital requirement (for which SBCC or such Lender is not
otherwise compensated) or any unreimbursed loss, cost or expense which SBCC or
any Lender in good faith deems material to it or (ii) the issuance thereof
would violate any established credit policy of general application of the Agent
and of which the Agent has previously notified the Borrower in writing. In no
event shall SBCC issue or otherwise become obligated with respect to a Letter
of Credit (including, without limitation, Letters of Credit issued with an
automatic "evergreen" provision) having an expiration date, or a date for
payment of any draft presented thereunder, later than the earlier of (i) twelve
(12) months from the date of issuance or (ii) three (3) days prior to the
Revolving Loan Maturity Date. Such issuance and obligations with respect to a
Letter of Credit pursuant to this subsection 2.1(c) shall be deemed to be a
Revolving Loan for purposes of requiring the satisfaction of the applicable
conditions set forth in Section 4. Additions to the Lender Guaranty Reserve
shall be established concurrently with the issuance of each Lender Guaranty.
Immediately upon the issuance of any Lender Guaranty in accordance with this
subsection 2.1(c), each Lender shall be deemed to have irrevocably and
unconditionally purchased and received from SBCC, without recourse,
representation or warranty, an individual participation interest equal to its
Pro Rata Share of the principal amount of such Lender Guaranty and each draw
paid by the Issuing Bank under the Letter of Credit issued in connection
therewith. Each Lender's obligation to pay its Pro Rata Share of all draws
under the Letters of Credit issued in connection with such Lender Guaranties
shall be absolute, unconditional and irrevocable and in each case shall be made
without counterclaim or set-off by such Lender.

(ii) The aggregate amount of Lender Guaranty Liability with respect
to Lender Guaranties outstanding at any one time shall not exceed $4,000,000.

(iii) The Borrower shall be irrevocably and unconditionally
obligated forthwith upon demand without presentment, protest or other
formalities of any kind, to reimburse the Agent, on behalf of the Lenders, for
any amounts paid by the Lenders with respect to each Lender Guaranty including,
without limitation, all amounts paid by the Lenders upon any draw with respect
to a Letter of Credit and any guaranty or reimbursement obligation paid by the
Lenders to any Person upon any draw upon a Letter of Credit. All such
reimbursement obligations shall be due and payable on demand. If not paid
within one (1) Business Day following demand, or, if an Event of Default shall
have occurred and be continuing, on the date such reimbursement obligations
arise, the Borrower hereby authorizes and directs the Agent, at the Agent's
option, to debit the Loan Account (by increasing the principal balance of the
advances under the Revolving Loan), in the amount of any payment made by the
Lenders with respect to any Lender Guaranty and, in connection therewith, the
Lender Guaranty Reserve then in effect shall be reduced by the amount of

<PAGE> 32

such debit. All amounts paid by the Lenders with respect to any Lender
Guaranty that are not immediately repaid by the Borrower with the proceeds of
an advance under the Revolving Loan or otherwise shall bear interest at the
Base Rate then applicable to the Revolving Loan. If SBCC makes a payment on
account of any Lender Guaranty and is not concurrently reimbursed therefor by
the Borrower and if for any reason an advance under the Revolving Loan may not
be made as stated in this subsection 2.1(c), then as promptly as practical
during normal banking hours on the date of its receipt of such notice or, if
not practicable on such date, not later than 12:00 noon (Chicago time) on the
Business Day immediately succeeding such date of notification, each Lender
shall deliver to the Agent for the account of the Issuing Bank, in immediately
available funds, the purchase price for such Lender's interest in such
unreimbursed Lender Guaranty, which shall be an amount equal to such Lender's
Pro Rata Share of such payment. Each Lender acknowledges and agrees that its
obligation to reimburse the Agent pursuant to this subsection 2.1(c)(ii) with
respect to Lender Guaranty Liabilities is absolute and unconditional and shall
not be affected by any circumstance whatsoever including, without limitation,
the occurrence or continuance of a Default or an Event of Default, and further
acknowledges and agrees that each such payment shall be made without any
offset, abatement, withholding or reduction whatsoever.

(iv) In addition to all other terms and conditions set forth in
this Agreement, the issuance by the Lenders of any Lender Guaranty shall be
subject to the conditions precedent that the Issuing Bank be satisfactory to
the Agent and that the Letter of Credit be in such form as is reasonably
satisfactory to the Agent. The Borrower shall comply with all such terms and
conditions imposed by any Issuing Bank or by the Agent with respect to the
issuance of any Letter of Credit, whether such terms and conditions are imposed
in the application for such Letter of Credit, the Lenders' guaranty of such
letter of credit or otherwise.

(v) Prior to the issuance of a Lender Guaranty and as a condition
to such issuance, the Borrower shall give the Agent prior written notice
specifying the date a Lender Guaranty is to be issued, identifying the
beneficiary of the guaranty and describing the nature of the transactions
proposed to be supported thereby and specifying whether the Borrower is
requesting a Lender Guaranty in the form of a Letter of Credit issued by a
Lender acting as the Issuing Bank or a guaranty of a Letter of Credit issued by
another Issuing Bank. The notice shall be accompanied by the form of the
Letter of Credit. Subject to the terms hereof, the Agent shall issue the
requested Lender Guaranty as soon as practicable and not more than three (3)
Business Days following the date of the applicable notice; provided that the
Lender Guaranty shall not be issued until the Agent and the Issuing Bank have
mutually agreed upon the form of such Lender Guaranty.

(vi) The Borrower hereby agrees to indemnify, pay and hold the
Agent and each Lender harmless from and against any and all pending or overtly
threatened claims, litigation, damages, losses and liabilities incurred by the
Agent or any Lender (or which may be claimed against the Agent or any Lender by
any Person whatsoever) and reasonable costs and expenses incurred in defending
or responding to such claims or litigation by reason of or in connection with
the execution, delivery or transfer of, or payment or failure to pay

<PAGE> 33

under, any Lender Guaranty including, without limitation, any action taken or
omitted by any Issuing Bank; provided that the Borrower shall not be required
to indemnify or hold harmless the Agent or any Lender for any such claims,
litigation, losses or liabilities to the extent arising from such Person's
willful misconduct or gross negligence. The Borrower's unconditional
obligations to the Agent and the Lenders hereunder shall not be modified or
diminished for any reason or in any manner whatsoever. The Borrower agrees
that any charges made to the Agent or the Lenders for the Borrower's account
by any Issuing Bank shall be conclusive as between such Persons and the
Borrower and may be charged to the Loan Account.

2.2 Maximum Principal Balance. If at any time the
aggregate outstanding principal balance of the Revolving Loan advances and
Lender Guaranty Liabilities shall exceed the lesser of (i) the Total Revolving
Loan Facility or (ii) the Borrowing Base (any such excess being referred to
herein as an "Overadvance"), the Borrower shall immediately and without notice
or demand of any kind (a) repay the outstanding advances under the Revolving
Loan to the extent necessary to eliminate such excess and (b) if any excess
remains after payment in full of the outstanding balance of the Revolving Loan,
cash collateralize the Lender Guaranty Liabilities in accordance with
subsection 2.7(b) to the extent necessary to eliminate such remaining excess;
provided that if such Overadvance results from the Agent's exercise of its
Permitted Discretion under subsection 2.1(a), so long as no Default or Event of
Default shall have occurred and be continuing, such Overadvance shall be repaid
by the Borrower within thirty (30) days of the occurrence of such Overadvance.

2.3 Evidence of Revolving Loan Indebtedness. The
advances by each Lender under the Revolving Loan shall be evidenced by a
promissory note in favor of each respective Lender (collectively, the
"Revolving Loan Notes") in the amount of its Revolving Loan Commitment dated
the Closing Date in the form attached as Exhibit 2.3. All of the Revolving
Loan Obligations to the Lenders hereunder shall be payable by the Borrower by
application of the proceeds of all Accounts and other Collateral in accordance
with subsection 3.5, and shall be payable in full upon the Termination Date,
and the principal amount of such Revolving Loan Obligations shall bear interest
as hereinafter provided. Each advance by the Lenders and each repayment of
principal applicable to such advance shall be reflected in the Loan Account.

2.4 Payment Dates. Interest shall be payable on Base
Rate Loans in arrears on the first day of each calendar month for all periods
ending prior to such month for which such Base Rate Loans are or, in the case
of a Base Rate Loan converted to a LIBOR Rate Loan during the prior month, were
outstanding and at the maturity of such Base Rate Loan (whether by acceleration
or otherwise), commencing with the first of such dates to occur after the date
of such Base Rate Loan. Interest shall be payable on LIBOR Rate Loans on the
last day of each Interest Period relating to such LIBOR Rate Loan and at the
maturity of such LIBOR Rate Loan (whether by acceleration or otherwise),
commencing with the first of such dates to occur after the date of such LIBOR
Rate Loan. After maturity, accrued interest on the Revolving Loan shall be
payable on demand. Any payment due hereunder on any day other than a Business
Day shall be due on the next succeeding Business Day, and if such payment shall
bear interest in accordance herewith, interest shall accrue to the date of
payment.

<PAGE> 34

2.5 Interest.

(a) Subject to the terms and conditions of this
Agreement, advances under the Revolving Loan may be divided into Base Rate
Loans or LIBOR Rate Loans, or a combination thereof, selected by the Borrower
in accordance with subsections 2.5(e) and 2.5(f); provided that the Revolving
Loan shall not have more than three (3) Interest Periods outstanding at any one
time. So long as no Event of Default has occurred and is continuing, the
Borrower shall pay to the Agent, for the benefit of the Lenders, interest on
the outstanding principal balance of the Revolving Loan at the Base Rate or the
LIBOR Rate, as applicable, in accordance with Section 2.6.

(b) Interest and all fees (other than prepayment fees)
shall be computed (on a daily basis) on the basis of a 360-day year for the
actual number of days elapsed. In computing interest on the Revolving Loan,
the date of funding of the Revolving Loan or the first day of an Interest
Period applicable to the Revolving Loan or, with respect to a Base Rate Loan
being converted from a LIBOR Rate Loan, the date of conversion of such LIBOR
Rate Loan to such Base Rate Loan, shall be included and the date of payment of
the Revolving Loan or the expiration date of an Interest Period applicable to
the Revolving Loan or, with respect to a Base Rate Loan being converted to a
LIBOR Rate Loan, the date of conversion of such Base Rate Loan to such LIBOR
Rate Loan, shall be excluded; provided that if an advance under the Revolving
Loan is repaid on the same day on which it is made, one day's interest shall be
paid on such advance. Each determination by the Agent of an interest rate
hereunder shall be conclusive and binding for all purposes, absent manifest
error.

(c) So long as an Event of Default shall have occurred
and be continuing, the Borrower shall pay to the Lenders interest from the date
of such Event of Default to and including the date of cure of such Event of
Default on the outstanding principal balance of the Obligations at the Default
Rate applicable to such Obligations; provided that in the case of LIBOR Rate
Loans, upon the expiration of the Interest Period in effect at the time any
Event of Default shall have occurred and be continuing, such LIBOR Rate Loans
shall automatically become Base Rate Loans and thereafter bear interest at the
Default Rate applicable to Base Rate Loans.

(d) (i) Interest shall be due at the Base Rate, the LIBOR
Rate or the Default Rate, as provided herein, after as well as before demand,
default and judgment notwithstanding any judgment rate of interest provided
for in any statute. If any interest payment or other charge or fee payable
hereunder exceeds the maximum amount then permitted by applicable law, then
to the extent permitted by law and subject to the provisions of subparagraph
(ii) of this subsection 2.5(d), the Borrower shall be obligated to pay the
maximum amount then permitted by applicable law and the Borrower shall
continue to pay the maximum amount from time to time permitted by applicable
law until all such interest payments and other charges and fees otherwise due
hereunder (in the absence of such restraint imposed by applicable law) have
been paid in full.

(ii) It is the intention of the Agent, the Lenders
and the Borrower to comply with the laws of the State of Illinois, and
notwithstanding any provision to the contrary contained herein or in the
other Financing Agreements, the Borrower

<PAGE> 35

shall not be required to pay and the Lenders shall not be permitted to
collect any amount in excess of the maximum amount of interest permitted by
law ("Excess Interest"). If any Excess Interest is provided for or
determined to have been provided for by a court of competent jurisdiction
in this Agreement or in any of the other Financing Agreements, then in such
event: (A) the provisions of this subsection 2.5(d)(ii) shall govern and
control; (B) neither the Borrower nor any guarantor or endorser shall be
obligated to pay any Excess Interest; (C) any Excess Interest that any
Lender may have received hereunder shall be, at such Lender's option (1)
applied as a credit against the outstanding principal balance of the
Obligations or accrued and unpaid interest (not to exceed the maximum
amount permitted by law), (2) refunded to the payor thereof, or (3) any
combination of the foregoing; (D) the interest rate(s) provided for herein
shall be automatically reduced to the maximum lawful rate allowed under
applicable law, and this Agreement and the other Financing Agreements shall
be deemed to have been, and shall be, reformed and modified to reflect such
reduction; and (E) neither the Borrower nor any guarantor or endorser shall
have any action against any Lender for any damages arising out of the
payment or collection of any Excess Interest.

(e) Subject to the terms of this Agreement, the Borrower
shall select the Rate Option and, in the case of LIBOR Rate Loans, the Interest
Period applicable to each LIBOR Rate Loan from time to time by giving the Agent
irrevocable notice in the form of Exhibit 2.6-1 hereto (a "Borrowing Notice")
not later than 12:00 noon (Chicago time) (i) on the Funding Date of any
Base Rate Loan, and (ii) three (3) Business Days before the Funding Date for
each LIBOR Rate Loan, specifying:

(i) the Funding Date of each LIBOR Rate Loan;

(ii) the aggregate amount of such LIBOR Rate Loan (and, if
such Borrowing Notice refers to more than one Rate Option, the amount of
each Base Rate Loan and LIBOR Rate Loan which will become part of the
Revolving Loan;

(iii) the Rate Option(s) selected for such advance under the
Revolving Loan; and

(iv) in the case of each LIBOR Rate Loan, the Interest
Period applicable thereto;

provided that no advance under the Revolving Loan may be made as a LIBOR Rate
Loan if any Default or Event of Default has occurred and is continuing.

The Borrower shall select Interest Periods so that it is not
necessary to repay any portion of a LIBOR Rate Loan prior to the last day of
the applicable Interest Period in order to make a payment or prepayment of
principal on the Revolving Loan required by the terms hereof including, without
limitation, prepayments pursuant to subsection 2.7(b).

<PAGE> 36

(f) Base Rate Loans shall continue as Base Rate Loans
unless and until such Base Rate Loans are converted by the Borrower into LIBOR
Rate Loans in accordance with this subsection 2.5(f). Each LIBOR Rate Loan
shall continue as a LIBOR Rate Loan until the end of the then applicable
Interest Period, at which time such LIBOR Rate Loan shall be automatically
converted into a Base Rate Loan unless the Borrower shall have given the Agent
an irrevocable notice in the form of Exhibit 2.5-2 (a "Conversion/Continuation
Notice") requesting that, at the end of such Interest Period, such LIBOR Rate
Loan continue as a LIBOR Rate Loan for the same or another Interest Period;
provided that no outstanding advance under the Revolving Loan may be continued
as, or be converted into, a LIBOR Rate Loan if any Default or Event of Default
has occurred and is continuing. Subject to the terms of this Agreement, the
Borrower may elect from time to time to convert all or any part of the
Revolving Loan of any Rate Option into any other Rate Option; provided that any
conversion of a LIBOR Rate Loan shall be made on, and only on, the last day of
the Interest Period applicable thereto. The Borrower shall give the Agent a
Conversion/Continuation Notice of each conversion or continuation of a Base
Rate Loan or LIBOR Rate Loan, as the case may be, not later than 12:00 noon
(Chicago time) (i) on the Funding Date, in the case of a conversion into a Base
Rate Loan, and (ii) at least three (3) Business Days before the Funding Date of
the requested conversion or continuation of a LIBOR Rate Loan, specifying:

(i) the Funding Date of such conversion or
continuation;

(ii) the aggregate amount and Rate Option(s) of the
advance under the Revolving Loan which is to be converted or
continued; and

(iii) the amount and Rate Option(s) of the Base Rate
Loans or LIBOR Rate Loans into which such advance under the
Revolving Loan is to be converted or continued and, in the case
of a conversion into or continuation of a LIBOR Rate Loan, the
duration of the Interest Period applicable thereto.

(g) In lieu of delivering a Borrowing Notice or a
Conversion/Continuation Notice, the Borrower may give the Agent notice by
telephone or telecopy by the required time of any proposed borrowing or
conversion/continuation under this subsection 2.5; provided that such notice
shall be promptly confirmed in writing by delivery of a Borrowing Notice or a
Conversion/Continuation Notice, as the case may be, to the Agent on or before
the proposed Funding Date. Neither the Agent nor any Lender shall incur any
liability to the Borrower in acting upon any such notice by telephone that the
Agent believes in good faith to have been given by the Borrower or for
otherwise acting in good faith under this subsection 2.5 and, upon the funding
or conversion/continuation, as the case may be, by the Agent in accordance with
this Agreement pursuant to any such notice, the Borrower shall have effected
such funding, conversion or continuation, as the case may be, hereunder. A
Borrowing Notice or a Conversion/Continuation Notice for the funding of, or
conversion to, or continuation of, a LIBOR Rate Loan (or notice by telephone or
telecopy in lieu thereof) shall be irrevocable once given, and the Borrower
shall be bound to convert or continue in accordance therewith.

(h) Each LIBOR Rate Loan (whether resulting from a
Borrowing Notice or a Conversion/Continuation Notice) shall be in the minimum
amount of Five Hundred Thousand

<PAGE> 37

Dollars ($500,000) and in integral multiples of One Hundred Thousand Dollars
($100,000) if in excess thereof.

2.6 Method of Borrowing; Manner and Method of Making
Interest and Other Payments. () Not later than 12:00 noon (Chicago time) on
each Funding Date, each Lender shall make available its Pro Rata Share of the
advances under the Revolving Loan (except for advances made pursuant to a
Conversion/Continuation Notice, in which case each Lender shall be deemed to
have made its advances) in funds immediately available in Chicago, Illinois to
the Agent at its address specified pursuant to subsection 10.13. The Agent
will make the funds so received from the Lenders available to the Borrower in
accordance with subsection 2.1(b). Notwithstanding the foregoing provisions of
this subsection 2.6(a), to the extent that an advance under the Revolving Loan
made by a Lender matures or is to be repaid on the Funding Date of a requested
advance under the Revolving Loan, such Lender shall first apply the proceeds of
the advance it is then making to the repayment of such maturing advance under
the Revolving Loan.

(b) All payments by the Borrower of the Obligations shall
be made without deduction, defense, setoff or counterclaim and in same day
funds. In their sole discretion, the Required Lenders may deem interest and
other amounts payable hereunder (other than the principal balance of the
Revolving Loan) to be paid by causing such amounts to be added to the principal
balance of the Revolving Loan, all as set forth on the Agent's books and
records. The Borrower hereby authorizes and directs the Lenders, at the option
of the Required Lenders, to make advances in the Revolving Loan by appropriate
debits to the Loan Account for all payments which the Borrower is required to
make to the Lenders under this Agreement and the other Financing Agreements.
Unless otherwise directed by the Agent, all payments to the Lenders hereunder
shall be made by delivery thereof to the Agent at its address set forth in
subsection 10.12 or by delivery to the Agent for deposit in the Blocked
Accounts of all proceeds of Accounts or other Collateral in accordance with
subsection 3.5. If the Agent elects to bill the Borrower for any amount due
hereunder, such amount shall be immediately due and payable with interest
thereon as provided herein. Solely for the purpose of calculating interest
earned by each Lender with respect to the Revolving Loan, any check, draft or
similar item of payment by or for the account of the Borrower delivered to the
Agent or deposited in a Blocked Account in accordance with subsection 3.5 shall
be applied by the Agent on account of the Revolving Loan Obligations on the
Business Day the Agent has received immediately available funds as a result of
the deposit thereof in accordance with subsection 3.5. Immediately available
funds received by the Agent after 2:00 p.m., (Chicago time), shall be deemed to
have been received on the following Business Day.

(c) (i) Unless the Borrower or a Lender, as the case may
be, notifies the Agent prior to the date on which it is scheduled to make
payment to the Agent of (A) in the case of a Lender, such Lender's Pro Rata
Share of the proceeds of an advance under the Revolving Loan or (B) in the case
of the Borrower, a payment of principal, interest, fees or other Obligations to
the Agent for the account of the Lenders, that it does not intend to make such
payment, the Agent may assume that such payment has been made. The Agent may,
but shall not be obligated to, make the amount of such payment available to the
intended recipient in reliance upon such assumption. If the Borrower or such
Lender, as the case may be, has not in fact made such payment to the Agent, the
recipient of such payment shall, on demand by the Agent, repay to the Agent the
amount so made

<PAGE> 38

available together with interest thereon in respect of each day during the
period commencing on the date such amount was so made available by the Agent
until the date the Agent recovers such amount at a rate per annum equal to (x)
in the case of payment by a Lender, the Federal Funds Rate for such day (as
determined by the Agent) or (y) in the case of payment by the Borrower, the
interest rate applicable to the relevant advance under the Revolving Loan.

(ii) Nothing contained in this subsection 2.6(c)
will be deemed to relieve a Lender of its obligation to
fulfill its Commitments or to prejudice any rights the Agent
or the Borrower may have against such Lender as a result of
any default by such Lender under this Agreement.

(iii) If the Agent determines at any time that any
amount received by the Agent under this Agreement must be
returned to the Borrower or paid to any other Person pursuant
to any insolvency law or otherwise, then, notwithstanding any
other term or condition of this Agreement, the Agent will not
be required to distribute any portion thereof to any Lender.
In addition, each Lender will repay to the Agent on demand any
portion of such amount that the Agent has distributed to such
Lender.

(iv) Without limiting the generality of the
foregoing, each Lender shall be obligated to fund its Pro Rata
Share of any advance under the Revolving Loan made with respect
to any draw on a Letter of Credit or Lender Guaranty therefor
after acceleration of the Obligations.

2.7 Term of this Agreement.

(a) This Agreement shall be effective from the Closing
Date until the Revolving Loan Maturity Date (the "Initial Term"), subject to
annual renewals thereafter of the Revolving Loan Maturity Date as hereinafter
provided (each such renewal being referred to as a "Renewal Term"); provided
that all of the Agent's and each Lender's rights and remedies under this
Agreement shall survive such termination until all of the Obligations have been
finally paid in full in cash. Not less than ninety (90) days prior to the end
of the Initial Term or any Renewal Term, the Borrower shall notify the Agent in
writing if the Borrower elects to renew this Agreement for a Renewal Term, and
not less than sixty (60) days prior to the end of the Initial Term or such
Renewal Term, as applicable, the Agent shall notify the Borrower in writing if
the Lenders elect to accept such renewal. Notwithstanding the foregoing,
unless the Borrower and each Lender shall agree in writing to extend this
Agreement in accordance with the preceding sentence, this Agreement shall
terminate upon the earlier to occur of the expiration of the Initial Term or
any Renewal Term, as applicable, or the final payment in full of all of the
Obligations. In addition, this Agreement may be terminated as set forth in
subsections 2.7(b) and 9. Upon the effective date of termination, all of the
Obligations shall become immediately due and payable without notice or demand
notwithstanding any terms contained herein or in any Note to the contrary.
Notwithstanding any termination of this Agreement, until (i) all of the
Obligations except unmatured contingent Obligations (other than those
Obligations described in clauses (ii) and (iii) below) for which no claim has
been asserted shall have been paid in full in cash, (ii) the Lender Guaranties
shall have been terminated or payment thereof shall have been secured in
accordance with subsection 2.7(b) and (iii) the Borrower shall have provided to
the

<PAGE> 39

Agent for the benefit of the Lenders security on terms satisfactory to the
Agent with respect to any pending or overtly threatened action against any
Person which could result in a claim against the Borrower by any Indemnitee for
indemnification under subsection 7.10, the Borrower shall remain bound by the
terms of this Agreement and the Lenders shall be entitled to retain their Liens
on the Collateral.

(b) Subject to the termination fee set forth in
subsection 2.10 and the provisions of subsection 2.20, upon not less than ten
(10) days prior written notice to the Agent specifying the date of termination,
the Borrower may terminate this Agreement and the Commitments hereunder by
prepaying in full, but not in part, all of the outstanding Obligations
(excluding outstanding Lender Guaranties). Upon such termination and
prepayment in full, the Borrower shall (i) cause the Agent and each Lender to
be released from all liability under any Lender Guaranties or (ii) (x) cause to
be issued to and for the benefit of the Agent and the Lenders a letter of
credit in form and substance acceptable to the Agent issued by a bank or other
financial institution acceptable to the Agent to secure such Lender Guaranties,
or (y) deposit cash collateral with the Agent, for the benefit of the Agent and
the Lenders, in either case, in an amount equal to 105% of the aggregate Lender
Guaranty Liability with respect to the Lender Guaranties that will remain
outstanding after prepayment in full of all other Obligations.

2.8 Audit Fee. The Borrower shall pay to SBCC,
individually in its capacity as the Agent, a collateral audit fee (the "Audit
Fee") in an amount equal to (i) the Agent's reasonable out-of-pocket costs,
plus (ii) a fee of One Thousand Dollars ($1,000.00) per day for each field
audit conducted by the Agent pursuant to Section 7.2; provided that so long as
no Default or Event of Default shall have occurred and be continuing, the
Borrower shall not be liable for reimbursing the Agent for the costs and
expenses of more than three (3) field audits in any Fiscal Year.

2.9 Closing Fee. The Borrower shall pay to the Agent,
for the ratable benefit of the Lenders, a closing fee (the "Closing Fee") in an
amount equal to one percent (1%) of the sum on such date of the Total Revolving
Loan Facility, such fee to be payable in two equal installments on (a) the
Closing Date and (b) December 20, 1997; provided that the Closing Fee shall be
fully earned on the Closing Date; provided further that if the Total Revolving
Loan Facility shall be terminated prior to such date (whether as a result of
acceleration, voluntary prepayment or otherwise) the remaining unpaid Closing
Fee shall be payable on such prior termination date.

2.10 Termination Fee.

(a) Subject to subsections 2.1(a) and 2.10(b), If the
Borrower shall terminate this Agreement and prepay all of the Obligations prior
to April 23, 2000 pursuant to subsection 2.7(b), the Borrower shall pay to the
Agent, for the ratable benefit of the Lenders, as liquidated damages and
compensation for the costs of being prepared to make funds available to the
Borrower hereunder an amount determined as follows: one percent (1%) of the
Total Revolving Loan Facility for a termination during the first Loan Year; one
half of one percent (0.50%) of the Total Revolving Loan Facility for a
termination during the second Loan Year; and one quarter of one percent (0.25%)
of the Total Revolving Loan Facility for a termination during the third Loan
Year.

<PAGE> 40

(b) Notwithstanding anything contained in subsection
2.10(a) or in Section 12.11 to the contrary, if (i) SBCC resigns as the Agent
or (ii) SBCC or any of its affiliates shall hold a Commitment in the aggregate
of less than Ten Million Dollars ($10,000,000), the Borrower may terminate this
Agreement and prepay the Obligations in accordance with subsection 2.7(b)
without premium or penalty other than as provided in subsection 2.20.

2.11 Unused Line Fee. From and after the Closing Date,
the Borrower shall pay to the Agent, for the ratable benefit of the Lenders, a
fee (the "Unused Line Fee") in an amount equal to the Total Revolving Loan
Facility less the average daily closing balance of the advances under the
Revolving Loan plus Lender Guaranty Liabilities outstanding during the
preceding month (or shorter period with respect to the period commencing with
the Closing Date or the period ending with the Termination Date) multiplied by
three eighths of one percent (0.375%) per annum. The Unused Line Fee shall be
payable quarterly in arrears on the first day of each May, August, November and
February following the Closing Date, commencing May 1, 1997 and on the
Termination Date.

2.12 Other Fees, Costs and Expenses. The Borrower shall
reimburse the Agent on demand for all out-of-pocket fees, costs and expenses
reasonably incurred by the Agent in connection with any matters contemplated by
or arising out of this Agreement or any other Financing Agreement (which fees,
costs and expenses shall be part of the Obligations and secured by the
Collateral) including, without limitation: (i) following the occurrence of an
Event of Default in verifying or inspecting the Accounts or the Inventory or
the Borrower's records with respect thereto; (ii) in connection with opening
and maintaining the Blocked Accounts and depositing for collection any check or
item of payment received by and/or delivered to any Collecting Bank or the
Agent or any Lender on account of the Obligations; (iii) arising out of the
Agent's indemnification of any Collecting Bank against damages incurred by such
Collecting Bank in the operation of a Blocked Account; (iv) in connection with
the Agent's forwarding to the Borrower the proceeds of loans or advances
hereunder including, without limitation, transfer fees; (v) arising from
photocopying and other mechanical or electronic reproduction in connection with
the rights of inspection under subsection 7.2; (vi) in connection with the
negotiation, preparation, review, execution and delivery of the Financing
Agreements and all amendments, modifications and waivers with respect hereto or
with respect to the other Financing Agreements including, without limitation,
search fees, appraisal fees and expenses, title insurance policy fees, costs
and expenses; filing and recording fees; reasonable fees, costs and expenses of
the Agent's outside attorneys and paralegals and all Taxes payable in
connection with this Agreement or the other Financing Agreements, whether such
fees, costs and expenses are incurred prior to, on or after the Closing Date;
(vii) arising from the Agent's employment of counsel or otherwise in connection
with protecting, perfecting or preserving the Agent's Liens in the Collateral
in accordance with subsection 10.2 and (viii) in connection with any
refinancing or restructuring of the credit arrangements provided under the
Financing Agreements, whether in the nature of a "workout" or in connection
with any insolvency or bankruptcy proceedings, or in connection with any other
matters contemplated by or arising out of this Agreement or the other Financing
Agreements. The Borrower shall reimburse the Agent and the Lenders for all out
of pocket fees, costs and expenses incurred by the Agent or any Lender (which
fees, costs and expenses shall be part of the Obligations and secured by the
Collateral) in connection with (i) any litigation, contest, dispute, suit,
proceeding or action in any way relating to

<PAGE> 41

the Collateral, any of the Financing Agreements or any other agreement to be
executed or delivered in connection therewith or herewith, whether as party,
witness, or otherwise, including any litigation, contest, dispute, suit, case,
proceeding or action, and any appeal or review thereof, in connection with a
case commenced by or against the Borrower or any Subsidiary that may be
obligated to the Agent or any Lender by virtue of the Financing Agreements
(including any such litigation, contest, dispute, suit, proceeding or action
arising in connection with any work-out or restructuring of the Revolving Loan
during the pendency of one or more Events of Default); and (ii) any enforcement
of any of the Financing Agreements including any such enforcement in the course
of any work-out or restructuring of the Revolving Loan during the pendency of
one or more Events of Default. Any portion of the foregoing fees, costs and
expenses which remains unpaid ten (10) days following the Agent's or a Lender's
statement and request for payment thereof shall bear interest from the date of
such statement and request for payment at the Default Rate.

2.13 Loan Account. The Agent shall maintain a loan
account ("Loan Account") on its books in which shall be recorded (i) all
advances under the Revolving Loans and other advances made to the Borrower
pursuant to this Agreement, (ii) the issuance of all Lender Guaranties, (iii)
all payments made by the Borrower on the Revolving Loan and advances and (iv)
all other appropriate debits and credits as provided in this Agreement
including, without limitation, all fees, charges, expenses and interest. All
entries in the Loan Account shall be made in accordance with the Agent's
customary accounting practices as in effect from time to time. So long as a
Default or an Event of Default shall have occurred and be continuing, the
Borrower irrevocably waives the right to direct the application of any and all
payments at any time or times thereafter received by the Agent or any Lender
from or on behalf of the Borrower, and the Borrower does hereby irrevocably
agree that each Lender shall have the continuing exclusive right to apply and
to reapply any and all payments received at any time or times hereafter against
the Obligations in such manner as such Lender may deem advisable
notwithstanding any previous entry by the Agent upon the Loan Account or by the
Agent or such Lender on any other books and records.

2.14 Statements. All advances to the Borrower, and all
other debits and credits provided for in this Agreement, shall be evidenced by
entries made by the Agent in the Loan Account and in the Agent's books and
records showing the date, amount and reason for each such debit or credit.
Until such time as the Agent shall have rendered to the Borrower written
statements of account as provided herein, the balance in the Loan Account, as
set forth on the Agent's most recent printout or other written statement,
shall be rebuttably presumptive evidence of the amounts due and owing to each
Lender by the Borrower; provided that any failure to so record or any error in
so recording shall not limit or otherwise affect the Borrower's obligations to
pay the Obligations. Not more than twenty (20) days after the last day of each
calendar month, the Agent shall render to the Borrower a statement setting
forth the principal balance of the Loan Account and the calculation of interest
due thereon. Each such statement shall be subject to subsequent adjustment by
the Agent but shall, absent manifest errors or omissions, be presumed correct
and binding upon the Borrower, and shall constitute an account stated unless,
within thirty (30) days after receipt of any statement from the Agent, the
Borrower shall deliver to the Agent in accordance with subsection 10.12 written
objection thereto specifying the error or errors, if any, contained in such
statement. In the absence of a written objection delivered to the Agent as set
forth in this subsection 2.14, the Agent's statement of the Loan Account shall
be conclusive evidence of the amount of the Obligations.

<PAGE> 42

2.15 Lender Guaranty Fees. The Borrower shall pay to
the Agent, for the benefit of the Lenders, fees for any Lender Guaranty
("Lender Guaranty Fees") for the period from and including the date of issuance
of such Lender Guaranty to and excluding the date of expiration or termination
of such Lender Guaranty, equal to the daily average amount of the Lender
Guaranty Liability multiplied by three percent (3%) per annum which fees shall
include all amounts paid by the Lenders to any Issuing Bank for the costs, fees
and expenses customarily charged by such Issuing Bank in respect of Letters of
Credit issued by it. Lender Guaranty Fees shall be payable monthly in arrears
on the first day of the month following the date of issuance of any such Lender
Guaranty and the first day of each month thereafter during which such Lender
Guaranty shall remain outstanding and on the Termination Date.

2.16 Other Lender Guaranty Provisions.

(a) The obligation of the Borrower to reimburse the Agent
and each Lender for payments made under any Lender Guaranty shall be
unconditional and irrevocable and shall be paid strictly in accordance with the
terms of this Agreement under all circumstances including the following
circumstances:

(i) any lack of validity or enforceability of
any Lender Guaranty or any other agreement;

(ii) the existence of any claim, set-off,
defense or other right which the Borrower, any of its Affiliates or the
Agent or any Lender may have at any time against a beneficiary or any
transferee of any Lender Guaranty (or any Persons for whom any such
transferee may be acting), the Agent, any Lender or any other Person,
whether in connection with this Agreement, the transactions
contemplated herein or any unrelated transaction (including, without
limitation, any underlying transaction between the Borrower or any of
its Affiliates and the beneficiary for which such Lender Guaranty was
procured);

(iii) any draft, demand, certificate or any
other document presented under any Lender Guaranty proving to be
forged, fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect;

(iv) payment by the Agent or any Lender under
any Lender Guaranty against presentation of a demand, draft or
certificate or other document which does not comply with the terms of
such Lender Guaranty; provided that, in the case of any payment by the
Agent or any Lender under such Lender Guaranty, such Person has not
acted with gross negligence or willful misconduct as determined by a
final judgment, not subject to review on appeal, of a court of
competent jurisdiction in determining that the demand for payment under
any Lender Guaranty complies on its face with any applicable
requirements for a demand for payment under such Lender Guaranty;

(v) any other circumstance or happening
whatsoever, which is similar to any of the foregoing; or

<PAGE> 43

(vi) the fact that a Default or an Event of
Default shall have occurred and be continuing.

(b) In addition to amounts payable as elsewhere provided
in this Agreement, the Borrower hereby agrees to protect, indemnify, pay and
hold the Agent and each Lender harmless from and against any and all claims,
suits, demands, liabilities, damages, losses, costs, charges and expenses
(including, without limitation, reasonable attorneys' fees) which the Agent or
any Lender may incur or be subject to as a consequence, direct or indirect, of
(1) the issuance of any Lender Guaranty other than as a result of the gross
negligence or willful misconduct of such Person as determined by a final order,
not subject to review on appeal, of a court of competent jurisdiction, or (2)
the failure of the Agent or any Lender to honor a demand for payment under any
Lender Guaranty as a result of any act or omission, whether rightful or
wrongful, of any Governmental Authority.

(c) As among the Agent, the Lenders and the Borrower, the
Borrower assumes all risks of the acts and omissions of, or misuse of any
Lender Guaranty by, beneficiaries thereof. In furtherance and not in
limitation of the foregoing, neither the Agent nor any Lender shall be
responsible: (i) for the form, validity, sufficiency, accuracy, genuineness or
legal effect of any document by any Person in connection with the application
for and issuance of any Lender Guaranty, even if it should in fact prove to be
in any and all respects invalid, insufficient, inaccurate, fraudulent or
forged; (ii) for the validity or sufficiency of any instrument transferring or
assigning or purporting to transfer or assign any Lender Guaranty or the rights
or benefits thereunder or proceeds thereof, in whole or in part, which may
prove to be invalid or ineffective for any reason; (iii) for failure of the
beneficiary of any Lender Guaranty to comply fully with conditions required in
order to demand payment under such Lender Guaranty; provided that, in the case
of any payment by the Agent or any Lender under any Lender Guaranty, such
Person has not acted with gross negligence or willful misconduct, as determined
by a final judgment, not subject to review on appeal, of a court of competent
jurisdiction, in determining that the demand for payment under any Lender
Guaranty complies on its face with any applicable requirements for a demand for
payment under such Lender Guaranty; (iv) for errors, omissions, interruptions
or delays in transmission or delivery of any messages, by mail, cable,
telegraph or otherwise; (v) for errors in interpretation of technical terms;
(vi) for any loss or delay in the transmission or otherwise of any document
required in order to make a payment under any Lender Guaranty or of the
proceeds thereof; (vii) for the credit of the proceeds of any drawing under any
Lender Guaranty; and (viii) for any consequences arising from causes beyond the
control of the Agent or the Lenders, including, without limitation, any act or
omission, whether rightful or wrongful, of any Governmental Authority. None of
the above shall affect, impair, or prevent the vesting of any of the Agent's or
any Lender's rights or powers hereunder.

In furtherance and extension of, and not in limitation of, the
specific provisions hereinabove set forth, the Borrower hereby agrees that any
action taken or omitted by the Agent or any Lender or any Issuing Bank under or
in connection with any Lender Guaranty or any related certificates, or the
Collateral relating thereto, if taken or omitted in good faith, shall be
binding on the Borrower and shall not impose any resulting liability on the
Agent or any Lender to the Borrower or relieve the Borrower of any of its
obligations hereunder to any such Person.

<PAGE> 44

2.17 Taxes; Changes in Law.

(a) Any and all payments or reimbursements made hereunder
or under the Notes shall be made free and clear of and without deduction for
any and all present and future Taxes. If the Borrower shall be required by law
to deduct any Taxes from or in respect of any sum payable hereunder to the
Agent or any Lender, then (i) the sum payable hereunder shall be increased as
may be necessary so that, after making all required deductions, the Agent or
such Lender receives an amount equal to the sum it would have received had no
such deductions been made and (ii) the Borrower shall pay the full amount
deducted to the relevant taxing or other authority in accordance with
applicable law. The Borrower hereby indemnifies and agrees to hold the Agent
and each Lender harmless from and against all Taxes imposed upon the Agent or
any Lender as a result of or arising in connection with the transactions
contemplated hereby.

(b) In the event that, subsequent to the Closing Date,
or, in the case of a Participant assigned an interest in or sold a
participation in the Revolving Loan pursuant to subsection 11.1, subsequent to
the date of such assignment or sale, (a) any change in any existing law,
regulation, rule, policy, guideline, treaty or directive or in the
interpretation or application thereof (whether or not having the force of law)
including, without limitation, any change resulting from the implementation of
risk-based capital guidelines, (b) any new law, regulation, rule, guideline,
treaty or directive enacted or any interpretation or application thereof or (c)
compliance by any Lender with any request or directive (whether or not having
the force of law and including by way of withdrawal or termination of any
previously available exemption) from any central bank, governmental authority,
agency or instrumentality (including, without limitation, any request or
directive regarding capital adequacy)

(i) does or shall subject any Lender or such
Participant to any Taxes with respect to this Agreement, the
other Financing Agreements or any Loans made hereunder, or
change the basis of taxation of payments to any Lender or such
Participant of principal, commitment, fees, interest or any
other amount payable hereunder (except for changes in the rate
of tax on the overall net income of such Lender or such
Participant imposed by the jurisdiction in which such Lender
is incorporated or has its principal place of business); or

(ii) does or shall impose on any Lender or such
Participant any other condition or increased cost in
connection with the transactions contemplated hereby or
participation herein; or

(iii) affects the amount of any reserve, special
deposit, assessment or similar charge (other than reserves and
assessments taken into account in determining the LIBOR Rate)
required or expected to be maintained by any Lender or such
Participant or any corporation controlling such Lender or such
Participant and such Lender or such Participant determines
that such amount required or expected is increased by or based
upon the existence of this Agreement or its advances under the
Revolving Loan hereunder,

<PAGE> 45

and the result of any of the foregoing is to increase the cost to such Lender
or such Participant of making, funding, maintaining or continuing any advances
under the Revolving Loan hereunder or issuing Lender Guaranties or selling any
participation therein or assigning any of its Commitments to make the Revolving
Loan hereunder, as the case may be, or to reduce any amount receivable by such
Lender or such Participant in connection with advances under the Revolving Loan
or Lender Guaranties, or to require any Lender or Participant to make any
payment calculated by reference to the amount of Revolving Loan advances held
or Lender Guaranties issued or participated in or interest received by it,
then, in any such case, within five (5) days after written demand the Borrower
shall pay to such Lender or such Participant any additional amounts which are
necessary to compensate such Lender or such Participant for such additional
cost or reduced amount receivable which such Lender or such Participant
reasonably deems to be material as determined by such Lender or such
Participant with respect to this Agreement, the other Financing Agreements or
the Revolving Loan made hereunder; provided that no Participant shall be
entitled to receive any greater amount pursuant to this subsection 2.17(b) than
the transferor Lender would have been entitled to receive in respect of the
amount of the participation transferred to such Participant had no such
transfer occurred. If such Lender or Participant becomes entitled to claim any
additional amounts pursuant to this subsection 2.17, it shall promptly notify
the Borrower in writing of the event by reason of which such Lender or
Participant has become so entitled. A certificate as to any additional amounts
payable pursuant to this subsection 2.17 submitted by such Lender or
Participant to the Borrower shall be presumed correct in the absence of
manifest error.

(c) Notwithstanding anything to the contrary contained in
this Agreement, if the introduction of or any change in or in the
interpretation of any law or regulation shall make it unlawful, or any central
bank or other Governmental Authority shall declare that it is unlawful, for any
Lender to agree to make or to make or to continue to fund or maintain any LIBOR
Rate Loan, then, unless such Lender is able to agree to make or to make or
continue to fund or to maintain such LIBOR Rate Loan at another branch or
office of such Lender without, in such Lender's opinion, adversely affecting it
or its portion of the Revolving Loan or the income obtained therefrom, on
notice thereof and demand therefor by such Lender to the Borrower through the
Agent, (i) the obligation of such Lender to agree to make or to make or to
continue to fund or maintain LIBOR Rate Loans shall terminate and (ii) the
Borrower shall forthwith prepay in full all outstanding LIBOR Rate Loans,
together with interest accrued thereon, of such Lender unless the Borrower,
within five (5) Business Days after the delivery of such notice and demand,
converts all such LIBOR Rate Loans into Base Rate Loans.

(d) Each Lender organized under the laws of a
jurisdiction outside the United States shall, on or prior to the date of its
execution and delivery of this Agreement in the case of each Lender on the
Closing Date, and on the date of the Assignment and Acceptance pursuant to
which it became a Lender in the case of each other Lender, and from time to
time thereafter if requested in writing by the Borrower or the Agent (but only
so long thereafter as such Lender remains lawfully able to do so), provide the
Agent and the Borrower with Internal Revenue Service form 1001 or 4224, as
appropriate, or any successor form prescribed by the Service, certifying that
such Lender is exempt from or is entitled to a reduced rate of United States
withholding tax on payments under this Agreement or the Revolving Loan Notes or
certifying that the income receivable by such Lender under this Agreement or
the Revolving Loan Notes is effectively connected with the conduct of a

<PAGE> 46

trade or business of such Lender in the United States. If the form provided by
a Lender at the time such Lender first becomes a party to this Agreement
indicates a United States interest withholding tax rate in excess of zero,
withholding tax at such rate shall be considered excluded from Taxes unless and
until such Lender provides the appropriate form certifying that a lesser rate
applies, whereupon withholding tax at such lesser rate only shall be considered
excluded from Taxes for periods governed by such form; provided that, if at the
date of the Assignment and Acceptance pursuant to which a Lender becomes a
party to this Agreement, the Lender assignor was entitled to payments or
indemnification under subsection 2.17(a) in respect of United States
withholding tax with respect to interest paid at such date, then, to such
extent, the term Taxes shall include (in addition to withholding taxes that may
be imposed in the future or other amounts otherwise includable in Taxes) United
States withholding tax, if any, applicable with respect to the assignee on such
date. If any form or document referred to in this subsection 2.17(d) requires
the disclosure of information, other than information necessary to compute the
tax payable and information required on the date hereof by Internal Revenue
Service form 1001 or 4224, that the Lender reasonably considers to be
confidential, the Lender shall give notice thereof to the Borrower and shall
not be obligated to include in such form or document such confidential
information.

2.18 Notification of Advances, Interest Rates and
Prepayment. The Agent will notify each Lender of the contents of each
Borrowing Notice, Conversion/Continuation Notice and prepayment notice received
by it hereunder. The Agent will notify each Lender of the interest rate
applicable to each LIBOR Rate Loan promptly upon determination of such interest
rate and will give each Lender prompt notice of each change in the Base Rate.

2.19 Changes in Capital Adequacy Regulations. If a Lender
determines the amount of capital required or expected to be maintained by such
Lender, or any corporation controlling such Lender is increased as a result of
a Change, then, within five (5) days of demand by such Lender, the Borrower
shall pay such Lender the amount necessary to compensate for any shortfall in
the rate of return on the portion of such increased capital which such Lender
determines is attributable to this Agreement, its advances under the Revolving
Loan, its interest in the Lender Guaranties or its obligation to make advances
under the Revolving Loan or participate in or issue Lender Guaranties hereunder
(after taking into account such Lender's policies as to capital adequacy). A
certificate as to any additional amounts payable pursuant to this subsection
2.19 submitted by such Lender to the Borrower shall be presumed correct in the
absence of manifest error.

2.20 Special Provisions Governing LIBOR Rate Loans.
Notwithstanding any other provision of this Agreement to the contrary, the
following provisions shall govern with respect to LIBOR Rate Loans as to the
matters covered:

(a) As soon as practicable after 11:00 a.m. (Chicago
time) on each LIBOR Rate Determination Date, the Agent shall determine (which
determination shall, absent manifest error, be final, conclusive and binding
upon all parties) the interest rate that shall apply to the LIBOR Rate Loans
for which an interest rate is then being determined for the applicable Interest
Period and shall promptly give notice thereof (in writing or by telephone
confirmed in writing) to the Borrower.

(b) If the Agent reasonably determines (which
determination shall be final and

<PAGE> 47

conclusive and binding upon all parties) that:

(i) adequate and fair means do not exist for
ascertaining the applicable interest rate by reference to the LIBOR
Rate with respect to the LIBOR Rate Loans as to which an interest rate
determination is then being made; or

(ii) deposits of a type and maturity
appropriate to match fund LIBOR Rate Loans are not available;

then, and in any such event, promptly after being notified of a borrowing,
conversion or continuation, the Agent shall give notice (in writing or by
telephone confirmed in writing) to the Borrower (which notice the Agent shall
promptly transmit to each Lender) of such determination, and the Agent shall
suspend the availability of LIBOR Rate Loans until such circumstance no longer
exists.

(c) The Borrower shall indemnify the Agent and each
Lender, upon written request (which request shall set forth in reasonable
detail the basis for requesting such amounts and which shall, absent manifest
error, be presumed correct and binding upon all parties hereto), for losses,
expenses and liabilities (including, without limitation, any loss (including
interest paid) sustained by it in connection with the liquidation or
re-employment of funds acquired to fund or maintain LIBOR Rate Loans), that
such Person may sustain: (i) if for any reason (other than a default by the
Lenders) a borrowing of any LIBOR Rate Loan does not occur on a date specified
therefor in a Borrowing Notice, a Conversion/Continuation Notice or a request
by telephone or telecopy for borrowing or conversion/continuation or a
successive Interest Period does not commence after notice therefor is given
pursuant to subsection 2.5(e) or 2.5(f); (ii) if any prepayment of any of its
LIBOR Rate Loans occurs on a date that is not the last day of the Interest
Period applicable to that LIBOR Rate Loan whether because of acceleration,
prepayment or otherwise (unless such prepayment is required pursuant to the
provisions of subsection 2.20(b)); (iii) if any of its LIBOR Rate Loans are not
paid on any date specified in a notice of prepayment given by the Borrower; or
(iv) as a consequence of any other default by the Borrower to repay LIBOR Rate
Loans when required by the terms of this Agreement; provided that during the
period while any such amounts have not been paid, the Lenders shall reserve an
equal amount from amounts otherwise available to be borrowed under the
Revolving Loan. Unless otherwise provided herein, the amount specified in the
written statement of any Lender shall be payable by the Borrower on demand
after receipt by the Borrower thereof.

(d) Any Lender may make, carry or transfer LIBOR Rate
Loans at, to, or for the account of, any of its domestic or foreign branch
offices or the office of an affiliate of such Lender. Upon the occurrence of
any event giving rise to increased costs or other special payments under
subsections 2.17(a) and 2.17(b) or subsection 2.19 with respect to a Lender,
such Lender will designate another lending office for the advances under the
Revolving Loan or the Lender Guaranties affected by such event; provided that
such designation can be made without, in such Lender's opinion, adversely
affecting it or its Pro Rata Share of the Revolving Loan or the income obtained
therefrom or causing it to suffer any legal or regulatory disadvantage.
Nothing in this subsection 2.20(d) shall affect or postpone any of the
Obligations of the Borrower or the rights of

<PAGE> 48

any Lender provided in this Agreement.

(e) Calculation of all amounts payable to a Lender under
subsection 2.20(b) or 2.20(c) shall be made as though each Lender had actually
funded its relevant LIBOR Rate Loan through the purchase of a LIBOR deposit
bearing interest at the LIBOR Rate in an amount equal to the amount of such
LIBOR Rate Loan and having a maturity comparable to the relevant Interest
Period and through the transfer of such LIBOR deposit from an offshore office
to a domestic office in the United States of America; provided that each Lender
may fund each of its LIBOR Rate Loans in any manner it sees fit and the
foregoing assumption shall be utilized only for the calculation of amounts
payable under this subsection 2.20.

3. REPORTING AND ELIGIBILITY REQUIREMENTS.

3.1 Monthly Reports and Borrowing Base Certificates. The
Borrower shall submit to the Agent, not later than the twentieth (20th) day of
each month, a monthly report ("Monthly Report") in the form attached as Exhibit
3.1-1, accompanied by a certificate in the form attached as Exhibit 3.1-2,
which shall be signed by the chief executive officer or chief financial officer
of the Borrower. The Monthly Report shall include, as of the last Business Day
of the preceding month (and with respect to the initial Monthly Report, as of a
date not more than two (2) Business Days prior to the Closing Date): (i) copies
of all operating statements for such month prepared by the Borrower for its
internal use and other similar data as the Required Lenders may reasonably
request, (ii) an aged trial balance of Accounts of the Borrower ("Accounts
Trial Balance") indicating which Accounts are current, up to 30, 30 to 60, 60
to 90, 90 to 120 and 120 days or more past the original due date and listing
the names of all applicable Account Debtors, (iii) a summary of accounts
payable of the Borrower showing which accounts payable are current, up to 30,
30 to 60, 60 to 90 and 90 days or more past due and listing the names of
applicable creditors; and (iv) an aged schedule of Inventory owned by the
Borrower and in the Borrower's possession valued at the lower of cost or market
on a FIFO basis. The Borrower shall provide in all Monthly Reports and, upon
the occurrence and during the continuation of a Default or Event of Default,
more frequently if requested by the Required Lenders, in form satisfactory to
the Required Lenders, information on each of the following occurrences arising
subsequent to the immediately preceding Monthly Report: all sales or other
reductions of and all additions to Inventory, all returns of Inventory in
excess of $200,000 in the aggregate during such period, and all material
credits issued by the Borrower, all material monetary claims against the
Borrower in connection with Inventory. In addition, the Borrower shall provide
the Agent and each Lender with a Borrowing Base Certificate. Each such
Borrowing Base Certificate shall be delivered to the Agent not later than (i)
at all times when there is no principal amount outstanding under the Revolving
Loan and no outstanding Lender Guaranty Liabilities, not later than the
twentieth (20th) day of each month for the preceding month or (ii) at all times
when there is any principal amount outstanding under the Revolving Loan and/or
outstanding Lender Guaranty Liabilities, not later than the third (3rd)
Business Day of each week for the preceding week; provided that, in either
case, upon the occurrence and during the continuation of a Default or an Event
of Default, the Lenders reserve the right to require delivery of the Borrowing
Base Certificate in a shorter period. The Borrower shall furnish copies of any
other reports or information, in a form and with such specificity as is

<PAGE> 49

satisfactory to the Required Lenders, concerning Accounts included, described
or referred to in the Borrowing Base Certificates and any other documents in
connection therewith requested by the Required Lenders including, without
limitation, but only if specifically requested by the Required Lenders, copies
of all invoices prepared in connection with such Accounts and all credit
memoranda issued by the Borrower (the Borrower shall issue such credit
memoranda in accordance with its current practice and without delay, but in any
event within three (3) Business Days of receipt of notice of a dispute with
respect to an Account).

3.2 Eligible Accounts. "Eligible Accounts" shall mean
all Accounts of the Borrower other than the following: (i) Accounts which
remain unpaid as of the earlier of sixty (60) days following its due date or
ninety (90) days (or, with respect to foreign Accounts which are otherwise
Eligible Accounts under this subsection 3.2, one hundred twenty (120) days)
after the date of the original invoice with respect thereto; (ii) all Accounts
owing by a single Account Debtor, including a currently scheduled Account, if
twenty five percent (25%) or more of the balance owing by such Account Debtor
is ineligible by reason of the criterion set forth in clause (i) of this
subsection 3.2; (iii) Accounts with respect to which the Account Debtor is an
Affiliate (other than Motorola so long as the Motorola Letter shall be in full
force and effect and such other Affiliates as are requested by the Borrower and
approved in writing by the Agent in its sole discretion) of the Borrower or a
director, officer or employee of the Borrower or its Affiliates; (iv) Accounts
with respect to which the Account Debtor is a Governmental Authority or prime
contractor thereof unless the Borrower has complied in a manner satisfactory to
the Agent with the Federal Assignment of Claims Act of 1940, as amended, or
similar law or statute of the relevant state, province, municipality or other
jurisdiction and any amendments thereto, relative to the assignment of such
Accounts; (v) Accounts with respect to which the Account Debtor is not a
resident of the United States or Canada (other than the provinces of Prince
Edward Island, Newfoundland and Nova Scotia and the Northwest Territories)
unless such Account is payable in United States dollars and such Account Debtor
either (A) has an S&P investment grade rating and is located in a country with
an S&P sovereign rating of AA or better and is listed on Exhibit 3.2 as of the
Closing Date or as revised thereafter from time to time with the consent of the
Agent or (B) has (x) supplied the Borrower with an irrevocable letter of
credit, issued by a financial institution satisfactory to the Agent or (y)
obtained foreign credit insurance from the Export/Import Bank of the United
States or American Insurance Group or other financial institution satisfactory
to the Agent, naming the Agent, for the benefit of the Lenders, as loss payee,
in each case in an amount sufficient to cover such Account and in form and
substance satisfactory to the Required Lenders and without right of setoff;
(vi) Accounts arising with respect to goods which have not been shipped and
delivered to and accepted by the Account Debtor or arising with respect to
services which have not been fully performed and accepted as satisfactory by
the Account Debtor; (vii) Accounts which are not invoiced (and dated as of the
date of such invoice) and sent to the Account Debtor within five (5) days after
delivery of the underlying goods to or performance of the underlying services
for the Account Debtor; (viii) Accounts with respect to which the Agent, on
behalf of the Lenders, does not have a first and valid fully perfected Lien
free and clear of any other Lien; (ix) Accounts with respect to which the
Account Debtor is the subject of bankruptcy or a similar insolvency proceeding
or has made an assignment for the benefit of creditors or whose assets have
been conveyed to a receiver or trustee; (x) Accounts with respect to which the
Account Debtor's obligation to pay the Account is conditional upon the Account
Debtor's approval or is otherwise subject to any repurchase obligation

<PAGE> 50

or return right, as with sales made on a guaranteed sale, bill-and-hold,
sale-or-return, demonstration, sale on approval or other terms by reason of
which the payment by the Account Debtor is or may be conditional (except with
respect to Accounts in connection with which Account Debtors are entitled to
return Inventory solely on the basis of the quality of such Inventory) or
consignment basis; (xi) Accounts with respect to which any disclosure is
required in accordance with subsection 3.3; (xii) contra Accounts to the extent
of the amount of the accounts payable owed by the Borrower to the Account
Debtor; (xiii) Accounts with respect to which the Account Debtor is located in
any state denying creditors access to its courts in the absence of a Notice of
Business Activities Report or other similar filing unless the Borrower has
either qualified as a foreign corporation authorized to transact business in
such state or has filed a Notice of Business Activities Report or similar
filing with the applicable state Governmental Authority for the then current
year; and (xiv) Accounts evidenced by Chattel Paper or any Instrument of any
kind. In the event that a previously scheduled Eligible Account ceases to be an
Eligible Account under the above described criteria, the Borrower shall notify
the Agent thereof.

3.3 Account Warranties. With respect to Accounts
scheduled, listed or referred to on the initial Accounts Trial Balance
(included in the initial Monthly Report attached as Exhibit 3.1-1) or on any
subsequent Accounts Trial Balance or Borrowing Base Certificate, the Borrower
represents and warrants to the Agent and each Lender that, except as disclosed
in the applicable Accounts Trial Balance or Borrowing Base Certificate: (i) the
Accounts represent bona fide sales of Inventory or the provision of services to
customers completed in accordance with the terms and provisions contained in
the documents available to the Agent and each Lender with respect thereto and
are not evidenced by a judgment or by an Instrument or Chattel Paper; (ii) the
amounts shown on the applicable Accounts Trial Balance and on the Borrower's
books and records and all invoices and statements which may be delivered to the
Agent or any Lender with respect thereto are actually owing to the Borrower;
(iii) no payments have been or shall be made thereon except payments
immediately delivered to a Blocked Account pursuant to this Agreement; (iv)
there are no setoffs, claims or disputes existing or asserted with respect
thereto and the Borrower has not made any agreement with any Account Debtor for
any deduction therefrom except a discount or allowance allowed by the Borrower
in the ordinary course of its business for prompt payment and which discount
and allowance is reflected in the calculation of the face amount of each
invoice related to such Account; (v) to the best of the Borrower's knowledge,
there are no facts, events or occurrences which in any way impair the validity
or enforcement thereof or tend to reduce the amount payable thereunder as shown
on the respective Accounts Trial Balances or Borrowing Base Certificates, the
Borrower's books and records and all invoices and statements delivered to the
Agent or any Lender with respect thereto; (vi) to the best of the Borrower's
knowledge, all Account Debtors have the capacity to contract and are Solvent;
(vii) the Borrower has not received any notice of proceedings or actions which
are threatened or pending or have been taken against any Account Debtor which
could reasonably result in any material adverse change in such Account Debtor's
financial condition; (viii) the Accounts do not arise from the sale of
Inventory produced in violation of the Fair Labor Standards Act so as to be
subject to the so-called "hot goods" provision contained in Title 29 U.S.C.,
Section 215(a)(1); (ix) the services furnished and/or Inventory sold giving
rise to the Account are not, and will not be at the time of sale thereof,
subject to any Lien except that

<PAGE> 51

of the Agent, for the benefit of the Lenders; (x) the Accounts have not been
pledged or sold to any Person or otherwise encumbered and the Borrower is the
owner of its Accounts free and clear of any Lien except that of the
Agent, for the benefit of the Lenders; and (xi) with respect to Accounts for
which its Account Debtor is located in any state denying creditors access to
its courts in the absence of a Notice of Business Activities Report or other
similar filing, the Borrower has either qualified as a foreign corporation
authorized to transact business in such state or has filed all required Notice
of Business Activities Reports or comparable filings with the applicable
governmental agency or authority.

3.4 Verification of Accounts. The Agent shall have the
right, at any time or times hereafter, in the name of the Borrower or a nominee
of the Agent, or during the pendency of an Event of Default, in the Agent's
name, to verify with Account Debtors the validity, amount or any other matter
relating to any Account, by mail, telephone, or in person.

3.5 Collection of Accounts and Payments. On or prior to
the Closing Date, the Borrower shall establish lock box accounts (the "Blocked
Accounts") in the Borrower's name with such banks as are acceptable to the
Agent ("Collecting Banks") and enter into blocked account agreements among the
Borrower, the Agent and each Collecting Bank (the "Blocked Account
Agreements"). Subject to subsection 8.19, the Borrower will immediately
deposit all cash payments made for Inventory or other cash payments
constituting proceeds of Collateral received by it into a Blocked Account in
the identical form in which such payment was made, whether by cash or check. On
or prior to the Closing Date, the Borrower shall notify in writing each of its
existing Account Debtors of the name and address of the Blocked Account to
which each such Account Debtor shall be directed to remit all payments on its
Accounts. In addition, the Agent shall, on or prior to the Closing Date,
establish a depository account at each Collecting Bank or at a centrally
located bank (the "Depository Account"). Each Blocked Account Agreement shall
provide, among other things, that (i) all items of payment deposited in each
Blocked Account are held by such Collecting Bank as agent and
bailee-in-possession for the Agent, (ii) the Collecting Bank has no rights of
setoff or recoupment or any other claim against such Blocked Account, other
than for payment of its service fees or other charges directly related to the
administration of such Blocked Account and for returned checks or other items
of payment, (iii) unless and until the Agent shall have given such Collecting
Bank a Redirection Notice (as such term is defined below), such Collecting Bank
agrees to forward all amounts received in such Blocked Account to such accounts
or for such uses as the Borrower may from time to time instruct, and (iv) at
all times following delivery of notice by the Agent to such Collecting Bank to
do so (a "Redirection Notice"), such Collecting Bank agrees to immediately
forward all amounts received in such Blocked Account to the Depository Account
through daily sweeps from the Blocked Account into the Depository Account in
accordance with the terms of the applicable Blocked Account Agreement. The
Agent shall not be entitled to deliver a Redirection Notice to any Collecting
Bank until the initial funding of the Revolving Loan including, without
limitation, pursuant to subsections 2.1(c)(iii) and 2.6(b). Subject to the
terms of this Agreement and the Blocked Account Agreements, the Borrower hereby
agrees that all payments received by the Agent, whether by cash, check, wire
transfer or any other instrument, made to such Blocked Accounts or otherwise
received by the Agent and whether on the Accounts or as proceeds of other
Collateral or otherwise will be held as Collateral by the Agent, for the
benefit of the Lenders and shall be applied by the Agent to the Obligations as
provided for herein. The Borrower shall irrevocably instruct each of its
Collecting Banks that, upon receipt of a Redirection Notice, such Collecting
Bank shall promptly transfer all payments or deposits to the Blocked Accounts
into the Depository Account in accordance with the terms of the applicable

<PAGE> 52

Blocked Account Agreement. At all times when any Obligations shall be
outstanding, the Borrower, and any of its Affiliates, employees, agents or
other Persons acting for or in concert with the Borrower, shall, acting as
trustee for the Agent, receive, for the benefit of the Lenders, any monies,
checks, notes, drafts or any other payments relating to and/or proceeds of
Accounts or other Collateral which come into the possession or under the
control of the Borrower or any Affiliates, employees, agents or other Persons
acting for or in concert with the Borrower, and at all times regardless if any
Obligations are outstanding immediately upon receipt thereof, the Borrower or
such Persons shall remit the same or cause the same to be deposited, in kind,
into a Blocked Account or, during such time as any Obligations shall be
outstanding and a Default or Event of Default shall have occurred and be
continuing, at the direction of the Agent, shall remit the same, or cause the
same to be remitted, in kind, to the Agent at the Agent's address set forth in
subsection 10.12.

3.6 Appointment of the Agent as Borrower's
Attorney-in-Fact. The Borrower hereby irrevocably designates, makes,
constitutes and appoints the Agent (and all Persons designated by the Agent)
the Borrower's true and lawful agent and attorney-in-fact (which appointment
shall for all purposes be deemed to be coupled with an interest and shall be
irrevocable for so long as any Obligations are outstanding), and authorizes the
Agent, in the Borrower's or the Agent's name, without notice to the Borrower,
to: (A) upon the occurrence and during the continuance of an Event of Default
(i) demand payment of Accounts, (ii) enforce payment of Accounts by legal
proceedings or otherwise, (iii) exercise all of the Borrower's rights and
remedies with respect to the collection of the Collateral or any legal
proceedings brought to collect an Account, (iv) sell or assign any Collateral
upon commercially reasonable terms at such time or times as the Agent deems
advisable, (v) settle, adjust, compromise, extend or renew any Collateral in a
commercially reasonable manner, (vi) discharge and release any Account in a
commercially reasonable manner, (vii) prepare, file and sign the Borrower's
name on any proof of claim in bankruptcy or other similar document against an
Account Debtor or on any notice of Lien, assignment or satisfaction of Lien or
similar document in connection with any of the Collateral, (viii) notify the
postal authorities of any change of the address for delivery of the Borrower's
mail to an address designated by the Agent, and receive, open and dispose of
all mail addressed to the Borrower, (ix) endorse the Borrower's name upon any
Chattel Paper, Document, Instrument, invoice, freight bill, bill of lading or
similar document or agreement relating to any Account or any goods pertaining
thereto, (x) execute in the Borrower's name and on the Borrower's behalf any
financing statements or amendments thereto, (xi) use the information recorded
or contained in any data processing equipment and computer hardware and
software relating to the Accounts and any other Collateral, (xii) have access
to any lockbox or postal box into which the Borrower's mail is deposited, and
(xiii) do all acts and things which are necessary, in the Agent's sole
discretion, to fulfill the Borrower's Obligations under the Financing
Agreements; and (B) at any time when any Obligations are outstanding, to (i)
take control in any manner of any item of payment or proceeds of any Account,
(ii) endorse the Borrower's name upon any items of payment or proceeds thereof
and deposit the same in the Agent's account on account of the Borrower's
Obligations, and (iii) communicate with the Borrower's independent certified
public accountants.

3.7 Account Records. The Borrower shall at all times
hereafter maintain a record of its Accounts, keeping correct and accurate
records itemizing and describing the names and addresses of Account Debtors,
relevant invoice numbers, shipping dates and due dates, collection

<PAGE> 53

histories, and Accounts agings, all of which records shall be available during
the Borrower's usual business hours upon prior written or telephonic notice by
any of the Agent's officers, employees or agents; provided that no prior notice
shall be required upon the occurrence and during the continuance of an Event of
Default. The Borrower shall cooperate fully with the Agent and its agents who
shall have the right at any time or times to inspect its Accounts and the
records with respect thereto. The Borrower shall conduct a review of its bad
debt reserves and collection histories at least once each year and promptly
following such review shall supply the Agent with a report in a form and with
such specificity as may be reasonably satisfactory to the Agent concerning such
review of the Accounts.

3.8 Instruments and Chattel Paper. All Chattel Paper
shall be marked with the following legend: "This writing and the
obligations evidenced or secured hereby are subject to the security interest of
Sanwa Business Credit Corporation, as agent." Upon the request of the Agent
and at all times after the occurrence of an Event of Default, immediately upon
the Borrower's receipt thereof, the Borrower shall deliver or cause to be
delivered to the Agent, with appropriate endorsement and assignment to vest
title, with full recourse to the Borrower, and possession in the Agent, on
behalf of the Lenders, all Instruments and Chattel Paper which the Borrower now
owns or may at any time or times hereafter acquire.

3.9 Notice to Account Debtors. The Agent may, in its
sole discretion, at any time or times, after the occurrence of an Event of
Default and without prior notice to the Borrower, notify any or all Account
Debtors that the Accounts have been assigned to the Agent, for the benefit of
the Lenders, and that the Agent has a Lien therein. After the occurrence of an
Event of Default, the Agent may direct or, at the request of the Agent, the
Borrower shall direct, any or all of its Account Debtors to make all payments
upon the Accounts directly to the Agent. The Agent shall furnish the Borrower
with a copy of any such notice.

3.10 Eligible Inventory. "Eligible Inventory" shall
consist of all of the Inventory of each of the Borrower, except the following:
(i) Inventory which is damaged, obsolete, not in good condition, or not either
currently usable or currently saleable in the ordinary course of the Borrower's
business; (ii) Inventory which in accordance with the Borrower's customary
business practices, is unacceptable due to age, type, category and/or quantity,
including, without limitation, any Inventory which is in excess of a one (1)
year's supply or is otherwise slow-moving; (iii) Inventory with respect to
which the Agent does not have a first and valid, fully perfected Lien; (iv)
Inventory consisting of chassis, manuals, labels, packaging or supplies; (v)
Inventory in the possession of the Borrower but not owned by the Borrower; (vi)
Inventory produced in violation of the Fair Labor Standards Act and subject to
the so-called "hot goods" provision contained in Title 29 U.S.C. Section
215(a)(1); (vii) Inventory with respect to which any specific disclosure is
required in the applicable Monthly Report or Borrowing Base Certificate in
accordance with subsection 3.11; (viii) Inventory which is on consignment or is
located at a place other than the places of business and collateral locations
of the Borrower listed on Exhibit 8.6; provided that, subject to subsection
7.9, in the case of leased or bailment locations listed on Exhibit 8.6, no
Inventory located at any such location shall be "Eligible Inventory" until the
applicable landlord or bailee has executed a lien waiver in form and substance
reasonably satisfactory to the Agent) including, without limitation, Inventory
in transit; (ix) Inventory consisting of finished goods which do not meet the
specifications of the purchase

<PAGE> 54

order for which such Inventory was produced; (x) Inventory which is subject to
any licensing, patent, royalty, trademark, tradename, copyright or other
similar agreement with any non-Affiliate which materially restricts the ability
of the Borrower or, in the case of the exercise of its remedies, the Agent on
behalf of the Lenders to sell such Inventory; (xi) Inventory which fails to
meet the standards imposed by any Governmental Authority over such goods, its
use and/or sale. In the event that Inventory previously scheduled in a Monthly
Report or Borrowing Base Certificate ceases to be Eligible Inventory, the
Borrower shall notify the Agent thereof immediately.

3.11 Inventory Warranties. With respect to Inventory
scheduled, listed or referred to in any Monthly Report or Borrowing Base
Certificate, the Borrower represents and warrants that, except as disclosed in
such Monthly Report or Borrowing Base Certificate (i) such Inventory is located
at one of the Facilities or locations set forth on Exhibit 8.6, (ii) the
Borrower has good, indefeasible and merchantable title to its Inventory and
such Inventory is not subject to any Lien or document whatsoever except for the
prior, first perfected Lien granted to the Agent hereunder, (iii) such
Inventory is of good and merchantable quality, free from any defects and is not
goods taken in trade, (iv) the completion of manufacture, sale or other
disposition of such Inventory by the Agent following an Event of Default shall
not require the consent of any Person and shall not constitute a breach or
default under any contract or agreement to which the Borrower is a party or to
which the Inventory is subject, (v) such Inventory is not subject to any
licensing, patent, royalty, trademark, tradename or copyright agreements with
any third parties which materially restricts the ability of the Borrower or, in
the case of the exercise of its remedies, the Agent on behalf of the Lenders to
sell such Inventory, and (vi) no Inventory has been produced in violation of
the Fair Labor Standards Act so as to be subject to the so-called "hot goods"
provision contained in Title 29 U.S.C., Section 215(a)(1).

3.12 Inventory Records. The Borrower shall at all times
hereafter maintain a perpetual inventory, keeping correct and accurate records
itemizing and describing the kind, type, quality and quantity of its Inventory
and of Eligible Inventory, the Borrower's cost therefor and daily withdrawals
therefrom and additions thereto, and the locations of all Inventory in the
possession of bailees, all of which records shall be available during the
Borrower's usual business hours upon prior written or telephonic notice by any
of the Agent's officers, employees or agents; provided that no prior notice
shall be required upon the occurrence and during the continuance of an Event of
Default. The Borrower shall cooperate fully with the Agent and its agents who
shall have the right at any time or times to inspect the Inventory and the
records with respect thereto. The Borrower shall conduct a physical count of
its Inventory at least once each year and promptly following such physical
inventory shall supply the Agent with a report in form and substance
satisfactory to the Agent concerning such physical count of the Inventory, and
shall furnish to the Agent, at the Agent's request, such other documents and
reports with respect to the Inventory.

3.13 Safekeeping of Inventory and Inventory Covenants.
Neither the Agent nor any Lender shall be responsible for: (i) the safekeeping
of the Inventory; (ii) any loss, spoilage or damage to the Inventory; (iii) any
diminution in the value of the Inventory; or (iv) any act or default of any
carrier, warehouseman, bailee, forwarding agency or any other Person. Subject
to subsection 10.4, as between the Borrower and the Agent and each Lender,
responsibility for the safekeeping of the Inventory and all risk of loss,
spoilage, damage, destruction or diminution in value of the

<PAGE> 55

Inventory shall be borne by the Borrower.

3.14 Equipment Warranties. With respect to the Equipment,
the Borrower represents and warrants to the Agent and the Lenders that: (i) the
Borrower has good and merchantable title to and ownership of, or a valid
leasehold interest in, its Equipment; (ii) its Equipment is located only on the
premises listed on Exhibit 3.14; (iii) its Equipment is not subject to any Lien
whatsoever except for Permitted Liens; (iv) its Equipment is in good condition
and repair (ordinary wear and tear excepted) and is currently used or usable in
the Borrower's business; and (v) except as described in Exhibit 3.14, none of
the Equipment used in the conduct of the Borrower's business is leased.

3.15 Equipment Records. The Borrower shall at all times
hereafter keep complete and accurate records itemizing and describing the kind,
type, age and condition of its Equipment, and the Borrower's cost therefor and
accumulated depreciation thereon and acquisitions, retirements, sales, or other
dispositions thereof, all of which records shall be available during the
Borrower's usual business hours on demand to any of the Agent's officers,
employees or agents.

3.16 Maintenance of Equipment. The Borrower shall keep
and maintain its Equipment in good operating condition and repair (ordinary
wear and tear excepted) and shall make all necessary replacements thereof and
renewals thereto so that the value and operating efficiency thereof shall at
all times be maintained and preserved. The Borrower shall not permit any item
of its Equipment to become a Fixture or an accession to other personal
property. The Borrower shall not permit the Equipment to be operated or
maintained in violation of any applicable law, statute, rule or regulation. In
addition, with respect to all items of leased equipment, the Borrower shall
keep, maintain, repair, replace and operate such leased equipment in accordance
with the terms of the applicable lease.

3.17 Real Estate. Exhibit 3.17 describes all Real Estate
or interests in Real Estate owned or leased by the Borrower. The Borrower
represents and warrants to the Agent and the Lenders that Borrower has good and
merchantable title to and ownership of, or a valid leasehold interest in, each
parcel of its Real Estate described in Exhibit 3.17, free and clear of all
Liens, except Liens in favor of the Agent, for the benefit of the Lenders, and
the Permitted Liens. The Borrower further represents and warrants to the Agent
and the Lenders that no parcel of its Real Estate is subject to any boundary or
encroachment dispute, special assessment, condemnation or eminent domain
proceeding, restrictive covenant, zoning or building code violation or any
other dispute, assessment, claim or violation of law which could reasonably be
expected to have a Material Adverse Effect. Except as disclosed on Exhibit
3.17, the Borrower does not own any other real property or use or occupy any
real property that it leases from any other Person.

3.18 Maintenance of Real Estate. The Borrower shall keep
and maintain its Real Estate and all improvements thereon in good condition and
repair (ordinary wear and tear excepted) and shall maintain the utility thereof
and shall maintain such Real Estate in conformity with all applicable building
and zoning codes and other applicable laws, statutes, rules and regulations.
The Borrower shall maintain its leased real property in the same manner as its
owned Real Estate, and comply with the terms of its leases of such real
property, in accordance with the applicable leases.

<PAGE> 56

3.19 Intellectual Property and General Intangibles. The
Borrower is the owner of all the Intellectual Property and General Intangibles
free and clear of all Liens other than Permitted Liens. The Borrower shall
maintain complete and accurate records with respect to its Intellectual
Property and General Intangibles and shall defend such Intellectual Property
and General Intangibles against infringement, interference, opposition or
similar actions or challenges and shall maintain and preserve all of its rights
with respect thereto.

4. CONDITIONS TO ADVANCES.

4.1 Conditions to All Advances. In addition to those
conditions set forth in subsection 4.2, the issuance of a Lender Guaranty under
the Revolving Loan and the funding of advances under the Revolving Loan shall
be conditioned upon the matters set forth in this subsection 4.1:

(a) Representations and Warranties. All of the
representations and warranties of the Borrower contained herein or in any other
Financing Agreement shall be true and correct in all material respects on and
as of the date of such advance as if made on such date, except to the extent
that any such representation or warranty expressly relates to an earlier date.

(b) Borrower's Request. The Agent shall receive (i)
Borrowing Notice or a Conversion/Continuation Notice on or prior to the date
required by the terms of the Agreement with respect to any advance under the
Revolving Loan, (ii) at least three (3) Business Days' prior notice of the
issuance of a Lender Guaranty, (iii) a Monthly Report from the Borrower dated
no more than thirty-one (31) days prior to the date of such advance, and (iv) a
current Borrowing Base Certificate and all other documents required to have
been delivered to the Agent hereunder prior to such date.

(c) No Default. Neither a Default nor an Event of
Default shall have occurred and be continuing or will result from such advance.

(d) Other Requirements. The Agent shall have received,
in form and substance satisfactory to the Agent, all certificates, orders,
authorizations, consents, affidavits, schedules, instruments, security
agreements, financing statements, mortgages and other documents provided for
hereunder, or which under the terms hereof the Agent may reasonably request.

Each request by the Borrower and acceptance by the Borrower of
the proceeds of any advance under the Revolving Loan and the request by the
Borrower for the incurrence by the Lenders of any Lender Guaranty Liability
shall constitute a representation and warranty by the Borrower that the
conditions contained in subsections 4.1(a) and 4.1(c) have been satisfied. All
legal matters incident to the making of the advance of funds or the issuance
of the Lender Guaranty shall be satisfactory to the Agent and its counsel.

4.2 Conditions to Initial Advance. In addition to those
conditions set forth in subsection 4.1, the obligations of the Lenders to make
an advance under the Revolving Loan or issue Lender Guaranties shall be subject
to the fulfillment, at or prior to the initial Funding Date, of the conditions
set forth in this subsection 4.2 and the delivery of the following documents to
each

<PAGE> 57

Lender, in form and substance satisfactory to each Lender, and consummation of
all of the transactions or the satisfaction of each condition contemplated by
each such document in a manner satisfactory to each Lender and its counsel.

(a) Financing Agreements; Notes. Duly executed copies of
this Agreement, the other Financing Agreements and one (1)
duly executed copy of each of the Revolving Loan Notes conforming to the
requirements hereof, together with all Schedules, Exhibits, certificates,
instruments, documents and financial statements required to be delivered
pursuant hereto and thereto.

(b) Legal Opinion. The legal opinion of the Borrower's
counsel and such local counsel deemed necessary by the Lenders in form and
substance satisfactory to the Lenders and their counsel.

(c) UCC. Evidence of the proper filing of UCC financing
statements perfecting Liens in favor of the Agent in the Collateral and copies
of searches of financing statements filed under the Code, together with tax
lien and judgment searches with respect to the Property of the Borrower, in
such jurisdictions as the Agent may request.

(d) Officer's Certificate. A certificate executed by the
chief executive officer or chief financial officer of the Borrower, stating
that (i) no Default or Event of Default has occurred and is continuing, (ii)
since September 30, 1996, no material and adverse change has occurred in the
business, assets, liabilities, operations or financial condition of the
Borrower and its Subsidiaries taken as a whole, (iii) no litigation,
investigation or proceeding, or injunction, writ or restraining order of the
type described in subsection 4.1(e) is pending or, to its knowledge,
threatened, (iv) each of the conditions precedent to the initial funding of the
Revolving Loan or issuance of a Lender Guaranty contemplated hereby has been
met or satisfied, and (v) the representations and warranties of the Borrower
contained in the Financing Agreements are correct and complete in all material
respects on and as of the Closing Date.

(e) Insurance Policies and Endorsements. Copies of
policies of insurance required hereby together with loss payable endorsements
reasonably satisfactory to the Agent, duly executed, and evidence of the
payment of the current premium therefor.

(f) Initial Monthly Report and Other Exhibits. Copies
the initial Monthly Report, initial Borrowing Base Certificate, the initial
Projections, and all financial statements and other Exhibits and Schedules
required hereby.

(g) Fees. The installment of the Closing Fee payable
pursuant to subsection 2.9 on the Closing Date has been paid.

(h) Charter and Bylaws. A copy of the certificate of
incorporation of the Borrower, certified by the appropriate Governmental
Authority in its respective jurisdiction of incorporation as of a date not more
than twenty (20) days prior to the Closing Date and a copy of the bylaws and
any amendments thereto of the Borrower, certified by the Secretary or Assistant

<PAGE> 58

Secretary of each Person.

(i) Good Standing Certificates. Good Standing
Certificates for the Borrower from the appropriate Governmental Authority in
its respective jurisdiction of incorporation and from each other state in which
such Person is required to be qualified to transact business as a foreign
corporation.

(j) Board Resolutions. Certified copies of resolutions
of the board of directors of the Borrower authorizing the execution and
delivery of and the consummation of the transactions contemplated by this
Agreement, the other Financing Agreements to which it is a party and all other
documents or instruments to be executed and delivered in conjunction herewith
and therewith and the performance of its obligations hereunder and thereunder.
Such resolutions shall also designate which Responsible Officer of the Borrower
shall be authorized to make a request for an advance under the Revolving Loan
or the issuance of a Lender Guaranty hereunder.

(k) Incumbency Certificates. Incumbency certificates
with respect to the officers of the Borrower executing the documents referred
to in item (j) above, certified as of the Closing Date by such Person's
Secretary or Assistant Secretary as being true and correct.

(l) Waivers. Landlord waivers, bailee letters and
mortgagee agreements in form and substance satisfactory to Agent, in each case
as required pursuant to subsection 7.9. In the event the Borrower is unable to
obtain a landlord waiver, bailee letter and/or mortgage agreement acceptable to
Agent as to any such location on or before the Closing Date, the eligibility of
such Inventory at that location shall be determined in accordance with
subsection 7.9.

(m) Accountants' Letter. A letter from the Borrower
authorizing the Borrower's independent certified public accountants to
communicate with the Agent and the Lenders in accordance with subsection 7.1
and acknowledging the Agent's and each Lender's reliance on future financial
statements.

(n) Power of Attorney. A power of attorney in favor of
the Agent with respect to the matters set forth in subsections 3.6, 5.2 and 7.6
in the form attached as Exhibit 4.2(n).

(o) Letter of Direction. A letter of direction from the
Borrower with respect to the disbursement of the proceeds of the initial
advance of funds hereunder.

(p) Motorola Letter. The Motorola Letter, duly
executed and delivered by Motorola.

(q) No Material Adverse Change. No material and adverse
change in the business, operations or financial condition of the Borrower and
its Subsidiaries taken as a whole shall have occurred since September 30, 1996.

(r) No Material Transactions. Except as disclosed on
Schedule 4.2(r), the Borrower shall not have entered into any material
commitment or material transaction since

<PAGE> 59

September 30, 1996 including, without limitation, transactions for borrowings
and capital expenditures, which are not in the ordinary course of the
Borrower's business.

(s) No Accounting Changes. The Borrower shall not have
made any material change in its accounting methods or principles since
September 30, 1996.

(t) Blocked Account Agreements. Executed copies of
each of the Blocked Account Agreements.

(u) Consents. On the Closing Date, the Agent shall have
received evidence satisfactory to the Agent that the Borrower has obtained
consents and acknowledgments of all Persons whose consent or acknowledgment may
be required including, without limitation, all requisite Governmental
Authorities to the execution and delivery of the Financing Agreements and
performance of the obligations thereunder.

(v) Payoff Letter; Termination Statements; Releases. A
letter from LaSalle National Bank in form and substance satisfactory to the
Agent itemizing amounts of principal, interest, fees and expenses or other
amounts payable to it through the Closing Date; UCC-3 termination statements,
mortgage releases and all other instruments and documents necessary to
terminate all Liens except the Permitted Liens; and all releases and other
instruments necessary to terminate all Liens on the Borrower's and its
Subsidiaries' Intellectual Property except the Lien of the Agent, for the
benefit of the Lenders.

(w) Environmental Matters. On the Closing Date, the
Agent shall have received such environmental review and audit reports with
respect to the properties of the Borrower and its Subsidiaries as the Agent
shall have requested and the Agent shall be satisfied, in its sole discretion,
with the contents of all such environmental reports, as well as the results of
any further environmental due diligence reasonably requested by the Agent.

(x) Form W-9. A copy of IRS Form W-9, Taxpayer
Identification Number and Certification for the Borrower.

(y) Other Documents. All corporate and legal
proceedings, corporate structure, capital structure, other debt instruments,
material contracts and licenses, governing documents, and all agreements in
connection with the transactions contemplated by this Agreement and the other
Financing Agreements shall be satisfactory to the Agent, and the Agent shall
have received all information and copies of all documents including, without
limitation, records of corporate existence, authority and proceedings and
governmental approvals, if any, which the Agent reasonably may have requested
in connection therewith, and such documents, where appropriate, shall be
certified by proper corporate or governmental authorities.

<PAGE> 60

5. COLLATERAL.

5.1 Security Interest. All of the Borrower's Obligations
constitute one (1) loan secured by the Agent's Liens on the Collateral now or
from time to time hereafter granted by the Borrower to the Agent. To secure
timely payment and performance in full of the Obligations, the Borrower hereby
assigns, conveys, mortgages, pledges, hypothecates and transfers and hereby
grants to the Agent, for the benefit of the Lenders, a right of setoff against
and a continuing Lien upon all of the Borrower's right, title and interest in
and to the following property and interests in property of the Borrower,
whether now owned or hereafter acquired and wheresoever located: (i) Accounts;
(ii) General Intangibles; (iii) Fixtures; (iv) Inventory; (v) Equipment; (vi)
Intellectual Property; (vii) all of the Borrower's deposit accounts (general or
special) with any financial institution with which the Borrower maintains
deposits; (viii) all of the Borrower's now owned or hereafter acquired monies,
and any and all other property and interests in property of the Borrower now or
hereafter coming into the actual possession, custody or control of the Agent or
any Lender or any agent or affiliate of the Agent or any Lender in any way or
for any purpose (whether for safekeeping, deposit, custody, pledge,
transmission, collection or otherwise); (ix) Documents, Instruments and Chattel
Paper of the Borrower; (x) all insurance policies relating to any of the
foregoing, including without limitation business interruption insurance; (xi)
all of the Borrower's books and records relating to any of the foregoing; (xii)
all accessions and additions to, substitutions for, and replacements of any of
the foregoing; and (xiii) all cash collections from, and all other cash and
non-cash proceeds of, any of the foregoing including, without limitation,
proceeds of and unearned premiums with respect to insurance policies insuring
any of the Collateral and claims against any Person for loss of, damage to, or
destruction of, any or all of the Collateral.

5.2 Preservation of Collateral and Perfection of Liens
Thereon. Prior to the execution of this Agreement, the Borrower
shall have executed and delivered to the Agent, and at any time or times
hereafter at the request of the Agent, the Borrower shall promptly and duly
execute and deliver any and all such further instruments and documents or
amendments thereto and take such further action as the Agent may reasonably
deem desirable to obtain the full benefits of this Agreement and of the rights
and powers herein granted including, without limitation, all financing
statements, security agreements, pledge agreements, mortgages, leasehold
mortgages, bailee letters, landlord waivers or other documents (and pay the
cost of filing or recording the same in all public offices deemed necessary by
the Agent), as the Agent may request consistent with the Financing Agreements,
in a form satisfactory to the Agent, to perfect and maintain the Liens on the
Collateral granted by the Borrower to the Agent or to otherwise protect and
preserve the Collateral and the Liens thereon or to enforce the Agent's Liens
on the Collateral. Should the Borrower fail to do so, the Agent is authorized
to sign any such financing statements as the Borrower's agent. The Borrower
further agrees that a carbon, photocopy or other reproduction of this Agreement
or of a financing statement is sufficient as a financing statement.

5.3 Consigned Inventory. With respect to consigned
Inventory, the Borrower shall perfect its interest in such Inventory by filing
and delivering notice to the creditors of record of the consignee, all as
provided in Section 9-114 of the Code, and in form and substance satisfactory
to the Agent, and the Borrower shall execute and deliver all financing
statements, security agreements, amendments thereto, or other documents (and
pay the cost of filing or

<PAGE> 61

recording the same in all public offices deemed necessary by the Agent), as the
Agent may request, in a form satisfactory to the Agent, to perfect and maintain
the Liens on such Collateral granted by the Borrower to the Agent hereunder.
With respect to goods in the hands of bailees of the Borrower, the Borrower
shall deliver notice to such bailees of Agent's interest in such goods and
instructions with respect to the disposition thereof, all in form and substance
satisfactory to the Agent, and the Borrower shall execute and deliver all
financing statements, security agreements, amendments thereto, or other
documents (and pay the cost of filing or recording the same in all public
offices deemed necessary by the Agent), as the Agent may request, in a form
satisfactory to the Agent, to perfect and maintain the Liens on such Collateral
granted by the Borrower to the Agent hereunder.

6. REPRESENTATIONS AND WARRANTIES.

The Borrower represents and warrants that as of the Closing
Date and continuing so long as any Obligations remain outstanding, and (even if
there shall be no Obligations outstanding) so long as this Agreement remains in
effect:

6.1 Existence.(a) The Borrower and each Subsidiary is a
corporation duly organized, validly existing and in good standing under the
laws of its respective jurisdiction of incorporation and is qualified to
transact business as a foreign corporation in, and is in good standing under
the laws of, all states (other than Georgia with respect to the Borrower
provided that the Borrower shall be in good standing within thirty (30) days of
the Closing Date) in which such Person is required by applicable law to
maintain such qualification and good standing except where the failure to so
qualify could not reasonably be expected to have a Material Adverse Effect.
All such jurisdictions as of the Closing Date are listed on Exhibit 6.1-1.

(b) All shares of Stock of the Borrower and each
Subsidiary have been duly authorized and validly issued and are fully paid and
non-assessable. Except as disclosed on Exhibit 6.1-2 and as otherwise
permitted by this Agreement (i) no authorized but unissued or treasury share of
capital stock of any Subsidiary is subject to any option, warrant, right to
call or commitment of any kind or character (other than in favor of the
Borrower or other Subsidiaries), (ii) none of the Subsidiaries have any
outstanding stock or securities convertible into or exchangeable for any shares
of its capital stock, or any rights issued to any Person (either preemptive or
other) to subscribe for or to purchase, or any options or warrants for the
purchase of, or any agreements providing for the issuance (contingent or
otherwise) of, or any calls, commitments or claims of any character relating to
any of its capital stock or any stock or securities convertible into or
exchangeable for any of its capital stock (other than in favor of the Borrower
or other Subsidiaries), and (iii) neither the Borrower nor any Subsidiary are
subject to any obligation (contingent or otherwise) to repurchase or otherwise
acquire or retire any shares of its capital stock or any convertible
securities, rights, warrants or options of the type described in the clause
(ii) above.

6.2 Authority. The Borrower and each Subsidiary has full
power, authority and legal right to enter into this Agreement and the other
Financing Agreements to which such Person is a party. The execution and
delivery by the Borrower and each Subsidiary of the Financing Agreements to
which it is a party: (i) have been duly authorized by all necessary action on
its part; (ii) are not in contravention of the terms of its Articles of
Incorporation or Bylaws or in breach of

<PAGE> 62

any indenture, agreement or undertaking to which it is a party or by which it
or any of its Property is bound the breach of which could reasonably be
expected to have a Material Adverse Effect; (iii) do not and will not require
any registration with, or approval or the consent or approval of, any
Governmental Authority or of any other Person that has not been obtained the
lack of which could reasonably be expected to have a Material Adverse Effect;
(iv) do not and will not contravene any governmental restriction to which it or
any of its Property may be subject the contravention of which could reasonably
be expected to have a Material Adverse Effect; and (v) do not and will not,
except as contemplated herein, result in the imposition of any Lien upon any
Property of it under any existing indenture, mortgage, deed of trust, loan or
credit agreement or other material agreement or instrument to which it is a
party or by which it or any of its Property may be bound or affected. The
Borrower and each Subsidiary has the full corporate power and authority and
legal right to own, operate, pledge, mortgage or otherwise encumber its
Property, to lease the Property it now operates under lease and conduct its
business as now, heretofore and proposed to be conducted, and has all licenses,
permits, consents and approvals from or by, and has made all filings with, and
has given all notices to, all Governmental Authorities having jurisdiction, to
the extent required for such ownership, operation and conduct of its business
and for the manufacture, distribution, marketing and sale of the Collateral
except to the extent that failure to have obtained such licenses, permits,
consents or approvals or made such filings or given such notices could not
reasonably be expected to have a Material Adverse Effect.

6.3 Binding Effect. This Agreement and the other
Financing Agreements have been duly executed and delivered by the Borrower, are
the legal, valid and binding obligations of the Borrower and are enforceable
against the Borrower in accordance with their terms, except as enforceability
may be limited by bankruptcy, insolvency or other similar laws affecting the
rights of creditors generally or by application of general principles of
equity.

6.4 Financial Data. (a) The Borrower has furnished to the
Agent and each Lender consolidated financial statements (the "Financial
Statements") of the Borrower and its Subsidiaries on a consolidated basis based
on financial data as of September 30, 1996 and attached as Exhibit 6.4-1. As
of the date thereof, the Financial Statements are complete and accurate and
fairly represent the assets, liabilities, financial condition and results of
operations of the Borrower and its Subsidiaries in accordance with Generally
Accepted Accounting Principles, consistently applied. Except as contemplated
or permitted hereby or disclosed on Exhibit 6.4-2, since the date of the
Financial Statements through the Closing Date, neither the Borrower nor any
Subsidiary has: (i) incurred any debts, obligations, or liabilities (absolute,
accrued, or contingent and whether due or to become due) except current
liabilities incurred in the ordinary course of business which (individually or
in the aggregate) could not reasonably be expected to have a Material Adverse
Effect; (ii) paid any obligation or liability other than current liabilities in
the ordinary course of business, or discharged or satisfied any Liens other
than those securing current liabilities, in each case in the ordinary course of
business; (iii) declared or made any Restricted Payment or obligated itself to
do so; (iv) mortgaged, pledged, or subjected to any Lien on any of its Property
except Permitted Liens; (v) sold, transferred, or leased any of its Property
except in the usual and ordinary course of business; (vi) suffered any physical
damage, destruction, or loss (whether or not covered by insurance) which could
reasonably be expected to have a Material Adverse Effect; (vii) entered into
any transaction other than in the usual and ordinary course of business and
other than as

<PAGE> 63

contemplated hereby; or (viii) agreed to do any of the foregoing other than
pursuant hereto. There has been no material and adverse change in the
business, operations or financial condition of the Borrower and its
Subsidiaries taken as a whole since September 30, 1996 through the Closing
Date.

(b) The Borrower has also furnished to the Agent and each
Lender initial Projections dated as of the Closing Date and attached as Exhibit
6.4-3, containing the information required by subsection 7.1. The initial
Projections have been prepared, and all Projections hereafter delivered in
accordance with subsection 7.1(iv) shall be prepared, by the chief financial
officer of the Borrower on the basis of the assumptions set forth therein and
do represent, and in the future will represent, the best available good faith
estimate of the Borrower's management regarding the course of business of the
Borrower and each Subsidiary for the periods covered thereby. The assumptions
set forth in the initial Projections are, as of the Closing Date, and the
assumptions set forth in the future Projections delivered hereafter shall be,
reasonable and realistic based on then current economic conditions. As of the
date of submission, the Projections represent the good faith belief of the
Borrower as to reasonably achievable results for the applicable period and the
Borrower does not have any knowledge of any reason (other than unexpected
adverse general economic conditions) that would cause the Projections not to be
achieved. Notwithstanding the foregoing, the Agent and the Lenders acknowledge
that the Projections are and will be estimates only, and that the Borrower
makes no representation or warranty that any of the Projections will be met.

(c) The Borrower has also provided to the Agent and each
Lender (i) audited statements of income and cash flow and balance sheets for
the Borrower and its Subsidiaries on a consolidated basis for each of the three
(3) most recent Fiscal Years and (ii) unaudited draft statements of income and
cash flow and balance sheets for the Borrower and its Subsidiaries on a
consolidated basis as of March 31, 1997 and for the six months then ended and
such financial statements fairly present the financial condition and results of
operations of the Borrower and its Subsidiaries for the periods indicated
therein, in accordance with Generally Accepted Accounting Principles,
consistently applied (subject to normal year-end adjustment).

6.5 Collateral. Except for the Permitted Liens, all of
the Collateral is and will continue to be owned by the Borrower free and clear
of all Liens. From and after the making of the first advance under the
Revolving Loan and after the making of all necessary filings, the provisions of
Article 5 of this Agreement will be effective to create and will give the
Agent, for the benefit of the Lenders, as security for the repayment of the
Obligations, a legal, valid, perfected and enforceable Lien (which priority is
subject only to Permitted Liens) upon all right, title and interest of the
Borrower in any and all of the Collateral (including, without limitation, the
Lien in the items and amounts deposited in the Blocked Accounts). Upon the
acknowledgment of the Agents' security interest in the Blocked Accounts by the
banks or other financial institutions at which such Blocked Accounts are
maintained, this Agreement will be effective to create and will give the Agent,
for the benefit of the Lenders, as security for the repayment of the
Obligations, a legal, valid, perfected and enforceable first priority Lien on
all deposits or other items in the Blocked Accounts.

6.6 Solvency. The Borrower is Solvent and will continue
to be Solvent following the consummation of the transactions contemplated by
this Agreement and the payment of all fees, costs and expenses payable by the
Borrower with respect thereto.

<PAGE> 64

6.7 Places of Business. As of the Closing Date, the
principal place of business and chief executive office of the Borrower is set
forth on Exhibit 6.7 and, except as disclosed on Exhibit 6.7, none of such
locations have changed within the within six (6) month period prior to the
Closing Date. The books and records of the Borrower and all Chattel Paper,
Instruments and all records of account of the Borrower are located and
hereafter shall continue to be located at the principal place of business and
chief executive office of the Borrower.

6.8 Other Names. As of the Closing Date, the business
conducted by the Borrower has not been conducted under any corporate, trade or
fictitious name other than those names disclosed on Exhibit 6.8.

6.9 Tax Obligations. The Borrower and each Subsidiary
has filed complete and correct federal, state and local tax reports and returns
required to be filed by it, prepared in accordance with applicable laws or
regulations, and, except for extensions duly obtained, has either duly paid all
Charges owed by it, or made adequate provision for the payment thereof. There
are no material unresolved questions or claims concerning any tax liability of
the Borrower or any Subsidiary except those for which the validity, amount or
imposition of such Charges are being contested in good faith by an appropriate
proceeding promptly initiated and diligently conducted and as to which (i) such
proceeding will prevent the forfeiture or sale of any Property of the Borrower
or such Subsidiary and no Lien which will have priority over the Agent's Liens
granted hereunder with respect to the Collateral is filed of record, (ii)
adequate reserves have been provided in accordance with Generally Accepted
Accounting Principles and (iii) such proceeding could not reasonably be
expected to have a Material Adverse Effect. No tax Liens have been filed and no
claims are being asserted with respect to any such Charges which could
reasonably be expected to have a Material Adverse Effect. The charges,
accruals and reserves on the books of the Borrower and each Subsidiary are
adequate for all open years and for the current Fiscal Year. Except as
disclosed in writing to the Agent, neither the Borrower nor any Subsidiary has
consented to any extension of, or otherwise waived, any statute of limitation
with respect to any such Charges. Neither the Borrower nor any Subsidiary is a
party to any tax indemnity, tax sharing or tax allocation agreement with any
other Person. Proper and accurate amounts have been withheld by the Borrower
and each Subsidiary from its employees for all periods in full and complete
compliance with the tax, social security and unemployment withholding
provisions of applicable federal, state, local and foreign law and such
withholdings have been timely paid to the respective Governmental Authorities.

6.10 Indebtedness and Liabilities. Neither the Borrower
nor any Subsidiary has any Indebtedness other than Indebtedness reflected on
the Financial Statements. As of the Closing Date, except for the Indebtedness
referred to above, and Liabilities reflected on the Financial Statements
attached as Exhibit 6.4-1, neither the Borrower nor any Subsidiary has any
Liabilities required to be reflected on a balance sheet prepared in accordance
with GAAP.

6.11 Use of Proceeds and Margin Security. The Borrower
shall use the proceeds of the initial advance under the Revolving Loan to repay
existing Indebtedness and for the working capital requirements of the Borrower
and shall use the proceeds of subsequent advances under the Revolving Loan
solely for proper business purposes, consistent with all applicable laws,
statutes,

<PAGE> 65

rules and regulations. The Borrower does not own any margin security and none
of the proceeds of the Revolving Loan advanced or funded hereunder will be used
for the purpose of purchasing or carrying any margin securities or for the
purpose of reducing or retiring any indebtedness which was originally incurred
to purchase any margin securities or for any other purpose not permitted by
Regulation G or U of the Board of Governors of the Federal Reserve System.

6.12 Government Contracts. As of the Closing Date, except
as disclosed on Exhibit 6.12, the Borrower is not a party to or bound by any
supply agreements with the federal government or any state or local government
or any agency thereof.

6.13 Investments. Except as disclosed on Exhibit 8.4, as
of the Closing Date, neither Borrower nor any Subsidiary has any Investment in
any Person other than Permitted Investments and is not engaged in any joint
venture or partnership with any other Person.

6.14 Litigation and Proceedings. No judgments are
outstanding against the Borrower or any Subsidiary or binding upon any of its
Property, nor, as of the Closing Date, except as disclosed on Exhibit 6.14, is
there pending or, to the knowledge of the Borrower, threatened, any litigation,
claim, arbitration, investigation, administrative proceeding or other
governmental proceeding ("Litigation") by or against the Borrower or any
Subsidiary. There is no Litigation pending or, to the knowledge of the
Borrower, threatened against the Borrower or any Subsidiary which could
reasonably be expected to have a Material Adverse Effect. None of the
Litigation will prevent, enjoin or delay the consummation of the transactions
contemplated by the Financing Agreements.

6.15 Other Agreements and Deliveries. (a) As of the
Closing Date, to the Borrower's best knowledge there is no dispute regarding
any contract, lease, or commitment which could reasonably be expected to have a
Material Adverse Effect.

(b) The Borrower has provided or made available to the
Agent or its counsel on or prior to the Closing Date accurate and complete
copies of all of the following agreements or documents to which the Borrower is
subject as of the Closing Date:

(i) each Plan and other compensation or
nonqualified benefit plan arrangement which the Borrower or any ERISA
Affiliate sponsors or is committed to contribute to as of the Closing Date
and, where applicable, each Plan's most recent summary plan description,
actuarial report, determination letter from the Service and Forms 5500 for
the previous five (5) years filed in respect of each such Plan;

(ii) supply agreements not terminable by the
Borrower within sixty (60) days following written notice issued by the
Borrower;

(iii) purchase agreements not terminable by the
Borrower within ninety (90) days following written notice issued by the
Borrower;

(iv) leases of real property;

<PAGE> 66

(v) leases of Equipment having a remaining
term of two (2) years or longer and requiring aggregate rental and other
payments in excess of Fifty Thousand Dollars ($50,000) per annum;

(vi) licenses and permits with respect to
Environmental Matters;

(vii) all material licenses and permits necessary
for the conduct of the Borrower's business;

(viii) all management agreements between the
Borrower and any other Person and all employment agreements between the
Borrower and its executive officers;

(ix) contracts or agreements between the
Borrower and an Affiliate requiring or providing for payments in excess of
Two Hundred Thousand Dollars ($200,000) per annum; and

(x) instruments and agreements evidencing the
issuance of any Stock of the Borrower.

6.16 Labor Matters. Except as disclosed on Exhibit 6.16,
there are no strikes, work stoppages, labor disputes, decertification
petitions, union organizing efforts, grievances or other controversies pending
or, to the best of the Borrower's knowledge, threatened, between the Borrower
or any Subsidiary and any of its employees, other than matters which, in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
All collective bargaining agreements, labor agreements or other contracts with
or affecting any employee of the Borrower or any Subsidiary necessary to
continue to conduct the business operations of the Borrower or such Subsidiary
are in full force and effect. Except as disclosed on Exhibit 6.16, neither the
Borrower nor any Subsidiary has any obligation under any employment agreement
which could reasonably be expected to have a Material Adverse Effect. As of
the Closing Date, except as disclosed on Exhibit 6.16, there is no organizing
activity pending or, to the Borrower's best knowledge, threatened by any labor
union or group of employees. As of the Closing Date, except as disclosed on
Exhibit 6.16, there are no representation proceedings pending or threatened
with the National Labor Relations Board or other applicable Governmental
Authority, and no labor organization or group of employees has made a pending
demand for recognition. There are no complaints or charges
pending or, to the Borrower's best knowledge, threatened to be filed with any
Governmental Authority or arbitrator based on, arising out of, in connection
with, or otherwise relating to the employment or termination of employment by
the Borrower or any Subsidiary of any individual which could reasonably be
expected to have a Material Adverse Effect.

6.17 Compliance with Laws and Regulations. The execution
and delivery by the Borrower of this Agreement, the other Financing Agreements
to which it is a party and the performance of the Borrower's obligations
hereunder and thereunder are not in contravention of any order applicable to
the Borrower or, to the Borrower's best knowledge, any federal, foreign, state
or local laws, regulations or ordinances. The Borrower and each Subsidiary are
in compliance with

<PAGE> 67

all laws, orders, regulations and ordinances of all federal, foreign, state and
local governmental authorities relating to the business operations and the
Property of the Borrower or any Subsidiary except for laws, orders, regulations
and ordinances the non-compliance or violation of which, in the aggregate,
could not reasonably be expected to have a Material Adverse Effect.

6.18 Patents, Trademarks and Licenses. Except as
disclosed on Exhibit 6.18, the Borrower owns or possesses rights to use all
licenses, patents, patent applications, copyrights, service marks, logos,
names, trademarks and tradenames required to continue to conduct its business
as heretofore conducted; all such licenses, patents, patent applications,
copyrights, service marks, trademarks and tradenames in existence on the
Closing Date are disclosed on Exhibit 6.18; and no such license, patent or
trademark has been declared invalid, been limited by order of any Governmental
Authority or by agreement, or is the subject of any infringement, interference
or similar proceeding or challenge which could reasonably be expected to have a
Material Adverse Effect.

6.19 ERISA. (a) Neither the Borrower nor any ERISA
Affiliate has sponsored or contributed to, or has had any obligation
(contingent or otherwise) under, any Plan other than those disclosed on Exhibit
6.19. No Plan disclosed on Exhibit 6.19 is a Pension Plan or Multiemployer
Plan.

(b) With respect to all Plans, the Borrower and each
ERISA Affiliate is in compliance with the applicable provisions of ERISA and
the IRC in all material respects. Each Plan that is intended to be qualified
under Section 401(a) of the IRC has been determined by the Service to be so
qualified, and each trust related to each such Plan has been determined to be
exempt from federal income tax under Section 501(a) of the IRC. No liability
has been incurred by the Borrower or any ERISA Affiliate which remains
unsatisfied for any taxes or penalties with respect to
any Plan. Neither the Borrower nor any ERISA has engaged in a nonexempt
prohibited transaction described in Section 406 of ERISA or Section 4975 of the
IRC.

(c) Neither the Borrower nor any ERISA Affiliate has any
contingent liability with respect to any post-retirement benefit under any Plan
which is a welfare plan (as defined in Section 3(1) of ERISA), other than
liability for health plan continuation coverage described in Part 6 of Title I
of ERISA.

6.20 Property. The Borrower owns, possesses, or has the
right to use or exercise all material Property and material rights necessary
for the conduct of the Borrower's business as heretofore conducted. Except as
disclosed on Exhibit 6.20, there are no actual or, to the Borrower's knowledge,
threatened defaults of the Borrower with respect to any material agreements
relating to, or evidencing, any Property which could reasonably be expected to
have a Material Adverse Effect. Except as disclosed on Exhibit 6.20, no
material consent, approval, license, authorization or other action in respect
of any Person is required, except as have been obtained, in connection with the
right to use any Property.

6.21 Adverse Contracts. Neither the Borrower nor any
Subsidiary is a party to, nor is the Borrower or any of its Property subject to
or bound by, any long term lease, forward

<PAGE> 68

purchase contract or futures contract, covenant not to compete, or other
agreement which could reasonably be expected to have a Material Adverse Effect.

6.22 Investment Company Act; Public Utility Holding
Company Act. Neither the Borrower nor any Subsidiary is an "investment
company" or a company "controlled" by an investment company within the meaning
of the Investment Company Act of 1940, as amended. Neither the Borrower nor
any Subsidiary is a "holding company" or a "subsidiary company" or a "holding
company" or an "affiliate" of a "holding company" within the meaning of the
Public Utility Holding Company Act of 1935, as amended.

6.23 Broker's Fees. Neither the Agent or any Lender nor
the Borrower or any Subsidiary is or will become obligated to any Person with
respect to any finder's or brokerage or similar fee or commission in connection
with the transactions contemplated hereby.

6.24 Licenses and Permits. The Borrower and each
Subsidiary has been and is current and in good standing with respect to all
governmental approvals, permits, certificates, licenses, inspections, consents
and franchises (collectively, the "Licenses") necessary to continue to conduct
its business and to own or lease and operate, its properties as heretofore
conducted, owned, leased or operated (including, without limitation, Licenses
with respect to Environmental Laws) other than Licenses the absence of which
could not reasonably be expected to have a Material Adverse Effect.

6.25 Environmental Compliance.

(a) The operations of the Borrower and each
Subsidiary comply in all material respects with all applicable Environmental
Laws.

(b) Except as disclosed on Exhibit 6.25 or in any
regular or periodic report subsequently filed by the Borrower with the
Securities and Exchange Commission, there are no claims, investigations,
litigation, administrative proceedings, whether pending or, to the knowledge of
the Borrower after diligent inquiry, threatened, or judgments or orders,
relating to any Hazardous Materials or alleging the violation of any
Environmental Laws (collectively, "Environmental Matters") relating in any way
to any real property leased or otherwise used by the Borrower or any Subsidiary
or to the operations of or the Borrower or any Subsidiary which could
reasonably be expected to have a Material Adverse Effect.

(c) Except as disclosed on Exhibit 6.25, to the
best of the Borrower's knowledge, no Hazardous Materials are presently stored
or otherwise located on, in or under any real property leased, owned, operated
or otherwise used by the Borrower or any Subsidiary except in compliance in all
material respects with all applicable Environmental Laws, and, no part of any
real property leased, owned, operated or otherwise used by the Borrower or any
Subsidiary or to the Borrower's best knowledge, adjacent parcels, including the
groundwater located thereon, is presently contaminated by any such Hazardous
Material which could reasonably be expected to have a Material Adverse Effect.

<PAGE> 69

(d) Except as disclosed on Exhibit 6.25, neither
the Borrower nor any Subsidiary has filed any notice under any international,
federal, state, regional, provincial or local law indicating past or present
treatment, storage or disposal of a Hazardous Material or reporting a spill or
release of a Hazardous Material into the environment.

(e) Except as disclosed on Exhibit 6.25 or in any
regular or periodic report subsequently filed with the Securities and Exchange
Commission, neither the Borrower nor any Subsidiary has any known material
liability, contingent or otherwise, in connection with any release of any
Hazardous Material into the environment which could reasonably be expected to
have a Material Adverse Effect.

(f) So long as any Obligations are outstanding,
no Hazardous Materials may be used, generated, treated, stored or disposed of
by any Person for any purpose upon any real property leased, owned, operated,
or otherwise used by the Borrower or any Subsidiary except in compliance in all
material respects with all applicable Environmental Laws.

(g) The Borrower hereby indemnifies the Agent and
each Lender and agrees to hold the Agent and each Lender harmless from and
against any and all losses, liabilities, damages, injuries, costs, expenses and
claims of any and every kind whatsoever (including, without limitation, court
costs and reasonable attorneys' fees and legal expenses) which at any time or
from time to time may be paid, incurred or suffered by, or asserted against,
the Agent or any Lender arising directly or indirectly from the violation of
any Environmental Law or the imposition of liability on the Borrower or any
Subsidiary under any Environmental Law or any laws or regulations relating to
Hazardous Material, treatment, storage, disposal, generation and
transportation, air, water and noise pollution, soil or ground or water
contamination, the handling, storage or release into the environment of
Hazardous Materials, and the transportation of Hazardous Materials; or with
respect to, or as a direct or indirect result of the presence on or under, or
the escape, seepage, leakage, spillage, discharge, emission or release from,
properties utilized, owned or operated by the Borrower or any Subsidiary in the
conduct of its business into or upon any land, the atmosphere, or any
watercourse, body of water or wetland, of any Hazardous Material (including,
without limitation, any losses, liabilities, damages, injuries, costs, expenses
or claims asserted or arising under the Environmental Laws); provided that to
the extent that the Borrower or any Subsidiary is strictly liable under any
Environmental Laws, the Borrower's obligations to indemnify the Agent and each
Lender under this subsection 6.25(g) shall likewise be without regard to fault
on the part of Borrower or any Subsidiary and with respect to the violation of
law which results in liability to the Borrower or any Subsidiary. To the
extent that the undertaking to indemnify, pay and hold harmless set forth in
this subsection 6.25(g) may be unenforceable because it is violative of any law
or public policy, the Borrower shall contribute the maximum portion that it is
permitted to pay and satisfy under applicable law to the payment and
satisfaction of all indemnifications set forth in this subsection 6.25(g).

(h) So long as any Obligations are outstanding,
if the Agent, at any time, has a reasonable basis to believe that any real
property leased or otherwise used by the Borrower or any Subsidiary, has or may
become contaminated or subject to a clean up order or decree by an agency
having jurisdiction over the Borrower or such Subsidiary; then the Borrower
agrees, upon

<PAGE> 70

request from the Agent, to provide the Agent with such reports, certificates,
engineering studies or other written material or data as the Agent, in its
reasonable discretion, may require from them so as to satisfy the Agent that
the Borrower is in material compliance with all applicable Environmental Laws.

6.26 Full Disclosure. The documents listed on Exhibit
6.26, at the time they were filed with the Securities and Exchange Commission
(the "SEC"), (a) complied as to form in all material respects with the
applicable requirements of the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the SEC thereunder, and (b) did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading.

6.27 Insurance Policies. Exhibit 7.5 lists all
insurance of any nature maintained for current occurrences by the Borrower as
of the Closing Date, as well as a summary of the terms of such insurance.

6.28 Customer and Trade Relations. There exists no
actual or threatened termination, cancellation or limitation of, or any
modification or change in (a) the business relationship of the Borrower with
any customer or group of customers whose purchases individually or in the
aggregate are material to the operations of the Borrower, or (b) the business
relationship of the Borrower with any material supplier to the Borrower which,
in either case, could reasonably be expected to have a Material Adverse Effect.

6.29 Corporate and Contractual Restrictions. The
Borrower has not agreed nor consented to cause or permit in the future upon the
happening of a contingency or otherwise any of its Property, whether now owned
or hereafter acquired, to be subject to a Lien that is not a Permitted Lien.
The Borrower is not a party to or bound by any indenture, contract, instrument,
charter or other corporate restriction or other agreement which prohibits the
creation, incurrence or sufferance to exist of any Lien upon its Property
except the Financing Agreements.

6.30 Subsidiaries. As of the Closing Date, except as
set forth on Exhibit 6.30, the Borrower has no Subsidiaries.

6.31 Deposit and Disbursement Accounts. As of the
Closing Date, Exhibit 6.31 lists all banks and other financial institutions at
which the Borrower maintains deposits and/or other accounts, including any
disbursement accounts, and such Exhibit correctly identifies the name, address
and telephone number of each depository, the name in which the account is held,
a description of the purpose of the account, and the complete account number.

7. AFFIRMATIVE COVENANTS.

The Borrower covenants and agrees that, so long as any
Obligations remain outstanding, and (even if there shall be no Obligations
outstanding) so long as this Agreement remains in effect:

<PAGE> 71

7.1 Financial Statements. The Borrower shall keep proper
books of record and account with respect to its business activities in which
full and true entries will be made of all dealings or transactions in respect
of or in relation to the business and affairs of the Borrower, in accordance
with Generally Accepted Accounting Principles consistently applied, and the
Borrower shall furnish or cause to be furnished to the Agent and each Lender:
(i) as soon as practicable and in any event within thirty (30) days after the
end of each Fiscal Month, statements of net income and cash flow of the
Borrower and its Subsidiaries on a consolidated basis for such Fiscal Month and
for the period from the beginning of the then current Fiscal Year to the end of
such Fiscal Month and a balance sheet of the Borrower and its Subsidiaries on a
consolidated basis as of the end of such Fiscal Month, setting forth in each
case, in comparative form, figures for the corresponding periods in the
preceding Fiscal Year and as of a date one (1) year earlier, all in reasonable
detail and certified as accurate by the chief financial officer or treasurer of
the Borrower (subject to changes resulting from normal year-end adjustments but
excluding footnotes); (ii) as soon as practicable and in any event within
forty-five (45) days after the end of each Fiscal Quarter, statements of net
income and cash flow of the Borrower and its Subsidiaries on a consolidated
basis for such Fiscal Quarter and for the period from the beginning of the then
current Fiscal Year to the end of such Fiscal Quarter and a balance sheet of
the Borrower and its Subsidiaries on a consolidated basis as of the end of such
period, setting forth in each case, in comparative form, figures for the
corresponding periods in the preceding Fiscal Year and as of a date one (1)
year earlier, all in reasonable detail and certified as accurate by the chief
financial officer or treasurer of the Borrower (subject to changes resulting
from normal year-end adjustments but excluding footnotes); (iii) as soon as
practicable and in any event within one hundred twenty (120) days after the end
of each Fiscal Year, statements of net income and cash flow of the Borrower and
its Subsidiaries on a consolidated basis for such year, and a balance sheet of
the Borrower and its Subsidiaries on a consolidated basis as of the end of
such year, setting forth in each case, in comparative form, corresponding
figures for the period covered by the preceding annual audit and as of the end
of the preceding Fiscal Year, examined and certified by Ernst & Young LLP or
any other independent public accountants of recognized national standing
selected by the Borrower and reasonably acceptable to the Agent, whose opinion
shall be unqualified; (iv) within thirty (30) days after the end of each Fiscal
Year, Projections approved by the board of directors of the Borrower prepared
in the same manner as the Projections attached as Exhibit 6.4-3, including
projected balance sheets for the forthcoming Fiscal Year, month-by-month;
projected cash flow statements (including proposed Capital Expenditures and
forecasted unused Borrowing Availability under the Revolving Loan) for the
forthcoming Fiscal Year, month-by-month; projected profit and loss statements
for the forthcoming Fiscal Year, month-by-month, together with appropriate
supporting details as requested by the Agent, all for the Borrower and its
Subsidiaries on a consolidated basis and within thirty (30) days after the
close of each Fiscal Month, a statement in which the actual results of such
Fiscal Month are compared with the most recent Projections for such Fiscal
Month; (v) promptly following the filing or furnishing thereof, copies of all
regular and periodic reports, proxy statements, financial statements,
registration statements prospectuses and other material filed by the Borrower
or any of its Subsidiaries with any securities exchange or with the Securities
and Exchange Commission or any other governmental or private regulatory
authority or distributed to the stockholders of any such Person and all press
releases and other statements made available by the Borrower or any of its
Subsidiaries to the public concerning material adverse changes or developments
in the business of any such Person; and (vi) with reasonable promptness, such
other business or financial data as the Required Lenders may

<PAGE> 72

reasonably request.

All financial statements delivered to the Agent or any Lender
pursuant to the requirements of this subsection (except where otherwise
expressly indicated) shall be prepared in accordance with Generally Accepted
Accounting Principles consistently applied on a consolidated basis for the
Borrower and its Subsidiaries. All financial computations hereunder shall be
computed, unless otherwise specifically provided herein, in accordance with
GAAP consistently applied. That certain items or computations are explicitly
modified by the phrase "in accordance with GAAP" shall in no way be construed
to limit the foregoing. In the event that any Accounting Changes occur and
such changes result in a change in the calculation of the financial covenants,
standards, advance rates or terms used in this Agreement or any other Financing
Agreement, then the Borrower, the Agent and the Lenders agree to enter into
negotiations in order to amend such provisions of this Agreement so as to
equitably reflect such Accounting Changes with the desired result that the
criteria for evaluating Borrower's financial condition shall be the same after
such Accounting Changes as if such Accounting Changes had not been made;
provided that the agreement of the Required Lenders to any required amendments
of such provisions shall be sufficient to bind all Lenders. In the event that
the Agent, the Borrower and the Required Lenders shall have agreed upon the
required amendments, then after such agreement has been evidenced in writing
and the underlying Accounting Changes with respect thereto has been
implemented, any reference to GAAP contained in this Agreement or in any other
Financing Agreement shall, only to the extent of such Accounting Changes, refer
to GAAP, consistently applied after giving effect to the implementation of such
Accounting Changes. If the Agent, the Borrower and the Required Lenders cannot
agree upon the required amendments within thirty (30) days following the date
of implementation of any Accounting Change, then all financial statements
delivered and all calculations of financial covenants and other standards,
advance rates and terms in accordance with this Agreement and the other
Financing Agreements shall be prepared, delivered and made without regard to
any underlying Accounting Change. Together with each delivery of financial
statements required by subsections 7.1(i), 7.1(ii) and 7.1(iii), the Borrower
shall deliver to the Agent and the Lenders a certificate of the chief financial
officer or treasurer of the Borrower certifying that no Default or Event of
Default exists, or, if any Default or Event of Default exists, specifying the
nature thereof, the period of existence thereof and what action the Borrower
proposes to take with respect thereto. Together with each delivery of
financial statements required by subsections 7.1(ii) and 7.1(iii), the Borrower
shall deliver to the Agent and the Lenders a certificate of the chief financial
officer or treasurer of the Borrower setting forth computations in reasonable
detail satisfactory to the Agent demonstrating compliance with the covenants
contained in subsections 7.11 through 7.13 and (with respect to subsection
7.1(iii) only) subsection 8.8. Together with each delivery of financial
statements required by subsection 7.1(iii), the Borrower shall deliver to the
Agent and the Lenders a certificate of the accountants who performed the audit
in connection with such statements stating that in making the audit necessary
to the issuance of a report on such financial statements, they have obtained no
knowledge of any Default or Event of Default, or, if such accountants have
obtained knowledge of a Default or Event of Default, specifying the nature and
period of existence thereof. Such accountants shall not be liable by reason of
any failure to obtain knowledge of any Default or Event of Default which would
not be disclosed in the ordinary course of an audit. The Agent and each Lender
agree to use commercially reasonable efforts (equivalent to the efforts the
Agent or such Lender applies to maintaining the confidentiality of its own
confidential information) to maintain

<PAGE> 73

such information, and all information acquired as a result of any inspection
conducted in accordance with subsection 7.2, confidential; provided that the
Agent or any Lender may communicate such information (a) to any other Person in
accordance with the customary practices of commercial lenders relating to
routine trade inquiries; provided that no such Person shall be entitled to
receive any information contained in the Projections, (b) to any regulatory
authority having jurisdiction over the Agent or such Lender (who will be
requested by the Agent or such Lender, as the case may be, to maintain
confidentiality as if it were a Lender under this Agreement), (c) to any other
Person in connection with the Agent's or such Lender's proposed or actual
assignment or sale of any participation in the Obligations (who will in turn be
required to maintain confidentiality as if it were a Lender under this
Agreement), or (d) to any other Persons in connection with the exercise of the
Agent's or such Lender's rights hereunder or under any of the other Financing
Agreements (who in turn will be required to maintain confidentiality as if they
were Lenders under this Agreement). The Borrower authorizes the Agent and each
Lender to discuss the financial condition of the Borrower with the Borrower's
independent public accountants and agrees that such discussion or communication
shall be without liability to either the Agent or such independent public
accountants. The Borrower shall deliver a letter addressed to such accountants
authorizing them to comply with the provisions of this subsection 7.1.

7.2 Inspections and Audits. The Agent, or any Person
designated by the Agent in writing, shall have the right, from time to time
hereafter, to call at the Borrower's place or places of business (or any other
place where the Collateral or any information relating thereto is kept or
located) during normal business hours upon reasonable prior written or
telephonic notice of any of the Agent's officers, employees or agents; provided
that no prior notice shall be required upon the occurrence and during the
continuance of an Event of Default, and without unreasonable hindrance or delay
(i) to inspect, audit, check and make copies of and extracts from the
Borrower's books, records, journals, orders, receipts and any correspondence
and other data relating to the Borrower's or any Subsidiary's business or to
any transactions between the parties hereto, (ii) to make such verification
concerning the Collateral as the Agent may consider reasonable under the
circumstances, and (iii) to discuss the affairs, finances and business of the
Borrower with any officers, employees or directors of the Borrower. All
out-of-pocket costs and expenses incurred by the Agent in connection with the
Agent's field audits permitted under this subsection 7.2 shall be reimbursed by
the Borrower in accordance with subsection 2.8.

7.3 Conduct of Business; Compliance With Laws. The
Borrower shall, and shall cause each Subsidiary to (i) subject to subsection
8.3, maintain its corporate existence and good standing in its respective state
of incorporation and qualify and remain qualified as a foreign corporation in
each jurisdiction in which such qualification is required, (ii) maintain in
full force and effect all licenses, bonds, franchises, leases, patents,
contracts and other rights necessary or desirable to the profitable conduct of
its business, where the failure to do so could reasonably be expected to have a
Material Adverse Effect, (iii) comply with all applicable federal, state, local
and foreign laws, rules, regulations and orders of any federal, state or local
Governmental Authority, except for such laws, rules and regulations the
violation of which, in the aggregate, could not reasonably be expected to have
a Material Adverse Effect and (iv) continue to conduct its business
substantially as now conducted or as otherwise permitted herein.

<PAGE> 74

7.4 Claims and Charges. (a) The Borrower shall, and
shall cause each of its Subsidiaries to, file all tax and information returns
and reports required by and prepared in accordance with applicable law and shall
pay or cause to be paid all license fees, bonding premiums and related charges,
and shall pay or cause to be paid all Charges assessed against or payable by,
the Borrower or such Subsidiary, at such times and in such manner as to prevent
any penalty from accruing or any Lien from attaching to Property of the
Borrower or such Subsidiary; provided that the Borrower and such Subsidiary
shall have the right to contest in good faith, by an appropriate lawful
proceeding promptly initiated and diligently conducted, the validity, amount or
imposition of any such Charge, and upon such good faith contest to delay or
refuse payment thereof so long as (i) no Lien which will have priority over the
Agent's Lien granted hereunder with respect to any Collateral is filed or
recorded with respect thereto, (ii) the execution or other enforcement of such
subordinate Lien is and continues to be effectively stayed, (iii) such
proceeding will prevent the forfeiture or sale of any Property of the Borrower
or such Subsidiary, (iv) adequate reserves have been provided therefor in
accordance with GAAP, (v) such contest could not reasonably be expected to have
a Material Adverse Effect and (vi) if such contest is abandoned or determined
adversely to the Borrower or such Subsidiary, such Person pays, or causes to be
paid, all such Charges and any penalties and interest payable in connection
therewith.

(b) The Borrower shall notify the Agent and each Lender
promptly (and in no event later than ten (10) days) after becoming aware of the
intent of the Service to assert a deficiency with respect to the Borrower or
any Subsidiary, and shall promptly (and in no event later than five (5) days
after receipt) send the Agent and each Lender copies of any notices of proposed
deficiency and any notices of deficiency received from the Service.

7.5 Borrower's Liability Insurance. The Borrower
shall, and shall cause each Subsidiary to, maintain, at its expense, such
product liability insurance, general public liability and third party property
damage insurance with financially sound and reputable insurance companies in
such amounts and covering such risks and with such deductibles as are
consistent with sound business practices and customary for other Persons
engaged in the same or similar business, naming the Agent as an additional
insured. The policy or policies shall further provide for thirty (30) days'
written notice to the Agent prior to cancellation or any material change in
coverage. The Borrower shall deliver to the Agent a certificate of insurance
and, upon renewal thereof, a binder evidencing such renewal, and evidence of
payment of all premiums therefor. The Borrower's current liability insurance
policies are summarized on Exhibit 7.5.

7.6 Borrower's Property Insurance. The Borrower shall,
and shall cause each Subsidiary to, at its expense, keep and maintain its
assets insured against loss or damage by fire, theft, explosion, spoilage and
all other hazards and risks ordinarily insured against by other owners or users
of such properties in similar businesses in an amount at least equal to the
full insurable value thereof (including at least six (6) months business
interruption insurance in an amount of not less than $10 million. All such
policies of insurance shall contain a breach or violation of warranties,
declarations or conditions endorsement in favor of the Agent, shall provide
that the Agent shall receive 30 days' written notice prior to cancellation or
any material change in coverage and shall otherwise be in form and substance
satisfactory to the Agent. The Borrower shall deliver to the Agent a
certificate of insurance and, upon the renewal thereof, a binder evidencing
such

<PAGE> 75

renewal, and evidence of payment of all premiums therefor. Such policies
of insurance shall contain an endorsement, substantially in the form of Exhibit
7.6, naming the Agent, on behalf of the Lenders, as the lender loss payee and
additional insured. The Borrower hereby directs all insurers under such
policies of insurance to pay all proceeds of such insurance policies directly
to the Agent. Upon the occurrence and during the continuance of an Event of
Default, the Borrower irrevocably makes, constitutes and appoints the Agent
(and all officers, employees or agents designated by the Agent) as the
Borrower's true and lawful attorney-in-fact for the purpose of making, settling
and adjusting claims under all such policies of insurance, endorsing the name
of the Borrower on any check, draft, instrument or other item of payment
received by the Borrower or the Agent pursuant to any such policies of
insurance and for making all determinations and decisions with respect to such
policies of insurance. If the Borrower or any Subsidiary, at any time or times
hereafter, shall fail to obtain or maintain any of the policies of insurance
required above or to pay any premium in whole or in part relating thereto, then
the Agent, without waiving or releasing any Obligation, Default or Event of
Default by the Borrower hereunder, may at any time or times thereafter (but
shall be under no obligation to do so) obtain and maintain such policies of
insurance and pay such premiums and take any other action with respect thereto
which the Agent deems advisable.

7.7 Plans. (a) The Borrower shall (i) maintain all
Plans which are presently in existence in compliance with ERISA, the IRC and all
other applicable laws in all material respects and (ii) make or cause to be
made contributions to all of the Plans in a timely manner.

(b) The Borrower shall promptly deliver written notice of
any of the following to the Agent and each Lender, but in no event later than
thirty (30) days after such event or occurrence:

(1) the tax disqualification of a Plan under Section
401(a) of the IRC;

(2) the Borrower or any ERISA Affiliate knows or has
reason to know that a prohibited transaction (as
defined in Section 406 of ERISA or Section 4975 of
the IRC) has occurred with respect to any Plan with a
statement describing such transaction and the action
or response taken with respect thereto; and

(3) any other report such as an annual report on Form
5500 or actuarial report which any Lender may request
from time to time.

7.8 Notice of Certain Matters. The Borrower shall, as
soon as possible, and in any event within five (5) days after any Responsible
Officer learns of the following, give written notice to the Agent and each
Lender of (i) any material Litigation being instituted or threatened to be
instituted by or against the Borrower or any Subsidiary in any federal, state,
local or foreign court or before any commission or other regulatory body
(federal, state, local or foreign) including, without limitation, any and all
pending or threatened proceedings with respect to Environmental Matters, (ii)
any labor dispute to which the Borrower or any Subsidiary may become a party
and which has had or could reasonably be expected to have a Material Adverse
Effect, any strikes or walkouts relating to any of its plants or Facilities,
the expiration of any labor contract to which it is a party or by which it is
bound or any organizing activity pending or threatened by any labor union

<PAGE> 76

or group of employees, (iii) any Default or Event of Default, (iv) any judgment
rendered against the Borrower or any Subsidiary, and (v) any other event or
occurrence which could reasonably be expected to have a Material Adverse
Effect.

7.9 Landlord and Warehouseman Agreements. The Borrower
shall provide the Agent and each Lender with copies of all agreements between
the Borrower and any landlord, bailee, warehouseman or processor which owns any
premises at which Inventory or any other Collateral may, from time to time, be
located. The Borrower shall deliver to the Agent on or before the Closing Date
a landlord's waiver in form and substance acceptable to the Agent from the
lessor of each leased property currently being used by the Borrower or any
Subsidiary where Collateral is located. The Borrower shall deliver to the
Agent a bailee letter in form and substance acceptable to the Agent with
respect to any warehouse or other processor location where Collateral is
located. With respect to leased locations or warehouse space leased on the
Closing Date, if the Borrower is unable to deliver such a landlord waiver or
bailee letter the Inventory at that location shall automatically be deemed
ineligible without further action by the Agent or any Lender. In the event
that the Borrower delivers to the Agent such landlord waiver or bailee letter,
as applicable, after such date, subject to the terms and conditions of this
Agreement including, without limitation, subsection 3.10, Inventory located at
such leased location or other location, as applicable, may be considered
Eligible Inventory. The Borrower shall timely and fully pay and perform its
obligations under all leases and other agreements with respect to each leased
location or warehouse where any Collateral is or may be located. The Borrower
shall promptly deliver to the Agent copies of (i) any and all default notices
received by it under or with respect to any of its leased location or
warehouse, and (ii) such other notices or documents as the Agent may request in
its reasonable discretion.

7.10 Indemnity. (a) The Borrower shall indemnify, pay and
hold harmless the Agent and each Lender and the officers, directors, employees,
agents, affiliates, representatives and attorneys of the Agent and such Lender
(collectively called the "Indemnitees") from and against any and all
liabilities, obligations, losses, damages, penalties, actions, proceedings,
judgments, suits, claims, demands, costs, expenses and disbursements of any
kind or nature whatsoever (including, without limitation, all reasonable fees
and disbursements of counsel for such Indemnitees in connection with any
investigative, administrative or judicial proceeding commenced or threatened,
whether or not such Indemnitee shall be designated a party thereto) that may be
imposed on, incurred by, or instituted or asserted against any Indemnitee in
any manner in connection with or relating to or arising out of this Agreement
or the other Financing Agreements, or any other transaction contemplated hereby
or thereby, the statements contained in the commitment letters delivered by the
Agent, the Agent and the Lenders' agreement to make the Revolving Loan
hereunder, the direct or indirect application or proposed application of the
proceeds of the Revolving Loan or the exercise of any right, power or remedy
hereunder or under any other Financing Agreement (the "Indemnified
Liabilities"); provided that the Borrower shall have no obligation to an
Indemnitee hereunder with respect to Indemnified Liabilities to the extent that
a court of competent jurisdiction shall render a judgment, final and not
subject to review on appeal, that such Indemnified Liabilities arise from the
gross negligence or willful misconduct of that Indemnitee. To the extent that
the undertaking to indemnify, pay and hold harmless set forth in the preceding
sentence may be unenforceable because it is violative of any law or public
policy, the Borrower shall contribute the maximum portion that it is permitted
to pay and satisfy under applicable law to the

69
<PAGE> 77

payment and satisfaction of all Indemnified Liabilities incurred by the
Indemnitees or any of them.

(b) In any suit, proceeding or action brought against any
Person by the Agent relating to any Account, Chattel Paper, contract, General
Intangible, Instrument or Document for any sum owing thereunder, or to enforce
any provision of any Account, Chattel Paper, Instrument or Document, the
Borrower shall save, indemnify and keep the Agent and the Lenders harmless from
and against all expense, loss or damage suffered by reason of any defense,
setoff, counterclaim, recoupment or reduction of liability by such Person of
any obligation thereunder arising out of a breach by such Person of any
obligation thereunder or arising out of any other agreement, indebtedness or
liability at any time owing to, or in favor of, such obligor or its successors
from such Person. All such obligations of such Person shall be and remain
enforceable against, and only against, the Borrower and shall not be
enforceable against the Agent or any Lender.

7.11 Interest Coverage Ratio. The Borrower and its
Subsidiaries shall maintain an Interest Coverage Ratio (a) as of September 30,
1997, of not less than (80.5) to 1.0, and (b) as of the end of each Fiscal
Quarter thereafter through the Revolving Loan Maturity Date, for the twelve
month period then ended, of not less than 1.5 to 1.0.

7.12 Minimum Availability. The Borrower shall at all
times maintain a Minimum Availability of not less than the lesser of (i)
$4,000,000 or (ii) twenty percent (20%) of the Borrowing Base as set forth on
the most recent Borrowing Base Certificate delivered in accordance with
subsection 3.1; provided that, commencing with the Fiscal Quarter ending
December 31, 1997, upon delivery of the financial statements for a Fiscal
Quarter in accordance with subsection 7.1(ii) accompanied by a certificate of
the chief financial officer of the Borrower certifying that the Tangible Net
Worth for such Fiscal Quarter was equal to or greater than one hundred twenty
percent (120%) of the required Tangible Net Worth under subsection 7.13 for
such Fiscal Quarter, the requirements of this subsection 7.12 shall be waived
for the period from the fifth Business Day after the date of delivery of such
certificate through the date immediately preceding the fifth Business Day after
the date of delivery of financial statements for the next Fiscal Quarter
required pursuant to subsection 7.1(ii).

7.13 Minimum Tangible Net Worth. The Borrower and its
Subsidiaries shall maintain, as of the end of each Fiscal Quarter set forth
below, Tangible Net Worth of not less than the amount set forth below opposite
such period:

Fiscal Quarter Ending Minimum Tangible Net Worth
--------------------- --------------------------
September 30, 1997 $26,000,000
December 31, 1997 $26,000,000
March 31, 1998 $26,700,000
June 30, 1998 $26,700,000
September 30, 1998 $27,700,000
December 31, 1998 $27,700,000
March 31, 1999 $30,700,000
June 30, 1999 $30,700,000
September 30, 1999 $33,700,000

<PAGE> 78

December 30, 1999 $33,700,000
March 31, 2000 $39,200,000

provided that, in the event of any sale or issuance of Stock of the Borrower
(whether through a public offering, private placement or otherwise) or other
equity contribution to the Borrower, upon receipt by the Borrower of the net
proceeds thereof, the minimum amounts set forth above shall be increased by an
amount equal to ten percent (10%) of such net proceeds, such increase to be
effective on the date of such receipt and at all times thereafter.

8. NEGATIVE COVENANTS.

The Borrower covenants and agrees that so long as any of the
Obligations remain outstanding and (even if there shall be no Obligations
outstanding) so long as this Agreement remains in effect (unless the Required
Lenders shall give their prior written consent thereto):

8.1 Encumbrances. The Borrower shall not, nor shall it
permit any of its Subsidiaries to, create, incur, assume or suffer to exist any
Lien of any nature whatsoever on any of its Property, including, without
limitation, the Collateral, other than the following "Permitted Liens": (i)
Liens (other than Liens relating to Environmental Laws or ERISA) securing the
payment of Charges not yet due and payable; (ii) pledges or deposits under
workmen's compensation, unemployment insurance, social security
and other similar laws, or to secure the performance of bids, tenders or
contracts (other than for the repayment of borrowed money) or to secure
statutory obligations or surety or appeal bonds, or to secure indemnity,
performance or other similar bonds in the ordinary course of business; (iii)
statutory Liens of landlords, carriers, warehousemen, mechanics, materialmen or
other similar Liens imposed by law, which are incurred in the ordinary course
of business for sums not more than 30 days delinquent; (iv) the Liens in favor
of the Agent, for the benefit of the Lenders; (v) purchase money Liens
(including capitalized leases and other forms of installment purchase
financing) granted to the Person financing a purchase of Equipment that
constitutes a Capital Expenditure permitted by subsection 8.8 so long as the
Lien granted is limited to the specific Equipment so acquired, the debt secured
by the Lien is not more than the lesser of the acquisition cost or the fair
market value of the specific item of Equipment on which the Lien is granted and
the transaction does not violate any other provision of this Agreement
(notification of such purchase money Lien to be provided to the Agent and each
Lender within ten (10) days of acquisition of such Equipment); (vi) Liens
permitted in accordance with subsection 7.4(a); (vii) other Liens on Real
Estate, which do not, in the Agent's reasonable determination, (a) materially
impair the use of such property, or (b) materially lessen the value of such
property for the purposes for which the same is held by the Borrower or such
Subsidiary and (vii) Liens existing on the Closing Date and disclosed on
Exhibit 8.1.

8.2 Indebtedness. The Borrower shall not, nor shall it
permit any of its Subsidiaries to, incur, create, assume, become or be liable
in any manner with respect to, or suffer to exist, any Indebtedness, except for
(i) the Obligations, (ii) Indebtedness existing on the Closing Date and
disclosed on Exhibit 8.2, (iii) Indebtedness secured by purchase money Liens
permitted by subsection 8.1(iv), (iv) Indebtedness permitted by subsection 8.5,
(v) Indebtedness consisting of convertible debentures or warrants issued by the
Borrower, (vi) intercompany Indebtedness

<PAGE> 79

permitted by subsection 8.20 and (vii) unsecured Indebtedness for borrowed money
of the Borrower in an aggregate amount not to exceed $5,000,000 incurred in the
ordinary course of business on terms and conditions not more restrictive to the
Borrower than those set forth herein; provided that no Default or Event of
Default has occurred and is continuing or would result after giving effect to
any such Indebtedness.

8.3 Acquisitions. Except as otherwise provided herein,
the Borrower shall, nor shall it permit any of its Subsidiaries to, make an
Acquisition; provided that (i) any Subsidiary may merge or consolidate with or
into or liquidate into any other Subsidiary, (ii) a Subsidiary may merge or
consolidate with or into or liquidate into the Borrower; provided
that the Borrower is the surviving entity, (iii) the Borrower may make
additional Acquisitions during the term of this Agreement; provided that (a)
such Acquisition comprises a business, or those assets of a business, of a type
engaged in by the Borrower on the Closing Date, (b) such Acquisition shall be
consensual and shall have been approved by the target Person's board of
directors or other Persons performing similar functions, (c) the business and
assets acquired in such Acquisition shall be free and clear of all Liens other
than Permitted Liens, (d) at or prior to the consummation of such Acquisition,
the Agent will be granted a first priority perfected Lien in all of the assets
or Stock, as applicable, acquired pursuant thereto, (e) at the time of such
Acquisition and after giving effect thereto, no Default or Event of Default
shall have occurred and be continuing and (f) the aggregate amount of cash
consideration of such Acquisitions made pursuant to this subsection 8.3(iii),
together with the Investments made in accordance with subsection 8.4(v) and any
intercompany loans made pursuant to subsection 8.4(viii), shall not exceed
$4,000,000 in any Fiscal Year, and (iv) with the consent of the Required
Lenders (which consent shall not be unreasonably withheld) the Borrower and the
Subsidiaries may make additional Acquisitions in excess of the amount set forth
in clause (iii) of this subsection 8.3. Except as provided herein, the
Borrower shall not, and shall not permit any Subsidiary to, dissolve, liquidate
or terminate. The Borrower shall not sell, assign, encumber, pledge, transfer
or otherwise dispose of any interest in the Borrower or any Subsidiary or
transfer any Property to any Affiliate except as otherwise expressly permitted
hereby.

8.4 Investments. The Borrower shall not, nor shall it
permit any of its Subsidiaries to, make or permit to exist Investments in, or
commitments therefor, or create any Subsidiary other than the following
"Permitted Investments": (i) loans made in accordance with subsection 8.9; (ii)
Investments in Subsidiaries and other Investments, each as in existence on the
Closing Date and disclosed on Exhibit 8.4; (iii) demand deposit accounts
maintained in the ordinary course of business, (iv) Acquisitions permitted by
subsection 8.3, (v) Investments in new or existing Subsidiaries (other than
Adcor and International), joint ventures or partnerships; provided that the
aggregate amount of cash consideration of such Investments, together with the
cash consideration of the Acquisitions permitted by subsection 8.3(iii) and any
intercompany loans made pursuant to subsection 8.4(viii), shall not exceed
$4,000,000 in any Fiscal Year, (vi) the acquisition of the "Third Tranche
Shares" from Telepath as contemplated by that certain Stock Purchase Agreement
between the Borrower and Telepath dated June 28, 1996, (vii) so long as no
Event of Default shall have occurred and be continuing, Investments in Cash
Equivalents, and (viii) loans to any Subsidiary (other than Adcor or
International), joint venture or partnership; provided that (a) such loans shall
be unsecured and be payable on demand; (b) after giving effect to each such
loan, both the Borrower and the obligor of such loan shall be Solvent; (c) the
obligor of such loan shall use the proceeds

<PAGE> 80

thereof solely for its own proper business purposes arising in the ordinary
course of business; (d) all such loans shall be evidenced by promissory notes in
form and substance reasonably satisfactory to the Agent and, at the request of
the Agent, delivered to the Agent for the benefit of the Lenders; (e) the
aggregate amount of such loans made pursuant to this subsection 8.4(viii),
together with the cash consideration of any Acquisitions permitted by subsection
8.3(iii) and the Investments made in accordance with subsection 8.4(v) shall not
exceed $4,000,000 in any Fiscal Year; (f) after giving effect to each such loan,
the Borrower shall have cash or unused Borrowing Availability in an amount equal
to or greater than its working capital requirements for the next succeeding
ninety (90) days, based upon its historical cash needs and taking into account
all of its payment obligations under the Financing Agreements and under any of
its other Indebtedness; and (g) the Borrower shall have delivered to the Agent a
current list of intercompany loans outstanding.

8.5 Guaranties. The Borrower shall not, nor shall it
permit any of its Subsidiaries to, make or suffer to exist any Guaranty, except
(i) endorsements of negotiable instruments or items of payment for collection
in the ordinary course of business, (ii) Guaranties of the Obligations and
(iii) Guaranties existing on the Closing Date and disclosed on Exhibit 8.5.

8.6 Collateral Locations. Neither the location of the
principal place of business and chief executive office of the Borrower as set
forth on Exhibit 6.7, the locations of Collateral as set forth on Exhibit 8.6
nor the corporate name or mailing address of the Borrower shall be changed, nor
shall there be established additional places of business or additional
locations at which Collateral is stored, kept or processed unless (i) the
Borrower shall have given the Agent not less than 30 days prior written notice
thereof, (ii) the Agent shall have determined that, after giving effect to any
such change of name, address or location, the Agent shall have a first
perfected Lien in the Collateral except for Permitted Liens, (iii) in the case
of new Collateral locations, the Borrower shall have delivered a landlord
waiver or bailee letter, as applicable, in form and substance satisfactory to
the Agent with respect to such location, and (iv) all negotiable documents and
receipts in respect of any Collateral maintained at such premises are promptly
delivered to the Agent; provided that the Borrower may close the Facility
located in Atlanta, Georgia. Prior to making any such change or establishing
such new location, the Borrower shall execute any additional financing
statements or other documents or notices required by the Agent. All Collateral
located at any such new location shall automatically be deemed ineligible
without further action by the Agent or any Lender to constitute Eligible
Accounts or Eligible Inventory, as the case may be, until the Borrower shall
have complied with the requirements of this subsection 8.6 and subsection 7.9.

8.7 Disposal of Property. The Borrower shall not, nor
shall it permit any of its Subsidiaries to, sell, lease, assign, transfer or
otherwise dispose of any of its Property, assets and rights to any Person
except for (i) bona fide sales of Inventory to customers for fair value in the
ordinary course of business, (ii) the sale of the Borrower's Axcell product
line for fair market value, (iii) sales of Equipment which is obsolete,
worn-out or otherwise not useable in the Borrower's business and (iv) other
dispositions of any asset having a fair market value of less than $200,000;
provided that the aggregate amount of all such dispositions under this clause
(iv) in any Fiscal Year shall not exceed $500,000. In the event any Equipment
of the Borrower is sold, transferred or otherwise disposed of as permitted by
this subsection 8.7, and (i) such sale, transfer or disposition is effected
without replacement of the Equipment so sold, transferred or disposed of or
such

<PAGE> 81

Equipment is replaced by Equipment leased by the Borrower, the Borrower shall
promptly (but in any event within three (3) Business Days of the receipt
thereof) deliver all of the cash proceeds of any such sale, transfer or
disposition to the Agent, which proceeds shall be applied to the Revolving Loan
Obligations; provided that, so long as no Event of Default shall have occurred
and be continuing, if at the time of application of such proceeds LIBOR Loans
are outstanding and such application would subject the Borrower to any
obligation pursuant to subsection 2.20(c), the Agent shall (a) hold such
proceeds in a cash collateral account and shall not apply such proceeds to the
Revolving Loan Obligations until the end of the applicable Interest Period(s)
for such LIBOR Loans, or (b) immediately apply the proceeds to the Revolving
Loan Obligations and waive the applicability of subsection 2.20(c) to such
prepayment, or (ii) such sale, transfer or disposition is made in connection
with the purchase by the Borrower of replacement Equipment, the Borrower shall
use the proceeds of such sale, transfer or disposition to finance the purchase
by the Borrower of replacement Equipment and shall deliver to the Agent written
evidence of the use of the proceeds for such purchase. Except as permitted by
subsection 8.1, all replacement Equipment purchased by the Borrower shall be
free and clear of all Liens, except for Permitted Liens.

8.8 Capital Expenditures Limitations. The Borrower and
its Subsidiaries on a consolidated basis shall not, in any Fiscal Year, make or
commit to make Capital Expenditures in any Fiscal Year in the aggregate in
excess of the amount set forth below opposite such Fiscal Year:

Period Amount
------ ------
Fiscal Year 1997 $3,500,000
Fiscal Year 1998 $3,200,000
Fiscal Year 1999 $3,700,000
Fiscal Year 2000 $4,200,000

8.9 Employee Loans. Except for (i) advances for travel
and related expenses by the Borrower or any Subsidiary to its employees in the
ordinary course of business in an amount not to exceed Fifty Thousand Dollars
($50,000) in the aggregate at any one time, (ii) commission advances by the
Borrower or any Subsidiary to its employees in an amount not to exceed Fifty
Thousand Dollars ($50,000) in the aggregate at any one time, and (iii) loans by
the Borrower to its employees in the ordinary course of business for relocation
and education expenses in an amount not to exceed One Hundred Fifty Thousand
Dollars ($150,000) in the aggregate at any one time, the Borrower shall not,
and shall not permit any Subsidiary to, make any loans or other advances to any
Person.

8.10 Plans. Neither the Borrower nor any ERISA Affiliate
shall:

(i) assume or incur or be subject to any
Liability under any Plan other than those Plans disclosed in Exhibit
6.19; or

(ii) engage, or permit any ERISA Affiliate to
engage, in any non-exempt prohibited transaction under Section 406 of
ERISA or Section 4975 of the IRC.

74
<PAGE> 82

8.11 Restricted Payments. The Borrower shall not, nor
shall it permit any of its Subsidiaries to, directly or indirectly declare,
pay, order, make or set apart any Restricted Payment; provided that (i) any
Subsidiary may declare and pay dividends to the Borrower or to any Subsidiary
owning its capital stock, and (ii) the Borrower may make Restricted Payments
consisting of Stock of any class to the holders of that class.

8.12 Securities. Except for issuances or distributions
of Stock to the Borrower as permitted by this Agreement, none of the
Subsidiaries shall issue or distribute any of its Stock. The Borrower shall
not, nor shall it permit any of its Subsidiaries to, redeem, prepay, repurchase
or acquire any of its capital Stock of any description for consideration or
otherwise. Notwithstanding the foregoing, the Borrower may call for redemption
of any convertible stock of the Borrower so long as (a) the value of the common
stock issuable on conversion of such convertible securities equals or exceeds,
at the time of such call, at least 115% of the redemption price of such
convertible securities, and (b) the Borrower makes arrangements reasonably
satisfactory to the Agent with an investment banking firm reasonably
satisfactory to the Agent, whereby such firm agrees to purchase shares of common
stock for an amount sufficient to pay the redemption price of any convertible
securities called for redemption that are not converted prior to such
redemption.

8.13 Changes in Charter, Bylaws or Fiscal Year. The
Borrower shall not, nor shall it permit any of its Subsidiaries to, (i) amend
its certificate of incorporation or bylaws or other constitutional documents in
a manner that could reasonably be expected to have a Material Adverse Effect or
(ii) change its Fiscal Year.

8.14 Lease Limitations. The annual financial obligations
of the Borrower and its Subsidiaries, whether for rental payments, service
charges or otherwise, under all operating leases shall not exceed $1,500,000 in
any Fiscal Year.

8.15 Transactions with Affiliates. Except as set forth
on Exhibit 8.15 and as permitted by subsections 8.4, 8.9, and 8.11, the Borrower
shall not enter into any transaction including, without limitation, the
purchase, sale, lease or exchange of property or the rendering or purchase of
any service to or from any Affiliate (other than transactions among the Borrower
and its Subsidiaries) except pursuant to the reasonable requirements of the
Borrower's business and upon fair and reasonable terms and are no less favorable
to the Borrower than the Borrower would obtain in a comparable arm's length
transaction with an unaffiliated Person.

8.16 Other Business. The Borrower shall not, nor shall
it permit any of its Subsidiaries to, (i) engage in any business unrelated to
its current businesses, (ii) except as otherwise permitted herein, engage in any
transaction out of the ordinary course of business, or (iii) engage in any other
transaction which could reasonably be expected to have a Material Adverse
Effect.

8.17 Sale and Leaseback. The Borrower shall not, nor
shall it permit any of its Subsidiaries to, sell or transfer any of its
Property in order to concurrently or subsequently lease as lessee such or
similar Property unless (i) any such sale is made for the fair market value of
the Property, (ii) the sale consideration received is cash and (iii) the sale
is upon fair and reasonable

<PAGE> 83

terms in an arm's length transaction.

8.18 Impairment Agreements. The Borrower shall not, nor
shall it permit any of its Subsidiaries to, enter into or assume any agreement,
instrument, indenture or other obligation (other than the Financing Agreements)
which (i) contains a negative pledge provision which would require a sharing of
any interest in the Collateral, (ii) prohibits or limits the creation or
assumption of any Lien upon its Property, whether now owned or hereafter
acquired, or (iii) restricts, prohibits or requires the consent of any Person
with respect to the payment of Restricted Payments.

8.19 Corporate Accounts. The Borrower shall not maintain
corporate deposit accounts jointly with any Affiliate or commingle any of its
funds with funds of any Affiliate. The Borrower shall not accumulate or
maintain cash in disbursement, payroll or other deposit accounts other than the
Blocked Accounts as of any date of determination in excess of checks
outstanding against such accounts as of that date; provided that, so long as no
Event of Default shall have occurred and be continuing, the Borrower may retain
cash in such other accounts in excess of the aggregate amount of checks
outstanding in an amount not to exceed $250,000 in the aggregate; provided
further that such amounts are maintained in the ordinary course of the
Borrower's business.

9. DEFAULT, RIGHTS AND REMEDIES OF THE AGENT AND THE
LENDERS.

9.1 Obligations. If a Default or an Event of Default
shall exist or occur, the Required Lenders (or the Agent with the consent of
the Required Lenders) may elect to do one or more of the following at any time
or times and in any order: (i) reduce the Total Revolving Loan Facility, (ii)
restrict the amount of, or suspend its obligations to make, Revolving Loans,
(iii) restrict or suspend the issuance of Lender Guaranties or (iv) demand that
the Borrower immediately deposit with the Agent an amount equal to one hundred
five percent (105%) of the Lender Guaranty Liabilities to enable the Agent to
make payments under the Lender Guaranties when required and such amount shall
become immediately due and payable. If an Event of Default shall exist or
occur, in addition to the actions described in the preceding sentence, the
Required Lenders (or the Agent with the consent of the Required Lenders) may
elect to do one or more of the following at any time or times: (a) terminate
the Commitments to make the Revolving Loan and this Agreement, (b) declare any
or all Obligations to be immediately due and payable; provided that upon the
occurrence of any Event of Default referred to in clauses (f), (g) or (h)
within the definition of "Event of Default," the Commitments shall
automatically and immediately terminate and all Obligations shall automatically
become immediately due and payable without notice, demand or other actions of
any kind by any Person, or (c) pursue its other rights and remedies under the
Financing Agreements and applicable law. In the case of any Event of Default
occurring by reason of any willful action or inaction by or on behalf of the
Borrower in order to avoid payment of the termination fee pursuant to subsection
2.10 which the Borrower would have to pay if the Obligations were paid in full,
an equivalent fee shall also be immediately due and payable to the extent
permitted by law.

9.2 Rights and Remedies Generally. Upon acceleration of
the Obligations, the Agent, on behalf of the Lenders, shall have, in addition
to any other rights and remedies contained in this Agreement or in any of the
other Financing Agreements, all of the rights and remedies of a

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secured party under the Code or other applicable laws, all of which rights and
remedies shall be cumulative and non-exclusive, to the extent permitted by law.
Any sale, lease or other disposition of the Collateral, or any part thereof, by
the Agent after an Event of Default may be for cash, credit or any combination
thereof, and the Agent or any Lender may purchase all or any part of the
Collateral at public or, if permitted by law, private sale, and in lieu of
actual payment of such purchase price, may set-off the amount of such purchase
price against the Obligations then owing. Any sales of the Collateral may be
adjourned from time to time with or without notice. The Agent shall have the
right to conduct such sales on the Borrower's premises, at the Borrower's
expense, or elsewhere, on such occasion or occasions as the Agent may see fit.

9.3 Entry Upon Premises and Access to Information. Upon
acceleration of the Obligations, the Agent shall have the right (i) to cause
the Collateral to remain on the Borrower's premises, without any obligation to
pay rent, (ii) to enter upon the premises of the Borrower where the Collateral
is located or any other place or places where the Collateral is believed to be
located and kept, without any obligation to pay rent, to render the Collateral
useable or saleable, or to remove the Collateral therefrom to the premises of
the Agent or any agent of the Agent, at the Borrower's expense, for such time
as the Agent may desire in order effectively to collect or liquidate the
Collateral, and (iii) to require the Borrower to assemble the Collateral and
make it available to the Agent at a place or places to be designated by the
Agent. Upon acceleration of the Obligations, the Agent shall have the right to
obtain access to the Borrower's original books and records and to take
possession of copies thereof, to obtain access to Borrower's data processing
equipment, computer hardware and software relating to the Collateral and to use
all of the foregoing and the information contained therein in any manner the
Agent deems appropriate; and the Agent shall have the right to receive and open
all mail addressed to the Borrower and to take possession of all checks or
other original remittances contained in such mail.

9.4 Sale or Other Disposition of Collateral by the Agent.
Any notice required to be given by the Agent of a sale, lease or other
disposition or other intended action by the Agent with respect to any of the
Collateral which is given to the Borrower as specified in subsection 10.12, at
least ten (10) days prior to such proposed action, shall constitute fair and
reasonable notice to the Borrower of any such action. The net proceeds realized
by the Agent upon any such sale or other disposition, after deduction for the
expenses of retaking, holding, storing, transporting, preparing for sale,
selling or otherwise disposing of the Collateral incurred by the Agent in
connection therewith, shall be applied as provided herein toward satisfaction of
the Obligations. The Agent shall account to the Borrower for any surplus
realized upon such sale or other disposition, and the Borrower shall remain
liable for any deficiency. The commencement of any action, legal or equitable,
or the rendering of any judgment or decree for any deficiency shall not affect
the Agent's Liens on the Collateral until the Obligations are fully paid.

9.5 Grant of License. For the purpose of enabling the
Agent to exercise its rights, powers and remedies under this Section 9
(including, without limitation, in order to take possession of, hold, preserve,
process, assemble, prepare for sale, market for sale, sell or otherwise dispose
of the Collateral) at such time as the Agent shall be entitled to exercise such
rights and remedies, the Borrower hereby grants to the Agent a license, lease
and right to use (exercisable without payment of royalty or other compensation)
the Borrower's General Intangibles, Intellectual Property,

<PAGE> 85

Equipment, Fixtures, Real Estate, whether part of the Collateral or not
including, without limitation, any patents, copyrights, rights of use of any
name, trade secrets, trade names, trademarks, service marks and advertising
matter, or any other Property of a similar nature, as it pertains to the
Collateral, in completing production of, advertising for sale or lease and
selling or leasing any Inventory or other Collateral and the Borrower's rights
under all licenses, leases and franchise agreements shall inure to the Agent's
benefit until all Obligations are paid in full.

9.6 Waiver of Demand. EXCEPT FOR DEMANDS EXPRESSLY
PROVIDED FOR IN THIS AGREEMENT OR THE OTHER FINANCING AGREEMENTS, DEMAND,
PRESENTMENT, PROTEST AND NOTICE OF DEMAND, PRESENTMENT, PROTEST, NONPAYMENT,
INTENT TO ACCELERATE AND ACCELERATION ARE HEREBY WAIVED BY THE BORROWER. THE
BORROWER ALSO WAIVES THE BENEFIT OF ALL VALUATION, APPRAISAL AND EXEMPTION
LAWS.

9.7 Waiver of Notice. EXCEPT AS PROVIDED IN SUBSECTION
9.4, UPON THE OCCURRENCE OF A DEFAULT OR AN EVENT OF DEFAULT, THE BORROWER
HEREBY WAIVES ALL RIGHTS TO NOTICE AND HEARING OF ANY KIND PRIOR TO THE
EXERCISE BY THE AGENT OF ITS RIGHTS TO REPOSSESS THE COLLATERAL WITHOUT
JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY UPON THE COLLATERAL WITHOUT
PRIOR NOTICE OR HEARING. THE BORROWER ACKNOWLEDGES THAT IT HAS BEEN ADVISED
BY COUNSEL OF ITS CHOICE WITH RESPECT TO THIS TRANSACTION AND THIS AGREEMENT.

10. OTHER RIGHTS AND OBLIGATIONS.

10.1 Waiver. The failure of the Agent or any Lender, at
any time or times hereafter, to require strict performance by the Borrower of
any provision of this Agreement shall not waive, affect or diminish any right
of the any such Person thereafter to demand strict compliance and performance
therewith. Any suspension or waiver by the Lenders or Required Lenders, as
applicable, of a Default or an Event of Default under this Agreement or any of
the other Financing Agreements shall not suspend, waive or affect any other
Default or Event of Default under this Agreement or any of the other Financing
Agreements, whether the same is prior or subsequent thereto and whether of the
same or of a different kind or character. None of the undertakings,
agreements, warranties, covenants and representations of the Borrower contained
in this Agreement or any of the other Financing Agreements and no Default or
Event of Default by the Borrower under this Agreement or any of the other
Financing Agreements shall be deemed to have been suspended or waived by the
Lenders or Required Lenders, as applicable, unless such suspension or waiver is
in writing and signed by an officer of each of the Lenders or Required Lenders,
as applicable, and directed to the Borrower specifying such suspension or
waiver. Neither this Agreement nor the other Financing Agreements may be
modified or amended except in a written agreement signed by the Borrower, the
Agent and the Lenders.

10.2 Several Obligations; Nature of Lender's Rights.
The respective obligations of the Lenders hereunder are several and not joint
and no Lender shall be the partner or agent of any other Lender (except to the
extent to which the Agent is authorized to act as such). No provision

<PAGE> 86

contained herein or in any other Financing Agreement and no course of dealing
between the parties shall be deemed to create any fiduciary relationship
between the Agent or any Lender and the Borrower. The Indebtedness of the
Borrower incurred under each of the Notes shall be a separate obligation owing
to the holder thereof; provided that each Lender hereby agrees that it shall
have no individual right to seek to enforce its rights under its Note or this
Agreement, or to realize upon the Collateral, it being understood and agreed
that such rights and remedies may be exercised solely by the Agent for the
benefit of the Lenders at the direction of the Required Lenders in accordance
with the terms of this Agreement.

10.3 Expenditures by the Agent and the Lenders. In the
event the Borrower shall fail to pay Charges, insurance, assessments, costs or
expenses which the Borrower is, under any of the terms hereof, required to pay,
or shall fail to keep the Collateral free from Liens, except Permitted Liens, or
shall fail to maintain, replace or repair the Collateral as required hereby, the
Agent may, in its sole discretion, make expenditures for any or all of such
purposes and acquire or accept an assignment of any Lien against the Collateral,
and the amount so expended (including, without limitation, reasonable attorneys'
fees and expenses, court costs, filing fees and other charges), together with
interest thereon at the Base Rate or the Default Rate then applicable to the
Revolving Loan shall be part of the Obligations, payable on demand and secured
by the Collateral.

10.4 Custody and Preservation of Collateral. Except as
expressly provided in the Code, the Agent shall have no duty with respect to
any Collateral in its possession or control (or in the possession or control of
any agent or bailee) or with respect to any income thereon. The Agent shall be
deemed to have exercised reasonable care in the custody and preservation of any
of the Collateral in its possession if it takes such action for that purpose as
the Borrower shall request in writing, but failure by the Agent to comply with
any such request shall not of itself be deemed a failure to exercise reasonable
care, and no failure by the Agent to preserve or protect any right with respect
to such Collateral against prior parties, or to do any act with respect to the
preservation of such Collateral not so requested by the Borrower, shall of
itself be deemed a failure to exercise reasonable care in the custody or
preservation of such Collateral. The Agent shall not be liable or responsible
for any loss or damage to any of the Collateral, or for any diminution in the
value thereof, by reason of the act or omission of any warehouseman, carrier,
forwarding agency, consignee or other agent or bailee selected by the Agent in
good faith.

10.5 Reliance by the Agent and Lenders. All covenants,
agreements, representations and warranties made herein or in any of the other
Financing Agreements by the Borrower shall, notwithstanding any investigation
by the Agent or any Lender, be deemed to have been relied upon by the Agent and
each Lender.

10.6 Parties and Assignment. This Agreement and the
other Financing Agreements shall be binding upon and inure to the benefit of the
Agent, the Lenders, the Borrower and, subject to the terms hereof, their
respective successors and assigns. The Borrower's successors and assigns shall
include, without limitation, any trustee, receiver or debtor in possession of or
for the Borrower. Notwithstanding the foregoing, the Borrower may not sell,
assign or transfer this Agreement, or the other Financing Agreements or any
portion thereof including, without limitation, its rights, titles,

<PAGE> 87

interests, remedies, powers and/or duties hereunder or thereunder. The Lenders
may assign, or sell participations in, the Revolving Loan and the Commitments as
provided in subsections 11.1 and 11.2, respectively.

10.7 Applicable Law; Severability. This Agreement and the
other Financing Agreements have been submitted to the Agent and SBCC at its
office in Illinois, and this Agreement and the other Financing Agreements, and
shall be construed in all respects in accordance with, and governed by, all of
the provisions of the Code and by the other internal laws (as opposed to
conflicts of law provisions) of the State of Illinois, except for the
perfection and enforcement of Liens in other jurisdictions which shall be
governed by the laws of those jurisdictions. Whenever possible, each provision
of this Agreement shall be interpreted in such a manner as to be effective and
valid under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of
this Agreement.

10.8 Submission to Jurisdiction; Waiver of Jury and Bond.
THE BORROWER, THE AGENT AND EACH LENDER HEREBY SUBMIT TO THE EXCLUSIVE
JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF COOK,
STATE OF ILLINOIS, AND IRREVOCABLY AGREE THAT ALL ACTIONS OR PROCEEDINGS
RELATING TO THIS AGREEMENT OR THE OTHER FINANCING AGREEMENTS SHALL BE LITIGATED
IN SUCH COURTS, AND THE BORROWER, THE AGENT AND EACH LENDER EACH WAIVE ANY
OBJECTION WHICH IT MAY HAVE BASED ON IMPROPER VENUE OR FORUM NON CONVENIENS TO
THE CONDUCT OF ANY PROCEEDING IN ANY SUCH COURT AND EACH WAIVES PERSONAL
SERVICE OF ANY AND ALL PROCESS UPON IT, AND CONSENTS THAT ALL SUCH SERVICE OF
PROCESS BE MADE BY MAIL OR MESSENGER DIRECTED TO IT AT THE ADDRESS SET FORTH IN
SUBSECTION 10.12 AND THAT SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON
THE EARLIER OF ACTUAL RECEIPT OR FIVE (5) DAYS AFTER THE SAME SHALL HAVE BEEN
POSTED TO SUCH PERSON'S ADDRESS. THE BORROWER DESIGNATES AND APPOINTS CT
CORPORATION SYSTEM, 208 SOUTH LASALLE STREET, CHICAGO, ILLINOIS 60604 AND SUCH
OTHER PERSON AS MAY HEREAFTER BE SELECTED BY THE BORROWER WHICH AGREES IN
WRITING TO SO SERVE AS THEIR AGENT TO RECEIVE ON ITS BEHALF SERVICE OF ALL
PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY
ACKNOWLEDGED BY THE BORROWER TO BE EFFECTIVE AND BINDING SERVICE IN EVERY
RESPECT. A COPY OF ANY SUCH PROCESS SO SERVED SHALL BE MAILED BY REGISTERED
MAIL TO THE BORROWER AT THE ADDRESS PROVIDED IN SUBSECTION 10.12, EXCEPT THAT
UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY
SHALL NOT AFFECT THE VALIDITY OF SERVICES OF PROCESS. IF ANY AGENT APPOINTED
BY THE BORROWER REFUSES TO ACCEPT SERVICE, THE BORROWER HEREBY AGREES THAT
SERVICE UPON IT BY MAIL OR OTHERWISE IN ACCORDANCE WITH SUBSECTION 10.12 SHALL
CONSTITUTE SUFFICIENT NOTICE. THE AGENT, EACH LENDER AND THE BORROWER
ACKNOWLEDGES THAT THE TIME AND EXPENSE REQUIRED FOR TRIAL BY JURY

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EXCEED THE TIME AND EXPENSE REQUIRED FOR A BENCH TRIAL AND HEREBY WAIVE, TO THE
EXTENT PERMITTED BY LAW, TRIAL BY JURY, AND WAIVE ANY BOND OR SURETY OR SECURITY
UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF THE AGENT OR ANY
LENDER. NOTHING CONTAINED IN THIS SUBSECTION 10.8 SHALL AFFECT THE RIGHT OF THE
AGENT OR ANY LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW
OR AFFECT THE RIGHT OF THE AGENT OR ANY LENDER TO BRING ANY ACTION OR PROCEEDING
AGAINST THE BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION TO
THE EXTENT NECESSARY TO ENFORCE ITS LIENS AGAINST PROPERTY LOCATED IN SUCH
JURISDICTIONS. THE BORROWER WAIVES ANY RIGHT THEY MAY HAVE TO CLAIM OR RECOVER
IN ANY LITIGATION REFERRED TO ABOVE ANY SPECIAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL
DAMAGES.

10.9 Marshalling. The Agent shall be under no
obligation to marshall any assets in favor of the Borrower or any other Person
or against or in payment of any or all of the Obligations.

10.10 Section Titles. The section titles contained in
this Agreement shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreement between the parties.

10.11 Incorporation by Reference. The provisions of the
other Financing Agreements are incorporated in this Agreement by this
reference. Except as otherwise provided in this Agreement and except as
otherwise provided in the other Financing Agreements by specific reference to
the applicable provision of this Agreement, if any provision contained in this
Agreement is in conflict with, or inconsistent with, any provisions in the
other Financing Agreements, the provision contained in this Agreement shall
govern and control.

10.12 Notices. Except as otherwise expressly provided
herein, 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) if delivered in person, when delivered, (b) if
delivered by telecopy, telex or similar electronic medium, on the date of
confirmed transmission, (c) if delivered by overnight courier, two (2) business
days after delivery to such courier properly addressed or (d) if by U.S. Mail,
three (3) business days after deposit in the United States mails (by certified
mail, return receipt requested), with proper postage prepaid to the following
addresses:

(i) If to the Agent, at:

SANWA BUSINESS CREDIT CORPORATION
One South Wacker Drive, 39th Floor
Chicago, Illinois 60606
Attn: Commercial Finance Division
Telecopy No.: (312) 782-6035

81
<PAGE> 89

With a copy to:

WINSTON & STRAWN
35 West Wacker Drive
Chicago, Illinois 60601
Attn: Jim L. Blanco

(ii) If to a Lender, at the address set forth opposite its name
on Schedule 1 hereto

(iii) If to the Borrower, at:

TELULAR CORPORATION
920 Deerfield Parkway
Buffalo Grove, Illinois 60089
Attn: Thomas M. Mason
Telecopy No.: (847) 465-4501

With a copy to:

MAYER, BROWN & PLATT
190 South LaSalle Street
Chicago, Illinois 60603
Attn: Richard S. Millard

or to such other address as each Person designates to the other in the manner
herein prescribed; provided, however, that with respect to any notice served,
given or delivered pursuant to clause (a) or (b) of this subsection 10.12 after
the business hours of the intended recipient, such notice shall be deemed
served, given or delivered on the following business day.

10.13 Retention of the Borrower's Documents. The Agent or
any Lender may destroy or otherwise dispose of all documents, schedules,
invoices or other papers delivered to such Person in accordance with its
customary practices unless the Borrower requests in writing that same be
returned. Upon the Borrower's request and at the Borrower's expense, such
Person shall return such papers when such Person's actual or anticipated need
for same has terminated.

10.14 Entire Agreement. This Agreement, including all
Exhibits, Schedules and other documents attached hereto or incorporated by
reference herein, constitutes the entire agreement of the parties with respect
to the subject matter hereof and supersedes all other negotiations,
understandings and representations, oral or written, with respect to the subject
matter hereof, including, without limitation, that certain Commitment Letter
dated as of January 17, 1997 between the Borrower and SBCC.

10.15 Equitable Relief. The Borrower recognizes that, in
the event the Borrower fails to perform, observe or discharge any of its
Obligations under this Agreement, any remedy at law may prove to be inadequate
relief to the Agent or any Lender; therefore, the Borrower agrees

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that the Agent or any Lender, if such Person so requests, shall be entitled to
temporary and permanent injunctive relief in any such case without the necessity
of proving actual damages.

10.16 Survival of Warranties. All representations and
warranties of Borrower contained in this Agreement or any of the other
Financing Agreements shall survive the execution and delivery of this Agreement
and the other Financing Agreements and the making of the Revolving Loan.
Notwithstanding anything contained in this Agreement to the contrary, the
provisions of, and the undertakings, indemnifications and agreements of the
Borrower set forth in subsections 2.1(c)(vi), 2.12, 2.16(b), 2.17, 2.20(c),
6.25(g), 7.10 and 10.20 and the agreements of the Lenders set forth in
subsections 12.8 and 14.2 shall survive payment of the Obligations and
termination of this Agreement. The Borrower shall supplement in writing each
Exhibit or any representation herein with respect to any matter hereafter
arising which, if existing or occurring on the Closing Date, would have been
required to be set forth or described on such Exhibit or as an exception to
such representation so that the representations and warranties subject to such
supplemental disclosure shall continue to be true and accurate in all material
respects; provided that the furnishing of such supplemental disclosure shall
not constitute a cure or waiver of any Default or Event of Default resulting
from the matters disclosed therein, except as consented to by the Required
Lenders in writing; provided further that no supplementation shall be required
as to representations that relate solely to the Closing Date.

10.17 Counterparts. This Agreement and any amendments,
waivers, consents or supplements may be executed in any number of counterparts
and by different parties in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all of which
counterparts together shall constitute but one and the same agreement.

10.18 Exceptions to Covenants. The Borrower shall not
be deemed to be permitted to take any action or omit to take any action which is
permitted as an exception to any of the terms, provisions or covenants contained
in any of the Financing Agreements if such action or omission would result in a
Default or Event of Default or the breach of any term, provision or covenant
contained in any Financing Agreement.

10.19 Construction. The Borrower acknowledges that
it and its counsel have approved the Financing Agreements and that the usual
rule of construction to the effect that any ambiguities or inconsistencies are
to be resolved against the drafting Person shall not be applicable in the
interpretation of any of the Financing Agreements.

10.20 Reinstatement. This Agreement shall remain in
full force and effect and continue to be effective or to be reinstated, as the
case may be, if at any time payment and performance of the Obligations, or any
part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or
must otherwise be restored or returned by any obligee of the Obligations,
whether as a "voidable preference," "fraudulent conveyance," or otherwise, all
as though such payment or performance had not been made. In the event that any
payment, or any part thereof, is rescinded, reduced, restored or returned, the
Obligations shall be reinstated and deemed reduced only by such amount paid and
not so rescinded, reduced, restored or returned.

<PAGE> 91

11. ASSIGNMENT AND PARTICIPATION.

11.1 Assignments. Each Lender may, in the ordinary
course of its business and in accordance with applicable law, assign all or any
part of its rights and obligations under the Financing Agreements (including,
without limitation, all or any part of its Commitment, the Revolving Loan owing
to it and the Note held by it); provided that (i) except in the case of an
assignment to a Person that, immediately prior to such assignment, was a Lender
or an affiliate of a Lender or an assignment of all of a Lender's rights and
obligations under this Agreement, the amount of any assignment shall in no event
be less than $5,000,000 and shall be in an integral multiple of $500,000 if in
excess thereof, (ii) each such assignment shall be to an Eligible Assignee,
(iii) the written consent of the Agent shall be required prior to an assignment
becoming effective with respect to an assignee that is not, immediately prior to
such assignment, a Lender or an affiliate thereof and (iv) the parties to each
such assignment shall execute and deliver to the Agent an Assignment and
Acceptance, together with any Note subject to such assignment. Upon such
execution, delivery and acceptance, from and after the effective date specified
in such Assignment and Acceptance, (x) the assignee thereunder shall be a party
hereto and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment and Acceptance, have the rights and
obligations of a Lender hereunder and (y) the assigning Lender thereunder shall,
to the extent that rights and obligations hereunder have been assigned by it
pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such Lender shall cease to
be a party hereto).

11.2 Participations. Each Lender shall have the right to
sell or assign to a Participant or Participants participating interests in the
Obligations hereunder in such amounts as such Lender shall determine; provided
that (i) such Lender's obligations under this Agreement (including, without
limitation, its Commitment) shall remain unchanged, (ii) such Lender shall
remain solely responsible to the other parties hereto for the performance of
such obligations, (iii) such Lender shall remain the holder of any such
Revolving Loan Note for all purposes of this Agreement, (iv) the Borrower, the
Agent and the other Lenders shall continue to deal solely and directly with
such Lender in connection with such Lender's rights and obligations under this
Agreement and (v) no Participant under any such participation shall become a
"Lender" or, except as specifically provided herein, have any rights of a
"Lender" under this Agreement, or shall have any right to approve any amendment
or waiver of any provision of any Financing Agreement, or any consent to any
departure therefrom, except to the extent that any such amendment, waiver or
consent would (a) extend the Revolving Loan Maturity Date, (b) reduce the
principal amount of the Notes, or reduce or extend the time of payment of
interest or fees thereon, (c) release all or substantially all of the
Collateral or (d) permit any assignment by the Borrower of the Obligations or
its rights under this Agreement.

12. AGENT.

12.1 Appointment. SBCC is hereby appointed Agent
hereunder and under each other Financing Agreements, and each of the Lenders
authorizes the Agent to act as the Agent of

<PAGE> 92

such Lender. The Agent agrees to act as such upon the express conditions
contained in this Section 12. The Agent shall not have a fiduciary relationship
in respect of the Borrower or any Lender by reason of this Agreement.

12.2 Powers. The Agent shall have and may exercise such
powers under the Financing Agreements as are specifically delegated to the
Agent by the terms of each thereof, together with such powers as are reasonably
incidental thereto. The Agent shall have no implied duties to the Lenders, or
any obligation to the Lenders to take any action thereunder, except any action
specifically provided by the Financing Agreements to be taken by the Agent.

12.3 General Immunity. Neither the Agent nor any of its
directors, officers, Agents or employees shall be liable to the Borrower or any
Lender for any action taken or omitted to be taken by it or them hereunder or
under any other Financing Agreements or in connection herewith or therewith
except for its or their own gross negligence or willful misconduct as
determined by a final order, not subject to review, of a court of competent
jurisdiction.

12.4 No Responsibility for Revolving Loan, Recitals, etc.
Neither the Agent nor any of its directors, officers, Agents or employees shall
be responsible for or have any duty to ascertain, inquire into, or verify (a)
any statement, warranty or representation made in connection with any Financing
Agreements or any borrowing hereunder, (b) the performance or observance of any
of the covenants or agreements of any obligor under any Financing Agreements,
(c) the satisfaction of any condition specified in Section 4, except receipt of
items required to be delivered to the Agent and not waived at closing, or (d)
the validity, effectiveness or genuineness of any Financing Agreements or any
other instrument or writing furnished in connection therewith.

12.5 Action on Instructions of Lenders. The Agent shall
in all cases be fully protected from liability to any Lender for acting or
refraining from acting hereunder and under any other Financing Agreements in
accordance with written instructions signed by the Required Lenders (or, to the
extent required by Section 13, all Lenders), and such instructions and any
action taken or failure to act pursuant thereto shall be binding on all of the
Lenders and on all holders of Notes. The Agent shall be fully justified in
failing or refusing to take any action hereunder and under any other Financing
Agreements with respect to the Lenders unless it shall first be indemnified to
its satisfaction by the Lenders pro-rata against any and all liability, cost
and expense that it may incur by reason of taking or continuing to take any
such action.

12.6 Employment of Agents and Counsel. The Agent may
execute any of its duties as Agent hereunder and under any other Financing
Agreements by or through employees, agents and attorneys-in-fact and shall not
be answerable to the Lenders, except as to money or securities received by it
or its authorized agents, for the default or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care. The Agent shall be
entitled to advice of counsel concerning all matters pertaining to the agency
hereby created and its duties hereunder and under any other Financing
Agreements.

12.7 Reliance on Documents; Counsel. The Agent shall be
entitled to rely upon any Note, notice, consent, certificate, affidavit,
letter, telegram, statement, paper or document

<PAGE> 93

reasonably believed by it to be genuine and correct and to have been signed or
sent by the proper Person or Persons, and, in respect to legal matters, upon the
opinion of counsel selected by the Agent, which counsel may be employees of the
Agent.

12.8 Agent's Reimbursement and Indemnification. The
Lenders agree to reimburse and indemnify the Agent ratably in proportion to
their respective Commitments (a) for any amounts not reimbursed by the Borrower
for which the Agent is entitled to reimbursement by the Borrower under the
Financing Agreements, (b) for any other expenses incurred by the Agent on
behalf of the Lenders, in connection with the preparation, execution, delivery,
administration and enforcement of the Financing Agreements, and (c) for any
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind and nature whatsoever which
may be imposed on, incurred by or asserted against the Agent in any way
relating to or arising out of the Financing Agreements or any other document
delivered in connection therewith or the transactions contemplated thereby, or
the enforcement of any of the terms thereof or of any such other documents;
provided that no Lender shall be liable for any of the foregoing to the extent
they arise from the gross negligence or willful misconduct of the Agent as
determined by a final order, not subject to appeal, of a court of competent
jurisdiction. The obligations of the Lenders under this subsection 12.8 shall
survive payment of the Obligations and termination of this Agreement.

12.9 Rights as a Lender. In the event the Agent is a
Lender, the Agent shall have the same rights and powers hereunder and under any
other Financing Agreements as any Lender and may exercise the same as though it
were not the Agent, and the term "Lender" or "Lenders" shall, at any time when
the Agent is a Lender, unless the context otherwise indicates, include the
Agent in its individual capacity. The Agent may accept deposits from, lend
money to, and generally engage in any kind of trust, debt, equity or other
transaction, in addition to those contemplated by this Agreement or any other
Financing Agreements, with the Borrower or any of its Subsidiaries in which the
Borrower or such Subsidiary is not restricted hereby from engaging with any
other Person.

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

12.11 Successor Agent. The Agent may resign at any
time by giving written notice thereof to the Lenders and the Borrower. Upon any
such resignation, (i) the Borrower shall have the rights set forth in subsection
2.10(b) and (ii) the Required Lenders shall have the right to appoint, on behalf
of the Borrower and the Lenders, a successor Agent. If no successor Agent shall
have been so appointed by the Required Lenders and shall have accepted such
appointment within thirty days after the retiring Agent's giving notice of
resignation or within thirty days after the removal of such Agent, then the
retiring Agent shall use reasonable efforts to appoint, on behalf of the
Borrower and the Lenders, a successor Agent. Such successor Agent shall be a
financial institution having

<PAGE> 94

capital and retained earnings of at least One Hundred Fifty Million Dollars
($150,000,000). Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations
hereunder and under the other Financing Agreements. After any retiring Agent's
resignation or removal hereunder as Agent, the provisions of this Section 12
shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as the Agent hereunder and under
the other Financing Agreements.

12.12 Notice of Default. The Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Agent has received notice from a Lender or the Borrower
referring to this Agreement describing such Default or Event of Default and
stating that such notice is a "notice of default". In the event that the Agent
receives such a notice, the Agent shall give prompt notice thereof to the
Lenders. Subject to the provisions of subsection 12.5, the Agent shall take
any action of the type specified in this Agreement with respect to such Default
or Event of Default as shall be reasonably directed by the Required Lenders
(or, if so required by Section 13, by all Lenders); provided that unless and
until the Agent shall have received such directions, the Agent may (but shall
not be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as the Agent shall determine is in
the best interests of the Lenders.

13 AMENDMENTS AND WAIVERS.

Subject to the provisions of this Section 13, the
Required Lenders (or the Agent with the consent in writing of the Required
Lenders) and the Borrower may enter into agreements supplemental hereto for the
purpose of adding, terminating or modifying any provisions to the Financing
Agreements or changing in any manner the rights of the Lenders or the Borrower
hereunder or waiving any Default or Event of Default hereunder; provided that
no such supplemental agreement shall, without the consent of each Lender:

(a) extend the final maturity of the Revolving Loan or
Revolving Loan Note or reduce the principal amount thereof, or reduce the rate
or extend the time of payment of interest or fees thereon;

(b) reduce the percentage specified in the definition of
Required Lenders;

(c) reduce the amount or extend the payment date for the
mandatory payments required hereunder, or increase the amount of the Revolving
Credit Commitment of any Lender hereunder (other than an increase in the
Revolving Credit Commitment of any Lender as a result of an assignment
consummated between such Lender and another Lender pursuant to subsection
11.1);

(d) extend the Initial Term or any Renewal Term, as
applicable (except as contemplated by subsection 2.8), or permit any Letter of
Credit or Lender Guaranty to have an expiry date beyond the Revolving Loan
Maturity Date;

<PAGE> 95

(e) amend this Section 13;

(f) except as otherwise contemplated herein, release all
or any substantial portion of the Collateral;

(g) permit any assignment by the Borrower of its
Obligations or its rights hereunder; or

(h) amend the definition of the term "Commitment".

No amendment, modification, termination or waiver affecting
the rights or duties of the Agent under any Financing Agreement shall be
effective without the written consent of the Agent.

Each amendment, modification, termination or waiver shall be
effective only in the specific instance and for the specific purpose for which
it was given. No amendment, modification, termination or waiver shall be
required for the Agent to take additional Collateral pursuant to any Financing
Agreement. No notice to or demand on the Borrower not required by the terms
hereof in any case shall entitle the Borrower to any other or further notice or
demand in similar or other circumstances. Any amendment, modification,
termination, waiver or consent effected in accordance with this Section 13 shall
be binding upon each holder of the Notes at the time outstanding, each future
holder of the Notes and the Borrower.

Notwithstanding anything to the contrary contained herein, the
Agent may, at its sole discretion, release or compromise Collateral and the
proceeds thereof to the extent of asset dispositions permitted by the terms
hereof.

14. SET OFF AND SHARING OF PAYMENTS.

14.1 Setoff. In addition to any rights now or hereafter
granted under applicable law and not by way of limitation of any such rights,
upon the occurrence and during the continuance of any Event of Default, each
Lender is hereby authorized by the Borrower at any time or from time to time,
with notice thereafter as soon as reasonably practicable to the Borrower or to
any other Person (any prior or contemporaneous notice being hereby expressly
waived) to set off and to appropriate and to apply any and all (a) balances
(including, without limitation, all account balances, whether provisional or
final and whether or not collected or available) held or owing by such Lender
at any of its offices to or for the credit or account of the Borrower
(regardless of whether such balances are then due to the Borrower) and (b)
other property held or owing by such Lender to or for the credit or the account
of the Borrower, toward the payment of the Obligations owing to such Lender,
whether or not the Obligations, or any part hereof, shall then be due.

14.2 Ratable Payments. If any Lender, whether by setoff
or otherwise, has payment made to it upon its portion of the Revolving Loan
(other than payments received pursuant to subsections 2.17(b), 2.19 and
2.20(c)) in a greater proportion than its Pro Rata Share of the Revolving
Loans, such Lender agrees, promptly upon demand, to purchase a portion of the

<PAGE> 96

Revolving Loan held by the other Lenders so that after such purchase each
Lender will hold its ratable proportion of the Revolving Loan. If any Lender,
whether in connection with setoff or amounts which might be subject to setoff
or otherwise, receives collateral or other protection for its Obligations or
such amounts which may be subject to setoff, such Lender agrees, promptly upon
demand, to take such action necessary such that all Lenders share in the
benefits of such collateral ratably in proportion to their Pro Rata Share of
the Revolving Loan. In case any such payment is disturbed by legal process, or
otherwise, appropriate further adjustments shall be made. If an amount to be
setoff is to be applied to Indebtedness of the Borrower to a Lender, other than
Indebtedness evidenced by any of the Notes held by such Lender, such amount
shall be applied ratably to such other Indebtedness and to the Indebtedness
evidenced by such Notes. The Borrower agrees, to the fullest extent permitted
by law, that (x) any Lender may exercise its right to set off with respect to
amounts in excess of its Pro Rata Share of the Obligations and may sell
participation in such excess to other Lenders, and (y) any Lender so purchasing
a participation in the Revolving Loan made or other Obligations held by other
Lenders may exercise all rights of set-off, bankers' lien, counterclaim or
similar rights with respect to such participation as fully as if such Lender
were a direct holder of the Revolving Loan and other Obligations in the amount
of such participation.

<PAGE> 97

IN WITNESS WHEREOF, this Agreement has been duly executed as of the
day and year first above written.

TELULAR CORPORATION

By: /s/ Thomas M. Mason
------------------------
Title: CFO
---------------------

SANWA BUSINESS CREDIT
CORPORATION, as Agent and
as a Lender

By: Gregory R. Cooper
------------------------
Title: V.P.
---------------------

<PAGE> 98
SCHEDULE 3.2: FOREIGN DEBTORS

. Ericsson, Sweden
. Nortel, Canada
. Nokia, Finland
. Alcatel, Switserland
. Siemens, Germany
. Motorola foreign subsidiaries, if covered by the Motorola Offset
letter
<PAGE> 99

EXHIBIT 3.14

Equipment Locations and Leased Equipment

Equipment Locations

1. Vernon Hills Facility. 647 North Lakeview Parkway
Vernon Hills, Illinois 60061

2. Buffalo Grove Facility: 920 Deerfield Parkway
(Principal Executive Buffalo Grove, IL 60089
Office)

3. Atlanta Facility: 4130 Shirley Drive, SW
(Shirley Drive) Atlanta, Fulton County, GA 30336

4. Atlanta Facility: 301-A Wharton Circle
(Wharton Circle) Fulton County, Georgia

5. Oxford Office: Suite H
Park House
11 Milton Park
Abingdon, Oxfordshire
United Kingdom

6. Singapore Office: Unit #05-232
Faber House
No. 230 Orchard Road
Singapore

Leased Equipment

1. Hewlett Packard Modulation Analyzer.

2. Leases of office equipment in the ordinary course of business that in
the aggregate are not material to the Borrower or its business.
<PAGE> 100

EXHIBIT 3.17

Real Estate

Interests in Real Estate

1. See locations listed in Exhibit 3.14, all of which are leased.

<PAGE> 101

EXHIBIT 6.1-1

Jurisdictions of Qualification

Borrower

Delaware
Georgia
Illinois
California
Colorado
New Jersey
Tennessee
Texas

Telular International

Illinois
Puerto Rico

Adcor

Georgia
<PAGE> 102

EXHIBIT 6.4-1

Pro Forma Financial Statements

[See financial statements in attached Form 10-K]
<PAGE> 103

EXHIBIT 6.4-2

Changes between September 30, 1996 and Closing

1. Liabilities and other matters disclosed in the Borrower's Quarterly
Report on Form 10-Q with respect to the quarter ended December 31,
1996 (including, without limitation, the financial statements included
therein).

2. Matters disclosed in Schedule 4.2(r).

3. Litigation and claims disclosed in Exhibit 6.14.
<PAGE> 104

EXHIBIT 6.7

Principal Place of Business and Chief Executive Office

1. 920 Deerfield Parkway
Buffalo Grove, IL 60089

To be changed no later than May 5, 1997 to:

647 North Lakeview Parkway
Vernon Hills, IL 60061
<PAGE> 105

EXHIBIT 6.8

Other Names

1. Telular-Adcor Security Products, Inc.

2. Telular International, Inc.

3. Adcor Electronics International, Inc.

4. Adcor-Telular Security Products, Inc.

5. Telular Manufacturing Company
<PAGE> 106

EXHIBIT 6.12

Government Contracts

-None-
<PAGE> 107

EXHIBIT 6.14

Litigation

1. Alliance Research Corporation v. Telular Corporation and
Spectrum Technologies, Inc., CV 94 1065 RG, United States
District Court, Central District of California. This
litigation is described in the Borrower's Annual Report on
Form 10-K for the year ended September 30, 1996.

2. Arthur L. Serrano and Andrew W. Holman v. Telular Corporation
and Spectrum Information Technologies, Inc., CV 94 1272,
United States District Court, Central District of California.
This litigation is described in the Borrower's Annual Report
on Form 10-K for the year ended September 30, 1996.

3. Claim against Adcor-Telular Security Products, Inc. by Carol
L. Hosea, alleging discrimination under the Americans with
Disabilities Act in connection with a layoff

4. Two of the Borrower's employees have asserted claims for
unpaid commissions. One of these employees has also asserted
a claim for sex discrimination. This employee filed suit on
March 5, 1997.

7. Potential claim by Global Tel*Link arising from dispute under
Supply Agreement For Cellular Payphone Products dated
September 21, 1995.

6. Litigation and claims described in the SEC filings of Borrower
listed in Exhibit 6.26. See descriptions in Attachment 1 to
this Exhibit 6.14.

Certain information regarding the amounts claimed and the insurance,
if any, applicable to the foregoing matters is set forth in Attachment 2 to
this Exhibit 6.14.

<PAGE> 108

ATTACHMENTS 1 AND 2 TO EXHIBIT 6.14

1. Alliance Research Corporation v. Telular Corporation and Spectrum
Technologies, Inc., CV 94 1065 RG, United States District Court, Central
District of California.

On February 17, 1994, Alliance Research Corporation sued the Company and
Spectrum Information Technologies, Inc. ("Spectrum") seeking Declaratory
Judgment for invalidity and non-infringement of the Company's 4,658,096 patent
as well as its two continuation patents, 4,922,517 and 4,775,997. The Company
had denied the allegations and has counterclaimed for patent infringement of
the two continuation patents. On May 2, 1994, the Federal court in Los Angeles
ruled in favor of Telular and rejected the lawsuit challenging the '096 patent.
Spectrum was dismissed as a defendant on a motion made by Spectrum. The
Company has acquired Spectrum's rights to receive court awarded damages on this
case. The Federal court, on October 23, 1995, granted the Company's Motion for
partial summary judgment on all issues except damages. The court enjoined
Alliance from selling its CDL line of products. Alliance has appealed the
summary judgment decision. The matter is fully briefed and awaiting oral
arguments. the Federal circuit modified the injunction and allowed Alliance to
sell the CDL product for Motorola transceivers only. The litigation is ongoing
and the Company intends to vigorously pursue its claims and contest Alliance's
allegations. The Company is not insured for this claim.

2. Arthur L. Serrano and Andrew W. Holman v. Telular Corporation and
Spectrum Information Technologies, Inc., CV 94 1272, United States District
Court, Central District of California.

On February 28, 1994, Serrano and Holman filed a Declaratory Judgment action
against the Company and Spectrum Information Technologies, Inc. The suit
involves the Company's 4,658,096 patent, as well as its two continuation
patents, the 4,922,517 and 4,775,997 patents. The Company has answered and
counterclaimed for patent infringement of its continuation patents. Plaintiffs
are the former principals of Morrison & Dempsey, which is now out of business.
On July 13, 1995, Judge Letts entered an order finding for the Company on all
counts of the Complaint and Counterclaims, and determining the Serrano and
Holman infringement to be willful, enabling the Company to receive treble
damages, attorney's fees and costs. The final order was entered on March 20,
1996 granting the Company a total of $663,178.82 in treble damages, attorney's
fees and costs. This decision has been appealed by Serrano and Holman. The
matter is fully briefed awaiting oral argument and collection proceedings have
begun against the individuals on the judgment. This claim is not insured.
<PAGE> 109

3. Claim against Adcor-Telular Security Products, Inc. by Carol L. Hosea,
alleging discrimination under the Americans with Disabilities Act in connection
with a layoff. No insurance coverage. Exposure would include backwages. This
claim is not insured.

4. Two of the Borrower's employees (K. Geary and C. Houben) have asserted
claims for unpaid commissions relating to the Motorola Hungary sales. Mr.
Geary has only written the company a letter with no further communication. C.
Houben has also asserted a claim for sex discrimination and filed suit on March
5, 1997 with claims exceeding $200,000. These claims are not insured.

5. Potential claim by Global Tel*Link arising from dispute under Supply
Agreement For Cellular Payphone Products dated September 21, 1995. The claim
totals $1.1 million of which $526,000 is for direct labor and materials.
Parties went through mediation without conclusion. Global Tel*Link has not
taken further action. This claim is not insured.
<PAGE> 110

EXHIBIT 6.16

Labor Matters

-None-
<PAGE> 111

EXHIBIT 6.18

Patents, Trademarks and Licenses

1. Patent Cross License Agreement between Motorola, Inc, and the
Borrower, dated March 23, 1990, as amended.

2. Exclusive Distribution and Trademark License Agreement between
the Borrower and Telular Canada Inc. dated April 1, 1989.

3. CkG Technologies non-exclusive, non-transferable license
limited to the manufacture of a portable cellular workstation
and/or a cellular modem.

4. Marvest Electronics, Ltd. non-exclusive license for
manufacture and sale of an interface for vending equipment.

5. Millidyne, Inc. non-exclusive license for manufacture and sale
of subscriber data modems and mobile data gateway equipment.

6. Powertek Industries non-exclusive U.S. license for manufacture
and sale of a portable cellular workstation.

7 The following agreements with The Technology Partnership: (i)
License Agreement for TTP GSM Layer 1 Software, (ii) GSM
License and Support Agreement for GSM Protocol Stack, (iii)
GSM License and Support Agreement for GSM Data Services and
(iv) GSM License and Support Agreement for GSM Application
Background Layer.

8. See attached list of further items.

9. Certain of the intellectual property rights described above
are the subject of claims described in Exhibit 6.14, as more
particularly described in Attachment 1 to this Exhibit 6.18
<PAGE> 112

ATTACHMENT 1 TO EXHIBIT 6.18

ITEM 3. LEGAL PROCEEDINGS

The Company is party to the following actions:

(a) Alliance Research Corporation v. Telular Corporation and
Spectrum Technologies, Inc., CV 94 1065 RG, United States District Court,
Central District of California.

On February 17, 1994, Alliance Research Corporation sued the Company
and Spectrum Information Technologies, Inc. ("Spectrum") seeking Declaratory
Judgement for invalidity and non-infringement of the Company's 4,658,096 patent
as well as its two continuation patents, 4,922,517 and 4,775,997. The Company
has denied the allegations and has counterclaimed for patent infringement of
the two continuation patents. On May 2, 1994, the Federal court in Los Angeles
ruled in favor of Telular and rejected the lawsuit challenging the '096 patent.
Spectrum was dismissed as a defendant on a motion made by Spectrum. The
Company has acquired Spectrum's rights to receive court awarded damages on this
case. The Federal court, on October 23, 1995, granted the Company's Motion for
Partial summary judgement on all issues except damages. The court enjoined
Alliance from selling its CDL line of products. Alliance has appealed the
summary judgement decision. The matter is fully briefed and awaiting oral
arguments. The Federal circuit modified the injunction and allowed Alliance to
sell the CDL product for Motorola transceivers only. The litigation is ongoing
and the Company intends to vigorously pursue its claims and contest Alliance's
allegations.

(b) Arthur L. Serrano and Andrew W. Holman v. Telular Corporation
and Spectrum Information Technologies, Inc., CV 94 1272, United States District
Court, Central District of California.

On February 28, 1994, Serrano and Holman filed a Declaratory Judgement
action against the Company and Spectrum Information Technologies, Inc. The
suit involves the Company's 4,658,096 patent, as well as its two continuation
patents, the 4,992,517 and 4,775,997 patents. The Company has answered and
counterclaimed for patent infringement of its continuation patents. Plaintiffs
are the former principals of Morrison & Dempsey, which is now out of business.
On July 13, 1995, Judge Letts entered an order finding for the Company on all
counts of the Complaint and Counterclaims, and determining the Serrano and
Holman infringement to be willful, engaging the Company to receive treble
damages, attorney's fees and costs. The final order was entered on March 20,
1996 granting the Company a total of $663,178.82 in treble damages, attorney's
fees and costs. This decision has been appealed by Serrano and Holman. The
matter is fully briefed awaiting oral argument and collection proceedings have
begun against the individuals on the judgement.
<PAGE> 113

EXHIBIT 6. 19

ERISA Obligations

[See Attached List]
<PAGE> 114
EXHIBIT 6.19: ERISA OBLIGATIONS

The following is a listing of the benefit plans available to employees of
Telular:

1. 401-K plan
2. Telular Corporation Second Amended and Restated Stock Incentive Plan
3. Bonus Plan for key employees
4. Major medical and dental plan
5. Section 125 cafeteria plan
6. Long term disability insurance plan
7. Life Insurance plan, including dependent life insurance plan
8. Accidental death and disability insurance plan

<PAGE> 115

EXHIBIT 6.20

Property Defaults and Consents

-None-
<PAGE> 116

EXHIBIT 6.25

Pending Environmental Matters

-None-
<PAGE> 117

EXHIBIT 6.26

Filings with the Securities and Exchange Commission

1. Report on Form 10-K for the fiscal year ended September 30, 1996.

2. Report on Form 10-Q for the fiscal quarter ended December 31, 1996.

3. Proxy Statement dated December 11, 1996 for Annual Meeting held
January 28, 1997.

4. Registration Statement on Form S-8 filed January 28, 1997.
<PAGE> 118

EXHIBIT 6.30

Subsidiaries

1. Telular International, Inc., an Illinois corporation
(inactive).

2. Telular-Adcor Security Products, Inc., a Georgia corporation
(inactive).

<PAGE> 119

EXHIBIT 8.1

Existing Liens

1. Liens arising in connection with Borrower's current credit
facility with LaSalle National Bank.

2. The leases listed in Exhibit 3.14 or described in Exhibit 8.2.

3. Pledge of $200,000 cash deposit to secure reimbursement
obligations under letter of credit issued to landlord under
Vernon Hills lease.
<PAGE> 120

EXHIBIT 8.2

Existing Indebtedness

1. Obligations under leases disclosed in Exhibit 3.14 or
otherwise executed in the ordinary course of business and in existence on the
date hereof, and all renewals and replacements thereof.

2. Obligations under the contracts and agreements disclosed in
Schedule 4.2(r) or described in (or filed as exhibits to) the SEC filings
listed in Exhibit 6.26.
<PAGE> 121

EXHIBIT 8.5

Existing Guaranties

1. Letter of Credit in the amount of $200,000, expiring June
1997, in favor of Loomcraft Textiles, the lessor of
Borrower's Vernon Hills, Illinois facility, and Borrower's
reimbursement obligations with respect thereto.
<PAGE> 122

EXHIBIT 8.6

Collateral Locations

1. The locations listed in Exhibit 3.14.

2. Mold-tech Electronics
114 Industrial Park Dr.
Soddy-Daisy, TN 37379

3. Group Technologies
10901 Malcolm McKinley Dr.
Tampa, FL 33612

4. Custom Components Corp.
740 Swan Dr.
Mukwonago, WI 53149

5. Manufacturing Technology Systems
139 Road #1 KM 33.4
Villa Blanca
Caguas, PR 00725
<PAGE> 123

EXHIBIT 8.14

Investments

1. Investment in Wireless Domain, Inc. (a/k/a/ Telepath Corporation).
Currently 43%, to be increased to 50%.

2. Investments in Subsidiaries as listed in Exhibit 6.30.
<PAGE> 124

EXHIBIT 8.15

Transactions With Affiliates

1. Transactions with related parties as described in the
Borrower's SEC filings listed in Exhibit 6.26.

2. Option Agreement with Motorola, Inc. dated November 10, 1995,
as amended.

3. Patent Cross License Agreement with Motorola, Inc. dated March
23, 1990, as amended.

4. Purchase Order with Motorola, Inc. relating to Hungary.

5. Consulting Agreement with William DeNicolo dated as of
November 1, 1993.

6. Product Development Agreement with Telepath Corporation (a/k/a
Wireless Domain, Inc.) dated as of November 1, 1995.

7. Amended and Restated Shareholders Agreement dated as of
November 2, 1993 among the Borrower and certain shareholders
of the Borrower, as amended.

8. Amended and Restated Registration Rights Agreement dated as of
November 2, 1993 among the Borrower and certain shareholders
of the Borrower, as amended.

9. Securities Purchase Agreement dated as of April 16, 1997 among
the Borrower and the Buyers named therein, and the
transactions related thereto, including (a) Registration
Rights Agreement dated as of April 16, 1997 and (b)
Certificate of Designations, Preferences and Rights of Series
A Convertible Preferred Stock.
<PAGE> 125

SCHEDULE 1

COMMITMENTS OF LENDERS

1. Sanwa Business Credit Corporation
Twenty Million Dollars ($20,000,000.00)
<PAGE> 126

SCHEDULE 4.2(r)

Material Commitments and Transactions Since September 30, 1996

1. Securities Purchase Agreement dated as of April 16, 1997 among
the Borrower and the Buyers named therein, and the
transactions related thereto, including (a) Registration
Rights Agreement dated as of April 16, 1997 and (b)
Certificate of Designations, Preferences and Rights of Series
A Convertible Preferred Stock.

2. During the quarter ended December 31, 1996, the final
$1,500,000.00 of the Borrower's 4% convertible debentures were
converted into approximately 378,000 shares of common stock.

3. In January 1997 Borrower acquired the "Second Tranche Shares"
of Telepath pursuant to the Stock Purchase Agreement between
Borrower and Telepath dated June 28, 1996.

4. On December 6, 1997, the Borrower executed a lease of its new
facility in Vernon Hills, Illinois, effective as of December
6, 1996.

5. On December 23, 1996 the Borrower executed a Professional
Services Agreement with Cadence Design Systems, Inc. relating
to the development of a wireless network interface unit.

6. On November 26, 1996, the Borrower executed letter of intent
with QUALCOMM Incorporated. Pursuant to this letter of
intent, the Borrower entered into a Manufacturing and Supply
Agreement with QUALCOMM Incorporated on April 11, 1997.

7. On December 10, 1996 the Borrower executed an ICTC Development
Agreement with Mentor Graphics Corporation.

8. On February 14, 1997 the Borrower executed a Development
Agreement with Analog Devices for an AD20msp415 GSM Baseband
Processing Chipset.

9. In February, 1997 the Borrower executed the following
agreements with The Technology Partnership: (i) License
Agreement for TTP GSM Layer 1 Software, (ii) GSM License and
Support Agreement for GSM Protocol Stack, (iii) GSM License
and Support Agreement for GSM Data Services and (iv) GSM
License and Support Agreement for GSM Application Background
Layer.
<PAGE> 127

10. Amendment No. 1 dated November 11, 1996 to Purchase Order
Addendum dated March 8, 1996 (Hungary Phase I) between the
Borrower and Motorola, Inc.
11. The Borrower's existing credit facility with LaSalle National
Bank expires April 30, 1997, or upon the closing of the
transactions contemplated by the Loan Agreement.

12. Certificate of Amendment to the Borrower's Certificate of
Incorporation filed February 28, 1997.

<PAGE> 1
EXHIBIT (11) - STATEMENT RE: COMPUTATION OF PRO FORMA EARNINGS PER SHARE
(DOLLARS IN THOUSANDS, EXPECT SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
1997 1996
--------------- ------------
<S> <C> <C>
Average number of shares outstanding............ 31,542,630 30,478,534
=============== ============

Loss applicable to common shares ($5,973) ($4,495)
=============== ============

Net income (loss) per common share ($0.19) ($0.15)
=============== ============

NINE MONTHS ENDED JUNE 30,
1997 1996
--------------- ------------
<S> <C> <C>

Average number of shares outstanding............ 31,479,306 26,476,097
=============== ============

Loss applicable to common shares ($5,964) ($27,124)
=============== ============

Net income (loss) per common share ($0.19) ($1.02)
=============== ============

</TABLE>

<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 32,636,000
<SECURITIES> 0
<RECEIVABLES> 3,555,000
<ALLOWANCES> (566,000)
<INVENTORY> 13,877,000
<CURRENT-ASSETS> 50,384,000
<PP&E> 6,094,000
<DEPRECIATION> (2,694,000)
<TOTAL-ASSETS> 58,445,000
<CURRENT-LIABILITIES> 10,367,000
<BONDS> 0
0
20,943,000
<COMMON> 321,000
<OTHER-SE> 26,814,000
<TOTAL-LIABILITY-AND-EQUITY> 58,445,000
<SALES> 5,280,000
<TOTAL-REVENUES> 5,280,000
<CGS> 4,750,000
<TOTAL-COSTS> 4,750,000
<OTHER-EXPENSES> 4,597,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 94,000
<INCOME-PRETAX> (3,973,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,973,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,973,000)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)

</TABLE>