TERADYNE INC, 10-K, 1996-03-26

TERADYNE INC
10-K, 1996-03-26
INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM 10-K
(MARK ONE)

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

COMMISSION FILE NUMBER 1-6462

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

TERADYNE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

MASSACHUSETTS 04-2272148
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)

321 HARRISON AVENUE, BOSTON, MASSACHUSETTS 02118
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

Registrant's telephone number, including area code: (617) 482-2700

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

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

TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, par value $0.125 New York Stock Exchange

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

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 the
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or in any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of February 16, 1996 was $1.78 billion based upon the composite
closing price of the registrant's Common Stock on the New York Stock Exchange on
that date.
The number of shares outstanding of the registrant's only class of Common
Stock as of February 16, 1996 was 83,383,894 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's proxy statement in connection with its 1996
annual meeting of shareholders are incorporated by reference into Part III.
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<PAGE> 2

TERADYNE, INC.

FORM 10-K

PART I

ITEM 1: BUSINESS

Teradyne, Inc. is a manufacturer of electronic test systems and backplane
connection systems used in the electronics and telecommunications industries.
For financial information concerning these two industry segments, see "Note O:
Industry Segment and Geographic Information" in Notes to Consolidated Financial
Statements. Unless the context indicates otherwise, the term "Company" as used
herein includes Teradyne, Inc. and all its subsidiaries.

On December 1, 1995, the Company completed its acquisition of Megatest
Corporation ("Megatest"), by means of a merger of M Merger Corp., a wholly owned
subsidiary of the Company, with and into Megatest. As a result of the merger,
Megatest became a wholly owned subsidiary of the Company. Megatest, whose
headquarters are in San Jose, California, designs, manufactures, markets, and
services electronic test systems for the integrated circuit industry. The
Megatest combination has been accounted for as a pooling of interests. All
financial information contained in this report has been restated to reflect the
pooling of interests with Megatest and to give effect to the two-for-one stock
split effected in the form of a 100% stock dividend distributed August 29, 1995.
For further information concerning the merger, see "Note C: Merger -- Pooling of
Interests" in Notes to Consolidated Financial Statements.

Statements in this Annual Report on Form 10-K which are not historical
facts, so-called "forward looking statements," are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that all forward-looking statements involve risks and
uncertainties, including those detailed in the Company's filings with the
Securities and Exchange Commission. See also "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Certain Factors
That May Affect Future Results."

ELECTRONIC TEST SYSTEMS

The Company designs, manufactures, markets, and services electronic test
systems and related software used by component manufacturers in the design and
testing of their products and by electronic equipment manufacturers for the
incoming inspection of components and for the design and testing of circuit
boards and other assemblies. Manufacturers use such systems and software to
increase product performance, to improve product quality, to shorten time to
market, to enhance manufacturability, to conserve labor costs, and to increase
production yields. The Company's electronic systems are also used by telephone
operating companies for the testing and maintenance of their subscriber
telephone lines and related equipment.

Electronic test systems produced by the Company include: (i) test systems
for a wide variety of semiconductors, including digital, analog, and mixed
signal integrated circuits ("semiconductor test systems"), (ii) test systems for
circuit boards and other assemblies ("circuit-board test systems"), and (iii)
test systems for telephone lines and networks ("telecommunications test
systems"). The Company's test systems are all controlled by computers, and
programming and operating software is supplied both as an integral part of the
product and as a separately priced enhancement. Semiconductor test systems
accounted for 69% of consolidated net sales in 1995 and 62% in 1994 and 1993.
Circuit-board test systems accounted for 11% of consolidated net sales in 1995,
15% in 1994, and 17% in 1993. Telecommunications test systems accounted for 7%
of consolidated net sales in 1995, 6% in 1994, and 7% in 1993.

The Company's systems are extremely complex and require extensive support
both by the customer and by the Company. Prices for the Company's systems range
from less than $100,000 to $5 million or more.

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<PAGE> 3

BACKPLANE CONNECTION SYSTEMS

The Company also manufactures backplane connection systems, principally for
the computer, telecommunications, and military/aerospace industries. A backplane
is a panel that supports the circuit boards in an electronic assembly and
carries the wiring that connects the boards to each other and to other elements
of a system. The Company produces both printed circuit and metal backplanes,
along with mating circuit-board connectors. Backplanes are custom-configured to
meet specific customer requirements. The Company has begun to extend the
manufacture of backplane connection systems to include the manufacture of fully
integrated electronic assemblies that incorporate backplane, card cage, cabling,
and related design and production services. Backplane connection systems
accounted for 13% of consolidated net sales in 1995, 17% in 1994, and 14% in
1993.

MARKETING AND SALES

MARKETS

The Company sells its products across most sectors of the electronics
industry and to companies in other industries that use electronic devices in
high volume. No single customer accounted for 10% or more of net sales in 1995.
In 1995, the Company's four largest customers accounted for 31% of net sales.

Direct sales to United States government agencies accounted for less than
2% of net sales in 1995, less than 1% in 1994 and approximately 2% of net sales
in 1993. Sales are also made within each of the Company's segments to customers
who are government contractors. Approximately 17% of backplane connection
systems sales and less than 10% of electronic test systems sales fell into this
category during 1995.

The Company's international customers are located primarily in Europe, the
Asia Pacific region, and Japan. The Company sells in these areas both directly
and through foreign sales subsidiaries. Substantially all of the Company's
manufacturing activities are conducted in the United States.

Domestic export sales and foreign jurisdictional sales (which amounted to
less than 10% of total net sales in all periods presented) to international
customers accounted for 52% of net sales in 1995, 46% in 1994, and 41% in 1993.
Identifiable assets of the Company's foreign subsidiaries, consisting
principally of operating assets used in support of domestic export sales,
approximated $125.2 million at December 31, 1995, $94.5 million at December 31,
1994, and $65.0 million at December 31, 1993. Of these identifiable assets at
December 31, 1995, $79.9 million were in Europe, $38.6 million were in Japan,
and $6.7 million were in the Asia Pacific region.

The Company is subject to the inherent risks involved in international
trade, such as political and economic instability, restrictive trade policies,
controls on funds transfer, foreign currency fluctuations, difficulties in
managing distributors, potentially adverse tax consequences, and the possibility
of difficulty in accounts receivable collection. The Company attempts to reduce
the effects of currency fluctuations by hedging part of its exposed position and
by conducting some of its foreign transactions in U.S. dollars or dollar
equivalents.

DISTRIBUTION

The Company sells its products primarily through a direct sales force. The
Company has sales and service offices throughout North America, Europe, the Asia
Pacific region, and Japan.

COMPETITION

The Company faces substantial competition throughout the world, primarily
from electronic test systems manufacturers located in the United States, Europe,
and Japan, as well as several of the Company's customers. Some of these
competitors have substantially greater financial and other resources with which
to pursue engineering, manufacturing, marketing, and distribution of their
products. New product introductions by the Company's competitors could cause a
decline in sales or loss of market acceptance of existing products.

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BACKLOG

On December 31, 1995, the Company's backlog of unfilled orders for
electronic test systems and backplane connection systems was approximately
$607.1 million and $52.2 million, respectively, compared with $352.0 million and
$66.3 million, respectively, on December 31, 1994. Of the backlog at December
31, 1995, approximately 92% of the electronic test systems backlog and
approximately 94% of the backplane connection systems backlog are expected to be
delivered in 1996. The electronic test systems backlog at December 31, 1995
includes $40.2 million of United States government orders for M900 VXI Digital
Test subsystems for the U.S. Navy's Consolidated Automated Support System (CASS)
which are unfunded. The unfunded orders are for shipments scheduled to be
delivered in 1997 and beyond. The Company's past experience indicates that a
portion of orders included in the backlog may be canceled. There are no seasonal
or unusual factors related to the backlog.

RAW MATERIALS

The Company's products require a wide variety of electronic and mechanical
components. In the past, the Company has experienced occasional delays in
obtaining timely delivery of certain items. Additionally, the Company could
experience a temporary adverse impact if any of its sole source suppliers ceased
to deliver products. Any prolonged inability of the Company to obtain adequate
yields or deliveries, or any other circumstances that would require the Company
to seek alternative sources of supply could have a material adverse effect on
the Company's business, financial condition, and results of operations.

PATENTS AND LICENSES

The development of products by the Company, both hardware and software, is
largely based on proprietary information. The Company protects its rights in
proprietary information through various methods such as copyrights, trademarks,
patents and patent applications, software license agreements, and employee
agreements. The Company relies on certain intellectual property protections to
preserve its intellectual property rights. Any invalidation of the Company's
intellectual property rights or lengthy and expensive defense of those rights
could have a material adverse affect on the Company.

EMPLOYEES

As of December 31, 1995, the Company employed approximately 5,200 persons.
Since the inception of the Company's business, there have been no work stoppages
or other labor disturbances. The Company has no collective bargaining contracts.

ENGINEERING AND DEVELOPMENT ACTIVITIES

The highly technical nature of the Company's products requires a large and
continuing engineering and development effort. Engineering and development
expenditures for new and improved products were approximately $123.5 million in
1995, $86.6 million in 1994, and $74.6 million in 1993. These expenditures
amounted to approximately 10% of net sales in 1995, 11% in 1994, and 12% in
1993.

ENVIRONMENTAL AFFAIRS

The Company's manufacturing facilities are subject to numerous laws and
regulations designed to protect the environment, particularly from manufacturing
plant wastes and emissions. These include laws such as the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, the Superfund
Amendment and Reauthorization Act of 1986, the Occupational Safety and Health
Act, the Clean Air Act, the Clean Water Act, the Resource Conservation and
Recovery Act of 1976, and the Hazardous and Solid Waste Amendments of 1984. In
the opinion of management, the costs associated with complying with these laws
and regulations has not had and is currently not expected to have a material
adverse effect upon the capital expenditures, earnings and competitive position
of the Company.

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<TABLE>
EXECUTIVE OFFICERS OF THE COMPANY

The following table sets forth the names of all executive officers of the
Company and certain other information relating to their positions held with the
Company and other business experience. Executive officers of the Company do not
have a specific term of office but rather serve at the discretion of the Board
of Directors.

<CAPTION>
BUSINESS EXPERIENCE FOR THE PAST 5
EXECUTIVE OFFICER AGE POSITION YEARS
- ---------------------------- ---- --------------------------- ----------------------------------
<S> <C> <C> <C>
Alexander V. d'Arbeloff..... 68 Chairman of the Board and Chairman of the Board of the
Chief Executive Officer Company since 1977; Chief
Executive Officer beginning in
1996; President of the Company
from 1971 to 1996; Director of the
Company since 1960.

James A. Prestridge......... 64 Vice Chairman of the Board Vice Chairman of the Board
and Executive Vice beginning in 1996; Executive Vice
President President of the Company since
1992; Vice President of the
Company from 1971 to 1992.

Owen W. Robbins............. 66 Vice Chairman of the Board Vice Chairman of the Board
and Executive Vice beginning in 1996; Executive Vice
President President of the Company since
1992; Vice President of the
Company from 1977 to 1992.

George W. Chamillard........ 57 President, Chief Operating President, Chief Operating
Officer, and Member of the Officer, and Director of the
Board Company beginning in 1996;
Executive Vice President of the
Company from 1994 to 1996; Vice
President of the Company from 1981
to 1993.

Michael A. Bradley.......... 47 Vice President Vice President of the Company
since 1992; TQM Manager of the
Company from 1990 to 1992.

George V. d'Arbeloff........ 51 Vice President Vice President of the Company
since 1980.

Ronald J. Dias.............. 52 Vice President Vice President of the Company
since 1988.

John E. Halter.............. 62 Vice President Vice President beginning in 1996;
President and Chief Executive
Officer of Megatest Corporation
from 1990 to 1995.

Donald J. Hamman............ 44 Controller Controller of the Company since
1994; Director of Corporate
Accounting from 1986 to 1994.

Jeffrey R. Hotchkiss........ 48 Vice President Vice President of the Company
since 1990.

John P. McCabe.............. 51 Vice President Vice President of the Company
since 1994; Controller of the
Company from 1975 to 1994.

Stuart M. Osattin........... 50 Vice President and Vice President of the Company
Treasurer since 1994; Treasurer of the
Company since 1980.

Edward Rogas, Jr. .......... 55 Vice President Vice President of the Company
since 1984.

David L. Sulman............. 52 Vice President Vice President of the Company
since 1994; Division General
Manager since 1993; Division
Engineering Manager from 1982 to
1992.
</TABLE>

5
<PAGE> 6

ITEM 2: PROPERTIES

<TABLE>

The Company's executive offices are in Boston, Massachusetts. Manufacturing
and other operations are carried on in several locations. The following table
provides certain information as to the Company's principal general offices and
manufacturing facilities.

<CAPTION>
APPROXIMATE
PROPERTY SQUARE FEET OF
LOCATION INTEREST FLOOR SPACE
- -------- -------- --------------
<S> <C> <C>
ELECTRONIC TEST SYSTEMS INDUSTRY SEGMENT:

Boston, Massachusetts............................................. Own 490,000
Boston, Massachusetts............................................. Lease 45,000
Agoura Hills, California.......................................... Own 360,000
Deerfield, Illinois............................................... Own 65,000
Deerfield, lllinois............................................... Lease 20,000
Walnut Creek, California.......................................... Lease 60,000
Kumamoto, Japan................................................... Own 28,000
San Jose, California.............................................. Own 112,000
San Jose, California.............................................. Lease 17,000

BACKPLANE CONNECTION SYSTEMS INDUSTRY SEGMENT:

Nashua, New Hampshire............................................. Own 377,000
Dublin, Ireland................................................... Lease 46,000
</TABLE>

The Company is subleasing an additional 85,000 square feet of space to a
third party in Walnut Creek, California, through the expiration of the lease in
June 1996.

ITEM 3: LEGAL PROCEEDINGS

The Company is not a party to any litigation that, in the opinion of
management, could reasonably be expected to have a material adverse impact on
the Company's financial position.

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

Not Applicable.

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<PAGE> 7

PART II

ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS

<TABLE>
The following table shows the market range for the Company's Common Stock
based on reported sales prices on the New York Stock Exchange, after giving
effect to the two-for-one stock split effected in the form of a 100% stock
dividend distributed on August 29, 1995.

<CAPTION>
PERIOD HIGH LOW
------ ---- ---
<S> <C> <C> <C>
1994 First Quarter.............................. $15 5/8 $11 3/4
Second Quarter............................. 13 3/8 10 1/4
Third Quarter.............................. 16 11 3/4
Fourth Quarter............................. 17 1/8 12 7/8

1995 First Quarter.............................. 21 1/2 16
Second Quarter............................. 33 20
Third Quarter.............................. 42 7/8 32 1/4
Fourth Quarter............................. 36 5/8 20 1/8
</TABLE>

The number of record holders of the Company's Common Stock at February 16,
1996 was 3,389.

The Company has never paid cash dividends because it has been its policy to
use earnings to finance expansion and growth. While payment of future cash
dividends will rest within the discretion of the Board of Directors and will
depend, among other things, upon the Company's earnings, capital requirements,
and financial condition. The Company presently expects to retain all of its
earnings for use in the business.

<TABLE>
ITEM 6: SELECTED FINANCIAL DATA

<CAPTION>
YEARS ENDED DECEMBER 31,*
----------------------------------------------------------
1995 1994 1993 1992 1991
---------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales................................. $1,191,022 $777,731 $633,139 $595,072 $568,599
========== ======== ======== ======== ========
Income from
continuing operations................... $ 159,284 $ 76,390 $ 41,202 $ 26,412 $ 20,479
========== ======== ======== ======== ========
Income from continuing
operations per common share............. $ 1.89 $ 0.95 $ 0.54 $ 0.37 $ 0.31
========== ======== ======== ======== ========
Total assets.............................. $1,023,831 $759,480 $621,607 $502,212 $460,945
========== ======== ======== ======== ========
Long-term obligations..................... $ 18,679 $ 9,111 $ 9,942 $ 25,828 $ 26,419
========== ======== ======== ======== ========
<FN>
- ---------------
*Note: Previously published financial data have been restated to reflect the
pooling of interests with Megatest Corporation (see "Note C:
Merger -- Pooling of Interests" in Notes to Consolidated Financial
Statements) and to give effect to the two-for-one stock split effected in
the form of a 100% stock dividend distributed on August 29, 1995.
</TABLE>

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ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

<TABLE>
SELECTED RELATIONSHIPS WITHIN THE CONSOLIDATED
STATEMENTS OF INCOME

<CAPTION>
YEARS ENDED DECEMBER 31,*
------------------------------------
1995 1994 1993
---------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales......................................... $1,191,022 $777,731 $633,139
========== ======== ========
Income from continuing operations................. $ 159,284 $ 76,390 $ 41,202
========== ======== ========
Increase in net sales from preceding year:
Amount.......................................... $ 413,291 $144,592 $ 38,067
========== ======== ========
Percentage...................................... 53% 23% 6%
========== ======== ========
Increase in income from continuing operations
from preceding year............................. $ 82,894 $ 35,188 $ 14,790
========== ======== ========
Percentage of net sales:
Net sales....................................... 100% 100% 100%
Expenses:
Cost of sales................................ 54 56 57
Engineering and development.................. 10 11 12
Selling and administrative................... 15 19 22
---------- -------- --------
79 86 91
Other income (expense):
Merger expenses.............................. (1)
Net interest income.......................... 1 1
---------- -------- --------
Income before income taxes, extraordinary
item,
and cumulative effect of change in
accounting for taxes....................... 21 15 9
Provision for income taxes................... 8 5 2
---------- -------- --------
Income before extraordinary item and
cumulative effect
of change in accounting for income taxes... 13% 10% 7%
---------- -------- --------
<FN>
- ---------------
*Note: Previously published financial data have been restated to reflect the
pooling of interests with Megatest Corporation (see "Note C:
Merger -- Pooling of Interests" in Notes to Consolidated Financial
Statements) and to give effect to the two-for-one stock split effected in
the form of a 100% stock dividend distributed on August 29, 1995.
</TABLE>

RESULTS OF OPERATIONS:

1995 compared to 1994

Sales advanced 53% in 1995 to $1.2 billion. Each of the major product lines
of the Company -- semiconductor test systems, circuit-board test systems,
telecommunications test systems, and backplane connection systems contributed to
the increase in sales. Sales of semiconductor test systems grew 70% as
semiconductor manufacturers continued to add capacity in response to rising
demand for their products. This capacity expansion was evidenced by a number of
new semiconductor manufacturing plants coming on line. Telecommunications test
systems sales increased 84% primarily from the growing installation of
telephone-line test equipment at Deutsche Telekom in Germany. Sales of backplane
connection systems increased 18% as a result of greater penetration into the
Company's high technology commercial customer base. Circuit-

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<PAGE> 9

board test systems sales increased 13%. As a result of the increase in sales,
income from continuing operations more than doubled in 1995, increasing $82.9
million to $159.3 million.

Incoming orders grew faster than sales in 1995, increasing 59% to $1.4
billion. The increase in orders, like the increase in sales, was primarily due
to increases in semiconductor test systems orders, which increased 73%.
Additionally, circuit-board test systems orders increased by 110% due in large
part to U.S. government contracts to supply electronic test equipment for the
B-2 Stealth Bomber and for the Navy's CASS program. Orders for backplane
connection systems and telecommunications test systems declined 11% and 5%,
respectively. As a result of the overall increase in orders, the Company's
backlog grew 58% in 1995, finishing the year at $659.3 million.

Cost of sales, as a percentage of sales, decreased from 56% in 1994 to 54%
in 1995. The improvement was primarily the result of increased utilization of
the fixed and semi-variable components of the Company's overhead structure. In
addition, there was a favorable change in mix as sales of backplane connection
systems, whose product margins are generally lower than those of electronic test
systems, were lower as a percentage of total Company sales.

Engineering and development expenses, as a percentage of sales, declined 1%
from 11% in 1994 to 10% in 1995, as these expenses did not increase at the same
rate as sales. The dollar amount of these expenses grew $36.9 million in 1995 as
a result of increased investment in new product development of semiconductor
test systems. Selling and administrative expenses decreased to 15% of sales in
1995 compared with 19% of sales in 1994, as the dollar volume of these expenses
grew by 19% while sales increased 53%.

In 1995, the Company incurred merger expenses of $5.6 million consisting
primarily of professional fees related to its merger with Megatest.

Interest income increased 82% in 1995 to $14.2 million due to an increase
in the Company's average invested balances and higher interest rates. Interest
expense increased from $1.8 million in 1994 to $3.0 million in 1995 as a result
of increased borrowing at Megatest prior to the merger.

The Company's effective tax rate was 36% in 1995 compared with 33% in 1994.
The Company utilized certain tax credit and net loss carryforward amounts in
1994 to operate below the United States statutory rate of 35%. In 1995, the
effective rate increased as the tax credit and loss carryforwards were no longer
available and certain merger expenses were nondeductible for income tax
purposes. The Company expects its tax rate to approximate the statutory rate of
35% in 1996.

1994 Compared to 1993

Sales increased 23% in 1994, to $777.7 million. Sales increased in each of
the Company's major product groups. The increase in sales was primarily due to a
23% increase in sales of semiconductor test systems and to a 49% increase in
sales of backplane connection systems. Sales of semiconductor test systems
increased as semiconductor manufacturers added capacity to meet rising demand
for their products, while sales of backplane connection systems increased due to
growth in demand for the high technology products of the Company's commercial
customer base. Sales of circuit-board test systems and telecommunications test
systems increased 8% and 11%, respectively, in 1994 compared to 1993. Income
from continuing operations increased by $35.2 million from 1993 to 1994 on a
sales increase of $144.6 million.

Incoming orders grew faster than sales in 1994, increasing 29% to $901.0
million. The increase in orders, like the increase in sales, was primarily due
to increases in semiconductor test systems and backplane connection systems.
Orders for circuit-board test systems and telecommunications test systems
declined in 1994. As a result of the overall increase in orders, the Company's
backlog grew during 1994 to $418.3 million.

Cost of sales, as a percentage of sales, decreased from 57% of sales in
1993 to 56% in 1994. The improvement was a result of the following two factors.
First, the increase in sales volume permitted increased utilization of certain
fixed and semi-variable components of the Company's overhead structure. Second,
there was an unfavorable change in mix as sales of backplane connection systems,
whose product margins are

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<PAGE> 10

generally lower than those of electronic test systems, were higher as a
percentage of total Company sales. Engineering and development expenses, as a
percentage of sales, declined 1% in 1994, compared with 1993. The dollar amount
of these expenses grew $12.0 million in 1994 as a result of increased investment
in new product development of semiconductor test systems. Selling and
administrative expenses declined from 22% of sales to 19% as the dollar amount
of these expenses grew only 4% while sales increased by 23%.

Interest income increased $4.0 million in 1994 as a result of a $70.9
million increase in the Company's average invested balances during the year and
as a result of higher interest rates. Interest expense decreased $2.1 million in
1994 as a result of the Company's retirement of its 9.25% convertible
subordinated debentures in the fourth quarter of 1993.

The Company's effective tax rate was 33% in 1994 compared to 28% in 1993.
The Company was able to operate with an effective tax rate below the United
States statutory rate of 35% as a result of the utilization of tax credit and
net operating loss carryforwards. The 1993 combined financial results also
reflect the adoption of Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes, which resulted in a one-time $7.6 million credit.
The one-time credit resulted from the recognition of previously unrecognized tax
benefits of deductible temporary differences and operating loss carryforwards.

In connection with the retirement of the Company's outstanding 9.25%
convertible subordinated debentures, the Company incurred, in the fourth quarter
of 1993, an extraordinary charge of $0.7 million, net of income taxes, for the
costs of the redemption premium of 3.7% and the write-off of unamortized debt
issuance costs.

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash, cash equivalents and marketable securities balance grew
$54.6 million in 1995 following an increase of $70.9 million in 1994. Cash flow
generated from operations was $115.5 million in 1995 and $107.0 million in 1994.
Cash of $24.9 million in 1995 and $17.1 million in 1994 was generated from the
sale of stock to employees under the Company's stock option and stock purchase
plans. A secondary public offering of Megatest common stock, completed in
October 1993 (prior to Megatest's merger with the Company), provided $13.6
million in additional cash in 1994.

Cash was used to fund additions to property, plant and equipment of $93.2
million in 1995 and $40.7 million in 1994. The Company increased its investment
in marketable securities by $64.3 million in 1995. In 1993, the Company's Board
of Directors authorized the repurchase of 1,000,000 shares of the Company's
stock on the open market. Cash of $24.6 million in 1994 and $2.3 million in 1993
was utilized for this buyback of the Company's stock. Long-term debt increased
by $11.5 million in 1995 after a reduction of $1.5 million in 1994. The 1995
increase resulted from borrowing at Megatest prior to the merger.

The Company believes its cash and cash equivalents balance of $182.2
million, together with other sources of funds, including marketable securities
of $93.7 million, cash flow generated from operations, and the available
borrowing capacity of $120.0 million under its line of credit agreement, will be
sufficient to meet working capital and capital expenditure requirements in 1996.

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, "Statement 123". Statement 123 encourages, but does not require,
the recognition of compensation expense for grants of stock, stock options, and
other equity instruments based upon new fair value accounting rules (the
"recognition method"). Companies that choose not to adopt the recognition method
may continue to apply the existing accounting principles however, Statement 123
requires companies that choose not to adopt the new fair value accounting rules
to disclose pro forma net income and earnings per share amounts under the new
fair value method (the "disclosure method"). The Company plans to adopt the
disclosure method in 1996 and will report the pro forma effect of applying fair
value accounting rules to grants of stock-based awards on net income and
earnings per share in its 1996 financial statements.

10
<PAGE> 11

Inflation has not had a significant long-term impact on earnings. If there
was inflation, the Company's efforts to cover cost increases with price
increases could be frustrated in the short-term by its relatively high backlog.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

From time to time, information provided by the Company, statements made by
its employees or information included in its filings with the Securities and
Exchange Commission (including this Form 10-K and the Company's Annual Report to
Shareholders) may contain statements which are not historical facts, so-called
"forward looking statements," which involve risks and uncertainties. In
particular, statements in "Item 1. Business" relating to the Company's market
share position and the delivery time of unfilled orders, and in "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" relating to the sufficiency of capital to meet working capital and
capital expenditure requirements may be forward-looking statements. The
Company's actual future results may differ significantly from those stated in
any forward looking statements. Factors that may cause such differences include,
but are not limited to, the factors discussed below. Each of these factors, and
others, are discussed from time to time in the Company's filings with the
Securities and Exchange Commission.

The Company's future results are subject to substantial risks and
uncertainties. The Company's business and results of operations depend in
significant part upon capital expenditures of manufacturers of semiconductors,
which in turn depend upon the current and anticipated market demand for
semiconductors and products incorporating semiconductors. Historically, the
semiconductor industry has been highly cyclical with recurring periods of over
supply, which often have had a severe effect on the semiconductor industry's
demand for test equipment, including systems manufactured and marketed by the
Company. The Company believes that the markets for newer generations of
semiconductors will also be subject to similar fluctuations. In recent years,
the semiconductor industry has experienced significant growth which, in turn,
has caused significant growth in the capital equipment industry. There can be no
assurance that such growth can be sustained. In addition, any factor adversely
affecting the semiconductor industry or particular segments within the
semiconductor industry may adversely affect the Company's business, financial
condition and operating results. Also, the Company relies on certain
intellectual property protections to preserve its intellectual property rights.
Any invalidation of the Company's intellectual property rights or lengthy and
expensive defense of those rights could have a material adverse affect on the
Company. The development of new technologies, commercialization of those
technologies into products, and market acceptance and customer demand for those
products is critical to the Company's success. Successful product development
and introduction depends upon a number of factors, including new product
selection, development of competitive products by competitors, timely and
efficient completion of product design, timely and efficient implementation of
manufacturing and assembly processes and product performance at customer
locations. The Company faces substantial competition throughout the world,
primarily from electronic test systems manufacturers located in the United
States, Europe and Japan, as well as several of the Company's customers. Some of
these competitors have substantially greater financial and other resources to
pursue engineering, manufacturing, marketing and distribution of their products.
Certain of the Company's competitors have introduced or announced new products
with certain performance characteristics which may be considered equal or
superior to those currently offered by the Company. The Company expects its
competitors to continue to improve the performance of their current products and
to introduce new products or new technologies that provide improved cost of
ownership and performance characteristics. New product introductions by
competitors could cause a decline in sales or loss of market acceptance of the
Company's existing products. Moreover, increased competitive pressure could lead
to intensified price based competition, which could materially adversely affect
the Company's business, financial condition and results of operations. The
Company derives a significant portion of its total revenues from international
sales. International sales are subject to significant risks, including
unexpected changes in legal and regulatory requirements and policy changes
affecting the Company's markets, changes in tariffs, exchange rates and other
barriers, political and economic instability, difficulties in accounts
receivable collection, difficulties in managing distributors and
representatives, difficulties in staffing and managing foreign operations,
difficulties in protecting the Company's intellectual property and potentially
adverse tax consequences.

11
<PAGE> 12

The Company's quarterly and annual operating results are affected by a wide
variety of factors that could materially adversely affect revenues and
profitability, including: competitive pressures on selling prices; the timing
and cancellation of customer orders; changes in product mix; the Company's
ability to introduce new products and technologies on a timely basis;
introduction of products and technologies by the Company's competitors; market
acceptance of the Company's and its competitors' products; the level of orders
received which can be shipped in a quarter; and the timing of investments in
research and development. As a result of the foregoing and other factors, the
Company may experience material fluctuations in future operating results on a
quarterly or annual basis which could materially and adversely affect its
business, financial condition, operating results and stock price.

12
<PAGE> 13

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT ACCOUNTANTS

To the Directors and Shareholders of
TERADYNE, INC.:

We have audited the consolidated balance sheets of Teradyne, Inc. as of
December 31, 1995 and 1994, and the related consolidated statements of income,
cash flows, and shareholders' equity for each of the three years in the period
ended December 31, 1995. The financial statements give retroactive effect to the
merger of Teradyne, Inc. and Megatest Corporation (Megatest) on December 1,
1995, which has been accounted for using the pooling of interests method as
described in Note B to the consolidated financial statements. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the consolidated financial statements of Megatest
for the years ended August 31, 1994 and 1993, which statements reflect
consolidated total assets constituting 13% of the related consolidated total
assets as of December 31, 1994, and which reflect consolidated net sales
constituting 13% and 12% of the related consolidated net sales for the years
ended December 31, 1994 and 1993, respectively. Those statements were audited by
other auditors whose reports have been furnished to us, and our opinion, insofar
as it relates to the amounts included for Megatest, is based solely on the
reports of the other auditors.

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

In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Teradyne, Inc. as of December 31, 1995
and 1994, and the consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31, 1995, after giving
retroactive effect to the merger of Megatest, as described in the notes to the
consolidated financial statements, in conformity with generally accepted
accounting principles.

COOPERS & LYBRAND L.L.P.

Boston, Massachusetts

January 18, 1996, except as to the third
paragraph of Note E, for which the date is
January 31, 1996.

13
<PAGE> 14

TERADYNE, INC.
<TABLE>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994

ASSETS

<CAPTION>
1995 1994
---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................ $ 182,165 $202,215
Marketable securities............................................ 93,662 29,835
Accounts receivable, less allowance for doubtful accounts of
$2,269 in 1995 and $2,219 in 1994............................. 254,820 152,138
Inventories:
Parts......................................................... 120,011 53,879
Assemblies in process......................................... 56,840 54,173
---------- ---------
176,851 108,052
Deferred tax assets.............................................. 19,546 21,656
Prepayments and other current assets............................. 13,101 9,026
---------- ---------
Total current assets.......................................... 740,145 522,922
Property, plant, and equipment:
Land............................................................. 22,755 19,482
Buildings and improvements....................................... 128,235 114,887
Machinery and equipment.......................................... 351,950 307,373
Construction in progress......................................... 10,046 7,067
---------- ---------
Total......................................................... 512,986 448,809
Less: Accumulated depreciation................................... (255,968) (239,130)
---------- ---------
Net property, plant, and equipment............................ 257,018 209,679
Deferred charges and other assets.................................. 26,668 26,879
---------- ---------
Total assets.................................................. $1,023,831 $759,480
========== =========
LIABILITIES
Current liabilities:
Notes payable -- banks........................................... $ 8,141 $ 8,431
Current portion of long-term debt................................ 2,082 316
Accounts payable................................................. 42,229 22,342
Accrued employees' compensation and withholdings................. 66,000 42,235
Unearned service revenue and customer advances................... 53,587 48,469
Other accrued liabilities........................................ 41,395 32,154
Income taxes payable............................................. 16,157 9,635
---------- ---------
Total current liabilities..................................... 229,591 163,582
Deferred tax liabilities........................................... 15,711 13,901
Long-term debt..................................................... 18,679 9,111
---------- ---------
Commitments (Note G)
Total liabilities............................................. 263,981 186,594
========== =========
SHAREHOLDERS' EQUITY
Common stock $0.125 par value, authorized 125,000,000 shares
(75,000,000 in 1994), issued and outstanding after deduction of
reacquired shares, 82,633,591 in 1995 and 39,610,602 in 1994..... 10,329 4,952
Additional paid-in capital......................................... 366,970 329,887
Retained earnings.................................................. 382,551 238,047
---------- ---------
Total shareholders' equity.................................... 759,850 572,886
---------- ---------
Total liabilities and shareholders' equity.................... $1,023,831 $759,480
========== =========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

14
<PAGE> 15

TERADYNE, INC.

<TABLE>
CONSOLIDATED STATEMENTS OF INCOME

<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
---------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net sales............................................... $1,191,022 $777,731 $633,139
Expenses:
Cost of sales......................................... 646,382 435,129 358,661
Engineering and development........................... 123,487 86,570 74,561
Selling and administrative............................ 176,797 148,004 142,540
---------- -------- --------
946,666 669,703 575,762
---------- -------- --------
Income from operations.................................. 244,356 108,028 57,377
Other income (expense):
Merger expenses....................................... (5,600)
Interest income....................................... 14,209 7,827 3,874
Interest expense...................................... (3,040) (1,830) (3,968)
---------- -------- --------
Income before income taxes, extraordinary item, and
cumulative effect of change in accounting for income
taxes................................................. 249,925 114,025 57,283
Provision for income taxes.............................. 90,641 37,635 16,081
---------- -------- --------
Income before extraordinary item and cumulative effect
of change in accounting for income taxes.............. 159,284 76,390 41,202
Extraordinary item, less applicable income taxes of
$313.................................................. (729)
Cumulative effect of change in accounting for income
taxes................................................. 7,600
---------- -------- --------
Net income.............................................. $ 159,284 $ 76,390 $ 48,073
---------- -------- --------
Income per common share:
Income before extraordinary item and cumulative effect
of change in accounting for income taxes........... $ 1.89 $ 0.95 $ 0.54
Extraordinary item, net of income taxes............... (0.01)
Cumulative effect of change in accounting for income
taxes.............................................. 0.10
---------- -------- --------
Net income per common share........................... $ 1.89 $ 0.95 $ 0.63
---------- -------- --------
Shares used in calculations of income per common
share................................................. 84,253 80,729 75,984
---------- -------- --------
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

15
<PAGE> 16

TERADYNE, INC.

<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS

<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
--------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 159,284 $ 76,390 $ 48,073
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation.......................................... 39,817 34,686 33,025
Amortization.......................................... 3,329 3,756 3,775
Deferred income taxes................................. 3,920 3,875 3,037
Extraordinary loss on retirement of debt.............. 1,042
Cumulative effect of change in accounting for income
taxes.............................................. (7,600)
Other non-cash items, net............................. 4,881 1,752 1,544
Changes in operating assets and liabilities:
Accounts receivable................................ (114,708) (32,178) 13,642
Inventories........................................ (57,111) (18,277) (13,699)
Other assets....................................... (18,567) (12,764) (3,282)
Accounts payable and accruals...................... 60,361 34,887 16,915
Income taxes payable............................... 34,334 14,902 10,682
--------- --------- ---------
Net cash provided by operating activities........ 115,540 107,029 107,154
--------- --------- ---------
Cash flows from investing activities:
Additions to property, plant, and equipment........... (79,197) (32,568) (28,676)
Increase in equipment manufactured by the Company..... (14,004) (8,127) (10,008)
Purchases of marketable securities.................... (190,961) (55,400) (7,942)
Maturities of marketable securities................... 126,619 25,848
--------- --------- ---------
Net cash used in investing activities............ (157,543) (70,247) (46,626)
--------- --------- ---------
Cash flows from financing activities:
Net payments under short-term borrowing agreements.... (4,100) (3,500)
Payments of long-term debt............................ (1,015) (1,665) (7,449)
Additions to long-term debt........................... 12,500 145 1,420
Payment to retire convertible subordinated
debentures......................................... (10,780)
Issuance of common stock under stock option and stock
purchase plans..................................... 24,914 17,119 24,737
Sale of common stock.................................. 13,575 23,917
Acquisition of treasury stock......................... (24,597) (2,277)
--------- --------- ---------
Net cash provided by financing activities........ 32,299 4,577 26,068
--------- --------- ---------
Increase (decrease) in cash and cash equivalents........ (9,704) 41,359 86,596
Adjustment to conform fiscal year of Megatest........... (10,346)
Cash and cash equivalents at beginning of year.......... 202,215 160,856 74,260
--------- --------- ---------
Cash and cash equivalents at end of year................ $ 182,165 $202,215 $160,856
========= ========= =========
Supplementary disclosure of cash flow information:
Cash paid during the year for:
Interest........................................... $ 3,092 $ 1,722 $ 4,839
Income taxes....................................... 52,339 16,563 1,991
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

16
<PAGE> 17

TERADYNE, INC.

<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

<CAPTION>
SHARES COMMON ADDITIONAL
----------------------- STOCK PAID IN RETAINED
ISSUED REACQUIRED PAR VALUE CAPITAL EARNINGS
---------- ---------- --------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992, as
previously reported................. 33,600,578 554,918 $ 4,131 $206,439 $134,078
Adjustment to effect pooling of
interests with Megatest
Corporation......................... 1,734,500 217 42,809 (20,494)
---------- --------- ------- -------- --------
Balance, December 31, 1992, as
restated............................ 35,335,078 554,918 4,348 249,248 113,584
Tax benefit from stock options upon
adoption of SFAS 109................ 6,869
Issuance of stock to employees under
benefit plans....................... 2,689,645 87,054 326 24,411
Tax benefit from stock options........ 8,943
Issuance of stock upon conversion of
convertible subordinated
debentures.......................... 210,585 26 4,656
Repurchase of stock................... 125,580 (16) (2,261)
Initial public offering of Megatest
Corporation, net of offering
costs............................... 1,007,575 126 23,791
Net income............................ 48,073
Pension adjustment.................... (1,468)
---------- --------- ------- -------- --------
Balance, December 31, 1993............ 39,242,883 767,552 4,810 315,657 160,189
Issuance of stock to employees under
benefit plans....................... 1,583,974 17,303 196 16,923
Tax benefit from stock options........ 8,275
Repurchase of stock................... 878,400 (110) (24,487)
Secondary offering of Megatest
Corporation, net offering costs..... 447,000 56 13,519
Net income............................ 76,390
Pension adjustment.................... 1,468
---------- --------- ------- -------- --------
Balance, December 31, 1994............ 41,273,857 1,663,255 4,952 329,887 238,047
Adjustment to conform fiscal year of
Megatest Corporation................ 3,214 9 (14,780)
Issuance of stock to employees under
benefit plans....................... 1,614,317 202 22,940
Tax benefit from stock options........ 17,549
Two-for-one stock split effected in
the form of a 100% stock dividend... 42,891,388 1,663,255 5,154 (5,154)
Issuance of stock to employees under
benefit plans after the two-for-one
stock split......................... 177,325 21 1,751
Payment for fractional shares
resulting from merger............... (12)
Net income............................ 159,284
---------- --------- ------- -------- --------
Balance, December 31, 1995............ 85,960,101 3,326,510 $10,329 $366,970 $382,551
========== ========= ======= ======== ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

17
<PAGE> 18

TERADYNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A. THE COMPANY

Teradyne, Inc. (the "Company") designs, manufactures, markets, and services
electronic test systems and related software used by component manufacturers in
the design and testing of their products and by electronic equipment
manufacturers for the incoming inspection of components and for the design and
testing of circuit boards and other assemblies. Manufacturers use such systems
and software to increase product performance, to improve product quality, to
shorten time to market, to enhance manufacturability, to conserve labor costs,
and to increase production yields. The Company's electronic systems are also
used by telephone operating companies for the testing and maintenance of their
subscriber telephone lines and related equipment.

B. ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly owned. All significant
intercompany balances and transactions are eliminated. Certain prior years'
amounts have been reclassified to conform to the current year presentation. On
December 1, 1995, the Company completed its acquisition of Megatest Corporation
("Megatest"), by means of a merger of M Merger Corp., a wholly owned subsidiary
of the Company, with and into Megatest. As a result of the merger, Megatest
became a wholly owned subsidiary of the Company. The Megatest combination has
been accounted for as a pooling of interests. The consolidated financial
statements of the Company for periods prior to the merger have been restated to
include the financial position and results of operations of the combined
companies.

Preparation of Financial Statements

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

Inventories

Inventories are stated at the lower of cost (first-in, first-out basis) or
market (net realizable value).

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Leasehold improvements
and major renewals are capitalized and included in property, plant and equipment
accounts while expenditures for maintenance and repairs and minor renewals are
charged to expense. When assets are retired, the assets and related allowances
for depreciation and amortization are removed from the accounts and any
resulting gain or loss is reflected in operations.

The Company provides for depreciation of its property principally on the
straight-line method by charges to expense which are sufficient to write-off the
cost of the assets over their estimated useful lives.

18
<PAGE> 19

TERADYNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

B. ACCOUNTING POLICIES -- (CONTINUED)
Revenue Recognition

Revenue is recorded when products are shipped or, in instances where
products are configured to customer requirements, upon the successful completion
of test procedures. Service revenue is recognized ratably over applicable
contract periods or as services are performed. In certain situations, revenue is
recorded using the percentage of completion method based upon the completion of
measurable milestones, with changes to total estimated costs and anticipated
losses, if any, recognized in the period in which determined.

Engineering and Development Costs

The Company's products are highly technical in nature and require a large
and continuing engineering and development effort. All engineering and
development costs are expensed as incurred.

Income Taxes

Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The measurement of deferred tax assets is
reduced by a valuation allowance if, based upon weighted available evidence, it
is more likely than not that some or all of the deferred tax assets will not be
realized.

The Company's practice is to provide U.S. federal taxes on undistributed
earnings of the Company's foreign sales and service subsidiaries.

Translation of Foreign Currencies

Assets and liabilities of foreign subsidiaries which are denominated in
foreign currencies are remeasured into U.S. dollars at rates of exchange in
effect at the end of the fiscal year except nonmonetary assets and liabilities
which are remeasured using historical exchange rates. Revenue and expense
amounts are remeasured using an average of exchange rates in effect during the
year, except those amounts related to nonmonetary assets and liabilities, which
are remeasured at historical exchange rates. Net realized and unrealized gains
and losses resulting from foreign currency remeasurement are included in
operations.

Net Income per Common Share

Net income per common share is based upon the weighted average number of
common and common equivalent shares (when dilutive) outstanding each year.
Common equivalent shares result from the assumed exercise of outstanding stock
options, the proceeds of which are then assumed to have been used to repurchase
outstanding common stock using the treasury stock method. Primary and fully
diluted earnings per share are equal for all periods presented.

C. MERGER -- POOLING OF INTERESTS

On December 1, 1995, the Company acquired through a merger all of the
authorized and outstanding common stock of Megatest in exchange for
approximately 6,831,000 shares of the Company's common stock using an exchange
ratio of 0.9091 of one share of the Company's common stock for each Megatest
share. In addition, all outstanding Megatest stock options were converted, at
the common stock exchange ratio, into options to purchase the Company's common
stock. Megatest manufactures electronic test systems for the integrated circuit
industry. Prior to the merger, Megatest prepared its financial statements on an
August 31 fiscal year end. Megatest's fiscal year has been changed to December
31 to conform to the Company's year end. The restated financial statements for
1994 and 1993 include Megatest's amounts as of and for the years ended August
31, 1994 and 1993, respectfully. As a result, Megatest's financial position and
results of

19
<PAGE> 20

TERADYNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
C. MERGER -- (CONTINUED)
operations as of and for the four month period ended December 31, 1994 are not
reflected in the Company's consolidated balance sheet and statements of income
and cash flows. Megatest's loss for this period of $14.8 million has been
charged to retained earnings effective January 1, 1995. Megatest's results of
operations for the four months ended December 31, 1994 are summarized as follows
(in thousands):

<S> <C>
Revenue........................................................... $ 14,111
Net Loss.......................................................... $(14,780)
</TABLE>

<TABLE>
Separate results of the Company and Megatest that have been combined in the
Company's consolidated results for the years ended December 31, 1995, 1994, and
1993 are as follows (in thousands):
<CAPTION>
1995 1994 1993
---------- -------- --------
<S> <C> <C> <C>
Net sales:
Teradyne...................................... $1,059,409 $677,440 $554,734
Megatest...................................... 131,613 100,291 78,405
---------- -------- --------
$1,191,022 $777,731 $633,139
========== ======== ========
Net income:
Teradyne...................................... $ 157,204 $ 70,941 $ 35,194
Megatest...................................... 2,297 10,799 5,279
Adjustments................................... (217) (5,350) 7,600
---------- -------- --------
$ 159,284 $ 76,390 $ 48,073
========== ======== ========
</TABLE>

The combined financial results reflect the restatement of Megatest's
provision for income taxes in accordance with Financial Accounting Standards No.
109 Accounting for Income Taxes. Due to the merger, Megatest's previously
unrecognized tax benefits of deductible temporary differences and operating loss
carryforwards were recognized by the combined company in the restated periods.
The restatement of the provision for income taxes increased net income in 1993
by $7.6 million and decreased net income in 1994 by $5.1 million. The combined
financial results also include adjustments, which were immaterial to the
combined financial statements, to conform accounting policies of the two
companies. Adjustments made to conform the accounting policies of the two
companies decreased net income by $0.2 million in 1994 and 1995. All other
adjustments consist of reclassifications to conform financial statement
presentation. There were no intercompany transactions between the two companies
for the periods presented.

In connection with the merger, the Company recorded a $5.6 million one-time
charge in the fourth quarter of 1995 for transaction costs consisting primarily
of professional fees.

D. FINANCIAL INSTRUMENTS

Fair Value

The Company considers all highly liquid debt instruments with maturities of
three months or less at date of acquisition to be cash equivalents. At December
31, 1995 and 1994, marketable securities consist of short-term investments in
U.S. Treasury Bills with original maturities of greater than three months and
remaining contractual maturities of less than one year. The Company has
classified these marketable securities as held to maturity. Accordingly,
marketable securities and cash equivalents are carried at amortized cost plus
accrued interest, which approximate fair value. The Company's debt includes
subsidized loans whose fair value is not practicable to estimate. For all other
balance sheet financial instruments and the remaining debt of the Company, the
carrying amount approximates fair value.

20
<PAGE> 21

TERADYNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

D. FINANCIAL INSTRUMENTS -- (CONTINUED)
Off-Balance Sheet Risk

The Company regularly enters into forward foreign exchange contracts in
European and Japanese currencies to hedge its overseas net monetary position and
firm commitments. These contracts are used to reduce the Company's risk
associated with exchange rate movements, as gains and losses on these contracts
are intended to offset foreign exchange losses and gains on underlying
exposures. The Company does not engage in foreign currency speculation. Forward
foreign exchange contracts have maturities of less than one year, unless they
relate to long term sales contracts denominated in a foreign currency; these
maturities are from one to three years.

At December 31, 1995, the Company had the following forward exchange
contracts to buy U.S. dollars for foreign currencies, with notional amounts
totaling $66.3 million; $38.8 million German deutschemark, $13.8 million
Japanese yen, and $13.7 million various other European currencies. In addition,
the Company had forward exchange contracts to sell U.S. dollars for German
deutschemarks with notional amounts of $22.9 million. At December 31, 1994 the
face amount of forward exchange contracts outstanding was $67.9 million. The
fair value of these contracts as of December 31, 1995 and 1994, determined by
applying the year end foreign currency exchange rates to the notional contract
amounts, represented a net unrealized loss of $4.4 million and $2.0 million,
respectively.

The Company's policy is to defer gains and losses on these contracts until
the corresponding losses and gains are recognized on the items being hedged.
During 1994, the Company recorded in other current assets a $2.9 million loss on
deferred forward foreign exchange contracts relating to a long term sales
contract denominated in a foreign currency. At December 31, 1995, a net $1.0
million loss remains in other current assets. This remaining net loss will serve
to offset foreign exchange transaction gains to be recognized on the hedged
items.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash investments, forward
foreign exchange contracts, and accounts receivable. Concentrations of credit
risk with respect to accounts receivable are limited due to the large number of
diverse and geographically dispersed customers. The Company maintains cash
investments primarily in U.S. government obligations which essentially have no
credit risk. Credit risk exposure from forward contracts is minimized as these
instruments are contracted with high quality financial institutions.

E. DEBT

<TABLE>
Long-term debt at December 31, 1995 and 1994 consisted of the following (in
thousands):
<CAPTION>
1995 1994
------- ------
<S> <C> <C>
Mortgage notes payable............................................. $10,452 $5,040
Capital equipment notes payable.................................... 6,534
Other long-term debt............................................... 3,775 4,387
------- ------
Total............................................................ 20,761 9,427
Less current maturities............................................ 2,082 316
------- ------
$18,679 $9,111
======= ======
</TABLE>

The total maturities of long-term debt for the succeeding five years and
thereafter are: 1996 -- $2.1 million; 1997 -- $2.1 million; 1998 -- $2.3
million; 1999 -- 1.8 million; 2000 -- $0.5 million and $12.0 million thereafter.

21
<PAGE> 22

TERADYNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

E. DEBT -- (CONTINUED)

Revolving Credit Agreement

On January 31, 1996, the Company increased its available revolving credit
line to $120.0 million from $80.0 million. The revolving credit agreement is in
effect through January 31, 1999. At expiration of the revolver, any amounts
outstanding are converted into a two year term note. As of December 31, 1995, no
amounts were outstanding under this agreement. The terms of this line of credit
include restrictive covenants regarding working capital, tangible net worth, and
leverage. Interest rates on borrowings are either at the stated prime rate or
based upon Eurocurrency or certificate of deposit interest rates. Pursuant to
the terms of the credit agreement, the Company may incur additional indebtedness
of up to $30.0 million provided that the liabilities of the Company, exclusive
of deferred income taxes and subordinated debt, shall not exceed 100% of the
Company's tangible net worth.

Mortgage Notes Payable

The Company received a loan of $4.5 million from the Boston Redevelopment
Authority in the form of a 3% mortgage loan maturing March 31, 2013. This loan
is collateralized by a mortgage on the Company's property at 321 Harrison Avenue
which may, at the Company's option, become subordinated to another mortgage up
to a maximum of $5.0 million. Interest for the first 4 1/2 years of the note was
capitalized up to a principal amount of $5.0 million. Since September 30, 1987,
the Company has been making semi-annual interest payments.

In conjunction with the purchase of its general operating facilities
Megatest received a $5.5 million mortgage loan which matures on August 31, 2000.
The loan is collateralized by a mortgage on Megatest's facilities in San Jose,
California. The loan bears interest at 8.1% per annum and is payable in 59
consecutive monthly installments of $0.05 million with a $4.6 million balloon
payment due at maturity. The terms of this mortgage note payable require
compliance with certain restrictive financial covenants and principal prepayment
clauses.

Equipment Notes Payable

During August 1995, Megatest entered into two capital equipment notes
payable. The first note with an original amount of $5.0 million is payable in 48
consecutive monthly installments of principal and interest at 9.5% per annum.
The second note with an original amount of $1.9 million is payable in 48
consecutive monthly installments of principal and interest at 8.7% with a $0.4
million balloon payment due at maturity. The terms of these equipment notes
payable require compliance with certain restrictive financial covenants and
principal prepayment clauses.

Other Long-term Debt

At December 31, 1995, other long-term debt includes a Japanese
yen-denominated note with an interest rate of 4.8%, secured by land in Kumamoto,
Japan. Interest only payments were made through March 31, 1995. Monthly
principal and interest payments began April 28, 1995 and continue until March
30, 2007.

Short-term Borrowings

The weighted average interest rate on short-term borrowings outstanding as
of December 31, 1995 and 1994 was 4.2% and 3.2%, respectively.

22
<PAGE> 23

TERADYNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

F. CONVERTIBLE SUBORDINATED DEBENTURES

During 1993, $5.0 million principal amount of debentures was converted into
210,585 shares of common stock resulting in an increase of $4.7 million of
shareholders' equity (net of the related $0.3 million unamortized debt issue
costs). On November 19, 1993, the Company exercised its option to repurchase the
remaining $10.4 million outstanding debentures. The Company used $10.8 million
of available cash to repurchase the debentures at a premium of 103.7% of the
principal amount The premium amount and the write-off of the remaining
unamortized debt issue cost resulted in a charge of $1.0 million. This charge,
net of the related taxes of $0.3 million, is reflected as an extraordinary loss
in the consolidated statements of income.

G. COMMITMENTS

Rental expense for the years ended December 31, 1995, 1994, and 1993 was
$13.1 million, $11.1 million, and $12.8 million, respectively. Minimum annual
rentals under all noncancellable leases are: 1996 -- $5.6 million; 1997 -- $5.0
million; 1998 -- $4.7 million; 1999 -- $3.0 million; 2000 -- $1.8 million; and
$8.8 million thereafter, totaling $28.9 million.

H. PENSION PLANS

The Company has defined benefit pension plans covering substantially all
domestic employees and employees of certain international subsidiaries. Benefits
under these plans are based on the employees' years of service and compensation.
The Company's funding policy is to make contributions to the plans in accordance
with local laws and to the extent that such contributions are tax deductible.
The assets of the plans consist primarily of equity and fixed income securities.

<TABLE>
The components of net pension expense are summarized as follows (in
thousands):
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Service cost (benefits earned during the period).......... $ 3,211 $ 3,627 $ 2,876
Interest cost on projected benefit obligation............. 4,012 3,708 3,065
Actual return on plan assets.............................. (9,514) 1,537 (3,802)
Net amortization and deferral............................. 5,853 (4,371) 863
------- ------- -------
$ 3,562 $ 4,501 $ 3,002
======= ======= =======
</TABLE>

23
<PAGE> 24

TERADYNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

H. PENSION PLANS -- (CONTINUED)

<TABLE>
The following table sets forth the plans' funded status at December 31 (in
thousands):
<CAPTION>
1995 1994
-------------------- ---------------------
DOMESTIC FOREIGN DOMESTIC FOREIGN
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Actuarial present value of projected benefit
obligation:
Vested benefits................................ $(45,273) $(5,981) $(32,673) $(5,134)
Non-vested benefits............................ (2,634) (695) (2,254) (603)
-------- ------- -------- -------
Accumulated benefit obligation................... (47,907) (6,676) (34,927) (5,737)
Effect of projected future compensation levels... (9,306) (2,742) (5,483) (2,818)
-------- ------- -------- -------
Total projected benefit obligation............. (57,213) (9,418) (40,410) (8,555)
Plan assets at fair market value................. 48,773 5,081 35,532 4,312
-------- ------- -------- -------
Projected benefit obligation in excess of plan
assets......................................... (8,440) (4,337) (4,878) (4,243)
Unrecognized prior service cost.................. 3,076 1,766 3,613 2,000
Unrecognized net loss (gain)..................... 13,587 (821) 7,133 (465)
Unrecognized net (asset) liability at
transition..................................... (242) (458) (485) (501)
Minimum pension liability adjustment............. (214) (219)
-------- ------- -------- -------
Net pension asset (liability).................... $ 7,981 $(4,064) $ 5,383 $(3,428)
======== ======= ======== =======
Actuarial assumptions:
Discount rate.................................. 7.2 % 4.5%-8.0% 8.5 % 5.5%- 9.0%
Average increase in compensation levels........ 5.0 % 3.6%-5.5% 5.0 % 4.6%- 7.0%
Expected long-term return on assets............ 9.0 % 4.5%-9.5% 9.0 % 5.5%-10.5%
</TABLE>

In addition to the above plans, the Company in 1993 established an unfunded
supplemental defined benefit pension plan in the United States to provide
retirement benefits in excess of levels allowed by the Employee Retirement
Income Security Act (ERISA). The actuarial present value of accumulated plan
benefits totaled $1.9 million and $1.3 million at December 31, 1995 and 1994,
respectively. Net pension expense was $0.5 million in 1995 and $0.4 million in
1994 and 1993.

I. COMMON STOCK SPLIT

On July 24, 1995 the Company's Board of Directors authorized a two-for-one
stock split effected in the form of a 100% stock dividend distributed on August
29, 1995 to shareholders of record as of August 8, 1995. As a result of the
stock split, the accompanying consolidated financial statements reflect an
increase in the number of outstanding shares of common stock and the transfer of
the par value of these additional shares from paid-in capital. All share and per
share amounts have been restated to reflect the retroactive effect of the stock
split, except for the capitalization of the Company.

24
<PAGE> 25

TERADYNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

J. STOCK OPTION PLANS

Under its stock option plans, the Company and Megatest granted options to
certain directors, officers and employees entitling them to purchase common
stock at 100% of market value at the date of grant.

<TABLE>
Information with respect to options authorized, granted, exercised, and
forfeited is set forth below:
<CAPTION>
OUTSTANDING OPTIONS
SHARES AVAILABLE ----------------------------------
FOR GRANT NUMBER OF SHARES PRICE RANGE
----------------- ----------------- --------------
<S> <C> <C> <C>
Balance -- December 31, 1992.............. 4,727,968 9,387,086 $ 0.04-$ 8.80
Options authorized...................... 6,000,000 -- --
Options granted......................... (2,459,609) 2,459,609 $ 4.40-$23.37
Options exercised....................... (4,117,375) $ 0.04-$ 4.40
Options canceled........................ 213,492 (213,492) $ 0.04-$ 4.40
Options terminated...................... (51,580) -- --
---------- ----------
Balance -- December 31, 1993.............. 8,430,271 7,515,828 $ 0.04-$ 4.40
Options granted......................... (2,243,834) 2,243,834 $12.88-$23.92
Options exercised....................... (1,887,882) $ 1.10-$11.00
Options canceled........................ 234,975 (234,975) $ 1.10-$23.37
Options terminated...................... (33,280) -- --
---------- ----------
Balance -- December 31, 1994.............. 6,388,132 7,636,805 $ 0.04-$23.92
Options authorized...................... 909,100
Options granted......................... (2,717,190) 2,717,190 $ 6.87-$40.13
Options exercised....................... (2,790,259) $ 0.04-$20.69
Options canceled........................ 333,237 (333,237) $ 0.04-$23.92
Options terminated...................... (1,400) -- --
---------- ----------
Balance -- December 31, 1995.............. 4,911,879 7,230,499 $ 1.10-$40.13
========== ==========
Options exercisable on December 31,
1995.................................... 2,606,007 $ 1.10-$40.13
==========
</TABLE>

There were no charges to operations in connection with these options other
than incidental expenses related to the issuance of shares.

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, (Statement 123). Statement 123 encourages but does not require the
recognition of compensation expense for grants of stock, stock options, and
other equity instruments based upon new fair value accounting rules (the
"recognition method"). Companies that choose not to adopt the recognition method
may continue to apply the existing accounting principles however, Statement 123
requires companies that choose not to adopt the new fair value accounting rules
to disclose pro forma net income and earnings per share amounts under the new
fair value method (the "disclosure method"). The Company plans to adopt the
disclosure method in 1996 and will report the pro forma effect (which has not
yet been determined) of applying fair value accounting rules to grants of
stock-based awards on net income and earnings per share in its 1996 financial
statements.

K. SAVINGS PLANS

The Company sponsors a Savings Plan covering substantially all domestic
employees. Under this plan, employees may contribute up to 12% of their
compensation (subject to Internal Revenue Service limitations). The Company
annually matches employee contributions up to 6% of such compensation at rates
ranging from

25
<PAGE> 26

TERADYNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

K. SAVINGS PLANS -- (CONTINUED)
50% to 100%. The Company's contributions vest after two years, although
contributions for those employees with five years of service vest immediately.

The trustees of the Savings Plan were granted an option to purchase 900,000
shares of the Company's common stock, exercisable at $9.50 per share (the fair
market value of the Company's common stock at the date of the grant) in five
cumulative annual installments beginning in 1990. In 1994, the trustees
exercised the remaining 265,000 shares. Under the terms of the Plan, any gains
realized from the sale of option shares were first allocated to participants'
accounts to fund up to one-half of the minimum Company contribution. Any excess
was applied to additional funding.

In 1994, the Company established a Supplemental Savings Plan to provide
savings benefits in excess of those allowed by ERISA. The provisions of which
are the same as the Savings Plan.

Under these plans, the amounts charged to operations were $8.3 million in
1995 and $2.0 million in 1994 and 1993.

L. EMPLOYEE STOCK PURCHASE PLANS

Under the Company's 1979 Stock Purchase Plan, employees are entitled to
purchase shares of common stock through payroll deductions of up to 10% of their
compensation. The price paid for the common stock is equal to 85% of the lower
of the fair market value of the Company's common stock on either the first or
last business day of the year. In January 1996, the Company issued 503,672
shares of common stock to employees who participated in the Plan during 1995 at
a price of $14.08 per share. Currently there are 617,608 shares reserved for
issuance.

During 1995, Megatest sponsored a Stock Purchase Plan in which employees
were able to purchase on a semi-annual basis shares of common stock through
payroll deductions of up to 10% of their compensation. The price paid for the
common stock was equal to 85% of the lower of the fair market value of
Megatest's common stock on either the first or last business day of the
semi-annual period. On June 30, 1995, employees purchased, as adjusted by the
common stock exchange ratio, 84,546 shares at an equivalent price of $5.81 per
share. Immediately prior to the December 1, 1995 merger, employees purchased an
additional 46,124 shares at a price of $12.23 per share.

M. STOCKHOLDER RIGHTS PLAN

The Company's Board of Directors adopted a Stockholder Rights Plan on March
14, 1990, under which a dividend of one Common Stock Purchase Right was
distributed for each outstanding share of Common Stock. The Plan entitles Stock
Purchase Right holders to purchase shares of the Company's common stock for $20
per share in certain events, such as a tender offer to acquire 30% or more of
the Company's outstanding shares. Under some circumstances, such as a
determination by continuing Directors, that an acquiring party's interests are
adverse to those of the Company, the Plan entitles such holders (other than an
acquiring party or adverse party) to purchase $40 worth of Common Stock (or
other securities or consideration owned by the Company) for $20. The Plan will
expire March 26, 2000 unless earlier redeemed by the Company.

26
<PAGE> 27

TERADYNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

N. INCOME TAXES

<TABLE>
The components of income before income taxes, extraordinary item, and
cumulative effect of change in accounting for income taxes and the provision for
income taxes as shown in the consolidated statement of income are as follows (in
thousands):
<CAPTION>
1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
Income before income taxes, extraordinary item, and cumulative
effect of change in accounting for income taxes:
Domestic................................................... $212,551 $ 96,406 $56,806
Foreign.................................................... 37,374 17,619 477
-------- -------- -------
$249,925 $114,025 $57,283
======== ======== =======
Provision (credit) for income taxes:
Current:
Federal.................................................. 66,228 26,395 9,745
Foreign.................................................. 12,604 2,924 1,314
State.................................................... 7,889 4,441 1,985
-------- -------- -------
86,721 33,760 13,044
-------- -------- -------
Deferred:
Federal.................................................. (241) 3,834 2,486
Foreign.................................................. 3,654 492 259
State.................................................... 507 (451) 292
-------- -------- -------
3,920 3,875 3,037
-------- -------- -------
$ 90,641 $ 37,635 $16,081
======== ======== =======
</TABLE>

27
<PAGE> 28

TERADYNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

N. INCOME TAXES -- (CONTINUED)

<TABLE>
Significant components of the Company's deferred tax assets (liabilities)
as of December 31, 1995 and 1994 are as follows (in thousands):
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Deferred tax assets:
Inventory valuations........................................ $ 4,863 $ 4,054
Accruals.................................................... 1,470 3,744
Vacation.................................................... 4,324 3,121
In process research & development........................... 3,374
Deferred revenue............................................ 5,748 7,262
Federal net operating loss carryforwards.................... 1,050 1,050
Foreign net operating loss carryforwards.................... 1,041
Tax credits................................................. 4,097 2,698
Other....................................................... 1,260 1,660
-------- --------
Total deferred tax assets........................................ 26,186 24,630
-------- --------
Deferred tax liabilities:
Excess of tax over book depreciation........................ (14,871) (9,014)
Amortization................................................ (2,853) (3,306)
Pension..................................................... (1,332) (1,948)
Other....................................................... (3,295) (563)
-------- --------
Total deferred tax liabilities................................... (22,351) (14,831)
-------- --------
Valuation allowance.............................................. (2,044)
-------- --------
Net deferred tax asset........................................... $ 3,835 $ 7,755
======== ========
</TABLE>

Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes, (Statement 109). As
permitted by Statement 109 the Company has elected not to restate its financial
statements for any periods prior to 1993. The effect on operations for 1993
resulted in a one-time $7.6 million credit. The Company also increased
Additional Paid-in Capital by $6.9 million relating to the tax benefits to be
derived from the utilization of U.S. net operating loss carryforward amounts
resulting from tax deductions pertaining to the issuance of the Company's stock
to employees under its benefit plans.

Upon adoption of Statement 109 the Company established a valuation
allowance of $5.5 million related to the utilization of U.S. federal and foreign
tax credit carryforwards and net operating loss carryforwards in certain foreign
jurisdictions. During 1993, 1994, and 1995 the Company decreased the valuation
allowance $1.6 million, $1.9 million, and $2.0 million, respectively.

28
<PAGE> 29

TERADYNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

N. INCOME TAXES -- (CONTINUED)

<TABLE>
Below is a reconciliation of the effective tax rate for the three years
indicated:
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
U.S. statutory federal tax rate...................................... 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit....................... 2.0 2.7 2.6
Utilization of operating loss carryforwards.......................... 0.3 (3.4)
Foreign losses not tax benefited..................................... 1.1
Tax credits.......................................................... (0.6) (2.6) (3.1)
Foreign sales corporation............................................ (2.3) (2.6) (2.2)
Non-deductible merger costs.......................................... 0.8
Change in valuation allowance........................................ (0.8) (1.7) (2.8)
Other, net........................................................... 1.9 2.2 0.9
---- ---- ----
36.3% 33.0% 28.1%
==== ==== ====
</TABLE>

At December 31, 1995, the Company had net operating loss carryforwards of
approximately $3.0 million. These net operating loss carryforwards expire in the
years 2000 through 2002. The Company has approximately $4.1 million of U.S.
business tax credit carryforwards. Approximately $2.6 million of these credits
expire in the years 1996 through 1999, and $1.5 million expire in the years 2003
through 2007. All of these losses and credits are limited in their use by
"change in ownership" rules as defined in the Internal Revenue Code of 1986.

29
<PAGE> 30

TERADYNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

O. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION

<TABLE>
The Company operates in two industry segments, which are the design,
manufacturing and marketing of electronic test systems and backplane connection
systems. Corporate assets consist of cash and cash equivalents, marketable
securities, accounts receivable and certain other assets.
<CAPTION>
ELECTRONIC BACKPLANE
TEST CONNECTION
SYSTEMS SYSTEMS CORPORATE
INDUSTRY INDUSTRY AND
SEGMENT SEGMENT ELIMINATIONS CONSOLIDATED
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
1995 Sales to unaffiliated customers............ $1,035,721 $155,301 $1,191,022
Intersegment sales......................... 12,325 $(12,325)
---------- -------- -------- ----------
Net sales.................................. 1,035,721 167,626 (12,325) 1,191,022
Operating income........................... 237,101 22,778 (15,523) 244,356
Identifiable assets........................ 640,597 91,205 292,029 1,023,831
Property additions......................... 77,552 12,038 3,611 93,201
Depreciation and amortization expense...... 37,274 4,670 1,202 43,146
1994 Sales to unaffiliated customers............ $ 645,929 $131,802 $ 777,731
Intersegment sales......................... 5,050 $ (5,050)
---------- -------- -------- ----------
Net sales.................................. 645,929 136,852 (5,050) 777,731
Operating income........................... 102,884 18,449 (13,305) 108,028
Identifiable assets........................ 440,117 82,820 236,543 759,480
Property additions......................... 30,835 9,005 855 40,695
Depreciation and amortization expense...... 31,847 5,754 841 38,442
1993 Sales to unaffiliated customers............ $ 544,710 $ 88,429 $ 633,139
Intersegment sales......................... 4,185 $ (4,185)
---------- -------- -------- ----------
Net sales.................................. 544,710 92,614 (4,185) 633,139
Operating income........................... 63,596 7,652 (13,871) 57,377
Identifiable assets........................ 390,101 64,705 166,801 621,607
Property additions......................... 32,857 5,526 301 38,684
Depreciation and amortization expense...... 30,202 5,545 1,053 36,800
</TABLE>

<TABLE>
The Company's sales, including domestic export and foreign jurisdictional
sales (which amounted to less than 10% of total net sales in all periods
presented) to unaffiliated customers for the three years ended December 31 were
made to customers in the following geographic areas:
<CAPTION>
1995 1994 1993
---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales to unaffiliated customers:
United States............................................... $ 566,337 $416,199 $374,871
Asia Pacific region......................................... 256,901 138,458 92,411
Europe...................................................... 222,194 133,127 100,299
Japan....................................................... 94,706 68,019 50,539
Other....................................................... 50,884 21,928 15,019
---------- -------- --------
$1,191,022 $777,731 $633,139
========== ======== ========
</TABLE>

See "Item 1: Business -- Marketing and Sales" elsewhere in this report for
information on the Company's export and foreign jurisdictional activities,
identifiable assets of foreign subsidiaries, and major customers.

30
<PAGE> 31

SUPPLEMENTARY INFORMATION
(UNAUDITED)

The following sets forth certain unaudited consolidated quarterly
statements of operations data for each of the Company's last eight quarters. In
management's opinion, this quarterly information reflects all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation for the periods presented. Such quarterly results are not
necessarily indicative of future results of operations and should be read in
conjunction with the audited consolidated financial statements of the Company
and the notes thereto included elsewhere herein.

<TABLE>
<CAPTION>
1995*
-----------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales................................... $ 232,158 $ 284,849 $ 322,658 $ 351,357
Expenses:
Cost of sales............................. 131,625 152,683 172,316 189,758
Engineering and development............... 24,986 30,795 32,966 34,740
Selling and administrative................ 38,919 42,715 45,353 49,810
-------- -------- -------- --------
195,530 226,193 250,635 274,308
-------- -------- -------- --------
Income from operations...................... 36,628 58,656 72,023 77,049
Other income (expense):
Merger expenses........................... (5,600)
Interest income........................... 3,085 3,547 3,670 3,907
Interest expense.......................... (533) (730) (715) (1,062)
-------- -------- -------- --------
Income before income taxes.................. 39,180 61,473 74,978 74,294
Provision for income taxes.................. 14,706 22,666 26,756 26,513
-------- -------- -------- --------
Net income.................................. $ 24,474 $ 38,807 $ 48,222 $ 47,781
======== ======== ======== ========
Net income per common share................. $ 0.30 $ 0.46 $ 0.57 $ 0.56
======== ======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
1994*
-----------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales................................... $ 174,459 $ 179,788 $ 205,849 $ 217,635
Expenses:
Cost of sales............................. 97,707 100,162 115,883 121,377
Engineering and development............... 19,614 21,128 21,851 23,977
Selling and administrative................ 36,279 35,992 36,591 39,142
-------- -------- -------- --------
153,600 157,282 174,325 184,496
-------- -------- -------- --------
Income from operations...................... 20,859 22,506 31,524 33,139
Other income (expense):
Interest income........................... 1,324 1,611 2,039 2,853
Interest expense.......................... (572) (402) (424) (432)
-------- -------- -------- --------
Income before income taxes.................. 21,611 23,715 33,139 35,560
Provision for income taxes.................. 7,215 7,826 11,099 11,495
-------- -------- -------- --------
Net income.................................. $ 14,396 $ 15,889 $ 22,040 $ 24,065
======== ======== ======== ========
Net income per common share................. $ 0.18 $ 0.20 $ 0.27 $ 0.30
======== ======== ======== ========
</TABLE>

- ---------------
*Note: Previously published quarterly financial data have been restated to
reflect the pooling of interests with Megatest Corporation (see "Note C:
Merger -- Pooling of Interests" in Notes to Consolidated Financial
Statements) and to give effect to the two-for-one stock split effected in
the form of a 100% stock dividend distributed on August 29, 1995.

31
<PAGE> 32

REPORT OF INDEPENDENT ACCOUNTANTS

In our opinion, the consolidated balance sheet and related consolidated
statements of operations, of stockholders' equity and of cash flows of Megatest
Corporation (not presented separately herein) present fairly, in all material
respects, the financial position of Megatest Corporation and its subsidiaries at
August 31, 1994, and the results of their operations and their cash flows for
the year ended August 31, 1994, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.

As discussed in Note 1 to the consolidated financial statements referred to
above (and not included herein), Megatest Corporation changed its method of
accounting for income taxes effective September 1, 1993.

PRICE WATERHOUSE LLP

San Jose, California
September 20, 1995

32
<PAGE> 33

INDEPENDENT AUDITORS' REPORT

To the Stockholders and Board of Directors of
Megatest Corporation:

We have audited the consolidated statements of operations, stockholders'
equity and cash flows of Megatest Corporation and its subsidiaries for the year
ended August 31, 1993 (not presented separately herein). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

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

In our opinion, such consolidated financial statements present fairly, in
all material respects the results of operations and cash flows of Megatest
Corporation and its subsidiaries for the year ended August 31, 1993 in
conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP

San Jose, California
September 21, 1993

33
<PAGE> 34

ITEM 9: CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

None.

PART III

ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Certain information relating to directors and executive officers of the
Company, executive compensation, security ownership of certain beneficial owners
and management, and certain relationships and related transactions is
incorporated by reference herein from the Company's definitive proxy statement
in connection with its Annual Meeting of Shareholders to be held on May 23,
1996, which proxy statement will be filed with the Securities and Exchange
Commission not later than 120 days after the close of the fiscal year. For this
purpose, the Management Compensation and Development Committee Report and
Performance Graph included in such proxy statement are specifically not
incorporated herein. (Also see "Item 1 -- Executive Officers of the Company"
elsewhere in this report)

ITEM 11: EXECUTIVE COMPENSATION.

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

34
<PAGE> 35

PART IV

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

(A) 1. FINANCIAL STATEMENTS

The following consolidated financial statements are included in Item 8:

Balance Sheets as of December 31, 1995 and 1994
Statements of Income for the years ended December 31, 1995, 1994, and
1993
Statements of Cash Flows for the years ended December 31, 1995, 1994,
and 1993
Statements of Changes in Shareholders' Equity for the years ended
December 31, 1995, 1994, and 1993

(A) 2. FINANCIAL STATEMENT SCHEDULES

Financial statement schedules have been omitted since either they are not
required or the information is otherwise included.

(A) 3. LISTING OF EXHIBITS

The Exhibits which are filed with this report or which are incorporated by
reference herein are set forth in the Exhibit Index.

(B) REPORT ON FORM 8-K

A current report on Form 8-K dated December 1, 1995, has been filed with
the Securities and Exchange Commission relating to the Company's merger with
Megatest Corporation.

35
<PAGE> 36

EXHIBIT INDEX

The following designated exhibits are, as indicated below, either filed
herewith or have heretofore been filed with the Securities and Exchange
Commission and are referred to and incorporated by reference to such filings.

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION SEC DOCUMENT REFERENCE
----------- --------------------------------------- ---------------------------------------
<C> <S> <C>
2.0 Agreement and Plan of Merger and Exhibit 2.0 to the Company's
Reorganization, as amended, dated Registration Statement on Form S-4
September 5, 1995, by and among the (Registration Statement No. 33-63781)
Company, M Merger Corp., and Megatest
Corporation
3.1 Restated Articles of Organization of Exhibit 4.1 to the Company's Form S-3
the Company, as amended Registration Statement No. 33-44347,
effective December 12, 1991.
3.2 Amendment, dated May 24, 1995, to
Restated Articles of Organization of
the Company, as amended
3.3 Amended and Restated Bylaws of the Exhibit 3.3 (iii) to the Company's
Company Annual Report on Form 10-K for the
fiscal year ended December 31, 1990.
4.1 Indenture dated as of March 15, 1987 Exhibit 2.3 to the Company's
between Zehntel, Inc. and the Bank of Registration Statement on Form 8-A No.
California, National Association, 0-16446, effective February 17, 1988.
Trustees
4.2 First Supplemental Indenture between Exhibit 2.4 to the Company's
the Company, Zehntel, Inc. and the Bank Registration Statement on Form 8-A No.
of California, National Association, 0-16446, effective February 17, 1988.
Trustee, dated as of December 1, 1987
4.3 Second Supplemental Indenture by and Exhibit 3.4 (iii) to the Company's
among the Company, Zehntel, Inc. and Annual Report on Form 10-K for the
Bankers Trust Company of California, fiscal year ended December 31, 1989.
N.A.
4.4 Instrument of Acknowledgment of Exhibit 3.4 (iv) to the Company's
Satisfaction and Discharge of Indenture Annual Report on Form 10-K for the
and Securities executed by First Trust fiscal year ended December 31, 1994.
of California, National Association,
successor trustee
4.5 Rights Agreement between the Company Exhibit 4.1 to the Company's Current
and The First National Bank of Boston Report on Form 8-K dated March 15,
dated as of March 14, 1990 1990.
10.1 Multicurrency Revolving Credit Exhibit to the Company's Quarterly
Agreement dated April 29, 1991 Report on Form 10-Q for the quarterly
period ended March 30, 1991.
10.2 First Amendment to Multicurrency Exhibit 3.10 (ii) to the Company's
Revolving Credit Agreement dated as of Annual Report on Form 10-K for the
March 5, 1993 fiscal year ended December 31, 1992.
10.3 Second Amendment to Multicurrency
Revolving Credit Agreement dated as of
January 31, 1996
10.4 1987 Non-Employee Director Stock Option Exhibit 3.10 (iii) to the Company's
Plan Annual Report on Form 10-K for the
fiscal year ended December 31, 1992.
10.5 Teradyne, Inc. Supplemental Executive Exhibit 3.10 (iv) to the Company's
Retirement Plan Annual Report on Form 10-K for the
fiscal year ended December 31, 1992.
10.6 1991 Employee Stock Option Plan, as Exhibit 10.5 to the Company's Annual
amended Report on Form 10-K for the fiscal year
ended December 31, 1994.
</TABLE>

36
<PAGE> 37

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION SEC DOCUMENT REFERENCE
----------- --------------------------------------- ---------------------------------------
<C> <S> <C>
10.7 1979 Stock Purchase Plan, as amended Exhibit 10.6 to the Company's Annual
Report on Form 10-K for the fiscal year
ended December 31, 1994.
10.8 Megatest Corporation 1990 Stock Option Exhibit 4.1 to the Company's
Plan Registration Statement on Form S-8
(Registration Statement No. 33-64683).
10.9 Megatest Corporation Director Stock Exhibit 4.2 to the Company's
Option Plan Registration Statement on Form S-8
(Registration Statement No. 33-64683).
10.10 Master Lease Agreement between Megatest
and General Electric Capital
Corporation dated August 10, 1995
10.11 Loan and Security Agreement between
Megatest and the CIT Group/Equipment
Financing, Inc. dated August 14, 1995
10.12 Deed of Trust, Financing Statement,
Security Agreement and Fixture Filing
between Megatest and the Sun Life
Assurance Company of Canada (U.S.)
dated August 25, 1995
22.1 Subsidiaries of the Company
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Price Waterhouse LLP
23.3 Consent of Deloitte & Touche LLP
27.0 Financial Data Schedule
</TABLE>

37
<PAGE> 38

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized this 26th day of March,
1996.

TERADYNE, INC.

OWEN W. ROBBINS
By:----------------------------------
Owen W. Robbins,
Executive Vice President

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE: TITLE DATE
--------- ----- ----
<S> <C> <C>
ALEXANDER V. D'ARBELOFF Chairman of the Board March 26, 1996
- ------------------------------------- and Chief Executive Officer
Alexander V. d'Arbeloff

Vice Chairman of the Board and March , 1996
- ------------------------------------- Executive Vice President
James A. Prestridge

OWEN W. ROBBINS Vice Chairman of the Board and March 26, 1996
- ------------------------------------- Executive Vice President
Owen W. Robbins (Principal Financial Officer)

GEORGE W. CHAMILLARD President, Chief Operating March 26, 1996
- ------------------------------------- Officer, and Member of the Board
George W. Chamillard

DONALD J. HAMMAN Controller March 26, 1996
- -------------------------------------
Donald J. Hamman

EDWIN L. ARTZT Director March 26, 1996
- -------------------------------------
Edwin L. Artzt

JAMES W. BAGLEY Director March 26, 1996
- -------------------------------------
James W. Bagley

ALBERT CARNESALE Director March 26, 1996
- -------------------------------------
Albert Carnesale

DANIEL S. GREGORY Director March 26, 1996
- -------------------------------------
Daniel S. Gregory

DWIGHT H. HIBBARD Director March 26, 1996
- -------------------------------------
Dwight H. Hibbard

JOHN P. MULRONEY Director March 26, 1996
- -------------------------------------
John P. Mulroney

RICHARD J. TESTA Director March 26, 1996
- -------------------------------------
Richard J. Testa
</TABLE>

<PAGE> 1

Exhibit 3.2

THE COMMONWEALTH OF MASSACHUSETTS

William Francis Galvin

Secretary of the Commonwealth

ONE ASHBURTON PLACE, BOSTON, MASSACHUSETTS 02108

ARTICLES OF AMENDMENT

GENERAL LAWS, CHAPTER 156B, SECTION 72

We Owen W. Robbins Vice President and
Donald G. Leka Assistant Clerk of

Teradyne, Inc.

- --------------------------------------------------------------------------------
(EXACT Name of Corporation)

located at: 321 Harrison Avenue, Boston, Massachusetts 02118

- --------------------------------------------------------------------------------
(MASSACHUSETTS Address of Corporation)

do hereby certify that these ARTICLES OF AMENDMENT affecting Articles NUMBERED:
Article 3

- --------------------------------------------------------------------------------
(Number those articles 1, 2, 3, 4, 5 and/or 6 being amended hereby)

of the Articles of Organization were duly adopted at a meeting held on May 24,
1995, by vote of:

26,581,818 shares of Common Stock out of 37,173,315 shares outstanding,
- ------------- ------------ ------------
type, class & series (if any)

shares of out of shares outstanding, and

- ------------- ------------ ------------
type, class & series (if any)

shares of out of shares outstanding,

- ------------- ------------ ------------
type, class & series (if any)

CROSS OUT being at least a majority of each type, class or series
INAPPLI- outstanding and entitled to vote thereon:1
CABLE
CLAUSE

1 For amendments adopted pursuant to Chapter 156B, Section 70.
2 For amendments adopted pursuant to Chapter 156B, Section 71.

Note: If the space provided under any Amendment or item on this form is
insufficient, additions shall be set forth on a separate 8 1/2 x 11 sheets of
paper leaving a left-hand margin of at least 1 inch for binding. Additions to
more than one Amendment may be continued on a single sheet so long as each
Amendment requiring each such addition is clearly indicated.

<PAGE> 2

TO CHANGE the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fill in the
following:

The total presently authorized is:

WITHOUT PAR VALUE STOCKS

- ---------------------------- --------------------------
TYPE NUMBER OF SHARES

- ---------------------------- --------------------------
COMMON:

- ---------------------------- --------------------------
PREFERRED:

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

WITH PAR VALUE STOCKS

- ----------------------------------------------------------------------
TYPE NUMBER OF SHARES PAR VALUE

- ---------------------------- -------------------------- --------------
COMMON: 75,000,000 $0.125
- ---------------------------- -------------------------- --------------
PREFERRED:

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

CHANGE the total authorized to:

WITHOUT PAR VALUE STOCKS

- ---------------------------- --------------------------
TYPE NUMBER OF SHARES

- ---------------------------- --------------------------
COMMON:

- ---------------------------- --------------------------
PREFERRED:

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

WITH PAR VALUE STOCKS

- ---------------------------- -------------------------- --------------
TYPE NUMBER OF SHARES PAR VALUE

- ---------------------------- -------------------------- --------------
COMMON: 125,000,000 $0.125
- ---------------------------- -------------------------- --------------
PREFERRED:

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

<PAGE> 3

THE COMMONWEALTH OF MASSACHUSETTS

ARTICLES OF AMENDMENT

GENERAL LAWS, CHAPTER 156B, section 72

I hereby approve the within articles of amendment
and, the filing fee in the amount of $50,000.00 having
been paid, said articles are deemed to have been filed
with me this 17th day of July, 1995

WILLIAM FRANCIS GALVIN

Secretary of the Commonwealth

TO BE FILLED IN BY CORPORATION

PHOTOCOPY OF ARTICLES OF AMENDMENT TO BE SENT

TO: Kevin M. Barry, Esq.

Testa, Hurwitz & Thibeault

53 State Street, Exchange Place
Boston, MA 02109

<PAGE> 4

The foregoing amendment will become effective when these articles of amendment
are filed in accordance with Chapter 156B, Section 6 of the General Laws unless
these articles specify, in accordance with the vote adopting the amendment, a
later effective date not more than thirty days after such filing, in which event
the amendment will become effective on such later date. LATER EFFECTIVE
DATE:_____________________________

IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereunto signed
our names this 17th_______________ day of July_______________ in the year 1995.

/s/ Owen W. Robbins_____________________________________Executive Vice President

/s/ Donald G. Leka______________________________________Assistant Clerk

<PAGE> 1

Exhibit 10.3

AMENDED AND RESTATED
MULTICURRENCY REVOLVING CREDIT

AND TERM LOAN AGREEMENT

Among

TERADYNE, INC.,

THE FIRST NATIONAL BANK OF BOSTON,

BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,

STATE STREET BANK AND TRUST COMPANY,

FLEET BANK OF MASSACHUSETTS, N.A.

and

THE FIRST NATIONAL BANK OF BOSTON,

As Agent

as of January 31, 1996

<PAGE> 2

<TABLE>
Table of Contents
<CAPTION>
Page

<S> <C>

1. INTERPRETATION

1.1. General Provisions Pertaining to.................................. 1
1.2. Terms Defined..................................................... 2

2. THE LOANS

2.1. Obligations of the Banks to Make Advances......................... 12
2.2. Termination of Commitment ........................................ 12
2.3. Reduction or Termination by the Company
of Banks' Commitment.......................................... 12
2.4. Reduction of Optional Currency Borrowings......................... 13
2.5. Fees.............................................................. 13
2.6. Making the Advances............................................... 14
2.7. Optional Currencies............................................... 15
2.8. Interest Payable on the Loans..................................... 17
2.9. Alternative Interest Rates........................................ 18
2.10. Repayments and Prepayments of the Loans, etc...................... 19
2.11. Payments and Computations......................................... 21
2.12. Payments to be Free of Deductions................................. 22
2.13. Additional Costs, Changes in Circumstances, etc................... 22
2.14. Indemnification for Losses........................................ 24
2.15. Increased Capital Requirements.................................... 24
2.16. HLT Classification................................................ 25

3. CONDITIONS OF LENDING

3.1. Conditions Precedent to Each Advance........................................... 25
3.2. Conditions Precedent to First Advance.......................................... 27

4. REPRESENTATIONS AND WARRANTIES

4.1. Representations and Warranties of the Company..................... 28
4.1.1. Organization, Good Standing, Authority, etc....................... 28
4.1.2. Governmental Approvals............................................ 28
4.1.3. Subsidiaries...................................................... 28
4.1.4. Compliance with Other Instruments................................. 29
4.1.5. Litigation........................................................ 29
4.1.6. No Adverse Contracts, etc......................................... 29

</TABLE>
<PAGE> 3
<TABLE>
(ii)
<CAPTION>
<S> <C>

4.1.7. Financial Statements.............................................. 29
4.1.8. Changes........................................................... 29
4.1.9. Business.......................................................... 29
4.1.10. Taxes............................................................. 30
4.1.11. Loan as Senior Indebtedness....................................... 30
4.1.12. No Defaults....................................................... 30
4.1.13. Regulation U...................................................... 30
4.1.14. Pension Plans..................................................... 30
4.1.15. Investment Company; Public Utility
Holding Company................................................ 30
4.1.16. Environmental Compliance.......................................... 31
4.2. Representations and Warranties of Each
Borrowing Subsidiary.......................................... 31
4.2.1. Organization, Good Standing, Authority, etc....................... 31
4.2.2. Governmental Approvals............................................ 32
4.2.3. Compliance with Other Instruments................................. 32
4.2.4. Litigation........................................................ 32
4.2.5. No Adverse Contracts, etc......................................... 32
4.2.6. Regulation U...................................................... 32
4.2.7. Borrowing Subsidiary.............................................. 32
4.2.8. Investment Company; Public Utility
Holding Company............................................... 32

5. CERTAIN AFFIRMATIVE COVENANTS

5.1. Conduct of Business............................................... 33
5.2. Payment of Taxes.................................................. 33
5.3. Notification of Significant
Litigation, Default, etc...................................... 33
5.4. Financial Statements, Certificates
and Other Information........................................ 34
5.5. Inspection of Properties and Books................................ 35
5.6. Employee Retirement Income
Security Act of 1974.......................................... 35
5.7. Financial Covenants............................................... 36
5.8. Pension Plans..................................................... 36
5.9. Further Assurances................................................ 36
5.10. Borrowing Subsidiaries............................................ 37
5.11. Environmental Matters............................................. 37

6. CERTAIN NEGATIVE COVENANTS

6.1. Indebtedness...................................................... 38
6.2. Liens............................................................. 39

</TABLE>
<PAGE> 4
<TABLE>
(iii)
<CAPTION>
<S> <C>
6.3. Investments....................................................... 39
6.4. Merger and Sale of Assets......................................... 40
6.5. Lines of Business................................................. 40
6.6. Limitation on Stock Repurchases................................... 41
6.7. Leasebacks........................................................ 41

7. GUARANTY

7.1. Guaranty........................................................... 41
7.2. Guaranty Absolute................................................. 41
7.3. Effectiveness, Enforcement........................................ 42
7.4. Waiver............................................................ 43
7.5. Subrogation....................................................... 43

8. EVENTS OF DEFAULT; ACCELERATION................................................ 44

9. SET-OFF .................................................................. 46

10. THE AGENT .................................................................. 47

11. MISCELLANEOUS

11.1. Expenses.......................................................... 49
11.2. Notices, etc...................................................... 49
11.3. Reliance, etc..................................................... 50
11.4. Captions.......................................................... 50
11.5. Consents, Amendments, Waivers, etc................................ 51
11.6. Benefit, etc...................................................... 52
11.7. Exchange Rate..................................................... 52
11.8. Governing Law..................................................... 52
11.9. Counterparts...................................................... 52
11.10. Consent to Jurisdiction,

Waiver of Jury Trial.......................................... 53
11.11. Transitional Provisions........................................... 54
11.12. Exempt Character of Transaction................................... 54

11. ASSIGNMENT AND PARTICIPATION

12.1. Conditions to Assignment by Banks................................. 54
12.2. Certain Representations and Warranties............................ 55
12.3. Register.......................................................... 56
12.4. New Notes......................................................... 56
12.5. Participations.................................................... 57
12.6. Disclosure........................................................ 57

</TABLE>

<PAGE> 5
<TABLE>
(iv)
<CAPTION>
<S> <C>
12.7. Assignee or Participant Affiliate................................. 57
12.8 Miscellaneous Assignment Provisions............................... 58
12.9 Assignment by Company............................................. 58

<FN>
Exhibits
<S> <C>
Exhibit A Form of Assignment and Acceptance
Exhibit B Form of Election for Borrowing
Exhibit C Form of Notes

Schedules
<S> <C>
Schedule 1 Commitment
Schedule 4.1.3 Subsidiaries
Schedule 4.1.5 Litigation
Schedule 4.1.16 Environmental Matters
Schedule 6.1 Existing Indebtedness

</TABLE>

<PAGE> 6

TERADYNE, INC.

AMENDED AND RESTATED
MULTICURRENCY REVOLVING CREDIT

AND TERM LOAN AGREEMENT

This AMENDED AND RESTATED MULTICURRENCY REVOLVING CREDIT AND TERM LOAN
AGREEMENT (the "Agreement") is made as of January 31, 1996, by and among
TERADYNE, INC. (the "Company"), THE FIRST NATIONAL BANK OF BOSTON, BANK OF
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, STATE STREET BANK AND TRUST
COMPANY, FLEET BANK OF MASSACHUSETTS, N.A., and the other lending institutions
listed on Schedule 1 hereto (each of which are referred to individually, as a
"Bank" and collectively, as the "Banks") and THE FIRST NATIONAL BANK OF BOSTON,
as agent for itself and the other Banks (in such capacity, the "Agent").

WHEREAS, the Company, the Banks and the Agent previously entered into a
Multicurrency Revolving Credit and Term Loan Agreement dated as of April 29,
1991 (as amended and in effect from time to time, the "Original Credit
Agreement"); and

WHEREAS, the Company, the Banks and the Agent desire to amend and
restate the Original Credit Agreement in its entirety as set forth herein;

NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company, the Banks and the
Agent hereby agree, subject to the terms and conditions set forth herein, to
amend and restate the Original Credit Agreement in its entirety as follows:

SECTION 1. INTERPRETATION.

1.1. General Provisions Pertaining to Definitions. For all purposes of this
Agreement, except as otherwise expressly provided herein or unless the context

otherwise requires:

(a) terms specifically defined in Section 1.2 hereof have the
meanings therein assigned to them, and other terms defined elsewhere in this
Agreement shall have the meanings therein assigned to them, and all such
definitions shall be applicable to both the singular and plural forms of the
terms defined; <PAGE>

-2-

(b) accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with accounting principles generally
accepted in the United States of America;

(c) "Agreement" or "this Agreement" means this Agreement as
amended and restated on the date hereof, or if subsequently modified, amended or
supplemented, as so modified, amended or supplemented and in effect at the time
of reference thereto; and

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

1.2. Terms Defined. Subject to the provisions of Section 1.1 hereof, the
following terms shall have the respective meanings set forth below:

"Advance" shall mean any advance made or to be made by the Banks to any
Borrower pursuant to Section 2.1 hereof.

"Affiliate" shall mean any Person that would be considered to be an
affiliate of the Company under Rule 144(a) of the Rules and Regulations of the
Securities and Exchange Commission, as in effect on the date hereof, if the
Company was issuing securities.

"Agent" shall be as defined in the preamble hereto.

"Assessment Rate" shall mean, for any Interest Period, the net annual
assessment rate (rounded upwards, if necessary to the next higher 1/16 of 1%)
payable by the Agent to the Federal Deposit Insurance Corporation (or any
successor) for such Corporation's (or such successor's) insuring time deposits
made in Dollars at offices of the Agent in the United States of America during
the most recent period for which such rate has been determined prior to the
commencement of such Interest Period.

"Banks" shall be as defined in the preamble hereto, and any other
Person who becomes an assignee of any rights and obligations of a Bank pursuant
to ss.12.

"Base Rate" shall mean for any day, the higher of (a) the Federal Funds
Effective Rate for such day plus 1/2 of 1% per annum and (b) the rate of
interest announced from time to time by the Agent at its head office as its base
rate. Any change in the Base Rate resulting from a change in the "base rate" or
the Federal Funds Effective Rate is to be effective at the beginning of the day
of such change.

"Base Rate Advance" shall mean any Advance denominated in Dollars upon
which interest will accrue based on the Base Rate.

<PAGE> 7

-3-

"Base Rate Loan" shall mean the principal or a relevant portion of the
principal amount outstanding from time to time after the Commitment Expiry Date
denominated in Dollars upon which interest will accrue based on the Base Rate.

"Borrower" shall mean the Company or any Borrowing Subsidiary, and
"Borrowers" shall mean the Company and each Borrowing Subsidiary.

"Borrowing Base" as determined at any date, means (a) eighty percent
(80%) of the aggregate amount of Eligible Accounts Receivable determined at such
date, plus (b) ten percent (10%) of Eligible Inventory determined as of such
date.

"Borrowing Date" shall mean, in relation to any Advance, the day on
which that Advance is made or to be made to a Borrower.

"Borrowing Subsidiary" shall mean a wholly-owned Subsidiary of the
Company which shall have delivered to each of the Banks an election to become a
Borrower, in substantially the form of Exhibit B, duly executed by such
Subsidiary and the Company, and a promissory note, in the form of Exhibit C,
appropriately completed, duly executed by such Subsidiary.

"Business Day" shall mean a day on which banks are open for business in
Boston, Massachusetts, New York, New York and San Francisco, California, and if
(a) a Eurodollar Rate Advance is involved, a day on which dealings in Dollars
and in foreign currency and exchange can be carried on in the relevant interbank
Eurodollar market and dollar settlements of such dealings are able to be
effected in New York City, and (b) if a CD Rate Advance is involved, a day on
which the Agent may determine its CD Rate, and (c) if any currency other than
Dollars is involved, a day on which dealings in Dollars and in foreign currency
and exchange can be carried on in the principal financial center of the country
in which such currency is legal tender.

"CD Rate" shall mean, for any Interest Period, an interest rate per
annum determined by the Agent pursuant to the following formula:

Domestic CD Rate* + Assessment Rate

-----------------
CD Rate = 1.00 - CD Reserve Percentage

*The components of the fraction to be rounded upward, if necessary, to
the next higher 1/16 of 1%.

"CD Rate Advance" shall mean any Advance denominated in Dollars upon
which interest will accrue based on the CD Rate.

<PAGE> 8

-4-

"CD Rate Loan" shall mean the principal or a relevant portion of the
principal amount outstanding from time to time after the Commitment Expiry Date
denominated in Dollars upon which interest will accrue based on the CD Rate.

"CD Reserve Percentage" shall mean for any day, that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the reserve requirement (including without limitation any marginal,
emergency, supplemental, special or other reserves) for a member bank of the
Federal Reserve System in Boston with deposits exceeding $1 billion in respect
of new time deposits in Boston having a maturity comparable to the Interest
Period for a CD Rate Advance or CD Rate Loans in an amount of $100,000 or more.
The CD Rate shall be adjusted automatically on and as of the effective date of
any change in the CD Reserve Percentage.

"Commitment" shall mean with respect to each Bank, the amount set forth
on Schedule 1 hereto as the amount of such Bank's commitment to make Advances to
the Borrower, as the same may be reduced from time to time, or if such
commitment is terminated pursuant to the provisions hereof, zero.

"Commitment Expiry Date" shall have the meaning assigned to that
term in Section 2.2. hereof.

"Commitment Fee" shall have the meaning assigned to that term in
Section 2.5(a) hereof.

"Commitment Percentage" shall mean with respect to each Bank, the
percentage set forth on Schedule 1 hereto as such Bank's percentage of the
aggregate Commitment of all the Banks, and with respect to the Term Loan, the
percentage amount set forth on Schedule 1 hereto of such Bank's commitment with
respect to the Term Loan.

"Consolidated" shall mean, as applied to any term used in this
Agreement, the relevant figures for the Company and its Subsidiaries on a
consolidated basis determined in accordance with generally accepted accounting
principles after eliminating all material inter-company items and minority
interests.

"Consolidated Tangible Net Worth" shall mean the consolidated capital
and retained earnings accounts of the Company and its Subsidiaries determined in
accordance with generally accepted accounting principles, but deducting
therefrom (without duplication of deductions) the net book value, after
deducting reserves applicable thereto, of all intangible assets, including
without limitation good will, trademarks, trade names, copyrights, patents and
rights in any thereof and unamortized debt discount and expense.

<PAGE> 9

-6-

"Contingent Liabilities" shall mean any guarantees, endorsements,
agreements to purchase or provide funds for the payment of obligations of
others, or other liabilities which would be classified as contingent in
accordance with generally accepted accounting principles, excluding, however,
(a) guarantees of the Indebtedness of consolidated Subsidiaries, (b) product
warranties given in the ordinary course of business and (c) endorsement of
checks or other negotiable instruments for deposit or collection in the ordinary
course of business.

"Convert," "Conversion," and "Converted" refers to the conversion of CD
Rate Advances, Base Rate Advances or Eurodollar Rate Advances into Advances of

another type.

"Current Ratio" shall mean Consolidated current assets divided by
Consolidated current liabilities.

"Default" shall have the meaning assigned to that term in Section 8
hereof.

"Discounted Trade Receivables" shall mean trade receivables, bills or
notes discounted with banks.

"Dollar(s)" and "U.S.$" shall mean dollars of the United States of
America.

"Dollar Equivalent" shall mean with respect to an amount of any
currency other than Dollars, the amount of Dollars equivalent thereto as
calculated pursuant to Section 2.7(b) hereof.

"Domestic CD Rate" shall mean, with respect to any CD Rate Advance or
CD Rate Loans for any Interest Period, the rate determined by the Agent to be
the prevailing rate per annum bid at 10:00 a.m., Boston time, (or as soon
thereafter as practicable) on the first day of any Interest Period for the
purchase at face value from the Agent of its certificates of deposits in an
amount comparable to the portion of the CD Rate Advance or CD Rate Loans to be
made by the Agent to which such Interest Period applies and having a maturity
comparable to such Interest Period.

"Eligible Accounts Receivable" as determined at any date, means rights
of the Company and its Subsidiaries on a Consolidated basis to payment for the
sale by the Company or its Subsidiaries of products or services sold and
delivered or to be delivered within a reasonable time thereafter by the Company
or its Subsidiaries and invoiced or to be invoiced within a reasonable time
thereafter, all in the ordinary course of business prior to such date, except
accounts receivable (a) owing by any Person which is an Affiliate of the Company
or any Subsidiary of the Company or (b) which have not been paid within 120 days
of the earlier to occur of the shipment date or the invoice date.

<PAGE> 10

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"Eligible Assignee" shall mean any of (a) a commercial bank or finance
company organized under the laws of the United States, or any State thereof or
the District of Columbia, which has an investment grade rating of A- or better
by Standard & Poor's, Moody's or Duff & Phelps and having total assets in excess
of $1,000,000,000; (b) a savings and loan association or savings bank organized
under the laws of the United States, or any State thereof or the District of
Columbia, which has an investment grade rating of A- or better by Standard &
Poor's, Moody's or Duff & Phelps, and having a net worth of at least
$100,000,000, calculated in accordance with generally accepted accounting
principles; (c) a commercial bank organized under the laws of any other country
which is a member of the Organization for Economic Cooperation and Development
(the "OECD"), or a political subdivision of any such country, which has an
investment grade rating of A- or better by Standard & Poor's, Moody's or Duff &
Phelps, and having total assets in excess of $1,000,000,000, provided, that such
bank is acting through a branch or agency located in the country in which it is
organized or another country which is also a member of the OECD; (d) the central
bank of any country which is a member of the OECD; and (e) if, but only if, any
Event of Default has occurred and is continuing, any other bank, insurance
company, commercial finance company or other financial institution or Person
approved by the Agent, such approval not to be unreasonably withheld.

"Eligible Inventory" as determined at any date, means the net book
value, as reflected on the books of the Company and its Subsidiaries on a
Consolidated basis in accordance with generally accepted accounting principles,
of raw materials, work-in-process and finished goods held by the Company or its
Subsidiaries after taking into account charges and liens against or with respect
to such inventory.

"Environmental Laws" shall mean any judgment, decree, order, law,
license, rule or regulation pertaining to environmental matters, including
without limitation, those arising under the Resource Conservation and Recovery
Act, the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, the Superfund Amendments and Reauthorization Act of 1986, the
Federal Clean Water Act, the Federal Clean Air Act, the Toxic Substances Control
Act or any other federal, state or local statute, regulation, ordinance, order,
or decree, or common law, whether in existence now or hereafter enacted, and as
such may be amended from time to time, relating to health, safety or the
environment.

"Eurodollar Rate" shall mean, in relation to each Interest Period
relating to a Eurodollar Rate Advance or Eurodollar Rate Loan, the annual rate
of interest determined by the Agent to be the sum of (a) the Eurodollar Reserve
Charge plus (b) the percentage annual rate of interest determined by the Agent
as being that rate at which deposits of the currency in which the relevant
Advance or Eurodollar Rate Loan is to be denominated during such Interest Period

<PAGE> 11

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are being offered to the Agent by prime banks in any interbank Eurodollar market
selected by the Agent in good faith, at or about the time of the quotation
thereof to such Borrower, for delivery on the first day of such Interest Period,
and for the number of days comprised therein, in amounts equal (as nearly as may
be) to the principal amount of the Agent's portion of the Advance or Eurodollar
Rate Loan to which such Interest Period relates.

"Eurodollar Rate Advance" shall mean any Advance denominated in an
Optional Currency or in Dollars upon which interest will accrue based on the
Eurodollar Rate.

"Eurodollar Rate Loan" shall mean the principal or a relevant portion
of the principal amount outstanding from time to time after the Commitment
Expiry Date denominated in Dollars upon which interest will accrue based on the
Eurodollar Rate.

"Eurodollar Reserve Charge" shall mean, subject to revision pursuant to
Section 2.13(a), for any Interest Period to which the Eurodollar Rate is to be
applicable an annual rate determined on the Rate-fixing Day pursuant to the
following formula (with the Eurodollar Rate and the Reserve Rate expressed as a
decimal):

Eurodollar Rate - Eurodollar Rate x 100

----------------
1.00 - Reserve Rate

"Event of Default" shall have the meaning assigned to that term in
Section 8 hereof.

"Excess Amount" shall have the meaning specified in Section 2.5 hereof.

"Excess Utilization Amount" shall have the meaning specified in Section
2.5(b) hereof.

"Federal Funds Effective Rate" for any period, a fluctuating interest
rate per annum equal for each day during such period to the weighted average of
the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three Federal funds brokers of
recognized standing selected by the Agent.

"Final Payment Date" shall mean the date specified as such in Section
2.10(a) hereof.

<PAGE> 12

-8-

"Guaranteed Obligation" shall have the meaning specified in Section 7.1
hereof.

"Indebtedness" shall mean all indebtedness for borrowed money or credit
received other than trade debt or other similar obligations incurred in the
ordinary course of business.

"Hazardous Substance" shall mean any hazardous waste as defined by
42 U.S.C. ss.6903(5),any hazardous substance as defined by 42 U.S.C. ss.9601(14)
,any pollutant or contaminant as defined by 42 U.S.C. ss.9601(33) and any toxic
substances, oil or hazardous materials or other chemicals or substances
regulated by any environmental law.

"Interest Payment Date" shall mean, with respect to CD Rate Advances,
CD Rate Loans, Eurodollar Rate Advances or Eurodollar Rate Loans, the last day
of any Interest Period, and with respect to Base Rate Advances or Base Rate
Loans, any date when interest is due and payable as provided under Section
2.8(c) hereof.

"Interest Period" shall mean,

(a) With respect to each Eurodollar Rate Advance and
Eurodollar Loan (i) initially as specified by a Borrower in its notice of
borrowing, the period commencing on the Borrowing Date, or, in the case of a
Conversion into Eurodollar Rate Advances and Eurodollar Rate Loans, commencing
on the date of such Conversion, and expiring 1, 2 or 3 months thereafter and
(ii) with respect to subsequent Eurodollar Rate Advances and Eurodollar Rate
Loans as specified by such Borrower in a written notice furnished to the Agent
no later than 10:00 a.m. Boston time three (3) Business Days prior to the
Rate-fixing Day with respect to such Eurodollar Rate Advance, any successive
periods of 1, 2 or 3 months commencing on the same day on which the next
preceding Interest Period with respect to such Eurodollar Rate Advance and
Eurodollar Rate Loan shall have expired. If a Borrower does not elect otherwise,
each Interest Period with respect to a Eurodollar Rate Advance and Eurodollar
Rate Loan shall be three months. The number of days in each Interest Period and
the particular day on which each Interest Period ends and the next begins shall
be fixed by the Agent in accordance with the Agent's generally accepted practice
in the relevant foreign currency deposits market. If any Interest Period would
otherwise end on a day which is not a Business Day, such Interest Period shall
end and the next Interest Period shall commence on the next preceding or the
next succeeding day which is a Business Day as determined conclusively by the
Agent in accordance with the then current bank practice in the relevant
interbank Eurodollar market.

(b) With respect to each CD Rate Advance and CD Rate Loan (i)
initially as specified by a Borrower in its notice of borrowing, the period
commencing on the Borrowing Date, or, in the case of a Conversion into CD Rate

<PAGE> 13

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Advances and CD Rate Loans, commencing on the date of such Conversion, and
expiring 30, 60 or 90 days thereafter, and (ii) with respect to subsequent CD
Rate Advances and CD Rate Loans, as specified by such Borrower in a written
notice furnished to the Bank no later than 10:00 a.m. Boston time three (3)
Business Days prior to the last day of the Interest Period with respect to such
CD Rate Advance and CD Rate Loan, any successive periods of 30, 60 or 90 days
commencing on the same day on which the next preceding Interest Period with
respect to such CD Rate Advance and CD Rate Loan shall have expired. If a
Borrower does not timely elect a new Interest Period with respect to a CD Rate
Advance, such CD Rate Advance shall, on the last day of the current Interest
Period, convert into a Base Rate Advance or Base Rate Loan. If any Interest
Period would otherwise end on a day which is not a Business Day, such Interest
Period shall end and the next Interest Period shall commence on the next
succeeding Business Day.

(c) With respect to each Base Rate Advance or Base Rate Loan,
the period commencing on the Borrowing Date of such Advance or Term Loan and
expiring on the date when the Base Rate Advance or Base Rate Loan is repaid or,
as the case may be, converted to a CD Rate Advance, CD Rate Loan, Eurodollar
Rate Advance or Eurodollar Rate Loan.

No Interest Period shall have an Interest Payment Date which occurs
after the Final Repayment Date or which is not on a Business Day.

"Investments" shall mean the aggregate of all expenditures made and all
liabilities incurred (contingently or otherwise) for the acquisition of stock or
Indebtedness of, or for loans, advances, capital contributions or transfers of
property to, or obligations of, any Person.

"Lease Payments" shall mean payments paid or payable under operating or
financial leases of real or personal property.

"Leverage Ratio" shall mean Consolidated Liabilities less deferred
income taxes, divided by Consolidated Tangible Net Worth.

"Liabilities" shall mean liabilities of the Company and its
Subsidiaries determined in accordance with generally accepted accounting
principles but deducting therefrom Subordinated Indebtedness.

"Loan" shall mean with respect to each Borrower, collectively, the
aggregate principal amount of all Advances or Term Loans, as the case may be,
made or to be made by the Banks to the Borrowers upon the terms and subject to
the conditions contained in this Agreement, and "Loans" shall mean all such
loans.

"Loan Account(s)" shall have the meaning specified in Section 2.6(e)
hereof.

<PAGE> 14

-10-

"Loan Documents" shall mean this Agreement and the Notes.

"Majority Banks" shall mean Banks holding at least 51% of the aggregate
outstanding principal amount of the Loans, or if no principal is outstanding, of
the Commitment.

"Margin" shall mean the following percentage per annum, which shall be
in effect for the following periods except as provided below: (i) during the
period from the date hereof until the Commitment Expiry Date, (x) with respect
to CD Rate Advances, three-quarters of one percent (3/4%) per annum, and (y)
with respect to Eurodollar Rate Advances, one-half of one percent (1/2%) per
annum, and (z) with respect to Base Rate Advances, zero percent (0%) per annum;
and (ii) during the period commencing from the Commitment Expiry Date until all
obligations of the Borrowers hereunder have been satisfied, (A) with respect to
CD Rate Loans, one percent (1%) per annum, (B) with respect to Eurodollar Rate
Loans, three-quarters of one percent (3/4%) per annum, and (C) with respect to
Base Rate Loans, one quarter of one percent (1/4%) per annum.

"Money Market Instruments" shall mean direct obligations of the United
States Government maturing within one year from the date of acquisition thereof,
instruments issued or guaranteed by United States commercial banks or bank
holding companies having total stockholders' equity in excess of $100,000,000,
or commercial paper rated A-1 or P-1 by Moody's Investors Service, Inc. or
Standard & Poor's Corporation, respectively.

"Net Working Capital" shall mean Consolidated current assets less
Consolidated current liabilities.

"Notes" shall have the meaning specified in Section 2.6(f) hereof.

"Obligations" shall mean all indebtedness, obligations and liabilities
of the Company and any of its Subsidiaries to any of the Banks and the Agent,
individually or collectively, existing on the date of this Agreement or arising
thereafter, direct or indirect, joint or several, absolute or contingent,
matured or unmatured, liquidated or unliquidated, secured or unsecured, arising
by contract, operation of law or otherwise, arising or incurred under this
Agreement or any of the other Loan Documents or in respect of any of the
Advances or Loans made or any of the Notes, or arising or incurred in connection
with any documents, agreements or instruments executed in connection therewith,
or other instruments at any time evidencing any thereof.

"Optional Currency" shall mean any currency which is freely convertible
into Dollars and which is traded on any interbank foreign currency deposits
market selected by the Agent in good faith.

"Process Agent" shall have the meaning specified in Section 11.10
hereof.

<PAGE> 15

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"Property" shall mean, collectively, all properties owned or operated
by the Company or any of its Subsidiaries from time to time.

"Rate-fixing Day" shall mean the second Business Day preceding the
Business Day on which an Interest Period begins.

"Release" shall have the meaning specified in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.
ss.ss.9601 et seq. ("CERCLA") and the term "Disposal" (or "Disposed") shall have
the meaning specified in the Resource Conservation and Recovery Act of 1976, 42
U.S.C. ss.ss.6901 et seq. ("RCRA") and regulations promulgated thereunder;
provided, that in the event either CERCLA or RCRA is amended so as to broaden
the meaning of any term defined thereby, such broader meaning shall apply as of
the effective date of such amendment and provided further, to the extent that
the laws of a state wherein the property lies establishes a meaning for
"Release" or "Disposal" which is broader than specified in either CERCLA or
RCRA, such broader meaning shall apply.

"Reserve Rate" means the reserve rate (including without limitation any
marginal, emergency, supplemental, special or other reserves) for Eurocurrency
Liabilities if such liabilities were outstanding (expressed as a decimal) set
forth in Regulation D of the Board of Governors of the Federal Reserve System
(or any successor or similar regulation relating to such reserve requirements)
determined by the Agent to be the rate or weighted average rate which would be
applicable to an Interest Period.

"Subordinated Indebtedness" shall mean unsecured Indebtedness for money
borrowed which have maturities and amounts and are subject to such covenants and
subordination provisions as are satisfactory to the Majority Banks as evidenced
by their written approval thereof.

"Subsidiary" shall mean any present or future corporation a majority of
whose shares of stock of any class (however designated) having ordinary voting
power for the election of a majority of the members of the board of directors or
other governing body of such corporation (other than stock having such power
only by reason of the happening of a contingency) shall at the time be owned by
the Company or by one or more of the Company's Subsidiaries. A wholly-owned
Subsidiary is a Subsidiary all of the capital stock (exclusive of directors'
qualifying shares) of which is owned directly or indirectly by the Company.

"Total Commitment" shall mean the sum of the Commitments of the Banks,
as in effect from time to time.

"Term Loan" shall mean either a Base Rate Loan, a CD Rate Loan or a
Eurodollar Rate Loan.

<PAGE> 16

-12-

"Total Loan" shall mean, with respect to each Borrower, the aggregate
amount of the Loan outstanding to such Borrower, and "Total Loans" shall mean
all such loans.

SECTION 2. THE LOANS.

2.1. Obligations of the Banks to Make Advances. Each of the Banks
severally agrees, subject to the terms and conditions of this Agreement, to make
its portion of Advances, in Dollars and/or, subject to Section 2.7 hereof, in an
Optional Currency, to the Borrowers from time to time from the date hereof to
and including the Commitment Expiry Date upon notice by the Borrower of the
Advance to the Agent given in accordance with ss.2.6, such sums as are requested
by such Borrower up to a maximum aggregate amount outstanding (after giving
effect to all amounts requested) at any one time equal to such Bank's
Commitment, provided, that the sum of the outstanding amount of the Advances
(after giving effect to all amounts requested) shall not at any time exceed the
lesser of (a) the Total Commitment and (b) the Borrowing Base. The Advances
shall be made pro rata in accordance with each Bank's Commitment Percentage.
Each request for an Advance hereunder shall constitute a representation and
warranty by the Borrower that the conditions set forth in ss.3.2, in the case of
the initial Advances to be made on the Closing Date, and ss.3.1 in the case of
all other Advances, have been satisfied on the date of such request.

2.2. Termination of Commitment. The Total Commitment (and the
Commitment of each Bank) will terminate in full at 10:00 a.m. Boston time,
January 31, 1999 unless earlier terminated as provided in this Agreement (the
"Commitment Expiry Date").

2.3. Reduction or Termination by the Company of Banks' Commitment.
Subject to the terms and conditions of this Agreement, the Company may at any
time on or prior to the Commitment Expiry Date reduce, or terminate entirely,
the Total Commitment hereunder in a minimum principal amount of $500,000 or any
multiple thereof by giving at least two Business Days' prior written notice
thereof to the Agent, whereupon the Commitments of the Banks shall be reduced
pro rata in accordance with their respective Commitment Percentages of the
amount specified in such notice or, as the case may be, terminated. Upon the
effective date of any such reduction or termination, the Company shall pay to
the Agent for the respective accounts of the Banks, or cause to be made, a
payment against principal of the Loans in such amount as will reduce the unpaid
principal balance thereof to an amount not in excess of the desired reduced
amount of the Total Commitment or, if the Total Commitment is being terminated,
pay, or cause to be paid, all obligations then due hereunder and accrued
Commitment Fees. No reduction or termination of the Commitments may be
reinstated.
<PAGE> 17
-13-

2.4. Reduction of Optional Currency Borrowings. The principal amount
available to the Borrowers in Optional Currencies pursuant to Section 2.7(a)
hereof shall be reduced pro rata in accordance with each Bank's Commitment
Percentage of the amount by which the Total Commitment is reduced under Section
2.3 hereof.

2.5. Fees.

(a) The Company agrees to pay to the Agent for the respective
accounts of the Banks on the first day of each calendar quarter
hereafter until the Commitment Expiry Date, and on the Commitment
Expiry Date, a commitment fee (the "Commitment Fee") on the average
daily amount by which the Total Commitment exceeds the aggregate
outstanding and unpaid Loans during the preceding three-month period or
portion thereof (such amount is referred to as the "Excess Amount").
The Commitment Fee payable to the Agent for the respective accounts of
the Banks shall equal such Bank's Commitment Percentage of one-tenth of
one percent (.10%) per annum computed on the Excess Amount. For
purposes of determining the Excess Amount, the Dollar Equivalent of
each Advance in an Optional Currency as determined on the date of the
making of such Advance shall be the amount of the Total Commitment used
in connection with such Advance, and no further adjustments shall be
made with respect to the Excess Amount based upon fluctuations
thereafter in the value of the Optional Currency of such Advance,
subject, however, to the provisions of Section 2.7(c).

(b) The Company agrees to pay to the Agent for the account of
each Bank a facility fee (the "Facility Fee") on January 31, 1996 and
each January 31 thereafter through and including January 31, 1998 equal
to one-eighth of one percent (1/8%) of the Total Commitment in effect
on the day immediately preceding such date. The portion of the Facility
Fee payable to each Bank shall equal such Bank's Commitment Percentage
thereof.

(c) The Company agrees to pay to the Agent solely for the
account of the Agent at the end of each calendar quarter commencing on
March 31, 1996 until the date on which (i) all Loans and accrued
interest thereon have been paid in full together with all other
Obligations outstanding at the time of such payment and (ii) the Total
Commitment has been terminated in full, whichever last occurs, an
Agent's fee in the amount of $6,250 per quarter, and if such date does
not occur at the end of a calendar quarter, the Agent's Fee shall be
prorated for that quarter.

<PAGE> 18

-14-

2.6. Making the Advances.

(a) Subject to the terms and conditions of this Agreement, a
Borrower may obtain Advances in the principal amount of $1,000,000 or
higher integral multiples of $100,000 or the equivalent thereof in an
Optional Currency from the Banks from time to time from and after the
date hereof, but not after the Commitment Expiry Date up to a maximum
aggregate amount outstanding (after giving effect to all Advances
requested) at any one time equal to the lesser of (a) the Total
Commitment or (b) the Borrowing Base.

(b) Whenever a Borrower desires and is entitled hereunder to
receive any Advance, the Borrower shall notify the Agent in writing in
the case of a Base Rate Advance not later than 10:00 a.m., Boston time,
on the Business Day prior to the date of the Advance or in the case of
a CD Rate Advance not later than 10:00 a.m. Boston time, three (3)
Business Days prior to the proposed Borrowing Date with respect to such
Advance, or in the case of a Eurodollar Rate Advance not later than
10:00 a.m., Boston time, five (5) Business Days prior to the
Rate-fixing Day with respect to such Advance, of (i) the Borrowing Date
(which must be a Business Day) and the amount of such Advance, stated
either in Dollars or, subject to Section 2.7 hereof, in an Optional
Currency, (ii) with respect to a CD Rate Advance or a Eurodollar Rate
Advance, the initial Interest Period of such Advance, and (iii) the
Borrower's bank account to which payment of the proceeds thereof is to
be made. The Agent will give the Banks prompt notice of each notice of
borrowing, which in the case of a Eurodollar Rate Advance shall be at
least four Business Days prior to the date of such Advance, and of each
other notice received from the Borrowers hereunder.

(c) If, on or prior to the Borrowing Date of any requested
Advance, the Total Commitment has not terminated in full and the
applicable conditions of Section 3 hereof are satisfied, the Banks will
advance to the Borrower making the request their respective Commitment
Percentages of the requested Advance by credit to the Borrower's
specified account with the Agent or by such other means as agreed upon
by the Borrower and the Agent in immediately available funds not later
than the close of business on such Borrowing Date.

(d) The failure of any Bank to make its pro rata share of any
Advance shall not relieve any other Bank of its obligation, if any,
hereunder to make its pro rata share of an Advance on the proposed
Borrowing Date, but no Bank shall be responsible for the failure of the

<PAGE> 19

-15-

other Bank to make the part of the Advance to be made by such other
Bank on the Borrowing Date.

(e) The obligations of the Company to repay all amounts
borrowed by it hereunder, all interest thereon and all fees and other
amounts payable by it in respect thereto shall be evidenced by this
Agreement and by individual loan accounts (collectively, the "Loan
Accounts" and individually, a "Loan Account") maintained by each of the
Banks, it being the intention of the parties hereto that the Company's
obligation with respect to its Loan are to be evidenced only as stated
herein and not by separate promissory notes. Each Bank shall render to
the Company and the Agent, on or before the fifth Business Day of each
calendar quarter, a statement of its Loan Account as of the last day of
the prior calendar quarter, which statement shall, in the absence of
manifest error, be considered correct and binding upon the Company
unless the Company notifies such Bank and the Agent to the contrary
within 45 days from the receipt of such statement; provided that the
failure of any Bank to render any such statement in a timely fashion
shall not affect or impair the validity or binding nature of any Loan
Account.

(f) The obligations of each Borrowing Subsidiary to repay all
amounts borrowed by it under this Agreement, all interest thereon and
all fees and other amounts payable by it in respect thereto shall be
evidenced by its promissory notes, substantially in the form of Exhibit
C hereto, appropriately completed (collectively, the "Notes" and
individually, a "Note") dated the applicable Borrowing Date and payable
severally to the order of each of the Banks in a principal amount equal
to such Bank's Commitment Percentage of the Total Commitment.

2.7. Optional Currencies.

(a) A Borrower may elect, prior to the Commitment Expiry Date,
to draw down a portion of the Total Commitment in, or convert Loans
outstanding to, an Optional Currency (if any), provided that the
aggregate principal amount of Loans outstanding immediately following
any such drawdown or conversion shall not exceed the Total Commitment
then in effect. Amounts proposed to be converted at any one time under
this Section 2.7 shall not be less than U.S. $500,000 and shall be an
integral multiple thereof, or the Dollar Equivalent in any Optional
Currency. In order to exercise the foregoing option a Borrower must
deliver to the Agent a written notice, subject to any other notice
requirements under this Agreement, designating the currency into which
the designated portion of the Borrower's Loan is to be drawn down or,

<PAGE> 20

-16-

as the case may be, converted, at least five (5) Business Days prior to
the commencement of the subsequent Interest Period relating to such
portion of the Borrower's Loan and any such conversion shall be
effected on such date. If any such notice is not delivered to the Agent
by such Borrower within the required time, the Borrower shall be deemed
to have elected that the relevant portion of the principal amount of
the Borrower's Loan continue to be denominated in the currency in which
it then currently stands denominated. No Interest Period during which a
portion of the principal of a Borrower's Loan is to be denominated in
any Optional Currency shall have an Interest Payment Date which occurs
after the Commitment Expiry Date.

If any Bank determines (which determination shall be
conclusive), and notifies the Agent on or prior to the second Business
Day preceding the first day of any Interest Period during which a
portion of the principal of a Borrower's Loan is to be denominated in
any Optional Currency, that the Optional Currency is not freely
transferable and convertible into Dollars or that it will be
impracticable for such Bank to fund its portion of the Advance in such
Optional Currency, then the Agent shall so notify the Borrower making
the election, and that portion of the principal amount of the
Borrower's Loan shall, notwithstanding any contrary election by such
Borrower or any other provisions hereof, be denominated in Dollars and
be in the form of a Base Rate Advance.

(b) For all purposes of this Agreement, the amount in one
currency which shall be equivalent on any particular date to a
specified amount in another currency shall be that amount (as
conclusively ascertained by the Agent absent manifest error) in the
first currency which is or could be purchased by the Agent (in
accordance with its normal banking practices) with such specified
amount in the second currency in any interbank foreign currency
deposits market selected by the Agent in good faith for delivery on
such date at the spot rate of exchange prevailing on such date.

(c) In the event that any portion of the funds available under
the terms of this Agreement is denominated in one or more Optional
Currencies, the Dollar Equivalent of such portion of the funds shall be
calculated pursuant to paragraph (b) above. The amount so determined
shall then be added to the amount already outstanding in Dollars for
the purpose of determining the remaining availability of funds under
Section 2.1 and Section 2.7(a) hereof and any required repayments under
Section 2.10(c) hereof. Notwithstanding the foregoing, if at any time
prior to the Commitment Expiry Date, the sum of (a) the aggregate

<PAGE> 21

-17-

principal amounts outstanding hereunder denominated in Dollars plus (b)
Dollar Equivalent of the aggregate principal amount outstanding
hereunder shall exceed the lesser of the Total Commitment or the
Borrowing Base as a result of fluctuations in respective conversion
rates, each Borrower shall pay immediately, upon demand made by the
Agent, all amounts required in order to reduce the Loans outstanding to
the lesser of the Total Commitment and the Borrowing Base.

2.8. Interest Payable on the Loans.

(a) With respect to any Advance or Term Loan denominated in
Dollars, the rate of interest which shall be jointly and severally
payable by the Borrowers on the unpaid principal outstanding to the
Borrowers shall be the annual percentage rate of interest determined by
the Agent to be the sum of (i) the applicable Margin in effect plus
(ii) the Base Rate, or if the Borrower has so elected pursuant to this
paragraph (a), the Eurodollar or CD Rate relating to the Interest
Period with respect to any such Advance or Term Loan. Any Borrower may
elect, prior to the Commitment Expiry Date (A) to draw down a portion
of the funds available under this Agreement in Dollars upon which
interest will accrue based on the Eurodollar Rate or the CD Rate or (B)
to convert any Base Rate Advance or Base Rate Loan, CD Rate Advance or
CD Rate Loan or Eurodollar Rate Advance or Eurodollar Rate Loan
denominated in Dollars to or from any other type of Advance or Term
Loan, on the last day of the Interest Period with respect to the
Advance or Term Loan to be converted. In order to exercise the
foregoing option, a Borrower must deliver to the Agent a written notice
subject to any other notice requirements under this Agreement
designating the election of the basis on which the interest rate will
be determined at least five (5) Business Days prior to the commencement
of the Interest Period relating to such portion of the Borrower's Loan
on which such conversion is to occur.

(b) The rate of interest which shall be payable by a Borrower
on any portion of the principal of the Loan extended to such Borrower
which is denominated in an Optional Currency for the time being, and is
outstanding during each Interest Period relating thereto, shall be the
annual percentage rate of interest determined by the Agent to be the
sum of (i) the applicable Margin in effect plus (ii) the Eurodollar
Rate relating to such Interest Period.

(c) Interest shall be payable jointly and severally by the
Borrower, and the Borrowers hereby absolutely and unconditionally

<PAGE> 22

-18-

jointly and severally promises to pay, to the Agent for the account of
the Banks in arrears in Dollars, or, as the case may be, in the
Optional Currency in which that portion of the principal amount of the
Loan extended to such Borrower, in respect of which payment is made, is
denominated (i) with respect to CD Rate Advances or CD Rate Loans or
Eurodollar Rate Advances or Eurodollar Rate Loans, on each Interest
Payment Date, provided, however, that if the duration of any such
Interest Period is longer than three months, the Borrower shall pay the
accrued interest on the last Business Day of each successive three
month period and (ii) with respect to Base Rate Advances or Base Rate
Loans, quarterly on the last day of each calendar quarter hereafter,
and on any earlier date when a Base Rate Advance or Base Rate Loan is
converted to a CD Rate Advance or CD Rate Loan or Eurodollar Rate
Advance or Eurodollar Rate Loan.

(d) Each determination of any interest rate by the Agent with
respect to any Loan shall be conclusive in the absence of manifest
error. Base Rate interest rates shall change as the Base Rate shall
change, and any change in the interest rates shall become effective as
of the beginning of the day during which such change in the Base Rate
occurs.

(e) Overdue principal and, to the extent permitted by
applicable law, overdue interest and other amounts overdue under any
provision of this Agreement shall bear interest at the rate per annum
determined by the Agent to be two per cent (2%) above (i) with respect
to Loans denominated in an Optional Currency, the rate then applicable
to the relevant Advances for funding periods not greater than six
months established by the Agent, in its discretion, from time to time
and (ii) with respect to Loans denominated in Dollars, the Base Rate.
Such interest on overdue principal and overdue interest and other
amounts overdue shall be payable on demand and shall continue to accrue
from the due date of such principal, interest or amounts and shall be
compounded monthly until the obligation of the Borrower in respect of
the payment thereof is discharged (whether before or after judgment).

2.9. Alternative Interest Rates.

(a) Except as otherwise provided in this Agreement, if on any
Rate-fixing Day on which the interest rate with respect to any Advance
or Term Loan is to be based on the Eurodollar Rate, the Agent shall
determine that it is unable to quote the Eurodollar Rate, or any Bank
shall determine that such Bank is unable to or it is impracticable for
it to fund the Advance or Term Loan for the requested Interest Period,
the Borrower shall be deemed to have elected that the Advances or Term

<PAGE> 23

-19-

Loans be denominated in Dollars as Base Rate Advances.

(b) If any Bank shall in good faith determine that, by reason
of circumstances affecting the market for certificates of deposit
maintained by New York dealers of recognized standing, adequate and
reasonable means do not exist for such Bank to obtain bids for the
purchase of certificates of deposit on the first day of an applicable
Interest Period then (a) such Bank shall so notify the Agent and the
Agent shall notify the Borrower and the Banks, and (b) any Advances or
Term Loans which are the subject of such request by the Borrower shall
be Base Rate Advances.

2.10. Repayments and Prepayments of the Loans, etc.

(a) On and as of the Commitment Expiry Date, the principal
amount of the Loans then outstanding (the "Total Loan") shall be held
by the Banks on a pro rata basis in accordance with their respective
Commitment Percentages. Provided that no Event of Default has occurred
and is continuing, the Total Loan shall be payable in installments over
a term of two years as set forth in this paragraph (a). The Borrowers
jointly and severally hereby absolutely and unconditionally promise to
pay to the Agent for the accounts of the Banks ratably according to the
then outstanding principal amount of the Total Loan, on the last day of
April, July, October and January commencing on April 30, 1999, and
ending on January 31, 2001 (each of such 8 dates hereinafter referred
to as a "Repayment Date"), and there shall become absolutely due and
payable on each Repayment Date, a fixed installment of principal in an
amount equal to one-eighth of the Total Loan. All such repayments shall
be made in the currency in which the Loan to be repaid or any portions
thereof is denominated. The Borrowers jointly and severally hereby
absolutely and unconditionally agree to pay to the Agent for the
accounts of the Banks ratably according to the then outstanding
principal amount of the Total Loan, on January 31, 2001 (the "Final
Repayment Date"), and there shall become absolutely due and payable on
the Final Repayment Date, the entire unpaid principal amount of the
Total Loan outstanding on such date. In addition, the Borrowers each
agree to execute and deliver to each Bank prior to the close of
business on the Commitment Expiry Date, a term note (the "Term Note")
containing the terms set forth herein, which Term Note shall be in form
and substance satisfactory to the Banks.

(b) Each Borrower may, pursuant to this paragraph (b), elect
to prepay the principal of any Base Rate Advance or Base Rate Loan
outstanding at any time in full or in part without premium or penalty,

<PAGE> 24

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or to prepay the principal of any Eurodollar Rate Advance or Eurodollar
Rate Loan or CD Rate Advance or CD Rate Loan outstanding in full or in
part without premium or penalty on the Interest Payment Date of any
Interest Period relating to the unpaid principal of such Eurodollar
Rate Advance or Eurodollar Rate Loan or CD Rate Advance or CD Rate Loan
to be prepaid, provided that the amount of any prepayment of the unpaid
principal of any Advance pursuant to this paragraph (b) shall be in a
principal amount of such Advance or not less than $500,000 or the
equivalent thereof in the Optional Currency in which that portion of
the principal amount of the Advance in respect of which the payment is
to be made is denominated. Any and all amounts of the Term Loans
prepaid pursuant to this Section 2.10(b) shall be applied to the unpaid
principal amount of such Borrower's Total Loan in the inverse order of
maturity. Amounts prepaid pursuant to this paragraph (b) may, subject
to the terms and conditions of this Agreement, be reborrowed on or
before the Commitment Expiry Date.

(c) If at any time (i) on or prior to the Commitment Expiry
Date the sum of (1) the aggregate principal amounts outstanding
hereunder denominated in Dollars plus (2) the Dollar Equivalent of the
aggregate principal amount outstanding hereunder shall exceed the
lesser of (x) the Total Commitment and (y) the Borrowing Base (whether
as a result of fluctuations in the currency rates or otherwise), there
shall become absolutely due and payable, and one or more Borrowers, as
determined by the Company, hereby promises to pay to the Agent all
amounts required in order to reduce the principal amount outstanding to
the lesser of the Total Commitment and the Borrowing Base, or the
equivalent thereof in one or more Optional Currencies; and (ii) after
the Commitment Expiry Date the sum of (1) the aggregate principal
amounts outstanding hereunder denominated in Dollars plus (2) the
Dollar Equivalent of the aggregate principal amount outstanding
hereunder shall exceed (whether as a result of fluctuations in the
currency rates or otherwise) the permitted aggregate outstanding
principal amount of the Term Loans determined in accordance with
ss.2.10(a), there shall become absolutely due and payable, and one or
more Borrowers, as determined by the Company, hereby promises to pay to
the Agent all amounts required in order to reduce the principal amount
outstanding to the principal amount permitted to be outstanding
pursuant to ss.2.10(a).

(d) Upon each repayment or prepayment of any principal of any
Advance or Term Loans pursuant to any of the provisions of this
Agreement, each Borrower hereby absolutely and unconditionally promises

<PAGE> 25

-21-

to pay to the Agent for the account of each Bank and there shall become
absolutely due and payable on the date of each such repayment or
prepayment, all of the unpaid interest accrued to such date on the
amount of the principal of the Advance or Term Loans being repaid or
prepaid on such date, together with all, if any, other sums then due
and payable hereunder in respect of the principal of the Advance or
Term Loans being repaid or prepaid on such date, including, but not
limited to, any sums payable in accordance with Section 2.14 hereof
which have been ascertained on or prior to the date of such repayment
or prepayment. Whenever any interest on and any principal of an Advance
or Term Loans is paid simultaneously hereunder, the whole amount paid
shall be applied first to interest then due and payable.

(e) Each repayment or prepayment of principal of less than the
entire unpaid principal amount owed by all of the Borrowers under this
Agreement and the Notes shall be allocated among the Banks in
proportion, as nearly as practicable, to the respective unpaid
principal debit balances of the Banks' Loan Accounts and/or principal
amounts of the Banks' Notes of the Borrowing Subsidiary which is the
obligor thereunder, with adjustments to the extent practical to
equalize any prior payments not exactly in proportion.

2.11. Payments and Computations.

(a) Each payment payable by a Borrower hereunder (i) if
denominated in Dollars shall be made to the Agent at its head office at
100 Federal Street, Boston, Massachusetts, in immediately available
funds, or, (ii) if denominated in any Optional Currency shall be made
in such immediately available funds as shall then be customary for
settlement at the place of payment of international transactions in
such Optional Currency, for the account of the Agent at a depository
designated by the Agent. Each Borrower authorizes the Agent and the
Banks to charge any of its respective accounts, other than payroll
accounts, with the Agent or the Banks for the amount of any payment due
hereunder.

(b) If any sum would, but for the provisions of this Section
2.11(b), become due and payable hereunder on a day which is not a
Business Day, then such sum shall become due and payable on either the
Business Day next preceding or the Business Day next succeeding the day
on which such sum would otherwise have become due and payable
hereunder, such Business Day to be selected (which selection shall be
conclusive and binding on each Borrower) by the Agent in accordance

<PAGE> 26

-22-

with the then current banking practice in the relevant interbank
Eurodollar market or Boston, as the case may be and interest and
commitment fees hereunder shall be adjusted accordingly.

(c) All computations of interest and commitment fees payable
hereunder shall be made by the Agent on the basis of actual number of
days elapsed and on a 360-day year.

(d) Each determination by the Agent of an amount of interest
or commitment fee payable by the Borrower hereunder shall, save for
manifest error, be conclusive and binding upon the Borrower.

(e) Promptly upon receipt of all payments under this Agreement
or the Notes, the Agent shall pay to each of the Banks its pro rata
share thereof.

2.12. Payments to be Free of Deductions. All payments by the Borrowers
under this Agreement shall be made without set-off or counterclaim and free and
clear of and without deduction for any taxes, levies, imposts, duties, charges,
fees, deductions, withholdings, compulsory loans, restrictions or conditions of
any nature now or hereafter imposed or levied by any country or any political
subdivision thereof or taxing or other authority therein unless a Borrower is
compelled by law to make such deduction or withholding. If any such obligation
is imposed upon a Borrower with respect to any amount payable by it hereunder,
the Borrower will pay to the Agent for the account of each Bank, on the date on
which the said amount becomes due and payable hereunder, such additional amount
as shall be necessary to enable each Bank to receive the same net amount which
it would have received on such due date had no such obligation been imposed upon
the Borrower. Each Borrower will deliver promptly to the Agent certificates or
other valid vouchers for all taxes or other charges deducted from or paid with
respect to payments made by such Borrower hereunder.

2.13. Additional Costs, Changes in Circumstances, etc.

(a) Anything hereinbefore to the contrary notwithstanding, if
any present or future applicable law (which expression, as used in this
Agreement, includes statutes and rules and regulations thereunder and
interpretations thereof by any competent court or by any governmental
or other regulatory body or official charged with the administration or
the interpretation thereof and requests, directives, instructions and
notices at any time or from time to time heretofore or hereafter made
upon or otherwise issued to the Agent or any Bank by any central bank
or other fiscal, monetary or other authority, whether or not having the

<PAGE> 27

-23-

force of law) shall (i) subject the Agent or any Bank to any tax, levy,
impost, duty, charge, fee, deduction or withholding of any nature with
respect to this Agreement, the amount of such Banks' Commitment, or the
payment to the Agent or either Bank of any amounts due to it hereunder,
or (ii) materially change the basis of taxation of payments to the
Agent or any Bank of the principal or the interest on or any other
amounts payable to the Agent or any Bank hereunder, or (iii) impose or
increase or render applicable any special or supplemental special
deposit or reserve or similar requirements (whether or not having the
force of law) against assets held by, or deposits in or for the account
of, or any eligible liabilities of, or loans by an office of the Agent
or either Bank, or (iv) impose on the Agent or any Bank any other
condition or requirement with respect to this Agreement, the
Commitments, and the result of any of the foregoing is (A) to increase
the cost to any Bank of making, funding or maintaining all or any part
of the Loans, or (B) to reduce the amount of principal, interest or
other amount payable to any Bank hereunder, or (C) to require the Agent
or any Bank to make any payment or to forego any interest or other sum
payable hereunder, the amount of which payment or foregone interest or
other sum is calculated by reference to the gross amount of any sum
receivable or deemed received by the Agent or any Bank from any
Borrower hereunder, then, and in each such case, such Borrower will,
upon demand made by the Agent, pay to the Agent for its account or for
the account of any such Bank, as the case may be, such additional
amounts as will be sufficient to compensate them for such additional
cost, reduction, payment or foregone interest or other sum, provided
that the foregoing provisions of this sentence shall not apply in the
case of any additional cost, reduction, payment or foregone interest or
other sum resulting from any taxes charged upon or by reference to the
overall net income, profits or gains of the Agent or any Bank.

(b) If any Bank shall determine that any change in applicable
law shall make it unlawful for such Bank to comply with or to maintain
its obligations to fund Eurodollar Rate Advances or Eurodollar Rate
Loans or Advances or Term Loans in any Optional Currency hereunder in
the relevant interbank market, then such Bank shall notify the Agent
and the Agent shall notify the requesting Borrower of such
determination in writing. If the Agent so notifies such Borrower, then
(i) the Commitment and obligations to fund the Advances as Eurodollar
Rate Advances or Eurodollar Rate Loans or in such Optional Currency or
Currencies, as the case may be, shall terminate in full on and as of
the date of such notice, and (ii) such Advances or Term Loans shall on
the Interest Payment Date of any Interest Period which is current when

<PAGE> 28

-24-

the Borrower is so notified be converted to Base Rate Advances or Base
Rate Loans.

2.14. Indemnification for Losses. Each Borrower will, on demand by any
Bank at any time, indemnify such Bank against any losses, costs or expenses
which such Bank may at any time incur as a consequence of (a) the breach by such
Borrower of its obligations to borrow a CD Rate Advance or Eurodollar Rate
Advance on the Borrowing Date thereof, (b) the failure by such Borrower to pay,
punctually on the due date thereof, any amount payable hereunder, (c) the
accelerated payment of any obligations of such Borrower hereunder as the result
of an Event of Default, or (d) the repayment or prepayment of any principal
under a CD Rate Advance, CD Rate Loan, Eurodollar Rate Advance or Eurodollar
Rate Loan on a date other than an Interest Payment Date of an Interest Period
relating to such principal, such losses, costs or expenses to include, but not
to be limited to, (i) any costs incurred by such Bank in carrying funds which
were to have been borrowed by such Borrower or in carrying funds to cover the
amount of any overdue principal of or overdue interest on any Advance or Term
Loan, (ii) any interest payable by such Bank to lenders of the funds borrowed by
the Bank in order to carry the funds referred to in the immediately preceding
sub-clause (i), and (iii) any losses (including losses of anticipated profit)
incurred by such Bank in liquidating or re-employing funds acquired from third
parties to effect or maintain all or any part of any Advance or any portion
thereof.

2.15. Increased Capital Requirements. If (i) any change in law or any
governmental rule, regulation, policy, guideline or directive (whether or not
having the force of law) or the interpretation thereof by a court or
governmental authority with appropriate jurisdiction or (ii) the implementation
of any risk-based capital guideline or requirement (whether or not having the
force of law) heretofore or hereafter issued by any government or governmental
or supervisory authority, affects the amount of capital required or expected to
be maintained by any of the Banks or any corporation controlling any of the
Banks and any Bank determines that the amount of capital required is increased
by or based upon the existence of the credit facility established hereunder or
any Loans made pursuant hereto then such Bank may notify the Company and the
Agent of such fact. To the extent that the costs of such increased capital
requirements are not reflected in the interest rates charged on the Loans, the
Company and the Bank shall thereafter attempt to negotiate in good faith an
adjustment to the compensation payable hereunder which will adequately
compensate such Bank in light of these circumstances. If the Company and the
Bank are unable to agree to such adjustment within thirty days of the day on
which the Company receives such notice, then commencing on the date of such
notice (but not earlier than the effective date of any such change), the fees
payable hereunder shall increase by an amount which will, in such Bank's
reasonable determination, provide adequate compensation (such compensation to
include, without limitation, an amount equal to any reduction of the rate of
return on assets or equity of such Bank allocable by such Bank to its portion of

<PAGE> 29

-25-

the Total Commitment or the Loans to a level below that which such Bank or any
controlling corporation could have achieved but for such requirements).

2.16. HLT Classification. In the event that after the date hereof the
Loan or the Total Commitment hereunder are classified on the Agent's books as a
"highly leveraged transaction" (an "HLT Classification") by the Agent or by any
governmental authority, central bank or comparable agency having jurisdiction
over the Agent, then the Agent shall promptly give notice of such HLT
Classification to the Company and the Banks whereupon the Agent, the Banks and
the Company shall commence negotiations in good faith to agree on a revised
commitment fee, interest rates and/or margins hereunder reflecting such HLT
Classification. In the event that the parties hereto fail to agree on such
revised commitment fee, interest rates and/or margins within 30 days of the
notice given by the Agent, then the Agent shall (i) if requested by the Majority
Banks, by five Business Days' notice to the Borrowers terminate the unused
portions of the Total Commitment and they shall thereupon terminate, and (ii) if
requested by the Majority Banks, by five Business Days' notice to the Borrowers
declare all outstanding Loans (together with accrued interest thereon and any
other amounts payable hereunder) to be, and all such amounts shall thereupon
become, absolutely and immediately due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by each
Borrower. Each of the Borrowers hereby absolutely and unconditionally agrees to
pay to the Agent for the accounts of the Banks on the date of any such
acceleration all amounts payable by it hereunder.

SECTION 3. CONDITIONS OF LENDING.

3.1. Conditions Precedent to Each Advance. The effectiveness of this
Agreement and the obligations of the Banks to make any Advance or a Term Loan
are subject to the performance by the Company or a Borrowing Subsidiary, as the
case may be, of all its agreements theretofore to be performed by it hereunder
and to the satisfaction, prior to or at the time of making such Advance or Term
Loan, of the following conditions:

(a) The Agent shall have timely received from the Borrower any
notice required under any provisions of this Agreement, signed by any
one of the President, Treasurer, Controller or principal financial
officer of the Company and if the Borrower is a Borrowing Subsidiary,
an individual having comparable authority to any of such officers,
which request without more will constitute certification by such
officers as to the matters set forth in paragraphs (c), (d), (f) and
(h) below;

(b) The Agent shall have received duly certified copies of all
votes passed or other corporate action taken by the Board of Directors

<PAGE> 30

-26-

of the Borrower with respect to the transactions contemplated by this
Agreement;

(c) All necessary consents, waivers, approvals, amendments and
other action on the part of holders of Indebtedness or shares of
capital stock of any class or classes of the Company or any Subsidiary
necessary to have been obtained or effected in order to carry out the
transactions contemplated by this Agreement shall have been duly
obtained or effected and shall be in full force and effect and
adequate;

(d) Neither the consolidated financial position nor the
business as a whole of the Company and its Subsidiaries nor any
substantial portion of the properties and assets of the Company shall
have been materially adversely affected as a result of any legislative
or regulatory change or of any fire, explosion, tidal wave, flood,
windstorm, earthquake, landslide, land subsidence, accident,
condemnation or governmental intervention, order of any court or
governmental agency or commission, invalidity or expiration of any
patent or patent license, act of God or of the public enemy or of armed
forces, rebellion, strike, labor disturbance or embargo, or otherwise,
whether or not insured against, which would have a substantial
likelihood to impair materially the ability of the Company to fulfill
punctually its obligations under this Agreement;

(e) The making of an Advance or Term Loans shall not
contravene any law or rule or regulations thereunder or any
Presidential Executive Order binding on the Borrower or any Bank;

(f) The representations and warranties in Section 4 hereof and
all other representations in writing made by or on behalf of the
Company or any Subsidiary to the Banks in connection with the
transactions contemplated by this Agreement shall be true as of the
date on which they were made and shall also be true at and as of the
time of the making of the Advance with the same effect as if made at
and as of the time (except to the extent of changes resulting from
transactions contemplated by this Agreement and changes occurring in
the ordinary course of business which singly or in the aggregate are
not materially adverse, and to the extent that such representations and
warranties relate expressly to an earlier date) and no Event of Default
or condition which with notice or the passage of time or both would
constitute an Event of Default shall exist;

<PAGE> 31

-27-

(g) All fees, and all expenses and other amounts due and
payable pursuant hereto prior to or on the date of the Advance or Term
Loans shall have been paid; and

(h) The aggregate principal amount of the Loans outstanding
after giving effect to all Advances or converting to Term Loans
requested shall not exceed the lesser of the Total Commitment and the
Borrowing Base as determined on the date of the making of any requested
Advances or converting to Term Loans.

3.2. Conditions Precedent to First Advance.

(a) The obligation of the Banks to make the first Advance to
the Company or any other Borrower hereunder is subject to all of the
conditions set forth in Section 3.1 hereof and to the following further
conditions:

(i) The Company shall have certified to the Agent the
name and a specimen signature of each officer of the Company
authorized to sign requests for Advances on behalf of the
Company. The Agent and the Banks may rely conclusively on such
certification until the Agent receives notice in writing to
the contrary from the Company; and

(ii) The Agent shall have received an opinion
addressed to the Banks from Testa, Hurwitz & Thibeault,
counsel for the Company in form and substance satisfactory to
the Agent as to the matters specified in Sections 4.1.1,
4.1.2, 4.1.3, 4.1.5 and 4.1.14 and as to such other matters as
the Agent may reasonably request.

(b) The obligation of the Banks to make the first Advance to a
Borrowing Subsidiary is subject to all of the conditions set forth in
Section 3.1 hereof and to the following further conditions:

(i) The Borrowing Subsidiary shall have certified to
the Agent the name and a specimen signature of each officer of
the Borrowing Subsidiary authorized to sign requests for
Advances on behalf of the Borrowing Subsidiary. The Agent and
the Banks may rely conclusively on such certification until
the Agent receives notice in writing to the contrary from the
Borrowing Subsidiary;

<PAGE> 32

-28-

(ii) The Agent shall have received an opinion
addressed to the Banks from counsel to such Borrowing
Subsidiary who is reasonably acceptable to the Agent, in form
and substance satisfactory to the Agent, as to matters
specified in Sections 4.2.1, 4.2.2, 4.2.4 and 4.2.7 and as to
such other matters as the Agent may reasonably request; and

(iii) The Borrowing Subsidiary shall have executed
and delivered to the Agent a duly executed Note of such
Borrowing Subsidiary.

SECTION 4. REPRESENTATIONS AND WARRANTIES.

4.1. Representations and Warranties of the Company. The Company
represents and warrants to the Banks that:

4.1.1. Organization, Good Standing, Authority, etc. The Company and
each Subsidiary (a) is a corporation duly organized, existing and in good
standing under the laws of the jurisdiction of its incorporation, (b) has all
requisite corporate power to own its property and conduct its business as now
conducted and as presently contemplated and (c) to the best of the Company's
knowledge, is duly qualified to do business and in good standing as a foreign
corporation in each jurisdiction where the nature of its properties or its
business requires such qualification except where the failure to so qualify will
not have a materially adverse effect on the Company and its Subsidiaries. The
execution, delivery and performance of this Agreement and the transactions
contemplated hereby are within the corporate authority of the Company, have been
authorized by proper corporate proceedings and do not and will not contravene
any provisions of its charter, other incorporation papers, by-laws or any stock
provision or any amendment thereof or, to the best of the Company's knowledge,
any provisions of law or of any indenture, agreement, instrument or undertaking
binding upon the Company or any Subsidiary. The execution, delivery and
performance of this Agreement by the Company will result in valid and legally
binding obligations of the Company, enforceable in accordance with their
respective terms, except as limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting generally the
enforcement of creditor's rights.

4.1.2. Governmental Approvals. No approval or consent of, or filing
with, any governmental agency or authority is required to make valid and legally
binding the execution, delivery and performance of this Agreement by the Company
and consummation of the transactions between the parties hereto contemplated
hereby by the Company.

4.1.3. Subsidiaries. Attached hereto as Schedule 4.1.3 is a schedule
which correctly identifies all present Subsidiaries. All of the issued and

<PAGE> 33

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outstanding shares of stock of each Subsidiary have been validly issued and are
fully paid and non-assessable and, except for directors' qualifying shares and
as otherwise noted on Schedule 4.1.3, are owned by the Company or a Subsidiary
free and clear of any mortgage, pledge, lien, encumbrance, charge or restriction
on transfer. No rights to subscribe to additional shares of stock of any
Subsidiary have been granted.

4.1.4. Compliance with Other Instruments. Neither the Company nor any
Subsidiary is in material default under any provisions of its charter, other
incorporation papers, by-laws or stock provisions or any amendment thereof or of
any indenture or agreement or of any order, regulation, ruling or requirement of
a court or public body or authority by which it is bound.

4.1.5. Litigation. Except as disclosed in Schedule 4.1.5 attached
hereto, no action, suit, investigation or proceeding is pending or known to be
threatened against the Company or any Subsidiary before any court or
administrative agency which, if adversely determined, would materially impair
the ability of the Borrower and its Subsidiaries to carry on their consolidated
business substantially as now conducted or would materially adversely affect the
consolidated financial condition of the Borrower and its Subsidiaries.

4.1.6. No Adverse Contracts, etc. Neither the Company nor any
Subsidiary is subject to any provision of its charter, other incorporation
papers, by-laws or stock provisions or any amendment thereof or a party to or
otherwise bound by any indenture or agreement or bound by any order, regulation,
ruling or requirement of a court or public body or authority which will, under
current or foreseeable conditions, materially adversely affect its normal
operations or impair its financial condition or prospects.

4.1.7. Financial Statements. The Company has furnished to the Bank a
consolidated balance sheet as at December 31, 1994 and related consolidated
statements of income (loss), changes in stockholders' equity and cash flows of
the Company and its Subsidiaries for the fiscal year then ended, certified by
Coopers & Lybrand, independent accountants. The balance sheet and statements
described above have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis throughout the periods
specified and present fairly in all material respects the financial position of
the Company and its Subsidiaries as at the date thereof.

4.1.8. Changes. Since December 31, 1994, there has been no change in
the assets, liabilities, financial condition or business of the Company or any
Subsidiary, other than changes the effect of which has not been in any case, or
in the aggregate, materially adverse.

4.1.9. Business. The Company and each Subsidiary has good and
marketable title to its properties and assets, including such properties and

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assets as are reflected in the consolidated balance sheet referred to in Section
4.1.7 hereof (except such assets as have been disposed of in the ordinary course
of business subsequent to the date thereof) subject to no security interests,
except as is permitted by Section 6.2. The Company and each Subsidiary enjoys
peaceful and undisturbed possession under all leases of real or personal
property of which it is lessee, none of which contains any unusual or burdensome
provision which will materially adversely affect or impair the operation of the
Company or any Subsidiary, and all such leases are valid and subsisting and in
full force and effect. To the best of the Company's knowledge, the Company and
each Subsidiary owns or possesses the right to use all the franchises, rights
and licenses, necessary for the conduct of its business as now conducted and as
proposed to be conducted, without any known conflict with the rights of others.

4.1.10. Taxes. The Company and its Subsidiaries have filed all federal,
state and local tax returns which are required to be filed, except where the
time to file has been extended, and all taxes, assessments and other
governmental charges due from the Company and its Subsidiaries are not
delinquent. All deficiencies finally resulting from examinations of any such
returns by the respective taxing authorities have been discharged or provided
for. To the best of their knowledge, the Company and its Subsidiaries have
adequately provided for the payment of all federal, state and local taxes for
the years that have not been audited by the respective tax authorities.

4.1.11. Loan as Senior Indebtedness. The Indebtedness hereunder
evidenced by this Agreement will constitute "Senior Indebtedness" or "Senior
Debt" in any instrument evidencing Indebtedness which purports to be
Subordinated Indebtedness.

4.1.12. No Defaults. No event has occurred and is continuing and
no condition exists which constitutes or which after notice or lapse of time, or

both, would constitute an Event of Default.

4.1.13. Regulation U. The Company and each of its Subsidiaries is not
engaged in the business of owning or carrying margin stock (within the meaning
of Regulation U of the Board of Governors of the Federal Reserve System), and no
part of the proceeds of any Loan or Advance will be used to purchase or carry
any margin stock or to extend credit to others for the purpose of purchasing and
carrying any margin stock.

4.1.14. Pension Plans. The funding of any pension plan of the Company
and its Subsidiaries, or any of them, the benefits under which are guaranteed in
whole or in part by the Pension Benefit Guaranty Corporation, complies with the
minimum funding standards of Section 412 of the Internal Revenue Code of 1954,
as amended.

4.1.15. Investment Company; Public Utility Holding Company. Neither the
Company nor any Subsidiary is an "investment company" or a "company controlled"

<PAGE> 35

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by an "investment company" or an "affiliate" of an "investment company" within
the meaning of the Investment Company Act of 1940, as amended. Neither the
Company nor any Subsidiary is a "holding company", or a "subsidiary company" of
a "holding company", or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company", as such terms are defined in the
Public Utility Holding Company Act of 1935, as amended.

4.1.16. Environmental Compliance. Except as set forth in Schedule
4.1.16 hereto,

(a) none of the Company, its Subsidiaries or any operator of
its Property is in violation, or to the Company's knowledge alleged
violation, of any Environmental Laws, which violation would have a
material adverse effect on the business, assets or financial condition
of any of the Borrowers or of the Company and its Subsidiaries taken as
a whole.

(b) none of the Company or its Subsidiaries has received
notice that it is a potential responsible party under any Environmental
Law under circumstances which will, under current or foreseeable
conditions, have a material adverse effect on the business, assets or
financial condition of any of the Borrowers or of the Company and its
Subsidiaries taken as a whole.

4.2. Representations and Warranties of Each Borrowing Subsidiary.
Each Borrowing Subsidiary shall be deemed by the execution and delivery of its
election to become a Borrower to have represented and warranted to the Banks as
of the date thereof as follows:

4.2.1. Organization, Good Standing, Authority etc. It (a) is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation, (b) has all requisite corporate power
to own its property and conduct its business as now conducted and as currently
contemplated, and (c) to the best of its knowledge, is duly qualified to do
business and in good standing as a foreign corporation in each jurisdiction
where the nature of its property or business requires such qualification except
where the failure to so qualify will not have a materially adverse effect on it.
The execution, delivery and performance of the election to become a Borrower and
its Note, and the performance of its Note and the provisions of the Agreement
applicable to it are within the corporate authority of the Borrowing Subsidiary,
have been duly authorized by all necessary corporate proceedings, and do not and
will not contravene any provisions of its charter, other incorporation papers,
by-laws or any stock provision or any amendment thereof, or, to the best of its
knowledge, any provisions of law or any indenture, agreement, instrument or
undertaking binding upon it. The execution, delivery and performance of the
election to become a Borrower and its Note will result in valid and legally

<PAGE> 36

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binding obligations of the Borrowing Subsidiary, enforceable against it in
accordance with the terms and provisions thereof and hereof, except as limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting generally the enforcement of creditor's rights.

4.2.2. Governmental Approvals. No approval or consent of, or filing
with, any governmental agency or authority is required to make valid and legally
binding the execution, delivery and performance of the election to become a
Borrower, its Note and this Agreement and consummation of the transactions
contemplated hereby.

4.2.3. Compliance with Other Instruments. The Borrowing Subsidiary is
not in material default under any provisions of its charter, other incorporation
papers, by-laws or stock provisions or any amendment thereof or of any indenture
or agreement or of any order, regulation, ruling or requirement of a court or
public body or authority by which it is bound.

4.2.4. Litigation. No action, suit, investigation or proceeding is
pending or known to be threatened against the Borrowing Subsidiary before any
court or administrative agency which, if adversely determined, would materially
impair the ability of the Borrower and its Subsidiaries to carry on their
consolidated business substantially as now conducted or would materially
adversely affect the consolidated financial condition of the Borrower and its
Subsidiaries.

4.2.5. No Adverse Contracts, etc. The Borrowing Subsidiary is not
subject to any provision of its charter, other incorporation papers, by-laws or
stock provisions or any amendment thereof or a party to or otherwise bound by
any indenture or agreement or bound by any order, regulation, ruling or
requirement of a court or public body or authority which will, under current or
foreseeable conditions, materially adversely affect its normal operations or
impair its financial condition or prospects.

4.2.6. Regulation U. The Borrowing Subsidiary is not engaged in the
business of owning or carrying margin stock (within the meaning of Regulation U
of the Board of Governors of the Federal Reserve System), and no part of the
proceeds of any Loan or Advance will be used to purchase or carry any margin
stock or to extend credit to others for the purpose of purchasing and carrying
any margin stock.

4.2.7. Borrowing Subsidiary. It qualifies as a Borrowing Subsidiary
under the Agreement.

4.2.8. Investment Company; Public Utility Holding Company. The
Borrowing Subsidiary is not an "investment company" or a "company controlled" by
an "investment company" or an "affiliate" of an "investment company" within the
meaning of the Investment Company Act of 1940, as amended. The Borrowing

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Subsidiary is not a "holding company", or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company", as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended.

SECTION 5. CERTAIN AFFIRMATIVE COVENANTS.

The Company covenants and agrees that, so long as any amounts are owing
with respect to this Agreement or the Notes or the Banks are committed to extend
credit under this Agreement:

5.1. Conduct of Business. The Company and each of its Subsidiaries
will:

(a) duly observe and conform to all valid requirements of all
governmental authorities in any way relating to it or the conduct of
its business where failure to do so would materially affect the Company
and its Subsidiaries on a Consolidated basis,

(b) perform or comply with the terms and conditions of
each material contract, agreement or obligation to which it is a party,

(c) maintain and insure its properties so that its
business may be properly conducted at all times and so that it
will be adequately protected against loss, and

(d) keep true records and books of account.

5.2. Payment of Taxes. The Company and each of its Subsidiaries will
promptly pay and discharge all lawful taxes, assessments and governmental
charges or levies imposed upon it or upon its income or profit or upon any
property, real, personal or mixed, belonging to it; provided, however, that
neither the Company nor any of its Subsidiaries shall be required to pay any
such tax, assessment, charge or levy if the same shall not at the time be due
and payable or can be paid thereafter without penalty or if the validity thereof
shall currently be contested in good faith by appropriate proceedings and if the
Company or its Subsidiaries shall have made adequate provision on their
respective books for the payment of such tax, assessment, charge or levy.

5.3. Notification of Significant Litigation, Default, etc. The Company
will promptly notify the Agent of the commencement of any material litigation or
administrative proceeding initiated against it or any of its Subsidiaries and of
the occurrence of any Default or Event of Default hereunder.

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5.4. Financial Statements, Certificates and Other Information. The
Company will furnish to each of the Banks:

(a) as soon as available but in any event within forty-five
days after the end of the first three quarters in each fiscal year,
unaudited consolidated financial statements of the Company and its
Subsidiaries, prepared in accordance with generally accepted accounting
principles consistent with those used in the preparation of the
financial statements for the preceding quarter, except in instances
when changes to such principles are required by authoritative
rule-making bodies or adopted as preferable methods of accounting and
reported as such by the Company's independent accountants, in each case
certified by the chief financial officer, Controller or Treasurer of
the Company, subject, however, to audit and year-end adjustments;

(b) as soon as available but in any event within ninety days
after the end of each fiscal year, consolidated financial statements of
the Company and its Subsidiaries, all prepared in accordance with
generally accepted accounting principles consistent with those used in
the preparation of the financial statements for the preceding fiscal
year, except in instances when changes to such principles are required
by authoritative rule-making bodies or adopted as preferable methods of
accounting and reported as such by the Company's independent
accountants, in each case certified by Coopers & Lybrand or other
independent accountants of nationally recognized standing selected by
the Company and acceptable to the Banks;

(c) accompanying each set of financial statements furnished
pursuant to clauses (a) and (b) above, a certificate signed by the
President, Chief Financial Officer, or Treasurer of the Company setting
forth calculations showing compliance or noncompliance, at the end of
the quarter or year being reported on, with Sections 5.7 and 6.1 hereof
and stating that a review of the activities of the Company during the
period covered by such financial statements has been made under the
immediate supervision of the signer with a view to determining whether,
during such period, the Company and its Subsidiaries have kept,
observed, performed and fulfilled each and every covenant and condition
of this Agreement and either (i) stating that, to the best of his
knowledge and belief, there neither exists on the date of such
certificate, nor existed during such period, any Default or Event of
Default, or (ii) if any such Default or Event of Default existed or
exists, specifying the nature thereof, the period of existence thereof
and what action the Company has taken, is taking or proposes to take
with respect thereto;

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(d) upon request of any Bank and promptly upon receipt by the
Company, copies of all material management letters or other reports
submitted to it by independent accountants in connection with any
annual or interim audit of the books of the Company made by such
accountants;

(e) contemporaneously with the mailing, filing, submission or
other distribution thereof, copies of all financial statements,
reports, notices, proxy statements and other documents sent by the
Company to its stockholders or filed with or submitted by the Company
to the Securities and Exchange Commission;

(f) within forty-five days after the beginning of each
calendar quarter, a borrowing base certificate, including a summary of
agings of accounts receivable and categories of inventory, in a form
satisfactory to the Agent and signed by an authorized officer of the
Company, containing all information as shall be necessary to enable the
Agent to determine the Borrowing Base as of such date; and

(g) with reasonable promptness, such other information
relating to the business or financial affairs of the Company and its
Subsidiaries as any of the Banks, through the Agent, may reasonably
request.

The Company authorizes the Agent and the Banks to disclose any
information obtained pursuant to this Agreement to all appropriate governmental
or regulatory authorities where required by law.

5.5. Inspection of Properties and Books. The Banks, through the Agent
or any of its designated representatives, shall have the right, upon prior
notice to the Company, to visit and inspect any of the properties of the Company
and its Subsidiaries, to examine the books of account of the Company and its
Subsidiaries, to make all such examinations and inquiries as are necessary to
determine the Borrowing Base and to discuss the affairs, finances and accounts
of the Company and its Subsidiaries with, and to be advised as to the same by,
their officers, all at such reasonable times and intervals as the Banks may
desire.

5.6. Employee Retirement Income Security Act of 1974. The Company will
promptly notify the Agent of any "reportable event" as defined in Section 4043
of the Employee Retirement Income Security Act of 1974, as amended, or any
notice of termination of any plan under Sections 4041 or 4042 of such Act.

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5.7. Financial Covenants. The Company and its Subsidiaries will comply
with the following covenants:

(a) Net Working Capital; Current Ratio. The Company and its
Subsidiaries will at all times maintain (i) Net Working Capital of at
least $50,000,000, and (ii) a Current Ratio of at least 200%.

(b) Maintenance of Consolidated Tangible Net Worth. The Company
and its Subsidiaries will at all times maintain Consolidated Tangible
Net Worth of at least the Base Amount plus (i) all amounts hereafter
added to the capital accounts of the Company and its Subsidiaries,
whether by way of contribution, purchase of equity or otherwise, plus
(ii) exclusive of any amounts included under clause (i), 50% of
consolidated net income of the Company and its Subsidiaries earned in
each fiscal year commencing on or after December 31, 1990, adjusted
quarterly. (For purposes of the adjustment made pursuant to clause (ii)
above, consolidated net losses in any fiscal quarter are to be
disregarded.) The Base Amount shall, at all times when the aggregate
principal amount outstanding under this Agreement is equal to an amount
within a range specified below, be equal to the Base Amount set forth
opposite such range:

Range of Amounts Outstanding Base Amount

$0 - $19,999,999 $251,000,000

$20,000,000 - $39,999,999 $261,000,000

$40,000,000 - $59,999,999 $266,000,000

$60,000,000 and above $274,000,000

5.8. Pension Plans. The Company will, and will cause each Subsidiary
to, keep its private pension plans in full force and effect, make contributions
to each of such plans in a timely and sufficient amount, and acquire, promptly
upon its availability, and maintain contingent liability coverage insurance
under Section 4023 of the Employee Retirement Income Security Act of 1974, as
amended, obtained either from the Pension Benefit Guaranty Corporation or from
authorized private insurers.

5.9. Further Assurances. The Company will execute and deliver any and
all such instruments and documents, and take all such other action, as may

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reasonably be required by the Agent or any Bank in order to perfect, insure and
continue the rights and interests of the Banks under this Agreement.

5.10. Borrowing Subsidiaries. The Company (a) will permit only a
wholly-owned Subsidiary, which will be qualified as a Borrowing Subsidiary as
defined in this Agreement, to execute and deliver an election to become a
Borrower and to request Loans from the Banks, and (b) will maintain a 100%
ownership interest (except for directors' qualifying shares), whether directly
or indirectly, free and clear of all liens and encumbrances, in each Borrowing
Subsidiary.

5.11. Environmental Matters. The Company and its Subsidiaries will
comply with the following covenants:

(a) Notice. The Company covenants and agrees promptly to
provide the Agent and each of the Banks with written notice: (i) upon
the Company's obtaining knowledge of any violation of any Environmental
Law regarding the Property or the Company's operations which violation
could have a material adverse effect on the business, assets or
financial condition of any of the Borrowers or of the Company and its
Subsidiaries taken as a whole; (ii) upon the Company's obtaining
knowledge of any potential or known Release, or threat of Release, of
any Hazardous Substances at, from, or into the Property which it
reports in writing or is reportable by it in writing to any
governmental authority which Release could have a material adverse
effect on the business, assets or financial condition of any of the
Borrowers or of the Company and its Subsidiaries taken as a whole;
(iii) upon the Company's receipt of any notice of violation of any
Environmental Laws or of any Release or threatened Release of Hazardous
Substances, including a notice or claim of liability or potential
responsibility from any third party (including without limitation any
federal, state or local governmental officials) and including notice of
any formal inquiry, proceeding, demand, investigation or other action
with regard to (A) the Company's or any person's operation of the
Property, (B) contamination on, from or into the Property, or (C)
investigation or remediation of offsite locations at which the Company
or its predecessor are alleged to have directly or indirectly disposed
of Hazardous Substances, under circumstances which will, under current
or foreseeable conditions, have a material adverse effect on the
business, assets or financial condition of any of the Borrowers or of
the Company and its Subsidiaries taken as a whole; or (D) upon the
Company's obtaining knowledge that any expense or loss has been
incurred by such governmental authority in connection with the
assessment, containment, removal or remediation of any Hazardous
Substances with respect to which the Company may be liable or for which

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a lien may be imposed on the Property under circumstances which will,
under current or foreseeable conditions, have a material adverse effect
on the business, assets or financial condition of any of the Borrowers
or of the Company and its Subsidiaries taken as a whole.

(b) Response Actions. The Company covenants and agrees that if
any Release or disposal of Hazardous Substances shall occur or shall
have occurred on the Property, Company will cause the prompt
containment and removal of such Hazardous Substances and remediation of
the Property as necessary to comply with all Environmental Laws.

(c) Indemnification. The Company covenants and agrees that it
will indemnify and hold the Agent and each of the Banks harmless from
and against any and all claims which allege that the actions or
transactions of the Agent and the Banks undertaken in conformity with
this Agreement create any liability under the Environmental Laws,
provided that the Agent or the Bank, as the case may be, furnish prompt
notice of the claim and permits the Company to conduct the defense
against, and approve any settlement for, such claim. The Agent or any
Bank will be entitled to participate in such defense with counsel of
its own choosing, at its own expense.

SECTION 6. CERTAIN NEGATIVE COVENANTS.

The Company covenants and agrees that, so long as the Notes are
outstanding or the Banks are committed to extend credit under this Agreement,
neither it nor any Subsidiary will:

6.1. Indebtedness. Create, incur, assume, guarantee, agree to
purchase, repurchase or provide funds in respect of, or otherwise become or be
or remain liable with respect to, any Indebtedness of any type whatsoever owed
to any person, except:

(a) Indebtedness incurred pursuant to the Notes and any other
Indebtedness incurred pursuant to the terms of this Agreement;

(b) existing Indebtedness, as set forth on Schedule 6.1
hereto, including any extension, renewal or modification thereof which
does not increase the principal amount of such Indebtedness
outstanding;

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(c) in addition to Indebtedness permitted by paragraphs (a)
and (b) of this Section 6.1, other Indebtedness of not more than
$30,000,000 in the aggregate at any one time outstanding; and

(d) Indebtedness of the Company to any Subsidiary and
Indebtedness of any Subsidiary to the Company or another Subsidiary.

6.2. Liens. Create, incur, assume or permit to exist any mortgage,
lien, charge, security interest or other encumbrance on any properties or assets

owned by it, except:

(a) liens in respect of taxes, fees, assessments and other
governmental charges to the extent that payment of the same may be
postponed or is not required in accordance with the provisions of
Section 5.2 hereof;

(b) landlord's liens in respect of rent not in default or
liens in respect of pledges or deposits under workmen's compensation,
unemployment insurance, social security laws or similar legislation or
in connection with appeal and similar bonds incidental to litigation,
mechanics', laborers' and materialmen's and similar liens, if the
obligations secured by such liens are not then delinquent, and liens
securing statutory obligations incidental to the conduct of the
business of the Company and its Subsidiaries and which do not in the
aggregate materially detract from the value of the property of the
Company and its Subsidiaries or materially impair the use thereof in
the operation of their business;

(c) judgment liens which shall not have been in existence for
a period longer than sixty days after the creation thereof, or if a
stay of execution shall have been obtained, for a period longer than
sixty days after the expiration of such stay; and

(d) in addition to the foregoing, liens voluntarily created by
the Company or its Subsidiaries from time to time on assets having an
aggregate book value not exceeding 10% of Consolidated Tangible Net
Worth; provided, however, that no such lien shall attach to accounts
receivable or inventory of the Company or any of its Subsidiaries.

6.3. Investments. Make or permit to exist, any Investments, directly
or indirectly, other than:

(a) demand deposits maintained in accounts with United
States commercial banks;

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(b) Money Market Instruments;

(d) Investments in persons which are not Subsidiaries the cost
of which does not at any time exceed in the aggregate for all such
Investments 10% of Consolidated Tangible Net Worth; and

(e) other Investments not exceeding $10,000,000 in the
aggregate.

6.4. Merger and Sale of Assets. Consolidate or merge with or into
any other corporation or sell, lease (as lessor), transfer or otherwise
dispose of any substantial portion of its assets other than in the ordinary
course of business; provided that

(a) a Subsidiary may be merged or consolidated with the Company
if the Company shall be the surviving corporation or with any one or
more other Subsidiaries if the successor formed by or resulting from
such merger or consolidation shall be a Subsidiary;

(b) any Subsidiary may sell, lease (as lessor), transfer or
otherwise dispose of its assets to the Company or another Subsidiary
if, after giving effect to such merger, consolidation, sale, lease,
transfer or other disposition, no Default or Event of Default exists;

(c) the Company or any Subsidiary may consolidate or merge
with any other corporation if (i) the Company or the Subsidiary is the
survivor in such transaction and (ii) after giving effect to such
transaction no Default or Event of Default exists; and

(d) the Company or any of its Subsidiaries may sell or lease
(as lessor) assets other than in the ordinary course of business,
provided that the aggregate book value of such assets at any time sold
or leased (taken at the time of sale or lease) shall not exceed 10% of
the aggregate book value of all assets other than Discounted Trade
Receivables, as shown on the December 31, 1990, consolidated balance
sheet of the Company and its Subsidiaries.

6.5. Lines of Business. Engage in any business other than those in
which they are now engaged or any business directly related thereto.

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6.6. Limitation on Stock Repurchases. Make any payments on account of
the purchase or other acquisition, redemption or retirement of any shares in the
Company's capital of any class or any warrants or options to purchase any such
shares; excluding, however, from the operation of the foregoing provisions of
this Section 6.6 payments for the repurchase of the capital stock of the Company
which in the aggregate for all such payments made after December 31, 1994, do
not exceed $60,000,000.

6.7. Leasebacks. Directly or indirectly first become liable after the
date of this Agreement, as lessee or guarantor or other surety, with respect to
any lease of real or personal property, whether now owned or hereafter acquired,
(a) which is to be sold or transferred by the Company or a Subsidiary to any
Person, or (b) which the Company or a Subsidiary intends to use for
substantially the same purpose as any other property which has been or is to be
sold or transferred by the Company or a Subsidiary to any Person in connection
with such lease (either of the foregoing transactions being hereinafter referred
to as a "Leaseback"), except Leasebacks involving property, the aggregate value
of which for all Leasebacks after December 31, 1990 is not in excess of 10% of
Consolidated Tangible Net Worth on the date of any such Leaseback. For purposes
of this section the value of property shall be the greater of the fair market
value of the property or the book value of the property prior to the transfer as
determined in accordance with generally accepted accounting principles.

SECTION 7. GUARANTY.

7.1. Guaranty. For value received and hereby acknowledged and as an
inducement to the Banks to make Loans or Advances to the Borrowing Subsidiaries,
the Company hereby unconditionally and irrevocably guarantees: (i) the full
punctual payment when due, whether at stated maturity, by acceleration or
otherwise, of all obligations of each Borrowing Subsidiary now or hereafter
existing hereunder and under its Notes whether for principal, interest, fees,
expenses or otherwise, and (ii) the strict performance and observance by each
such Borrowing Subsidiary of all agreements, warranties and covenants in the
Notes and in the Agreement applicable to each such Borrowing Subsidiary (such
obligations collectively being the "Guaranteed Obligations").

7.2. Guaranty Absolute. The Company guarantees that the Guaranteed
Obligations will be paid strictly in accordance with the terms hereof,
regardless of any law, regulation or order now or hereafter in effect in any
jurisdiction affecting any of such terms or the rights of the Banks with respect
thereto. The liability of the Company under this guaranty with regard to the
Guaranteed Obligations of each Borrowing Subsidiary shall be absolute and
unconditional irrespective of:
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(i) any lack of validity or enforceability or any illegality
of such Borrowing Subsidiary's election to become a Borrower, its
Notes, the Agreement and any amendment thereof (with regard to such
Guaranteed Obligations), or any other obligation, agreement or
instrument relating thereto;

(ii) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Guaranteed Obligations of such
Borrowing Subsidiary or any other amendment or waiver of or any consent
to departure from the Agreement (with regard to such Guaranteed
Obligations);

(iii) any exchange, release or non-perfection of any
collateral, or any release or amendment or waiver of or consent to
departure from any other guaranty, for all or any of the Guaranteed
Obligations of such Borrowing Subsidiary;

(iv) any change in ownership of such Borrowing Subsidiary;

(v) any acceptance of any partial payment(s) from such

Borrowing Subsidiary; or

(vi) any other circumstance other than payment which might
otherwise constitute a defense available to, or a discharge of, such
Borrowing Subsidiary in respect of its Guaranteed Obligations provided
that the Company may assert defenses arising from any Bank's breach of
the Agreement to the same extent that a Borrowing Subsidiary would be
able to do so.

This guaranty shall continue to be effective or be reinstated, as the
case may be, if at any time any payment of any Guaranteed Obligation is
rescinded or must otherwise be returned by the Banks upon the insolvency,
bankruptcy or reorganization of any Borrowing Subsidiary or otherwise, all as
though such payment had not been made.

7.3. Effectiveness, Enforcement. The guaranty herein of the Company
shall be effective and shall be deemed to be made with respect to each Advance
made to a Borrowing Subsidiary as of the time it is made. No invalidity,
irregularity or unenforceability by reason of any bankruptcy or similar law, or
any law or order of any government or agency thereof purporting to reduce, amend
or otherwise affect any liability of a Borrowing Subsidiary, and no defect in or
insufficiency or want of powers of any Borrowing Subsidiary or irregular or
improperly recorded exercise thereof, shall impair, affect, be a defense to or
claim against such guaranty. This guaranty is a continuing guaranty and shall
(i) survive any termination of the Agreement and (ii) remain in full force and
effect until payment in full and performance of all Guaranteed Obligations and

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all other amounts payable under this guaranty. This guaranty is made for the
benefit of the Banks and their respective successors and assigns, and may be
enforced from time to time as often as occasion therefor may arise and without
requirement on the part of any Bank first to exercise any rights against any
Borrowing Subsidiary or to exhaust any remedies available to it against any
Borrowing Subsidiary or to resort to any other source or means of obtaining
payment of any of the Guaranteed Obligations or to elect any other remedy. Upon
any default by any Borrowing Subsidiary in the full and punctual performance of
any of the Guaranteed Obligations, the liabilities and obligations of the
Company hereunder shall, at the option of the Agent, become forthwith due and
payable.

7.4. Waiver. The Company hereby waives promptness, diligence, protest,
notice of protest, all suretyship defenses, notice of acceptance and any other
notice with respect to any of the Guaranteed Obligations and this guaranty and
any requirement that the Banks protect, secure, perfect to ensure any security
interest or lien or any property subject thereto or exhaust any right or take
any action against any Borrowing Subsidiary or any other Person or any
collateral. The Company also irrevocably waives, to the fullest extent permitted
by law, all defenses which at any time may be available to it in respect of the
Guaranteed Obligations by virtue of any statute of limitations, valuation, stay,
moratorium law or other similar law now or hereafter in effect.

7.5. Subrogation; Subordination.

(a) Until the final payment and performance in full of all of
the Obligations, the Company shall not exercise and hereby waives any
rights against a Borrowing Subsidiary arising as a result of payment by
the Company hereunder by way of subrogation, reimbursement,
restitution, contribution or otherwise, and will not prove any claim in
competition with the Agent or any Bank or any other creditor of a
Borrowing Subsidiary whether now or hereafter existing or arising in
respect of any payment hereunder in any bankruptcy, insolvency or
reorganization case or proceeding of any nature; the Company will not
claim any setoff, recoupment or counterclaim against a Borrowing
Subsidiary in respect of any liability of the Borrowing Subsidiary to
the Company; and the Company waives any benefit of and any right to
participate in any collateral security which may be held by the Agent
or any Bank.

(b) The payment of any amounts due with respect to any
indebtedness of a Borrowing Subsidiary for money borrowed or credit
received now or hereafter owed to the Company is hereby subordinated to
the prior payment in full of all of the Guaranteed Obligations. The
Company agrees that, after the occurrence of any default in the payment
or performance of any of the Guaranteed Obligations, the Company will

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not demand, sue or otherwise attempt to collect any such indebtedness
of a Borrowing Subsidiary to the Company until all of the Guaranteed
Obligations shall have been paid in full. If, notwithstanding the
foregoing sentence, the Company shall collect, enforce or receive any
amounts in respect of such indebtedness while any Guaranteed
Obligations are still outstanding, such amounts shall be collected,
enforced and received by the Company as trustee for the Banks and the
Agent and be paid over to the Agent, for the benefit of the Banks and
the Agent on account of the Guaranteed Obligations without affecting in
any manner the liability of the Company under the other provisions of
this Agreement.

(c) The provisions of this Section 7.5 shall be supplemental
to and not in derogation of any rights and remedies of the Banks and
the Agent under any separate subordination agreement which the Agent
may at any time and from time to time enter into with the Company for
the benefit of the Banks and the Agent.

SECTION 8. EVENTS OF DEFAULT; ACCELERATION.

If any of the following events ("Events of Default" or if either or
both notice or lapse of time is required, then, prior to such notice and/or
lapse of time, "Defaults") shall occur:

(a) if the Company or any Borrowing Subsidiary shall default
in any payment of any principal amount outstanding hereunder or under
the Notes when the same shall become due and payable, whether at
maturity or at any date fixed for payment or prepayment or by
declaration or otherwise other than due to a failure of a Bank or the
Agent to charge an account of the Company or such Borrowing Subsidiary
having a sufficient credit balance; or

(b) if the Company or any Borrowing Subsidiary shall fail to
pay any interest with respect to principal outstanding hereunder or
under the Notes or any commitment fee within two (2) Business Days
after written notice by the Agent thereof shall have been given to the
Company whether at maturity or at any date fixed for payment or
prepayment or by declaration or otherwise; or

(c) if the Company or any Borrowing Subsidiary shall default
in any material respect in the performance of or compliance with any
term contained herein and such default shall not have been remedied
within 15 days after written notice thereof shall have been given to

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the Company or such Borrowing Subsidiary by the Agent; or

(d) if any representation or warranty made in writing by or on
behalf of the Company or any Borrowing Subsidiary herein or in
connection with any of the transactions contemplated hereby shall prove
to have been false or incorrect in any material respect on the date as
of which made or deemed made; or

(e) if the Company or any Subsidiary shall fail to pay at
maturity, or within any applicable period of grace, any obligation for
money borrowed or credit advanced in an amount in excess of $250,000 in
any one case or in aggregate for all obligations in default at such
time, or shall have received notice of the existence of a default
resulting from its failure to observe or perform any term, covenant or
agreement contained in any agreement by which it is bound, evidencing
or securing such money borrowed or credit advanced, and such default
shall continue without waiver thereof beyond any period of grace
provided with respect thereto; or

(f) if any Borrower, or any Subsidiary owning assets having a
fair market value of $250,000 or more, shall make a general assignment
for the benefit of creditors or shall petition or apply for the
appointment of a liquidator or receiver of any Borrower or any such
Subsidiary or of any substantial part of the assets of any Borrower or
any such Subsidiary or shall commence any proceeding relating to any
Borrower under any bankruptcy, reorganization, insolvency, readjustment
of debt, dissolution or liquidation law or similar law of any
jurisdiction, now or hereafter in effect; or

(g) if any such petition or application shall be filed or any
such proceeding shall be commenced against any Borrower, or any
Subsidiary owning assets having a fair market value of $250,000 or
more, and such Borrower or such Subsidiary shall indicate its approval
thereof, consent thereto or acquiescence therein or an order shall be
entered appointing any liquidator or receiver, or adjudicating any
Borrower or any such Subsidiary a bankrupt or insolvent, or approving a
petition in any such proceeding, and such order shall remain in effect
for more than thirty days, whether or not consecutive; or

(h) if any order shall be entered in any proceeding by or
against any Borrower or any Subsidiary decreeing or permitting the
dissolution or split-up of any Borrower or such Subsidiary or the
winding up of its affairs and such order shall remain in effect for
more than thirty days, whether or not consecutive; or

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(i) if there shall remain in force, undischarged, unsatisfied
and unstayed, for more than thirty days after the date on which payment
is due thereon, whether or not consecutive, any final judgment against
any Borrower or any Subsidiary which, with other outstanding final
judgments, undischarged, against the Company and its Subsidiaries
exceeds in the aggregate $250,000 after taking into account any
insurance coverage;

then and in any such event the Agent may at any time, and upon written request
of the Majority Banks, shall, by written notice to the Borrower, and if the
Borrower is a Borrowing Subsidiary, the Company, declare: (i) the obligation of
each Bank to make Advances or Term Loans to the Borrowers to be terminated,
whereupon the same shall terminate, and/or (ii) the right of any Subsidiary to
become a Borrowing Subsidiary and the obligation of each Bank to make Advances
or Term Loans to such Subsidiary to be terminated, whereupon the same shall
forthwith terminate, and/or (iii) the principal amount of the Loan Accounts, in
the case of the Company and the Notes, in the case of all other Borrowers, all
interest thereon and all other amounts payable under this Agreement and the
Notes to be forthwith due and payable, whereupon the same shall become and be
forthwith due and payable without presentment, demand, protest or notice, all of
which are hereby expressly waived by each of the Borrowers. If any of the events
described in clauses (f), (g) or (h) above shall occur, and if such event
involves the Company (rather than a Subsidiary), the actions described in
clauses (i), (ii) and (iii) above shall occur automatically without requests by
the Banks, notice to the Company, or declaration by the Agent.

SECTION 9. SET-OFF.

Any deposits or other sums at any time credited by or due from any Bank
to the Company or any Subsidiary and any securities or other property of the
Company or any Subsidiary in any Bank's possession may at all times be held and
treated as collateral security for the payment of the principal and interest and
any other amounts due hereunder or under the Notes, and any and all other
liabilities, direct or indirect, absolute or contingent, due or to become due,
now existing or hereafter arising, of any Borrower to the Banks. Regardless of
the adequacy of any collateral, any deposits (other than accounts used solely
for payroll or employee benefit plans) or other sums credited by or due from any
of the Banks to the Company or any Subsidiary may be appropriately applied to or
set-off against any principal, interest and any other amounts due hereunder or
under the Notes, and such other liabilities by the Banks at any time without
notice to any Borrower or compliance with any other condition precedent now or
hereafter imposed by statute, rule of law or otherwise (all of which are hereby
expressly waived by each Borrower). Each Bank agrees with the other Banks that
(i) if an amount to be set off is to be applied to indebtedness of a Borrower

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hereunder to a Bank, other than the indebtedness evidenced by this Agreement or
the Notes, such amount shall be applied ratably to such other indebtedness and
to the indebtedness evidenced by this Agreement, and (ii) if a Bank shall
receive from any Borrower or from the Company with respect to such Borrower,
whether by voluntary payment, exercise of the right of setoff, counterclaim,
cross action, enforcement of the claim evidenced by this Agreement and/or the
Notes by proceedings against such Borrower or enforcement of any claim against
the Company in respect of its guaranty, in either case whether at law or in
equity or by proof thereof in bankruptcy, reorganization, liquidation,
receivership or similar proceedings, or otherwise, and shall retain and apply to
the payment of the indebtedness to it hereunder and/or under the Notes of such
Borrower, any amount in excess of such Bank's ratable portion of the payments
received by the Banks, such Bank will promptly make such disposition and
arrangements with the other Banks with respect to such excess, either by way of
distribution, pro tanto assignment of claims, subrogation or otherwise as shall
result in each Bank receiving in respect of the indebtedness to it hereunder
and/or under the Notes of such Borrower such Bank's proportionate payment;
provided, however, that if all or any part of such excess payment is thereafter
recovered from such Bank, such disposition and arrangements shall be rescinded
and the amount restored to the extent of such recovery, but without interest.

SECTION 10. THE AGENT.

(a) The Agent is authorized to take such action on behalf of each of
the Banks and to exercise all such powers as are hereunder and in related
documents delegated to the Agent, together with such powers as are reasonably
incidental thereto.

(b) The Agent may exercise its powers and execute its duties by or
through employees or agents and shall be entitled to take, and to rely on,
advice of counsel concerning all matters pertaining to its rights and duties
under this Agreement and the Notes. The Agent may utilize the services of such
persons as the Agent in its sole discretion may reasonably determine, and all
reasonable fees and expenses of any such persons (other than salaries of
employees of the Agent) shall be paid by the Company.

(c) Neither the Agent nor any of its shareholders, directors, officers
or employees nor any other person assisting them in their duties nor any agent
or employee thereof, shall be liable to the Banks for any waiver, consent or
approval given or any action taken, or omitted to be taken, in good faith by it
or them hereunder or under the Notes, or in connection herewith or therewith or
be responsible to the Banks for the consequences of any oversight or error of
judgment whatsoever, except that the Agent or such other person, as the case may
be, may be liable for losses due to its willful misconduct or gross negligence.

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(d) The Agent shall not be responsible for the execution or validity or
enforceability of this Agreement, the Notes, or any instrument at any time
constituting, or intended to constitute, collateral security for this Agreement
or the Notes, or for the value of any such collateral security or for the
validity, enforceability or collectibility of any such amounts owing with
respect to this Agreement or the Notes, or for any recitals or statements,
warranties or representations herein or made in any certificate or instrument
hereafter furnished to it by or on behalf of any of the Borrowers or be bound to
ascertain or inquire as to the performance or observance of any of the terms,
conditions, covenants or agreements herein or in any instrument at any time
constituting, or intended to constitute, collateral security for this Agreement
or the Notes. The Agent shall not be bound to ascertain whether any notice,
consent, waiver or request delivered to it by any of the Borrowers or any holder
of any of the Notes shall have been duly authorized or is true, accurate and
complete. The Agent has not made nor does it now make any representations or
warranties, express or implied, nor does it assume any liability to the Banks
with respect to the creditworthiness or financial conditions of the Company or
any of its Subsidiaries, and each Bank represents and warrants to the Agent that
it has made its own independent evaluation of the creditworthiness of the
Company and its Subsidiaries and has not relied upon the Agent or any material
or information furnished by the Agent in making such evaluation.

(e) If in the opinion of the Agent the distribution of any amount
received by it in such capacity hereunder or under the Notes might involve it in
liability, it may refrain from making such distribution until its right to make
such distribution shall have been adjudicated by a court of competent
jurisdiction. If a court of competent jurisdiction shall adjudge that any amount
received and distributed by the Agent is to be repaid, each person to whom any
such distribution shall have been made shall either repay to the Agent its
proportionate share of the amount so adjudged to be repaid or shall pay over the
same in such manner and to such persons as shall be determined by such court.
With respect to obligations of any of the Borrowers hereunder, a payment to the
Agent shall be deemed to be a payment to the Banks.

(f) The Agent may deem and treat the payee of any Note as the absolute
owner thereof for all purposes hereof until it shall have been furnished in
writing with a different name by such payee or by a subsequent holder.

(g) In its individual capacity, The First National Bank of Boston shall
have the same obligations and the same rights, powers and privileges in respect
to its Commitment and the Loans made by it hereunder, and as the holder of any
of the Notes, as it would have were it not also the Agent.

(h) The Company agrees to reimburse the Agent from time to time on
demand for its reasonable out-of-pocket expenses (including reasonable fees and

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expenses of counsel) incurred in connection with the administration of this
Agreement.

(i) The Agent may resign at any time upon ten (10) days' prior written
notice to the Banks and the Company. In such event, a successor Agent shall be
designated by the Banks, provided that the Company shall have the right to
approve such successor.

SECTION 11. MISCELLANEOUS.

11.1. Expenses. Whether or not the transactions contemplated hereby
shall be consummated, the Company will on demand (a) pay any taxes or filing
fees in connection with the transactions contemplated by this Agreement and save
the Banks harmless from and against any and all liabilities resulting from any
delay in paying or omission to pay any such fee or tax, (b) pay the reasonable
fees, expenses and disbursements of Counsel to the Agent incurred in connection
with the negotiation, preparation and completion of this Agreement and the
transactions and other documents contemplated by this Agreement, or any
subsequent waivers, consents or amendments in connection therewith, (c) pay the
reasonable costs and expenses of the Agent's examinations conducted in
accordance with Section 5.5 hereof, and (d) pay all reasonable out-of-pocket
expenses (including, without limitation, reasonable attorney's fees and costs,
costs of consultants, accountants, investment bankers and other experts)
incurred by the Banks in connection with the enforcement of this Agreement. The
Company's obligation to pay any amount pursuant to this Section 11.1 shall
survive payment or satisfaction of all other amounts owing under this Agreement.

11.2. Notices, etc. All notices, requests and other communications
pursuant to this Agreement shall be in writing and shall be mailed by
first-class mail, postage prepaid, or sent by telegraph confirmed by letter,
addressed as follows or to such other address as the party shall have furnished
to the communicating party in writing:

(a) If to the Company, at 321 Harrison Avenue, Boston,
Massachusetts 02118, marked Attention: Stuart M. Osattin, Treasurer.

(b) If to a Borrowing Subsidiary at its address as
set forth in its election to become a Borrower, with a copy delivered

to the Company.

(c) If to The First National Bank of Boston, as a Bank or
Agent, at its head office at 100 Federal Street, Boston, Massachusetts
02110, marked Attention: Daniel G. Head, Jr., Vice President, with a
copy to David J. Murphy, Esq., Bingham, Dana & Gould, 150 Federal
Street, Boston, Massachusetts 02110.

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(d) If to Bank of America National Trust and Savings
Association at its office at 555 California Street, Department 3697
, 41st floor, San Francisco, California 94101, marked Attention:
Douglas Watson, Assistant Vice President and Peter Tomei, Managing

Director;

(e) if to Fleet Bank of Massachusetts, N.A. at 75
State Street, Boston, Massachusetts 02109, Attention: Catherine M.
Bruton, Vice President; or

(f) if to State Street Bank and Trust Company, at
Large Corporations, 225 Franklin Street, M-2, Boston,
Massachusetts 02110, Attention: Lise Anne Boutiette, Vice President.

Any notice, request or communication so addressed and mailed by
registered or certified mail shall be deemed to have been given when mailed.

Any notice of borrowing under Section 2.6(a) or notices under Section
2.7 or 2.8(a) hereof shall be signed on behalf of a Borrower by one of its duly
authorized officers and shall not be revocable by such Borrower and shall
obligate such Borrower to borrow a requested Advance or Term Loan for, or to
convert an Advance to, a currency, Borrowing Day, Interest Period or interest
rate as may be so specified. Any election made by a Borrower pursuant to
Sections 2.3 or 2.10(b) shall be binding upon such Borrower and irrevocable.
Notice of any prepayment having been given as required and all of the other
conditions to such prepayment having been satisfied by such Borrower in
compliance with the provisions of Sections 2.3 or 2.10(b), that amount of the
principal of any Advance or Term Loan which shall have been designated for
prepayment in such notice shall, on the date specified in such notice, become
absolutely due and payable by such Borrower.

11.3. Reliance, etc. All covenants, agreements, representations and
warranties made herein, in certificates delivered pursuant hereto or otherwise
in writing in connection with the transactions evidenced hereby shall be deemed
to have been material and relied upon by the Banks, notwithstanding any
investigation made by the Banks or on the Banks' behalf and shall survive the
execution of this Agreement and the making of each Advance or Term Loan
hereunder and shall continue in full force and effect until all of the
obligations of the Company and each Borrowing Subsidiary hereunder have been
paid and satisfied in full and all commitments of the Banks to extend credit
hereunder have terminated.

11.4. Captions. The captions in this Agreement are for convenience
of reference only and shall not define or limit the provisions hereof.

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11.5. Consents, Amendments, Waivers, etc. Except as otherwise expressly
set forth in any particular provision of this Agreement, any consent or approval
required or permitted by this Agreement to be given by the Banks may be given,
and any term of this Agreement or of any other instrument related hereto or
mentioned herein may be amended, and the performance or observance by any
Borrowers of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively) with, but only
with, the written consent of the Borrowers and the Majority Banks, provided,
however, that:

(a) Without the written consent of such Banks as hold 100% of
the aggregate outstanding principal amount of the Loan Accounts and all
Notes, or if no principal is outstanding, of the Total Commitment,

(i) no reduction in the principal amount of, interest
rate on, Commitment Fees relating to the Advances or Term
Loans or the Facility Fee shall be made; and

(ii) no extension or postponement of the stated time
of payment of the principal amount of, interest on, Commitment
Fees relating to, the Advances or Term Loans or the Facility
Fee shall be made; and

(iii) no increase in the amount, or extension
of the term, of the Total Commitment beyond those provided
for hereunder shall be made;

(iv) no modification of, or amendment to, or waiver
of compliance with, the provisions of Sections 8(a), (b), (f),
(g) or (h) or 11.5 hereof shall be made.

No modification or waiver of any provision of this Agreement, and no consent to
departure by any Borrower therefrom, shall in any event be effective unless the
same shall be in writing and signed by the required percentage of the Banks, and
then such waiver or consent shall be effective only in the specific instance and
for the purpose for which given. No notice or demand on any Borrower in any case
shall entitle any such Borrower or any other Borrower to any other or further
notice or demand in similar or other circumstances or constitute a waiver of the
Banks' right to take any other or further action in any circumstances without
notice or demand. No failure or delay on the Agent's or the Banks' part in
exercising any right hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right. No right, power or remedy conferred

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hereby upon Agent or the Banks shall be exclusive of any other right, power or
remedy referred to herein or now or hereafter available at law, in equity, by
statute or otherwise.

11.6. Benefit, etc. The rights of the Borrowers under this Agreement
shall not be assignable by the Borrowers without the prior written consent of
the Banks. This Agreement shall be binding upon the successors and assigns of
the Borrowers and, except as otherwise provided in Section 11.12, shall inure to
the benefit of and be binding upon each Bank and its successors and assigns.

11.7. Exchange Rate. If, for the purpose of obtaining judgment in any
court or obtaining an order enforcing a judgment, it becomes necessary to
convert any amount due under this Agreement (including, without limitation,
amounts due under Section 7.1 hereof) in Dollars or in any other currency
(hereinafter in this Section 11.7 called the "first currency") into any other
currency (hereinafter in this Section 11.7 called the "second currency"), then
the conversion shall be made at the Agent's spot rate of exchange for buying the
first currency with the second currency prevailing at the Agent's close of
business on the Business Day next preceding the day on which the judgment is
given or (as the case may be) the order is made. In the event that there is a
difference between the rate of exchange on the basis of which the amount of such
judgment or order is determined and the rate of exchange prevailing on the date
of payment, each Borrower hereby agrees to pay such additional amount as may be
necessary to ensure that the amount paid on such date in the second currency is
the amount in such second currency which, when converted at the Agent's spot
rate of exchange for buying the first currency with the second currency
prevailing at the Agent's opening of business on the date of payment, is the
amount which was due under this Agreement in the first currency before such
judgment was obtained or made. Any amount due from any Borrower to the Banks
under the second sentence of this Section 11.7 will be due as a separate debt of
such Borrower to the Banks and shall not be affected by judgment or order being
obtained for any other sum due under or in respect of this Agreement. The
covenant contained in this Section 11.7 shall survive the payment in full of all
of the other obligations of the Borrowers under this Agreement.

11.8. Governing Law. This Agreement shall be governed by the laws of
the Commonwealth of Massachusetts and is intended to take effect as a sealed

instrument.

11.9. Counterparts. This Agreement may be executed in one or more
counterparts each of which shall constitute an original but which taken
together shall constitute but one agreement. In proving this Agreement it shall
not be necessary to produce or account for more than one such counterpart.

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11.10. Consent To Jurisdiction, Waiver of Jury Trial.

(a) Each Borrowing Subsidiary hereby irrevocably submits to
the jurisdiction of any Massachusetts state or federal court sitting in
Boston over any action or proceeding arising out of or relating to this
Agreement and each Borrowing Subsidiary hereby irrevocably agrees that
all claims in respect of such action or proceeding may be heard and
determined in such Massachusetts state or federal court. Each Borrowing
Subsidiary hereby appoints the Company as its process agent (the
"Process Agent"), and the Company hereby agrees to act as its agent at
its office specified in Section 11.2(a) to receive on its behalf and
its property service of copies of the summons and complaint and any
other process which may be served in any such action or proceeding.
Such service may be made to any Borrowing Subsidiary by mailing or
delivering a copy of such process to such Borrowing Subsidiary in care
of the Process Agent at the Process Agent's address set forth above,
and each Borrowing Subsidiary hereby irrevocably authorizes and directs
the Process Agent to accept such service on its behalf. As an
alternative method of service, each Borrowing Subsidiary also
irrevocably consents to the service of any and all process in any such
action or proceeding by the hand delivery or mailing of copies of such
process to such Borrowing Subsidiary at its address specified in its
election to become a Borrowing Subsidiary. Each Borrowing Subsidiary
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.

(b) Each Borrowing Subsidiary may change its Process Agent
hereunder by substituting and appointing as its Process Agent another
Person approved by the Agent, such substitution and appointment to be
made pursuant to a written instrument executed by such Borrowing
Subsidiary and such Person in form and substance approved by the Agent,
which approval will not be unreasonably withheld; provided, however,
that each Borrowing Subsidiary shall have a Process Agent at all times.

(c) Nothing in this Section 11.10 shall affect the right of
the Banks to serve legal process in any other manner permitted by law
or affect the right of the Banks to bring any action of proceeding
against any Borrowing Subsidiary of its property in the courts of any
other jurisdiction.

(d) Each Borrower hereby waives its right to a jury trial with
respect to any action or claim arising out of any dispute in connection
with this Agreement or the Notes or any rights or obligations hereunder

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or thereunder or the performance of such rights and obligations. Except
as prohibited by law, each Borrower hereby waives any right which it
may have to claim or recover in any litigation referred to in the
preceding sentence any special, exemplary, punitive or consequential
damages or any damages other than, or in addition to, actual damages.

11.11. Transitional Provisions. All "Loans", as defined in this
Agreement, which were outstanding hereunder as of the date hereof, shall for
purposes of this Agreement be deemed Advances made under and subject to the
terms and conditions of this Agreement, even if such Advances are not in
accordance with the Commitment Percentages of the Banks hereunder and shall bear
interest at the rate determined under this Agreement. Upon the termination of
the Interest Period determined in accordance with this Agreement with respect to
such Advances, the Company shall repay such Advances and may, subject to the
terms and conditions of this Agreement, reborrow such amounts in accordance with
the Banks' Commitment Percentages. The Commitment Fee payable to each Bank shall
be determined on the basis of each Bank's portion of the unused Total Commitment
rather than its Commitment Percentage until the Advances are made in accordance
with the Commitment Percentages. This Agreement shall not become effective until
the Company shall have paid the Agent's fees and expenses in accordance with
Section 11.1(b) hereof in connection with the completion of this Agreement.

11.12. Exempt Character of Transaction. This Agreement is made with the
Banks in reliance upon their several representations to the Company, which by
their execution of this Agreement they hereby confirm, that each Bank for itself
and not for any other Bank has no present intention of selling or otherwise
disposing of any interest in the Loan Accounts or the Notes other than
participations by banking institutions. The Company represents to the Banks that
it has not, either directly or through any agent, offered any interest in the
Notes (or similar instruments) for sale to or solicited any offers to buy any
interest therein from, or otherwise approached or negotiated in respect of any
interest therein with, any person or persons other than the Banks. If any Bank
is not incorporated under the laws of the United States of America or any state
thereof, it shall, prior to the date on which any interest or fees are payable
hereunder for its account, deliver to the Borrower and the Agent certification
as to its exemption from deduction or withholding of any United States federal
income taxes.

12. ASSIGNMENT AND PARTICIPATION.

12.1. Conditions to Assignment by Banks. Except as provided herein,
each Bank may assign to one or more Eligible Assignees all of its interest,
rights and obligations under this Agreement (including all of its Commitment
Percentage and Commitment and the all of the Loans at the time owing to it and
the Notes held by it); provided that (a) each of the Agent and, unless a Default

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or Event of Default shall have occurred and be continuing, the Company shall
have given its prior written consent to such assignment, which consent, in the
case of the Company, will not be unreasonably withheld, (b) each such assignment
shall be constant, and not a varying, percentage of all the assigning Bank's
rights and obligations under this Agreement (c) each assignment shall be in an
amount that is equal to 100% of such assigning Bank's Commitment and (d) the
parties to such assignment shall execute and deliver to the Agent, for recording
in the Register (as hereinafter defined), an Assignment and Acceptance,
substantially in the form of Exhibit A hereto (an "Assignment and Acceptance"),
together with any Note subject to such assignment. Upon such execution,
delivery, acceptance and recording, from and after the effective date specified
in each Assignment and Acceptance, which effective date shall be at least five
(5) Business Days after the execution thereof, (i) the assignee thereunder shall
be a party hereto and, to the extent provided in such Assignment and Acceptance,
have the rights and obligations of a Bank hereunder, and (ii) the assigning Bank
shall, to the extent provided in such assignment and upon payment to the Agent
of the registration fee referred to in Section 12.3, be released from its
obligations under this Agreement.

12.2 Certain Representations and Warranties; Limitations; Covenants. By
executing and delivering an Assignment and Acceptance, the parties to the
assignment thereunder confirm to and agree with each other and the other parties
hereto as follows:

(a) other than the representation and warranty that it is the
legal and beneficial owner of the interest being assigned thereby free
and clear of any adverse claim, the assigning Bank makes no
representation or warranty, express or implied, and assumes no
responsibility with respect to any statements, warranties or
representations made in or in connection with this Agreement or the
execution, legality, validity, enforceability, genuineness, sufficiency
or value of this Agreement, the other Loan Documents or any other
instrument or document furnished pursuant hereto or the attachment,
perfection or priority of any security interest or mortgage,

(b) the assigning Bank makes no representation or warranty and
assumes no responsibility with respect to the financial condition of
the Company and its Subsidiaries or any other Person primarily or
secondarily liable in respect of any of the Obligations, or the
performance or observance by the Company and its Subsidiaries or any
other Person primarily or secondarily liable in respect of any of the
Obligations of any of their obligations under this Agreement or any of
the other Loan Documents or any other instrument or document furnished
pursuant hereto or thereto;

<PAGE> 60

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(c) such assignee confirms that it has received a copy of this
Agreement, together with copies of the most recent financial statements
referred to in Section 4.1.7 and Section 5.4 and such other documents
and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance;

(d) such assignee will, independently and without reliance
upon the assigning Bank, the Agent or any other Bank 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;

(e) such assignee represents and warrants that it is an
Eligible Assignee;

(f) such assignee appoints and authorizes the Agent to take
such action as agent on its behalf and to exercise such powers under
this Agreement and the other Loan Documents as are delegated to the
Agent by the terms hereof or thereof, together with such powers as are
reasonably incidental thereto;

(g) such assignee agrees that it will perform in accordance
with their terms all of the obligations that by the terms of this
Agreement are required to be performed by it as a Bank; and

(h) such assignee represents and warrants that it is legally
authorized to enter into such Assignment and Acceptance.

12.3. Register. The Agent shall maintain a copy of each Assignment and
Acceptance delivered to it and a register or similar list (the "Register") for
the recordation of the names and addresses of the Banks and the Commitment
Percentage of, and principal amount of the Loans owing to the Banks from time to
time. The entries in the Register shall be conclusive, in the absence of
manifest error, and the Company, the Agent and the Banks may treat each Person
whose name is recorded in the Register as a Bank hereunder for all purposes of
this Agreement. The Register shall be available for inspection by the Company
and the Banks at any reasonable time and from time to time upon reasonable prior
notice. Upon each recordation, the assigning Bank agrees to pay to the Agent a
registration fee in the sum of $3,000.

12.4. New Notes. Upon its receipt of an Assignment and Acceptance
executed by the parties to such assignment, together with each Note subject to
such assignment, the Agent shall (a) record the information contained therein in
the Register, and (b) give prompt notice thereof to the Company and the Banks
(other than the assigning Bank). Within five (5) Business Days after receipt of
such notice, each Borrowing Subsidiary, at its own expense, shall execute and

<PAGE> 61

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deliver to the Agent, in exchange for each surrendered Note, a new Note to the
order of such Eligible Assignee in an amount equal to the amount assumed by such
Eligible Assignee pursuant to such Assignment and Acceptance. Such new Notes
shall provide that they are replacements for the surrendered Notes, shall be in
an aggregate principal amount equal to the aggregate principal amount of the
surrendered Notes, shall be dated the effective date of such in Assignment and
Acceptance and shall otherwise be substantially the form of the assigned Notes.
The surrendered Notes shall be cancelled and returned to the Company.

12.5. Participations. Each Bank may sell participations to one or more
banks or other entities in all or a portion of such Bank's rights and
obligations under this Agreement and the other Loan Documents; provided that (a)
each such participation shall be in an amount of not less than $5,000,000, or,
if such Bank's Commitment is less than $5,000,000, the amount of such Bank's
Commitment, (b) any such sale or participation shall not affect the rights and
duties of the selling Bank hereunder to the Company and (c) the only rights
granted to the participant pursuant to such participation arrangements with
respect to waivers, amendments or modifications of the Loan Documents shall be
the rights to approve waivers, amendments or modifications that would reduce the
principal of or the interest rate on any Loans, extend the term or increase the
amount of the Commitment of such Bank as it relates to such participant, reduce
the amount of any commitment fees to which such participant is entitled or
extend any regularly scheduled payment date for principal or interest.

12.6. Disclosure. The Company agrees that in addition to disclosures
made in accordance with standard and customary banking practices any Bank may
disclose information obtained by such Bank pursuant to this Agreement to
assignees and potential assignees hereunder; provided that such assignees or
potential assignees shall agree (a) to treat in confidence such information
unless such information otherwise becomes public knowledge, (b) not to disclose
such information to a third party, except as required by law or legal process
and (c) not to make use of such information for purposes of transactions
unrelated to such contemplated assignment. In addition, the parties hereto
hereby agree that any Bank may disclose information obtained by such Bank
pursuant to this Agreement to participants and potential participants hereunder,
provided that such information is public information. Such Bank shall not
disclose any non-public information to any participant or potential participant
hereunder without the Company's prior written consent. In addition, such
participant or potential participant shall agree (a) to treat in confidence such
information unless such information otherwise becomes public knowledge, (b) not
to disclose such information to a third party, except as required by law or
legal process and (c) not to make use of such information for purposes of
transactions unrelated to such contemplated participation

12.7. Assignee or Participant Affiliated with the Company. If any
assignee Bank is an Affiliate of the Company, then any such assignee Bank

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shall have no right to vote as a Bank hereunder or under any of the other Loan
Documents for purposes of granting consents or waivers or for purposes of
agreeing to amendments or other modifications to any of the Loan Documents or
for purposes of making requests to the Agent pursuant to Section 8, and the
determination of the Majority Banks shall for all purposes of this Agreement and
the other Loan Documents be made without regard to such assignee Bank's interest
in any of the Loans. If any Bank sells a participating interest in any of the
Loans to a participant, and such participant is the Company or an Affiliate of
the Company, then such transferor Bank shall promptly notify the Agent of the
sale of such participation. A transferor Bank shall have no right to vote as a
Bank hereunder or under any of the other Loan Documents for purposes of granting
consents or waivers or for purposes of agreeing to amendments or modifications
to any of the Loan Documents or for purposes of making requests to the Agent
pursuant to Section 8 to the extent that such participation is beneficially
owned by the Company or any Affiliate of the Company, and the determination of
the Majority Banks shall for all purposes of this Agreement and the other Loan
Documents be made without regard to the interest of such transferor Bank in the
Loans to the extent of such participation.

12.8. Miscellaneous Assignment Provisions. Any assigning Bank shall
retain its rights to be indemnified pursuant to the Agreement with respect to
any claims or actions arising prior to the date of such assignment. If any
assignee Bank is not incorporated under the laws of the United States of America
or any state thereof, it shall, prior to the date on which any interest or fees
are payable hereunder or under any of the other Loan Documents for its account,
deliver to the Company and the Agent certification as to its exemption from
deduction or withholding of any United States federal income taxes. Anything
contained in this Section 12 to the contrary notwithstanding, any Bank may at
any time pledge all or any portion of its interest and rights under this
Agreement (including all or any portion of its Notes) to any of the twelve
Federal Reserve Banks organized under ss.4 of the Federal Reserve Act, 12 U.S.C.
ss.341. No such pledge or the enforcement thereof shall release the pledgor Bank
from its obligations hereunder or under any of the other Loan Documents.

12.9. Assignment by Company. Neither the Company nor any Subsidiary
shall assign or transfer any of its rights or obligations under any of the
Loan Documents without the prior written consent of each of the Banks.

<PAGE> 63

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IN WITNESS WHEREOF, this Agreement has been executed by or on behalf of
the parties hereto on the day first above written.

TERADYNE, INC.

By:/s/ Stuart M. Osattin__________
Title:Treasurer

THE FIRST NATIONAL BANK

OF BOSTON, individually and,

as Agent

By:/s/ Daniel G. Head, Jr.________
Title:Vice President

BANK OF AMERICA NATIONAL

TRUST AND SAVINGS

ASSOCIATION

By:/s/ Peter Tomei________________

Title: Managing Director

STATE STREET BANK AND
TRUST COMPANY, N.A.

By:/s/ Lisa Anne Boutiette________
Title: Vice President

FLEET BANK OF
MASSACHUSETTS, N.A.

By:/s/ Catherine M. Bruton_________
Title: Vice President

<PAGE> 64

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Schedule 1

Bank Commitment Commitment
Percentage of
Loans

The First National Bank $54,000,000 45.00%
of Boston

Bank of America $39,000,000 32.50%

Fleet Bank of $16,500,000 13.75%
Massachusetts, N.A.

State Street Bank $10,500,000 8.75%

Totals $120,000,000 100.00%

<PAGE> 1

EXHIBIT 10.10

(1)MASTER LEASE AGREEMENT

THIS MASTER LEASE AGREEMENT, dated as of 8/10, 1995 ("Agreement"),
between General Electric Capital Corporation, with an office at 2200 Powell
Street, Suite 600, Emeryville, CA 94608-1809 (hereinafter called, together with
its successors and assigns, if any, "Lessor"), and Megatest Corporation, a
corporation organized and existing under the laws of the State of Delaware with
its mailing address and chief place of business at 1321 Ridder Park Drive, San
Jose, CA 95131, (hereinafter called "Lessee").

WITNESSETH:

I. LEASING:

(a) Subject to the terms and conditions set forth below, Lessor agrees
to lease to Lessee, and Lessee agrees to lease from Lessor, the equipment
("Equipment") described in Annex A to any schedule hereto ("Schedule"). Terms
defined in a Schedule and not otherwise defined herein shall have the meanings
ascribed to them in such Schedule. (b) The obligation of Lessor to purchase
Equipment from the manufacturer or supplier thereof ("Supplier") and to lease
the same to Lessee under any Schedule shall be subject to receipt by Lessor,
prior to the Lease Commencement Date (with respect to such Equipment), of each
of the following documents in form and substance satisfactory to Lessor: (i) a
Schedule relating to the Equipment then to be leased hereunder, (ii) a Purchase
Order Assignment and Consent in the form of Annex B to the applicable Schedule,
unless Lessor shall have delivered its purchase order for such Equipment, (iii)
evidence of insurance which complies with the requirements of Section IX, and
(iv) such other documents as Lessor may reasonably request. As a further
condition to such obligations of Lessor, Lessee shall, upon delivery of such
Equipment (but not later than the Last Delivery Date specified in the applicable
Schedule) execute and deliver to Lessor a Certificate of Acceptance (in the form
of Annex C to the applicable Schedule) covering such Equipment, and deliver to
Lessor a bill of sale therefor (in form and substance satisfactory to Lessor).
Lessor hereby appoints Lessee its agent for inspection and acceptance of the
Equipment from the Supplier. Upon execution by Lessee of any Certificate of
Acceptance, the Equipment described thereon shall be deemed to have been
delivered to, and irrevocably accepted by, Lessee for lease hereunder.

II. TERM, RENT AND PAYMENT:

(a) The rent payable hereunder and Lessee's right to use the Equipment
shall commence on the date of execution by Lessee of the Certificate of
Acceptance for such Equipment ("Lease Commencement Date"). The term of this
Agreement shall be the period specified in the applicable Schedule. If any term
is extended, the word "term" shall be deemed to refer to a extended terms, and
all provisions of this Agreement shall apply during any extended terms, except
as may be otherwise specifically provided in writing. (b) Rent shall be paid to
Lessor at its address stated above, except as otherwise directed by Lessor.
Payments of rent shall be in the amount set forth in, and due in accordance
with, the provisions of the applicable Schedule. If one or more Advance Rentals
are payable, such Advance Rental shall be (i) set forth on the applicable
Schedule, (ii) due upon acceptance by Lessor of such Schedule, and (iii) when
received by Lessor, applied to the first rent payment and the balance, if any,
to the final rental payment(s) under such Schedule. In no event shall any
Advance Rental or any other rent payments be refunded to Lessee. If rent is not
paid within ten days of its due date, Lessee agrees to pay a late charge of five
cents ($0.05) per dollar on, and in addition to, the amount of such rent but not
exceeding the lawful maximum, if any.

- - ---------------------------
(1) Non-standard document.

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<PAGE> 2
III. TAXES:

Lessee shall have no liability for taxes imposed by the United States
of America or any State or political subdivision thereof or any other
jurisdiction which are on or measured by the net income of Lessor. Lessee shall
report (to the extent that it is legally permissible) and pay promptly all other
taxes, fees and assessments due, imposed, assessed or levied against any
Equipment (or the purchase, ownership, delivery, leasing, possession, use or
operation thereof), this Agreement (or any rentals or receipts hereunder), any
Schedule, Lessor or Lessee by any foreign, federal, state or local government or
taxing authority during or related to the term of this Agreement, including,
without limitation, all license and registration fees, and all sales, use,
personal property, excise, gross receipts, franchise, stamp or other taxes,
imposts, duties and charges, together with any penalties, fines or interest
thereon (all hereinafter called "Taxes"). Lessee shall (i) reimburse Lessor upon
receipt of written request for reimbursement for any Taxes charged to or
assessed against Lessor, (ii) on request of Lessor, submit to Lessor written
evidence of Lessee's payment of Taxes, (iii) on all reports or returns show the
ownership of the Equipment by Lessee, and (iv) send a copy thereof to Lessor.

IV. REPORTS:

(a) Lessee will notify Lessor in writing, within ten days after any tax
or other lien shall attach to any Equipment, of the full particulars thereof and
of the location of such Equipment on the date of such notification. (b) Lessee
will within 90 days of the close of each fiscal year of Lessee, deliver to
Lessor, Lessee's balance sheet and profit and loss statement, certified by a
recognized firm of certified public accountants. Upon request Lessee will
deliver to Lessor quarterly, within 90 days of the close of each fiscal quarter
of Lessee, in reasonable detail, copies of Lessee's quarterly financial report
certified by the chief financial officer of Lessee. (c) Lessee will permit
Lessor, upon one business day's notice, to inspect any Equipment during normal
business hours. (d) Lessee will keep the Equipment at the Equipment Location
(specified in the applicable Schedule) and will promptly notify Lessor of any
relocation of Equipment. Upon the written request of Lessor, Lessee will notify
Lessor forthwith in writing of the location of any Equipment as of the date of
such notification. (e) Lessee will promptly and fully report to Lessor in
writing if any Equipment is lost or damaged (where the estimated repair costs
would exceed 10% of its then fair market value), or is otherwise involved in an
accident causing personal injury or property damage. (f) Within 60 days after
any request by Lessor, Lessee will furnish a certificate of an authorized
officer of Lessee stating that he has reviewed the activities of Lessee and
that, to the best of his knowledge, there exists no default (as described in
Section XI) or event which with notice or lapse of time (or both) would become
such a default.

V. DELIVERY, USE AND OPERATION:

(a) All Equipment shall be shipped directly from the Supplier to
Lessee. (b) Lessee agrees that the Equipment will be used by Lessee solely in
the conduct of its business and in a mariner complying with all applicable
federal, state, and local laws and regulations. (c) LESSEE SHALL NOT ASSIGN,
MORTGAGE, SUBLET OR HYPOTHECATE ANY EQUIPMENT, OR THE INTEREST OF LESSEE
HEREUNDER, NOR SHALL LESSEE REMOVE ANY EQUIPMENT FROM THE CONTINENTAL UNITED
STATES, WITHOUT THE PRIOR WRITTEN CONSENT OF THE LESSOR. (d) Lessee will keep
the Equipment free and clear of all liens and encumbrances other than those
which result from acts of Lessor.

VI. SERVICE:

(a) Lessee will, at its sole expense, maintain each unit of Equipment
in good operating order, repair, condition and appearance in accordance with
manufacturer's recommendations, normal

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<PAGE> 3

wear and tear excepted. Lessee shall, if at any time requested by Lessor, affix
in a prominent position on each unit of Equipment plates, tags or other
identifying labels showing the interest therein of Lessor. (b) Lessee will not,
without the prior consent of Lessor, affix or install any accessory, equipment
or device on any Equipment if such addition will impair the originally intended
function or use of such Equipment. All additions, repairs, parts, supplies,
accessories, equipment, and devices furnished, attached or affixed to any
Equipment which are not readily removable shall be made only in compliance with
applicable law, and shall become the property of Lessor. Lessee will not,
without the prior written consent of Lessor and subject to such conditions as
Lessor may impose for its protection, affix or install any Equipment to or in
any other personal or real property. (c) Any alterations or modifications to the
Equipment that may, at any time during the term of this Agreement, be required
to comply with any applicable law, rule or regulation shall be made at the
expense of Lessee.

VII. STIPULATED LOSS VALUE:

Lessee shall promptly and fully notify Lessor in writing if any unit of
Equipment shall be or become worn out, lost, stolen, destroyed, irreparably
damaged in the reasonable determination of Lessee, or permanently rendered unfit
for use from any cause whatsoever (such occurrences being hereinafter called
"Casualty Occurrences"). On the rental payment date next succeeding a Casualty
Occurrence (the "Payment Date"), Lessee shall pay Lessor the sum of (x) the
Stipulated Loss Value of such unit calculated as of the rental payment date next
preceding such Casualty Occurrence ("Calculation Date",); and (y) all rental and
other amounts which are due hereunder as of the Payment Date. Upon payment of
all sums due hereunder, the term of this lease as to such unit shall terminate
and (except in the case of the loss, theft or complete destruction of such unit)
Lessee shall be entitled to retain possession of such unit.

VIII. LOSS OR DAMAGE:

Lessee hereby assumes and shall bear the entire risk of any loss, theft, damage
to, or destruction of, any unit of Equipment from any cause whatsoever from the
time the Equipment is shipped to Lessee until it is returned to Lessor.

IX. INSURANCE:

Lessee agrees, at its own expense, to keep all Equipment insured for
such amounts and against such hazards as Lessor may require, including, but not
limited to, insurance for damage to or loss of such Equipment and liability
coverage for personal injuries, death or property damage, with Lessor named as
additional insured and with a loss payable clause in favor of Lessor, as its
interest may appear, irrespective of any breach of warranty or other act or
omission of Lessee. All such policies shall be with companies, and on terms,
satisfactory to Lessor. Lessee agrees to deliver to Lessor evidence of insurance
satisfactory to Lessor. No insurance shall be subject to any co-insurance
clause. Lessee hereby appoints Lessor as Lessee's attorney-in-fact to make proof
of loss and claim for insurance, and to make adjustments with insurers and to
receive payment of and execute or endorse all documents, checks or drafts in
connection with payments made as a result of such insurance policies. Any
expense of Lessor in adjusting or collecting insurance shall be borne by Lessee.
Lessee will not make adjustments with insurers except (i) with respect to claims
for damage to any unit of Equipment where the repair costs do not exceed 10% of
such unit's fair market value, or (ii) with Lessor's written consent. Said
policies shall provide that the insurance may not be altered or canceled by the
insurer until after thirty (30) days written notice to Lessor. Lessor may, at
its option, apply proceeds of insurance, in whole or in part, to (i) repair or
replace Equipment or any portion thereof, or (ii) satisfy any obligation of
Lessee to Lessor hereunder.

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<PAGE> 4
X. RETURN OF EQUIPMENT:

(a) Upon any expiration or termination of this Agreement or any
Schedule, Lessee shall promptly, at its own cost and expense: (i) perform any
testing and repairs required to place the affected units of Equipment in the
same condition and appearance as when received by Lessee (reasonable wear and
tear excepted) and in good working order for their originally intended purpose;
(ii) if deinstallation, disassembly or crating is required, cause such units to
be deinstalled, disassembled and crated by an authorized manufacturer's
representative or such other service person as is satisfactory to Lessor; and
(iii) return such units to a location within the continental United States as
Lessor shall direct. (b) Until Lessee has fully complied with the requirements
of Section X(a) above, Lessee's rent payment obligation and all other
obligations under this Agreement shall continue from month to month
notwithstanding any expiration or termination of the lease term. Lessor may
terminate such continued leasehold interest upon ten (10) days notice to Lessee.

XI. DEFAULT:

(a) Lessor may in writing declare this Agreement in default if: Lessee
breaches its obligation to pay rent or any other sum when due and fails to cure
the breach within ten (10) days; Lessee breaches any of its insurance
obligations under Section IX; Lessee breaches any of its other obligations and
fails to cure that breach within thirty (30) days after written notice thereof;
any representation or warranty made by Lessee in connection with this Agreement
shall be false or misleading in any material respect; Lessee becomes insolvent
or ceases to do business as a going concern; any Equipment is illegally used; or
a petition is filed by or against Lessee under any bankruptcy or insolvency laws
and is not dismissed within 60 days if such petition is involuntarily filed.
Such declaration shall apply to all Schedules except as specifically excepted by
Lessor. (b) After default, at the request of Lessor, Lessee shall comply with
the provisions of Section X(a). Lessee hereby authorizes Lessor to enter, with
or without legal process, any premises where any Equipment is believed to be and
take possession thereof. Lessee shall, without further demand, forthwith pay to
Lessor (i) as liquidated damages for loss of a bargain and not as a penalty, the
Stipulated Loss Value of the Equipment (calculated as of the rental next
preceding the declaration of default), and (ii) all rentals and other sums then
due hereunder. Lessor may, but shall not be required to, sell Equipment at
private or public sale, in bulk or in parcels, with or without notice, and
without having the Equipment present at the place of sale; or Lessor may, but
shall not be required to, lease, otherwise dispose of or keep idle all or part
of the Equipment; and Lessor may use Lessee's premises for any or all of the
foregoing without liability for rent, costs, damages or otherwise. The proceeds
of sale, lease or other disposition, if any, shall be applied in the following
order of priorities: (1) to pay all of Lessor's reasonable costs, charges and
expenses incurred in taking, removing, holding, repairing and selling, leasing
or otherwise disposing of Equipment; then, (2) to the extent not previously paid
by Lessee, to pay Lessor all sums due from Lessee hereunder; then (3) to
reimburse to Lessee any sums previously paid by Lessee as liquidated damages;
and (4) any surplus shall be paid to Lessee. Lessee shall pay any deficiency in
(1) and (2) forthwith. (c) The foregoing remedies are cumulative, and any or all
thereof may be exercised in lieu of or in addition to each other or any remedies
at law, in equity, or under statute. Lessee waives notice of sale or other
disposition (and the time and place thereof), and the manner and place of any
advertising. If permitted by law, Lessee shall pay reasonable attorney's fees
actually incurred by Lessor in enforcing the provisions of this Lease and any
ancillary documents. Waiver of any default shall not be a waiver of any other or
subsequent default. (d) Any default under the terms of this or any other
agreement between Lessor and Lessee may be declared by Lessor a default under
this and any such other agreement.

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<PAGE> 5
XII. ASSIGNMENT:

Lessor may, without the consent of Lessee, assign this Agreement or any
Schedule. Lessee agrees that if Lessee receives written notice of an assignment
from Lessor, Lessee will pay all rent and other amounts payable under any
assigned Equipment Schedule to such assignee or as instructed by Lessor. Lessee
further agrees to confirm in writing receipt of a notice of assignment as may be
reasonably requested by assignee. Lessee hereby waives and agrees not to assert
against any such assignee any defense, set-off, recoupment claim or counterclaim
which Lessee has or may at any time have against Lessor for any reason
whatsoever. Notwithstanding such assignment or any provision hereof to the
contrary, Lessee may assert directly against Lessor any such claims that arise
on account of any act, omission, event or occurrence that shall have taken place
before such assignment.

XIII. NET LEASE; NO SET-OFF, ETC.:

This Agreement is a net lease. Lessee's obligation to pay rent and
other amounts due hereunder shall be absolute and unconditional. Lessee shall
not be entitled to any abatement or reductions of, or set-offs against, said
rent or other amounts, including, without limitation, those arising or allegedly
arising out of claims (present or future, alleged or actual, and including
claims arising out of strict tort or negligence of Lessor) of Lessee against
Lessor under this Agreement or otherwise. Nor shall this Agreement terminate or
the obligations of Lessee be affected by reason of any defect in or damage to,
or loss of possession, use or destruction of, any Equipment from whatsoever
cause. It is the intention of the parties that rents and other amounts due
hereunder shall continue to be payable in all events in the manner and at the
times set forth herein unless the obligation to do so shall have been terminated
pursuant to the express terms hereof.

XIV. INDEMNIFICATION:

(a) Lessee hereby agrees to indemnify, save and keep harmless Lessor,
its agents, employees, successors and assigns from and against any and all
losses, damages, penalties, injuries, claims, actions and suits, including legal
expenses ("Damages"), of whatsoever kind and nature, in contract or tort,
whether caused by the active or passive negligence of Lessor or otherwise, and
including, but not limited to, Lessor's strict liability in tort, arising out of
(i) the selection, manufacture, purchase, acceptance or rejection of Equipment,
the ownership of Equipment during the term of this Agreement, and the delivery,
lease, possession, maintenance, uses, condition, return or operation of
Equipment (including, without limitation, latent and other defects, whether or
not discoverable by Lessor or Lessee and any claim for patent, trademark or
copyright infringement or environmental damage) or (ii) the condition of
Equipment sold or disposed of after use by Lessee, any sublessee or employees of
Lessee. Lessee shall, upon request, defend any actions based on, or arising out
of, any of the foregoing. (b) All of Lessor's rights, privileges and indemnities
contained in this Section XIV shall survive the expiration or other termination
of this Agreement and the rights, privileges and indemnities contained herein
are expressly made for the benefit of, and shall be enforceable by Lessor, its
successors and assigns. Notwithstanding any provision hereof to the contrary,
Lessee shall have no obligations to indemnify Lessor against any Damages to the
extent they are suffered or incurred on account of Lessor's gross negligence or
willful misconduct.

XV. DISCLAIMER:

LESSEE ACKNOWLEDGES THAT IT HAS SELECTED THE EQUIPMENT WITHOUT ANY
ASSISTANCE FROM LESSOR, ITS AGENTS OR EMPLOYEES. LESSOR DOES NOT MAKE, HAS NOT
MADE, NOR SHALL BE DEEMED TO MAKE OR HAVE MADE, ANY WARRANTY OR REPRESENTATION,
EITHER EXPRESS OR IMPLIED, WRITTEN OR ORAL,

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<PAGE> 6

WITH RESPECT TO THE EQUIPMENT LEASED HEREUNDER OR ANY COMPONENT THEREOF,
INCLUDING, WITHOUT LIMITATION, ANY WARRANTY AS TO DESIGN, COMPLIANCE WITH
SPECIFICATIONS, QUALITY OF MATERIALS OR WORKMANSHIP, MERCHANTABILITY, FITNESS
FOR ANY PURPOSE, USE OR OPERATION, SAFETY, PATENT, TRADEMARK OR COPYRIGHT
INFRINGEMENT, OR TITLE. All such risks, as between Lessor and Lessee, are to be
borne by Lessee. Without limiting the foregoing, Lessor shall have no
responsibility or liability to Lessee or any other person with respect to any of
the following, except to the extent caused by the gross negligence or willful
misconduct of Lessor (i) any liability, loss or damage caused or alleged to be
caused directly or indirectly by any Equipment, any inadequacy thereof, any
deficiency or defect (latent or otherwise) therein, or any other circumstance in
connection therewith; (ii) the use, operation or performance of any Equipment or
any risks relating thereto; (iii) any interruption of service, loss of business
or anticipated profits or consequential damages; or (iv) the delivery,
operation, servicing, maintenance, repair, improvement or replacement of any
Equipment. If, and so long as, no default exists under this Lease, Lessee shall
be, and hereby is, authorized during the term of this Lease to assert and
enforce, at Lessee's sole cost and expense, from time to time, in the name of
and for the account of Lessor and/or Lessee, as their interests may appear,
whatever claims and rights Lessor may have against any Supplier of the
Equipment.

XVI. REPRESENTATIONS AND WARRANTIES OF LESSEE:

Lessee hereby represents and warrants to Lessor that on the date hereof
and on the date of execution of each Schedule: (a) Lessee has adequate power and
capacity to enter into, and perform under, this Agreement and all related
documents (together, the "Documents") and is duly qualified to do business
wherever necessary to carry on its present business and operations, including
the jurisdiction(s) where the Equipment is or is to be located. (b) The
Documents have been duly authorized, executed and delivered by Lessee and
constitute valid, legal and binding agreements, enforceable in accordance with
their terms, except to the extent that the enforcement of remedies therein
provided may be limited under applicable bankruptcy and insolvency laws. (c) No
approval, consent or withholding of objections is required from any governmental
authority or instrumentality with respect to the entry into or performance by
Lessee of the Documents except such as have already been obtained. (d) The entry
into and performance by Lessee of the Documents will not: (i) violate any
judgment, order, law or regulation applicable to Lessee or any provision of
Lessee's Certificate of Incorporation or By-Laws; or (ii) result in any breach
of, constitute a default under or result in the creation of any lien, charge,
security interest or other encumbrance upon any Equipment pursuant to any
indenture, mortgage, deed of trust, bank loan or credit agreement or other
instrument (other than this Agreement) to which Lessee is a party. (e) There are
no suits or proceedings pending or threatened in court or before any commission,
board or other administrative agency against or affecting Lessee, which will
have a material adverse effect on the ability of Lessee to fulfill its
obligations under this Agreement. (f) The Equipment accepted under any
Certificate of Acceptance is and will remain tangible personal property. (g)
Each Balance Sheet and Statement of Income delivered to Lessor has been prepared
in accordance with generally accepted accounting principles, and since the date
of the most recent such Balance Sheet and Statement of Income, there has been no
material adverse change in the financial condition of Lessee and its
subsidiaries taken as a whole. (h) Lessee is and will be at all times validly
existing and in good standing under the laws of the State of its incorporation
(specified in the first sentence of this Agreement). (i) The Equipment will at
all times be used for commercial or business purposes.

XVII. OWNERSHIP FOR TAX PURPOSES, GRANT OF SECURITY INTEREST; USURY SAVINGS:

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<PAGE> 7

(a) For income tax purposes, Lessor will treat Lessee as the owner of
the Equipment. Accordingly, Lessor will not claim any tax benefits available to
an owner of the Equipment. (b) Lessee hereby grants to Lessor a first security
interest in the Equipment, together with all additions, attachments, accessions,
accessories and accessions thereto whether or not furnished by the Supplier of
the Equipment and any and all substitutions, replacements or exchanges therefor,
and any and all insurance and/or other proceeds of the property in and against
which a security interest is granted hereunder. (c) It is the intention of the
parties hereto to comply with any applicable usury laws to the extent that any
Schedule is determined to be subject to such laws; accordingly, it is agreed
that, notwithstanding any provision to the contrary in any Schedule or the
Lease, in no event shall any Schedule require the payment or permit the
collection of interest in excess of the maximum amount permitted by applicable
law. If any such excess interest is contracted for, charged or received under
any Schedule or the Lease, or in the event that all of the principal balance
shall be prepaid, so that under any of such circumstances the amount of interest
contracted for, charged or received under any Schedule or the Lease shall exceed
the maximum amount of interest permitted by applicable law, then in such event
(a) the provisions of this paragraph shall govern and control, (b) neither
Lessee nor any other person or entity now or hereafter liable for the payment
hereof shall be obligated to pay the amount of such interest to the extent that
it is in excess of the maximum amount of interest permitted by applicable law,
(c) any such excess which may have been collected shall be either applied as a
credit against the then unpaid principal balance or refunded to Lessee, at the
option of the Lessor, and (d) the effective rate of interest shall be
automatically reduced to the maximum lawful contract rate allowed under
applicable law as now or hereafter construed by the courts having jurisdiction
thereof. It is further agreed that without limitation of the foregoing, all
calculations of the rate of interest contracted for, charged or received under
any Schedule or the Lease which are made for the purpose of determining whether
such rate exceeds the maximum lawful contract rate, shall be made, to the extent
permitted by applicable law, by amortizing, prorating, allocating and spreading
in equal parts during the period of the full stated term of the indebtedness
evidenced hereby, all interest at any time contracted for, charged or received
from Lessee or otherwise by Lessor in connection with such indebtedness;
provided, however, that if any applicable state law is amended or the law of the
United States of America preempts any applicable state law, so that it becomes
lawful for Lessor to receive a greater interest per annum rate than is presently
allowed, the Lessee agrees that, on the effective date of such amendment or
preemption, as the case may be, the lawful maximum hereunder shall be increased
to the maximum interest per annum rate allowed by the amended state law or the
law of the United States of America.

XVIII. EARLY TERMINATION:

(a) On or after the First Termination Date (specified in the applicable
Schedule), Lessee may, so long as no default exists hereunder, terminate this
Agreement as to all (but not less than all) of the Equipment on such Schedule as
of a rent payment date ("Termination Date") upon at least 90 days prior written
notice to Lessor. (b) Lessee shall, and Lessor may, solicit cash bids for the
Equipment on an AS IS, WHERE IS BASIS without recourse to or warranty from
Lessor, express or implied ("AS IS BASIS"). On or prior to the Termination Date,
Lessee shall (i) certify to Lessor any bids received by Lessee and (ii) pay to
Lessor (A) the Termination Value (calculated as of the rental due on the
Termination Date) for the Equipment, and (B) all rent and other sums due and
unpaid as of the Termination Date. (c) Provided that all amounts due hereunder
have been paid on the Termination Date, Lessor and Lessee shall (i) sell the
Equipment on an AS IS BASIS, for cash to the highest bidder and (ii) the
proceeds of such sale (net of any related expenses) shall be refunded to Lessee.
If such sale is not consummated, no termination shall occur and Lessor shall
refund the Termination Value (less

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<PAGE> 8

any expenses incurred by Lessor) to Lessee. (d) Notwithstanding the foregoing,
Lessor may elect by written notice, at any time prior to the Termination Date,
not to sell the Equipment. In that event, on the Termination Date Lessee shall
(i) return the Equipment (in accordance with Section X) and (ii) pay to Lessor
all amounts required under Section XVIII(b) less the amount of the highest bid
certified by Lessee to Lessor.

XIX. EARLY PURCHASE OPTION:

(a) Provided that the Lease has not been earlier terminated and
provided, further that Lessee is not in default under the Lease or any other
agreement between Lessor and Lessee, Lessee may, UPON AT LEAST 30 DAYS BUT NOT
MORE THAN 270 DAYS PRIOR WRITTEN NOTICE TO LESSOR OF LESSEE'S IRREVOCABLE
ELECTION TO EXERCISE SUCH OPTION, purchase all (but not less than all) of the
Equipment listed and described in any Schedule on an AS IS BASIS on any Rent
Payment Date following the First Termination Date as set forth in such Schedule,
and prior to the date which is the scheduled expiration of such Schedule (the
"Early Purchase Date"), for a price equal to the sum of (i) the Termination
Value (calculated as of the Early Purchase Date) for the Equipment, and (ii) all
rent and other sums due and unpaid as of the Early Purchase Date (such sum being
the "Early Option Price"), plus all applicable sales taxes. (The purchase option
granted by this subsection shall be referred to herein as the "Early Purchase
Option".)

(b) If Lessee exercises its Early Purchase Option with respect to the
Equipment leased under any Schedule, then on the Early Purchase Date Lessee
shall pay to Lessor in immediately available funds the Early Option Price, plus
all applicable sales taxes.

XX. END OF LEASE OPTIONS:

So long as Lessee shall not have exercised its option to terminate
this Lease pursuant to Section XVIII hereof or exercise its Early Purchase
Option pursuant to Section XIX hereof, and provided that Lessee is not in
default under this Lease or any other agreement between Lessor and Lessee,
Lessee shall have the option, upon the scheduled expiration of the term of any
Schedule, to return or to purchase, for the applicable Realized Value (as
defined below), all (but not less than all) of the Equipment leased under such
Schedule upon the following terms and conditions:

(a) Determination of Realized Value. The Realized Value for each
item of Equipment on the Schedule shall be determined as follows:

(i) If Lessee elects to purchase the Equipment, the Realized
Value of each item of Equipment shall be its Estimated Residual Value.

(ii) If Lessee elects not to purchase the Equipment, Lessee and
Lessor shall arrange for the sale of such Equipment on an AS IS BASIS, provided
that Lessee may not bid, directly or indirectly. Each item of Equipment shall be
sold by Lessor for its then determined fair market value. If any item of
Equipment is not sold within 30 days after Schedule Expiration, then Lessee and
Lessor agree, in view of the uncertainties of market conditions and the parties'
inability to predict what the actual sale price of such item would be, that the
Realized Value of such item shall be deemed to equal zero, for purposes of
computing Lessee's liability as provided in paragraph (b) below. Upon the sale
of the item at any time after the expiration of such 30 day period, Lessor will
apply the Realized Value (i) to refund to Lessee, without interest, any amount
which Lessee may have previously paid to Lessor with respect to such item as
required under paragraph (b) and (ii) to pay to Lessee the amount by which the
Realized Value exceeds the Estimated Residual Value.

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<PAGE> 9

(b) Lessee Liability. If the Realized Value of the Equipment is less
than the Estimated Residual Value thereof, Lessor shall notify Lessee of such
fact in writing and Lessee shall, within 10 days after receipt of such notice,
pay to Lessor, as an adjustment to the rental payable under the Lease, an amount
equal to the difference between the Realized Value and the Estimated Residual
Value; provided, however, Lessee's Liability shall be limited to *% of Lessor's
Cost of the Equipment as set forth in the Schedule.

* REFER TO TABLE I TO SCHEDULE NO. 001 ("LESSEE OBLIGATION") FOR APPLICABLE

PERCENTAGES.

(c) Lessor Liability. If the Realized Value of the Equipment exceeds
the Estimated Residual Value thereof, and provided that Lessee is not then in
default under the Lease, Lessor shall pay to Lessee, as an adjustment to the
rent payable under the Lease, an amount equal to 100% of such excess, but only
to the extent Lessor actually receives the Realized Value in available funds.

(d) Definitions of Certain Terms. For purposes of this Section XX:

(i) "Equipment" means all but not less than all of the
items of Equipment described on the Schedule;

(ii) "Estimated Residual Value" means **% of Lessor's Cost
of the Equipment as set out on the Schedule;

** REFER TO TABLE I TO SCHEDULE NO. 001 ("LESSOR RESIDUAL RISK
AMOUNT") FOR APPLICABLE PERCENTAGES.

(iii) "Realized Value" means the net proceeds realized by
Lessor from sale of the Equipment after deduction of (x) expenses of such sale,
if any, and (y) all sums due under the Lease as of Schedule Expiration that
remain unpaid as of the date of the sale;

(iv) "Schedule Expiration" means the last day of the Basic
Term of the Lease as to the Equipment.

XXI. MISCELLANEOUS:

(a) EACH OF LESSEE AND LESSOR HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS
TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF,
DIRECTLY OR INDIRECTLY, THIS LEASE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS
BETWEEN LESSEE AND LESSOR RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR
ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED
BETWEEN LESSEE AND LESSOR. The scope of this waiver is intended to be all
encompassing of any and all disputes that may be filed in any court (including,
without limitation, contract claims, tort claims, breach of duty claims, and all
other common law and statutory claims). THIS WAIVER IS IRREVOCABLE MEANING THAT
IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY
TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
LEASE, ANY RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING
TO THIS TRANSACTION OR ANY RELATED TRANSACTION. In the event of litigation, this
Lease may be filed as a written consent to a trial by the court.

PWE Initials

---

(b) Any cancellation or termination by Lessor, pursuant to the provisions of
this Agreement, any Schedule, supplement or amendment hereto, or the lease of
any Equipment hereunder, shall not release Lessee from any then outstanding
obligations to Lessor hereunder. All Equipment shall at all times

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<PAGE> 10

remain personal property of Lessor regardless of the degree of its annexation to
any real property and shall not by reason of any installation in, or affixation
to, real or personal property become a part thereof (c) Time is of the essence
of this Agreement. Lessor's failure at any time to require strict performance by
Lessee of any of the provisions hereof shall not waive or diminish Lessor's
right thereafter to demand strict compliance therewith. Lessee agrees, upon
Lessor's request, to execute any instrument necessary or expedient for filing,
recording or perfecting the interest of Lessor. All notices required to be given
hereunder shall be deemed adequately given if sent by registered or certified
mail to the addressee at its address stated herein, or at such other place as
such addressee may have designated in writing. This Agreement and any Schedule
and Annexes thereto constitute the entire agreement of the parties with respect
to the subject matter hereof. NO VARIATION OR MODIFICATION OF THIS AGREEMENT OR
ANY WAIVER OF ANY OF ITS PROVISIONS OR CONDITIONS, SHALL BE VALID UNLESS IN
WRITING AND SIGNED BY AN AUTHORIZED REPRESENTATIVE OF THE PARTIES HERETO.

PWE Initials

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(d) In case of a failure of Lessee to comply with any provision of this
Agreement, Lessor shall have the right, but shall not be obligated to, effect
such compliance, in whole or in part; and reasonable expenses and obligations
incurred or assumed by Lessor in effecting such compliance shall constitute
additional rent due to Lessor within five days after the date Lessor sends
notice to Lessee requesting payment. Lessor's effecting such compliance shall
not be a waiver of Lessee's default. (e) Any rent or other amount not paid to
Lessor when due hereunder shall bear interest, both before and after any
judgment or termination hereof, at the lesser of eighteen percent (18%) per
annum or the maximum rate allowed by law. Any provisions in this Agreement and
any Schedule which are in conflict with any statute, law or applicable rule
shall be deemed omitted, modified or altered to conform thereto.

IN WITNESS WHEREOF, Lessee and Lessor have caused this Agreement to be executed
by their duly authorized representatives as of the date first above written.

LESSOR: LESSEE:

GENERAL ELECTRIC CAPITAL MEGATEST CORPORATION

CORPORATION

By: /s/ DENNIS J. BICKERSTAFF By: /s/ PAUL W. EMERY II

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

Name: Dennis J. Bickerstaff Name: Paul W. Emery II

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

Title: Credit Manager Title: CFO/VP

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

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<PAGE> 11

AMENDMENT NO. 01

MASTER LEASE AGREEMENT
DATED AUG 10, 1995 (THE "LEASE")

BY AND BETWEEN
MEGATEST CORPORATION ("LESSEE")

AND

GENERAL ELECTRIC CAPITAL CORPORATION ("LESSOR")
DATED AUG 10, 1995

WHEREAS, Lessor and Lessee desire to amend a certain provision of the Lease as
hereinafter provided;

NOW THEREFORE, for good and valuable consideration, receipt and sufficiency of
which are hereby acknowledged, Lessor and Lessee hereby agree to amend the Lease
by adding the following language to Section XI of the Lease:

Any declared event of default, not cured in sixty (60) days by Lessee
under any loan, lease, note, contract or other monetary obligation which
is now or may hereafter be in effect as to any obligee, which permits
that obligee to accelerate payment of the obligation with or without
first giving notice to Lessee, shall constitute a material default under
this Lease. Lessee hereby agrees to notify the Lessor immediately upon
receipt of any declared default by any obligee. Failure to do so shall
constitute an immediate material default under this Lease.

This Amendment shall be deemed to have been entered into contemporaneously with
and integrated into the terms and conditions of the Lease.

Except as set out herein, the terms and conditions of the Lease shall remain in
full force and effect as entered into by the parties on or prior to the date
hereof

Dated: August 10, 1995

LESSOR: LESSEE:

GENERAL ELECTRIC CAPITAL MEGATEST CORPORATION

CORPORATION

By: /s/ DENNIS J. BICKERSTAFF By: /s/ PAUL W. EMERY II

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

Name: Dennis J. Bickerstaff Name: Paul W. Emery II

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

Title: Credit Manager Title: CFO/VP

------------------------------- -----------------------------
<PAGE> 12

(1)EQUIPMENT SCHEDULE
SCHEDULE NO. 001

DATED THIS 10TH DAY OF AUG., 1995
TO MASTER LEASE AGREEMENT

DATED AS OF AUGUST 10, 1995

LESSOR & MAILING ADDRESS: LESSEE & MAILING ADDRESS:

GENERAL ELECTRIC CAPITAL MEGATEST CORPORATION

CORPORATION

2200 Powell Street 1321 Ridder Park Drive
Suite 600 San Jose, CA 95131

Emeryville, CA 94608

Capitalized terms not defined herein shall have the meanings assigned to them in
the Master Lease Agreement identified above ("Agreement;" said Agreement and
this Schedule being collectively referred to as "Lease").

A. Equipment,

Pursuant to the terms of the Lease, Lessor agrees to acquire and lease
to Lessee the Equipment listed on Annex A attached hereto and made a part
hereof.

B. Financial Terms,

1. Advance Rent (if any): $39,406.00.

2. Lessor's Cost: $1,900,000.00.

3. Basic Term Lease Rate Factor: 2.07400%.

4. Daily Lease Rate Factor: .069133%.

5. Basic Term (No. of Months): 12.

6. Basic Term Commencement Date: 09/01/95.

7. Equipment Location: See Annex A attached hereto and made a part
hereof,

8. Lessee Federal Tax ID No.: 94-2422195

9. Supplier: Megatest Corporation

10. Last Delivery Date: 08/08/95

11. First Termination Date: N/A.

12. Option Payment: see attached Table 1.

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(1) Non-standard document.

<PAGE> 13

13. Interest rate: 8.67%.

14. Lessee agrees and acknowledges that the Lessor's Cost of the
Equipment as stated on the Schedule is equal to the fair market value of the
Equipment on the date hereof.

C. Term and Rent,

1. Interim Rent. For the period from and including the Lease
Commencement Date to the Basic Term Commencement Date ("Interim Period"), Lessee
shall pay as rent ("Interim Rent") for each unit of Equipment, the product of
the Daily Lease Rate Factor times the Lessor's Cost of such unit times the
number of days in the Interim Period. Interim Rent shall be due on 08/31/95.

2. Basic Term Rent. Commencing on 09/01/95, and on the same day
of each month thereafter (each, a "Rent Payment Date")

during the Basic Tenn, Lessee shall pay as rent ("Basic Term Rent") the
product of the Basic Term Lease Rate Factor times the Lessor's Cost of all
Equipment on this Schedule.

D. Insurance,

1. Public Liability: $1,000,000.00, total liability per
occurrence.

2. Casualty and Property Damage: An amount equal to the Stipulated
Loss Value or higher.

E. Modifications and Additions to Agreement,

For purposes of this Schedule only, the Agreement is amended as follows:

1. Section I(b) of the Agreement is hereby deleted in its
entirety and the following substituted in its stead:

(b) The obligation of Lessor to purchase the Equipment
from Lessee and to lease the same to Lessee shall be subject to receipt
by Lessor, on or prior to the earlier of the Lease Commencement Date or
Last Delivery Date therefor, of each of the following documents in form
and substance satisfactory to Lessor: (i) a Schedule relating to the
Equipment then to be leased hereunder, (ii) a Bill of Sale, in the form
of Annex B to the applicable Schedule, in favor of Lessor, (iii)
evidence of insurance which complies with the requirements of Section X,
and (iv) such other documents as Lessor may reasonably request.
Simultaneously with the execution of the Bill of Sale, Lessee shall also
execute a Certificate of Acceptance, in the form of Annex C to the
applicable Schedule, covering all of the Equipment described in the Bill
of Sale.

2. Section VI(a) shall be deleted and the following substituted in
its stead:

(a) The parties acknowledge that this is a
sale/leaseback transaction and the Equipment is in Lessee's possession

as of the Lease Commencement Date.

3. Clause (b) of Section XVII is deleted in its entirety and the
following substituted in its stead:

(b) Lessee grants to Lessor to secure the prompt
payment and performance as and when due of all obligations and
indebtedness of Lessee now existing or hereafter created pursuant to
this Lease: (i) a first priority security interest in the Equipment and
all additions, attachments,

<PAGE> 14

accessories and accessions thereto and any and all substitutions,
replacements or exchanges therefor, and all proceeds (cash and
non-cash), including insurance proceeds, thereof; and (ii) to the extent
the Equipment may constitute or be deemed to be Lessee's inventory, as
such term is defined in the Uniform Commercial Code of any applicable
jurisdiction (the "Inventory"), a first priority security interest in
such Inventory, which shall mean any and all Equipment, offered or
furnished under any contract of service or intended for sale or lease,
any and all additions, attachments, accessories and accessions thereto,
any and all substitutions, replacements or exchanges therefor, any and
all leases, subleases, rentals, accounts and contracts with respect to
the Equipment which may now exist or hereafter arise, together with all
rights thereunder and all rental and other payments and purchase options
due and to become due thereunder, any and all sales proceeds payable for
such property, all insurance, bonds and/or other proceeds of the
property and all returned or repossessed Equipment now or at any time or
times hereafter in the possession or under the control of Lessee or
Lessor; PROVIDED, HOWEVER, THAT LESSEE IS NOT AUTHORIZED TO SELL THE
EQUIPMENT OR THE INVENTORY; and (iii) a first priority security interest
in all accounts (as such term is defined in the Uniform Commercial Code
of any applicable jurisdiction) now owned by Lessee or hereafter
acquired or owned by Lessee that might arise or result from any lease or
other disposition of any of the Equipment or the Inventory, including,
but not limited to, any right of Lessee to payment for Equipment sold or
leased or under any contract for services whether or not evidenced by an
instrument or chattel paper, and whether or not such right has been
earned by performance.

4. Section XX shall be deleted in its entirety and the following
substituted in its stead:

XX. END OF BASIC TERM OPTIONS. At the end of the
Basic Term, Lessee shall have only the options specified in this

Section XX:

(a) So long as Lessee shall not have exercised its
option to terminate this Lease pursuant to Section XVIII hereof nor
exercised its Early Purchase Option pursuant to Section XIX hereof, and
provided that Lessee is not then in default under this Lease or any
other agreement between Lessor and Lessee, Lessee shall have the option,
upon the expiration of the Basic Term of any Schedule, to renew the
Lease with respect to all, but not less than all, of the Equipment
leased thereunder for an additional term of twelve (12) months (the
"Renewal Term") at a lease rate factor of 2.0740%. If Lessee desires to
exercise this option, it shall give Lessor written notice of its
election to renew not less than 90 days nor more than 180 days before
the expiration of the Basic Term of such Schedule.

(b) So long as Lessee shall not have exercised its
option to terminate this Lease pursuant to Section XVIII hereof nor
exercised its Early Purchase Option pursuant to Section XIX hereof, nor
exercised its option to renew pursuant to subparagraph (a) of this
Section, and provided that Lessee is not then in default under this
Lease or any other agreement between Lessor and Lessee, Lessee shall
have the option, upon the expiration of the Basic Term of any Schedule,
to return or to purchase, for the applicable Realized Value (as defined
below), all (but not less than all) of the Equipment leased under such
Schedule upon the following terms and conditions:

<PAGE> 15

(1) Determination of Realized Value. The
Realized Value for each item of Equipment on the Schedule shall

be determined as follows:

(A) If Lessee elects to purchase

the Equipment, the Realized Value of each item of Equipment
shall be its Estimated Residual Value.

(B) If lessee elects not to

purchase the Equipment, Lessee and Lessor shall arrange for the
sale of such Equipment on an AS IS BASIS, provided that Lessee
may not bid, directly or indirectly. Each item of Equipment
shall be sold by Lessor for its then determined Fair Market
Value. If any item of Equipment is not sold within 90 days after
Schedule Expiration, then Lessee and Lessor agree, in view of
the uncertainties of market conditions and the parties'
inability to predict what the actual sale price of such item
would be, that the Realized Value of such item shall be deemed
to equal zero, for purposes of computing Lessee's liability as
provided in paragraph (b) below. Upon the sale of the item at
any time after the expiration of such 90 day period, Lessor will
apply the Realized Value (i) to refund to Lessee, without
interest, any amount which Lessee may have previously paid to
Lessor with respect to such item as required under paragraph (b)
and (ii) to pay to Lessee the amount by which the Realized Value
exceeds the Estimated Residual Value.

(2) Lessee Liability. If the Realized Value of
the Equipment is less than the Estimated Residual Value thereof,
Lessor shall notify Lessee of such fact in writing and Lessee
shall, within 10 days after receipt of such notice, pay to
Lessor, as an adjustment to the rental payable under the Lease,
an amount equal to the difference between the Realized Value and
the Estimated Residual Value; provided, however, Lessee's
Liability shall be limited to the applicable percentage of
Capitalized Lessor's Cost listed under "Lessee Obligation" in
Table 1.

(3) Lessor Liability. If the Realized Value of
the Equipment exceeds the Estimated Residual Value thereof, and
provided that Lessee is not then in default under the Lease,
Lessor shall pay to Lessee, as an adjustment to the rent payable
under the Lease, an amount equal to 100% of such excess, but
only to the extent Lessor actually receives the Realized Value
in available funds.

(4) Definitions of Certain Terms. For
purposes of this Section XX:

(A) "Equipment" means all but not

less than all of the items of Equipment described on the
Schedule;

(B) "Estimated Residual Value"

means the applicable percentage of Capitalized Lessor's Cost
listed under "TRAC Amount" in Table I;

proceeds realized by Lessor from sale of the Equipment after
deduction of (x) expenses of such sale, if any, and (y) all sums
due under the Lease as of Schedule Expiration that remain unpaid
as of the date of the sale;

<PAGE> 16

(D) "Schedule Expiration" means the last day of
the Basic Term or applicable Renewal Term of the Lease as to the
Equipment.

(5) Notice of Election. Lessee shall give Lessor written
notice of its election to purchase the Equipment (or not) not
less than 90 days nor more than 180 days before the expiration
of the Basic Term of such Schedule.

4. Section XXI shall be added as follows:

XXI. END OF RENEWAL TERM OPTIONS. At the end of
each Renewal Term, Lessee shall have only the options specified in this

Section XXI:

(a) So long as Lessee shall not have exercised its
option to terminate this Lease pursuant to Section XVIII hereof nor
exercised its Early Purchase Option pursuant to Section XX hereof, nor
exercised its purchase option pursuant to Section XX hereof, and
provided that Lessee is not then in default under this Lease or any
other agreement between Lessor and Lessee, Lessee shall have the option,
upon the expiration of the first Renewal Term of any Schedule, to renew
the Lease with respect to all, but not less than all, of the Equipment
leased thereunder for an additional term of twelve (12) months at a
lease rate factor of 2.07400%, and upon the expiration of the second
Renewal Term to renew the Lease with respect to all, but not less than
all, of the Equipment leased thereunder for an additional term of
thirteen (13) months (the "Third Renewal Term"). At the end of any
Renewal Term, provided that Lessee is not then in default under this
Lease or any other agreement between Lessor and Lessee, Lessee may
purchase all, and not less than all, of such Equipment for a cash price
calculated as set out in paragraph (b) of Section XX, using the
appropriate TRAC Amount from Table I for the time the option is
exercised. If Lessee desires to exercise this option, it shall give
Lessor written notice of its election to renew not less than 90 days nor
more than 180 days before the expiration of the Basic Term of such
Schedule.

(b) So long as Lessee shall not have exercised its
option to terminate this Lease pursuant to Section XVIII hereof nor
exercised its Early Purchase Option pursuant to Section XIX hereof, nor
exercised its option to renew pursuant to subparagraph (a) of this
Section, and provided that Lessee is not then in default under this
Lease or any other agreement between Lessor and Lessee, Lessee shall
have the option, upon the expiration of any Renewal Term of any
Schedule, to return or to purchase, for the applicable Realized Value
(as defined below), all (but not less than all) of the Equipment leased
under such Schedule upon the terms and conditions set out in paragraph
XX(b).

the end of the Third Renewal Term.

5. Section XXII shall be added as follows:

XXII. SUBSTITUTION OF EQUIPMENT.

(a) So long as no event of default hereunder shall have
occurred and be continuing, and upon not less than 90 days prior written
notice from Lessee to Lessor of

<PAGE> 17

Lessee's intent to substitute equipment, Lessee may at its own cost and
expense, including all reasonable and documented costs and expenses of
Lessor, replace any item of Equipment which may from time to time suffer
a Casualty Occurrence or otherwise become worn out, inoperable or
technologically obsolete for Lessee's purposes with an item of
equivalent value as determined by Lessor in the reasonable exercise of
its business judgment, such approval not to be unreasonably withheld.
All such replacement Equipment shall be free and clear of all liens and
shall be in at least as good operating condition and have a value,
utility and remaining useful life at least equal to the Equipment being
replaced, assuming such replaced Equipment was in the condition and
repair required by the terms of this Lease.

(b) Prior to the time of any replacement of an item of
Equipment pursuant to Section XVIII (a) hereof, Lessee will at its sole
cost and expense, including all reasonable and documented costs and
expenses of Lessor:

(i) furnish Lessor with a Bill of Sale

with respect to such replacement Equipment;

(ii) cause an Equipment Schedule

amendment covering such replacement Equipment to be duly executed and
delivered;

(iii) furnish Lessor with such evidence of

compliance with the insurance provisions of Section IX hereof with
respect to such replacement Equipment as Lessor may request;

(iv) At Lessor's request furnish Lessor

with a certificate of an equipment appraiser satisfactory to Lessor
certifying that such replacement Equipment is new, has a value, utility
and useful life at least equal to that of the Equipment replaced,
assuming such replaced Equipment was in the condition required by this
Lease;

(v) take such other action, including the

filing of UCC financing statements as Lessor may reasonably request, in
order that such replacement Equipment is duly and properly titled in
Lessor and leased under this Lease.

(c) Upon satisfaction of the conditions specified in
Section XXII(a) and (b) above Lessor will transfer to Lessee without
recourse or warranty all of Lessor's right, title and interest in and to
the replaced Equipment. Lessor shall not be required to make and may
specifically disclaim any representation or warranty as to the condition
of the replaced Equipment and other matters. Each replacement item of
Equipment shall, after such conveyance, be deemed part of the property
leased under this Lease. No such replacement shall result in any change
in rent, Stipulated Loss Value, Termination Value, Contingent Rental
Amount or any Fixed Purchase Price or any other amount payable
hereunder.

(d) Lessee shall be permitted to replace any number of
items of Equipment in accordance with this Section XXII not more than
once during any fiscal quarter during the term of this Lease.

(e) The notice required by this Section XXII shall
specify the item of Equipment that is to be replaced, identify the item
with which it is to be replaced setting out

<PAGE> 18

the name of the manufacturer, the model number, the serial number, if
available, and state the date on which the substitution is to take
effect.

Except as expressly modified hereby, all terms and provisions of the Agreement
shall remain in full force and effect as previously agreed by the parties. This
Schedule is not binding or effective with respect to the Agreement or Equipment
until executed on behalf of Lessor and Lessee by authorized representatives of
Lessor and Lessee, respectively.

IN WITNESS WHEREOF, Lessee and Lessor have caused this Schedule to be
executed by their duly authorized representatives as of the date first above
written.

MEGATEST CORPORATION GENERAL ELECTRIC CAPITAL

CORPORATION

By: /s/ PAUL W. EMERY, II By: /s/ DENNIS J. BICKERSTAFF

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

Paul W. Emery, II Dennis J. Bickerstaff

- - -------------------------------------- --------------------------------
(Typed or printed name) (Typed or printed name)

Title: CFO/VP Title: Credit Manager

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

ATTEST: /s/ MEL FLANIGAN

----------------------
Signature

Name: MEL FLANIGAN

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

Title: CORP CONTROLLER

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

<PAGE> 19

TABLE NO. I

TO
EQUIPMENT SCHEDULE NO. 001
TO MASTER LEASE AGREEMENT

DATED AUGUST 10, 1995

TABLE 1

(% of Equipment Cost)

LESSOR

TRAC LESSEE RESIDUAL RISK
END OF MONTH AMOUNT OBLIGATION AMOUNT

------------ ------ ---------- -------------
<S> <C> <C> <C>
12 82.93% 70.94% 11.99%
24 64.32% 54.38% 9.94%
36 44.04% 36.32% 7.72%
49 20.00% 14.68% 5.32%
</TABLE>

INITIAL: DJB PWE

---------------------- ------------------------
LESSOR LESSEE

<PAGE> 1

[LOGO] EXHIBIT 10.11

LOAN AND SECURITY AGREEMENT

SECTION 1. DEFINITIONS.

All capitalized terms which are not defined herein are defined in Rider
A attached hereto and made a part hereof ("Rider A"). Accounting terms not
specifically defined shall be construed in accordance with generally accepted
accounting principles.

SECTION 2. AMOUNT AND TERMS OF LOANS; GRANT OF SECURITY INTEREST.

Subject to the terms and conditions hereof, CIT agrees to make Loans to
Debtor from time to time, in the amount described in paragraph 2 of Rider A.
Each Loan shall be evidenced by Debtor's Note, which Note shall set forth the
repayment terms and Interest Rate for such Loan.

AS security for the prompt and complete payment and performance when
due of all the Obligations and in order to induce CIT to enter into this
Agreement and make the Loans and to extend other credit from time to time to
Debtor, whether under this Agreement or otherwise, Debtor hereby grants to CIT a
first priority security interest in all Debtor's right, title and interest in,
to and under the Collateral.

SECTION 3. CONDITIONS OF BORROWING.

CIT shall not be required to make any Loan hereunder unless on the
Closing Date thereof all legal matters with respect to, and all legal documents
executed in connection with, the contemplated transactions are satisfactory to
CIT and all of the following conditions are met to the satisfaction of CIT
(except that (a) and (b) are required in connection with the initial Loan only):
(a) CIT has received a satisfactory Secretary's Certificate certified by
Debtor's Secretary or Assistant Secretary; (b) if requested by CIT, CIT shall
have received the written opinion addressed to it of counsel for Debtor
satisfactory to CIT as matters contained in Section 4(a)-(e), (g) and (i)
hereof, and as to such other matters as CIT may reasonably request; (c) Debtor
has executed and delivered to CIT the Note evidencing, and a Supplement
describing the Equipment to be financed by, such Loan; (d) the Equipment being
financed by such Loan has been delivered to, and accepted by, Debtor and CIT has
received satisfactory evidence that the Equipment is insured in accordance with
the provisions hereof and that the Cost thereof has been, or concurrently with
the making of the Loan shall be, fully paid; (e) Intentionally Left Blank; (f)
all filings, recordings and other actions (including the obtaining of landlord
and/or mortgagee waivers) deemed necessary or desirable by CIT in order to
perfect a first (and only) priority security interest in the Equipment being
financed by such Loan have been duly effected, and all fees, taxes and other
charges relating to such filings and recordings have been paid by Debtor; (g)
the representations and warranties contained in this Agreement are true and
correct with the same effect as if made on and as of such date, and no Default
or Event of Default is in existence on such date or shall occur as a result of
such Loan; (h) in the sole judgment of CIT, there has been no material adverse
change in the financial condition, business or operations of Debtor from the
date referred to in Section 4(j) hereof; (i) CIT has received from Debtor such
other documents and information as CIT has reasonably requested; (j) CIT has
inspected and appraised the Equipment and found it satisfactory in value and
condition; and (k) CIT has received and found satisfactory Debtor's most recent
quarterly financial statement.

SECTION 4. REPRESENTATIONS AND WARRANTIES.

In order to induce CIT to enter into this Agreement and to make each
Loan, Debtor represents and warrants to CIT that: (a) Debtor is a corporation
duly organized, validly existing and in good standing under the laws of its
State of incorporation, has the necessary authority and power to own the
Equipment and its other assets and to transact the business in which it is
engaged, is duly qualified to do business in each jurisdiction where the
Equipment is located and in each other jurisdiction in which the conduct of its
business or the ownership of its assets requires such qualification, and its
chief executive office is located at the address set forth in paragraph 5 of
Rider A; (b) Debtor has

Page 1 of 6

<PAGE> 2

full power, authority and legal right to execute and deliver this Agreement and
the Notes, to perform its obligations hereunder and thereunder, to borrow
hereunder and to grant the security interest created hereby; (c) this Agreement
has been (and each Note when executed and delivered shall have been) duly
authorized, executed and delivered by Debtor and constitutes (and each Note when
executed and delivered shall constitute) a legal, valid and binding obligation
of Debtor enforceable in accordance with its terms except as such rights may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally; (d) the execution, delivery and
performance by Debtor of this Agreement and the Notes do not and will not
violate any provision of any applicable law or regulation or of any judgment or
order of any court or governmental instrumentality, and will not violate any
provision of, or cause a default under, any loan, other agreement, contract or
judgment to which Debtor is a party and do not and will not require the consent,
license, approval or authorization of, or registration with, any Person; (e)
Debtor is not in default under any material agreement, contract or judgment to
which Debtor is a party; (f) Debtor has filed all tax returns that are required
to be filed and has paid all taxes as shown on said returns and all assessments
received by it to the extent such taxes and assessments have become due other
than those which are being contested in good faith by appropriate proceedings
and as to which appropriate reserves are being maintained by Debtor in
accordance with generally accepted accounting principles and so long as such
proceedings operate during the pendency thereof to prevent the sale, forfeiture,
or loss of the Collateral, and Debtor does not have any knowledge of any actual
or proposed deficiency or additional assessment in connection therewith; (g)
there is no action, audit, investigation or proceeding pending or threatened
against or affecting Debtor or any of its assets which involves any of the
Equipment or any of the contemplated transactions hereunder or which, if
adversely determined, could have a material adverse effect on Debtor's business,
operations or financial condition; (h) on each Closing Date, Debtor shall have
good and marketable title to the Equipment being financed on such date and CIT
shall have a perfected first (and only) Lien on such Equipment; and (i) (i) the
operations of Debtor comply in all material respects with all applicable
Environmental Laws; and (ii) except as disclosed to CIT, (A) none of the
operations of Debtor are subject to any judicial or administrative proceeding
alleging the violation of any Environmental Laws; (B) none of the operations of
Debtor is the subject of an investigation to determine whether any remedial
action is needed to respond to a release of any Hazardous Material into the
environment; and (C) Debtor has no known material contingent liability in
connection with any release of any Hazardous Material into the environment: (j)
all financial statements of Debtor which have been delivered to CIT have been
prepared in accordance with generally accepted accounting principles
consistently applied, and present fairly Debtor's financial position as at, and
the results of its operations for, the periods ended on the dates set forth on
such financial statements, and there has been no material adverse change in
Debtor's financial condition, business or operations since May 31, 1995, as
reflected in such financial statements; and (k) Debtor has not changed its name
in the last five years or done business under any other name except as
previously disclosed in writing to CIT.

SECTION 5. COVENANTS.

Debtor covenants and agrees that from and after the date hereof and so
long as the Commitment or any of the Notes is outstanding:

A. It will: (1) promptly give written notice to CIT of the occurrence
of any Event of Loss; (2) observe all material requirements of any governmental
authorities relating to the conduct of its business, to the performance of its
obligations hereunder, to the use, operation or ownership of the Equipment, or
to its other properties or assets, maintain its existence as a legal entity and
obtain and keep in full force and effect all rights, franchises, licenses and
permits which are necessary to the proper conduct of its business, and pay all
fees, taxes, assessments and governmental charges or levies imposed upon any of
the Equipment; (3) at any reasonable time or times, and upon reasonable notice,
permit CIT or its authorized representative to inspect the Equipment and,
following the occurrence and during the continuation of an Event of Default, to
inspect the books and records of Debtor as they pertain to the Equipment; (4) in
accordance with generally accepted accounting principles, keep proper books of
record and account in which entries will be made of all dealings or transactions
in relation to its business and activities; (5) furnish to CIT the following
financial statements, all in reasonable detail, prepared in accordance with
generally accepted accounting principles applied on a basis consistently
maintained throughout the period involved, (a) not later than 120 days after the
end of each fiscal year, its consolidated balance sheet as at the end of such
fiscal year, and its consolidated statements of income and consolidated
statements of cash flow and all footnotes of such fiscal year together with
comparative information for the prior fiscal year, audited by a "Big Six"
certified public accounting firm; and (b) not later than 90 days after the end
of each of the first three quarterly periods of each fiscal year, its
consolidated balance

Page 2 of 6

<PAGE> 3

sheet as at the end of such quarterly period and its consolidated statements of
income and consolidated statements of cash flow for such quarterly period and
for the portion of the fiscal year then ended together with comparative
information for the prior comparable period, certified by its chief financial
officer as fairly presenting the results of operations and financial position of
Debtor for the periods then ended and as of the date thereof, respectively; (6)
(i) furnish to CIT, together with the financial statements described in clauses
5(a) and 5(b) above, a statement signed by Debtor's chief financial officer
certifying that Debtor is in compliance with all financial covenants contained
in any documents evidencing a financial obligation to which Debtor is a party,
or if Debtor is not in compliance, the nature of such noncompliance or default,
and the status thereof (such statement shall set forth the actual calculations
of any financial covenants and the details of any amendments or modifications of
any financial covenants), and (ii) promptly, such additional financial and other
information as CIT may from time to time reasonably request; (7) promptly, at
Debtor's expense, execute and deliver to CIT such instruments and documents, and
take such action, as CIT may from time to time reasonably request in order to
carry out the intent and purpose of this Agreement and to establish and protect
the rights, interest and remedies created, or intended to be created, in favor
of CIT hereby, including, without limitation, the execution, delivery,
recordation and filing of financing statements (hereby authorizing CIT, in such
jurisdictions where such action is authorized by law, to effect any such
recordation or filing of financing statements without Debtor's signature, and to
file as valid financing statements in the applicable financing statement
records, photocopies hereof, of the Supplements and of any other financing
statement executed in connection herewith); (8) warrant and defend its good and
marketable title to the Equipment, and CIT's perfected first (and only) priority
security interest in the Collateral, against all claims and demands whatsoever
(hereby agreeing that the Equipment shall be and at all times remain separately
identifiable personal property, and shall not become part of any real estate),
and will, at its expense, take such action as may be necessary to prevent any
other Person from acquiring any right or interest in the Equipment; (9) at
Debtor's expense, if requested by CIT in writing, attach to the Equipment a
notice satisfactory to CIT disclosing CIT's security interest in the Equipment;
(10) at Debtor's expense, maintain the Equipment in good condition and working
order (and, where applicable, in full configuration as listed on the (i)
Appraisal of Fixed Assets and Equipment, dated August 2, 1995, prepared by Asset
Reliance, Inc. for Equipment located at 5301 East River Road, Suite 106,
Fridley, Minnesota, and (ii) Appraisal of Fixed Assets and Equipment, dated July
28, 1995, prepared by Asset Reliance, Inc. for Equipment located at 1321 Ridder
Park Drive, San Jose, California 95131-2306) and furnish all parts, replacements
and servicing required therefor so that the value, condition and operating
efficiency thereof will at all times be maintained, normal wear and tear
excepted, and any repairs, replacements and parts added to the Equipment in
connection with any repair or maintenance or with any improvement, change,
addition or alteration of a permanent nature shall immediately, without further
act, become part of the Equipment and subject to the security interest created
by this Agreement; and (11) obtain and maintain at all times on the Collateral,
at Debtor's expense, "All-Risk" physical damage and, if required by CIT,
liability insurance (including bodily injury and property damage) in such
amounts, against such risks, in such form and with such insurers as shall be
reasonably satisfactory to CIT; provided, however, that the amount of physical
damage insurance shall not be less than the then aggregate outstanding principal
amount of the Notes. All physical damage insurance policies shall be made
payable to CIT as its interest may appear; if liability insurance is required by
CIT, the liability insurance policies shall name CIT as an additional insured.
Debtor shall maintain and deliver to CIT the original certificates of insurance
or other documents reasonably satisfactory to CIT prior to policy expiration or
upon CIT's request, but CIT shall bear no duty or liability to ascertain the
existence or adequacy of such insurance. Each insurance policy shall, among
other things, require that the insurer give CIT at least 30 days' prior written
notice of any alteration in the terms of such policy or the cancellation thereof
and that the interests of CIT be continued insured regardless of any breach of
or violation by Debtor of any warranties, declarations or conditions contained
in such insurance policy. The insurance maintained by the Debtor shall be
primary with no other insurance maintained by CIT (if any) contributory.

B. Without the prior written consent of CIT, it will not: (1) sell,
convey, transfer, exchange, lease or otherwise relinquish possession or dispose
of any of the Collateral or attempt or offer to do any of the foregoing; (2)
create, assume or suffer to exist any Lien upon the Collateral except for the
security interest created hereby; (3) liquidate or dissolve; (4) change the form
of organization of its business; or (5) without thirty (30) days prior written
notice to CIT, change its name or its chief executive office; (6) move (or in
the case of titled vehicles, change the principal base of) any of the Equipment
from the location specified on the Supplement relating thereto without the prior
written consent of CIT; or (7) make or authorize any improvement, change,
addition or alteration to the Equipment which would impair its originally
intended function or use or its value. Notwithstanding anything set forth above,
CIT hereby agrees that Debtor may substitute as Collateral for items of
Equipment that are redundant to Debtor's needs items of equipment of similar
type and value which are in as good or better condition as the items of
Equipment that are redundant to

Page 3 of 6

<PAGE> 4

Debtor's needs, which substitute equipment must be acceptable to CIT.

SECTION 6. EVENTS OF DEFAULT; REMEDIES.

The following events shall each constitute an "Event of Default"
hereunder: (a) Debtor shall fail to pay any Obligation within 5 Business Days
after Debtor's receipt of notice that timely payment has not been received
(whether at the stated maturity, by acceleration or otherwise); (b) any
representation or warranty made by Debtor in this Agreement or in any document,
certificate or financial or other statement now or hereafter furnished by Debtor
in connection with this Agreement or any Loan shall at any time prove to be
untrue or misleading in any material respect as of the time when made; (c)
Debtor shall fail to observe any covenant, condition or agreement contained in
Sections 5.A(11) or 5.B hereof or in paragraph 4(b) of Rider A; (d) Debtor shall
fail to observe or perform any other covenant or condition contained in this
Agreement, and such failure shall continue unremedied for a period of 30 days
after the earlier of the date on which Debtor obtains knowledge of such failure
or the date on which notice thereof shall be given by CIT to Debtor; (e) Debtor
or any affiliate of Debtor shall default in the payment of, or other performance
under, any obligation for payment or lease (whether or not capitalized) or any
guarantee (i) to CIT, any affiliate of CIT or to Debtor's main bank, beyond the
period of grace, if any, provided with respect thereto, or (ii) to any other
Person beyond the period of grace, if any, provided with respect thereto, where
such obligation or amount guaranteed is in excess of $1,000,000.00; or (f) a
complaint in bankruptcy or for arrangement or reorganization or for relief under
any insolvency law is filed by or against Debtor (and when filed against Debtor
is in effect for 60 days) or Debtor admits its inability to pay its debts as
they mature.

If an Event of Default shall occur, CIT may, by notice of default given
to Debtor, do any one or more of the following: (a) terminate the Commitment
and/or (b) declare the Notes to be due and payable, whereupon the principal
amount of the Notes, together with accrued interest thereon and all other
amounts owing under this Agreement and the Notes, shall become immediately due
and payable without presentment, demand, protest or other notice of any kind,
all of which are hereby expressly waived (and in the case of any Event of
Default specified in clause (f) of the above paragraph, such acceleration of the
Notes shall be automatic, without any notice by CIT). In addition, if an Event
of Default shall occur and be continuing, CIT may exercise all other rights and
remedies available to it, whether under this Agreement, under any other
instrument or agreement securing, evidencing or relating to the Obligations,
under the Code, or otherwise available at law or in equity. Without limiting the
generality of the foregoing, Debtor agrees that in any such event, CIT, without
demand of performance or other demand, advertisement or notice of any kind
(except the notice specified below of time and place of public or private sale)
to or upon Debtor or any other Person (all and each of which demands,
advertisements and notices are hereby expressly waived), may forthwith do any
one or more of the following: collect, receive, appropriate and realize upon the
Collateral or any part thereof, and sell, lease, assign, give an option or
options to purchase or otherwise dispose of and deliver, the Collateral (or
contract to do so), or any part thereof, in one or more parcels at public or
private sale or sales at such places and at such prices as it may deem best, for
cash or on credit or for future delivery without the assumption of any credit
risk. CIT shall have the right upon any such public sale or sales, and, to the
extent permitted by law, upon any such private sale or sales, to purchase the
whole or any part of the Collateral so sold, free of any right or equity of
redemption of Debtor, which right or equity is hereby expressly released. Debtor
further agrees, at CIT's request, to assemble (at Debtor's expense) the
Collateral and make it available to CIT at such places which CIT shall select,
whether at Debtor's premises or elsewhere. CIT shall apply the net proceeds of
any such collection, recovery, receipt, appropriation, realization or sale
(after deducting all reasonable costs and expenses of every kind incurred
therein or incidental to the care, safekeeping or otherwise of any or all of the
Collateral or in any way relating to the rights of CIT hereunder, including
reasonable attorney's fees and legal expenses) to the payment in whole or in
part of the Obligations, in such order as CIT may elect. Debtor agrees that CIT
need not give more than 10 days' notice of the time and place of any public sale
or of the time after which a private sale may take place and that such notice is
reasonable notification of such matters. Debtor shall be liable for any
deficiency if the proceeds of any sale or disposition of the Collateral are
insufficient to pay all amounts to which CIT is entitled. Debtor agrees to pay
all costs of CIT, including reasonable attorneys' fees, incurred with respect to
collection of any of the Obligations and enforcement of any of CIT's rights
hereunder. To the extent permitted by law, Debtor hereby waives presentment,
demand, protest or any notice (except as expressly provided in this Section 6)
of any kind in connection with this Agreement or any Collateral.

Page 4 of 6

<PAGE> 5
SECTION 7. MISCELLANEOUS.

No failure or delay by CIT in exercising any right, remedy or privilege
hereunder or under any Note shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, remedy or privilege hereunder or
thereunder preclude any other or further exercise thereof or the exercise of any
other right, remedy or privilege. No right or remedy in this Agreement is
intended to be exclusive but each shall be cumulative and in addition to any
other remedy referred to herein or otherwise available to CIT at law or in
equity; and the exercise by CIT of any one or more of such remedies shall not
preclude the simultaneous or later exercise by CIT of any or all such other
remedies. No express or implied waiver by CIT of an Event of Default shall in
any way be, or be construed to be, a waiver of any other or subsequent Event of
Default. The acceptance by CIT of any regular installment payment or any other
sum owing hereunder shall not (a) constitute a waiver of any Event of Default in
existence at the time, regardless of CIT's knowledge or lack of knowledge
thereof at the time of such acceptance, or (b) constitute a waiver of any Event
of Default unless CIT shall have agreed in writing to waive the Event of
Default.

All notices, requests and demands to or upon any party hereto shall be
deemed duly given or made when sent, if given by telecopier, when delivered, if
given by personal delivery or overnight commercial carrier, upon receipt, after
deposit in the United States mail, certified mail, return receipt requested,
addressed to such party at its address (or telecopier number) set forth in
paragraph 5 of Rider A or such other address or telecopier number as may be
hereafter designated in writing by such party to the other party hereto.

Debtor agrees, whether or not the contemplated transactions are
consummated, (A) to pay or reimburse CIT for (i) all expenses of CIT in
connection with the documentation thereof; (ii) all fees, taxes and expenses of
whatever nature incurred in connection with the creation, preservation and
protection of CIT's security interest in the Collateral, including, without
limitation, all filing and lien search fees, payment or discharge of any taxes
or Liens upon, or in respect to, the Collateral, and all other fees and expenses
in connection with protecting or maintaining the Collateral or in connection
with defending or prosecuting any actions, suits or proceedings arising out of,
or related to, the Collateral; and (iii) all costs and expenses (including
reasonable legal fees and disbursements) of CIT in connection with the
enforcement of this Agreement and the Notes, and (B) to pay, and to indemnify
and hold CIT harmless from and against any and all liabilities, obligations,
losses, damages, penalties, claims, actions, judgments, suits, out-of-pocket
costs, expenses (including reasonable legal expenses) or disbursements of any
kind or nature whatsoever arising out of or with respect to (a) this Agreement,
the Collateral or CIT's interest therein, including, without limitation, the
execution, delivery, enforcement, performance or administration of this
Agreement and the Notes and the manufacture, purchase, ownership, possession,
use, selection, operation or condition of the Collateral or any part thereof, or
(b) Debtor's violation or alleged violation of any Environmental Laws or any law
or regulation relating to Hazardous Materials (the foregoing being referred to
as the "indemnified liabilities"), provided, that Debtor shall have no
obligation hereunder with respect to indemnified liabilities arising from the
gross negligence or willful misconduct of CIT. CIT hereby agrees that the fees,
costs and expenses set forth in A(i) and (ii) above shall not exceed $2,500.00
without Debtor's prior written consent. If Debtor fails to perform or comply
with any of its agreements contained in this Agreement and CIT shall itself
perform, comply or cause performance or compliance, the expenses of CIT so
incurred, together with interest thereon at the Late Charge Rate, shall be
payable by Debtor to CIT on demand and until such payment is made shall
constitute Obligations hereunder. The agreements and indemnities contained in
this paragraph shall survive termination of this Agreement and payment of the
Notes.

This Agreement contains the complete, final and exclusive statement of
the terms of the agreement between CIT and Debtor related to the contemplated
transactions, and neither this Agreement, nor any terms hereof, may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against which enforcement of a change, waiver, discharge or
termination is sought.

This Agreement shall be binding upon, and inure to the benefit of,
Debtor and CIT and their respective successors and assigns, except that Debtor
may not assign or transfer its rights hereunder or any interest herein without
the prior written consent of CIT.

Headings of sections and paragraphs are for convenience only, are not
part of this Agreement and shall not be deemed to affect the meaning or
construction of any of the provisions hereof. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such

Page 5 of 6

<PAGE> 6

prohibition or unenforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability shall not invalidate or
render unenforceable such provision in any other jurisdiction.

Debtor hereby authorizes CIT to correct patent errors and to fill in
such blanks as serial numbers and dates herein and in the Notes, Supplements and
in any document executed in connection herewith.

THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK.
DEBTOR HEREBY IRREVOCABLY CONSENTS AND AGREES THAT ANY LEGAL ACTION IN
CONNECTION WITH THIS AGREEMENT MAY BE INSTITUTED IN THE COURTS OF THE STATE OF
NEW YORK, IN THE COUNTY OF NEW YORK OR THE UNITED STATES COURTS FOR THE SOUTHERN
DISTRICT OF NEW YORK, AS CIT MAY ELECT, AND BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, DEBTOR HEREBY IRREVOCABLY ACCEPTS AND SUBMITS TO, FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, THE NON-EXCLUSIVE JURISDICTION OF ANY SUCH COURT, AND
TO ALL PROCEEDINGS IN SUCH COURTS. DEBTOR AND CIT ACKNOWLEDGE THAT JURY TRIALS
OFTEN ENTAIL ADDITIONAL EXPENSES AND DELAYS NOT OCCASIONED BY NONJURY TRIALS.
DEBTOR AND CIT AGREE AND STIPULATE THAT A FAIR TRIAL MAY BE HAD BEFORE A STATE
OR FEDERAL JUDGE BY MEANS OF A BENCH TRIAL WITHOUT A JURY. IN VIEW OF THE
FOREGOING, AND AS A SPECIFICALLY NEGOTIATED PROVISION OF THIS AGREEMENT, DEBTOR
AND CIT HEREBY EXPRESSLY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION ARISING UNDER THIS AGREEMENT, OR THE TRANSACTIONS
RELATED HERETO, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING
IN CONTRACT OR TORT OR OTHERWISE; AND DEBTOR AND CIT HEREBY AGREE AND CONSENT
THAT DEBTOR OR CIT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION
WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE
WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their duly authorized officers as of August 14, 1995.

CIT: DEBTOR:

THE CIT GROUP/EQUIPMENT MEGATEST CORPORATION
FINANCING, INC., A DELAWARE CO

A NEW YORK CORPORATION

By: /s/ WALTER IMPEY By: /s/ PAUL W. EMERY, II

--------------------------- ---------------------------
Title: Senior Vice President Title: VP Finance & CFO

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

Page 6 of 6

<PAGE> 7
[LOGO]

RIDER A TO
LOAN AND SECURITY AGREEMENT

DATED AUGUST 14, 1995
BETWEEN THE CIT GROUP/EQUIPMENT FINANCING, INC. ("CIT") AND

MEGATEST CORPORATION ("DEBTOR").

1. DEFINITIONS. As used in the Loan and Security Agreement, the following
terms shall have the following defined meanings (applicable to both singular
and plural forms), unless the context otherwise requires:

"Agreement": "hereof", "hereto", "hereunder" and words of similar
meaning: the Loan and Security Agreement of even date herewith between Debtor
and CIT including this Rider A and any other rider, schedule and exhibit
executed by Debtor and CIT in connection herewith, as from time to time
amended, modified or supplemented.

"Business Day": a day other than a Saturday, Sunday or legal holiday
under the laws of the State of New York.

"Closing Date": each date on which a Loan is made.

"Code": the Uniform Commercial Code as from time to time in effect
in any applicable jurisdiction.

"Collateral": the Equipment and the Proceeds thereof.

"Commitment": CIT's obligation to make Loans in the aggregate
principal amount stated in paragraph 2 of this Rider A.

"Cost": with respect to any item of Equipment, the orderly
liquidation value of such Equipment, which orderly liquidation value shall be

set forth in the applicable Supplement.

"Default": any event which with notice, lapse of time, or both would
constitute an Event of Default.

"Equipment": any and all items of property which are listed on
Supplements, together with all now owned or hereafter acquired accessories,
parts, repairs, replacements, substitutions, attachments, modifications,
additions, improvements, upgrades and accessions of a permanent nature, to or
upon such items of property.

"Environmental Laws": the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response, Compensation and Liability Act, any
so-called "Superfund" or "Superlien" law, the Toxic Substances Control Act, or
any other federal, state or local statute, law, ordinance, code, rule,
regulation, order or decree regulating, relating to, or imposing liability or
standards of conduct concerning, any hazardous, toxic or dangerous waste,
substance or material, as now or at any time hereafter in effect.

"Event of Default": as set forth in Section 6 of the Agreement.

"Event of Loss": with respect to any item of Equipment, (i) the actual
or constructive loss or loss of use thereof, due to theft, destruction, damage
beyond repair or to an extent which makes repair uneconomical, or (ii) the
condemnation, confiscation or seizure thereof, or requisition of title thereto,
or use thereof, by any Person.

"Hazardous Materials": any pollutant or contaminant defined as such in
(or for the purposes of) any Environmental Laws including, but not limited to,
petroleum, any radioactive material, and asbestos in any form or condition.

"Installment Payment Date": with respect to any Note, each date on
which a regular installment of principal is due.

"Interest Rate": as set forth in paragraph 3 of this Rider A.

"Late Charge Rate": a rate per annum equal to 3% over the applicable
Interest Rate, but not to exceed the highest rate permitted by applicable law.

"Liens": liens, mortgages, security interests, financing statements or
other encumbrances of any kind whatsoever.

"Loan": each loan made pursuant to the Agreement.

"Note": each promissory note executed and delivered by Debtor pursuant
hereto, satisfactory in form and substance to CIT.

"Obligations": all indebtedness, obligations, liabilities and
performance of Debtor to CIT, now existing or hereafter incurred under, arising
out of, or in connection with, the Agreement or any Note; and any and all other
present and future indebtedness, obligations, liabilities and performance of any
kind whatsoever of Debtor to CIT, whether direct or indirect, joint or several,
absolute or contingent, liquidated or unliquidated, secured or unsecured,
matured or unmatured and whether originally contracted with CIT or otherwise
acquired by CIT.

Page 1 of 3

<PAGE> 8

"Person": an individual, partnership, corporation, trust,
unincorporated association, joint venture, governmental authority or other

entity of whatever nature.

"Proceeds": the meaning assigned to it in the Code, and in any event,
including, without limitation, (i) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to Debtor from time to time with respect
to any of the Equipment; (ii) any and all payments made, or due and payable from
time to time, in connection with any requisition, confiscation, condemnation,
seizure or forfeiture of all or any part of the Equipment by any Person; (iii)
any and all accounts arising out of, or chattel paper evidencing a lease of, any
of the Equipment; and (iv) any and all other rents or profits or other amounts
from time to time paid or payable in connection with any of the Equipment.

"Prohibited Transaction": a transaction in which: (i) Debtor enters
into any transaction of merger or consolidation where after giving effect to
such merger or consolidation its tangible net worth does not equal or exceed
that which existed prior to such merger or consolidation; or (ii) Debtor sells,
transfers or otherwise disposes of all or any substantial part of its assets;
or (iii) any Person, or group of Persons acting together, becomes or agrees to
become the beneficial owner (directly or indirectly) of 50% or more of Debtor's
shares of voting stock (excluding current shareholders as of the date of this
Agreement owning 50% or more of Debtor's shares of voting stock).

"Supplement": each supplement executed and delivered by Debtor
pursuant hereto, satisfactory in form and substance to CIT.

"Treasury Rate": with respect to any Loan made hereunder, the rate per
annum equal to the yield to maturity for the U.S. Treasury Security having a
remaining term to maturity closest to 4 years as at (and shall be fixed as of)
the close of business on the 3rd Business Day prior to the making of such Loan
as reported on page 5 ("U.S. Treasury and Money Markets") of the information
ordinarily provided by Telerate Systems Incorporated.

2. LOAN AND COMMITMENT. The aggregate principal amount of all Loans shall
not exceed $5,000,000.00. Each Loan shall be in a principal amount of not
less than $250,000.00. CIT's Commitment shall terminate on September 30, 1995.

3. INTEREST RATE. The interest rate per annum on the unpaid principal amount
of each Loan shall be equal to the Treasury Rate plus 3.32%.

4. PREPAYMENT. (a) Should any item of Equipment suffer an Event of Loss, Debtor
shall either (i) make a prepayment on the corresponding Note within 30 days
thereafter, or (ii) substitute as Collateral for the item of Equipment which was
subject to an Event of Loss an item of equipment of similar type and value which
is in as good or better condition as the item which suffered an Event of Loss,
and is acceptable to CIT. The amount to be prepaid shall be (i) the unpaid
principal amount of such Note multiplied by a fraction the numerator of which is
the Cost of the item of Equipment which suffered the Event of Loss and the
denominator of which is the original Cost of all Equipment less the Cost of each
item of Equipment which previously suffered an Event of Loss or for which a
prepayment has otherwise previously been made (the "Prepaid Principal Amount"),
and (ii) all other amounts then due and owing hereunder and under the Notes.

(b) Not less than twenty (20) Business Days prior to the date the
proposed Prohibited Transaction is expected to be consummated, Debtor shall give
CIT written notice of the proposed Prohibited Transaction. In the event CIT does
not consent to the Prohibited Transaction and the Prohibited Transaction is
nonetheless to be consummated, Debtor shall, on or prior to the date the
Prohibited Transaction is to be consummated, prepay the outstanding principal
under all Notes together with (1) all interest accrued thereon, and (2) all
other amounts then due and owing hereunder and under the Notes.

(c) On any Installment Payment Date occurring on or after the 13th
Installment Payment Date with respect to the Note executed hereunder, Debtor
may, at its option, on at least 30 days' prior written notice to CIT, prepay
all, or any part of, the outstanding principal under all Notes executed
hereunder together with (i) interest accrued thereon to the date of prepayment,
and (ii) all other amounts then due and owing hereunder or under the Notes. In
addition, upon any prepayment pursuant to this paragraph 4(c), Debtor shall pay
to CIT a prepayment fee in an amount equal to 3% of the principal being prepaid
at month 13 and declining rateably thereafter over the remaining Loan term.

(d) Except as provided in (a), (b) or (c) of this paragraph 4, the Notes
may not be prepaid in whole or in part.

Page 2 of 3

<PAGE> 9

5. ADDRESSES FOR NOTICE PURPOSES AND DEBTOR'S CHIEF EXECUTIVE OFFICE.

CIT: DEBTOR:

THE CIT GROUP/EQUIPMENT FINANCING, INC. MEGATEST CORPORATION

Address: Address:
1211 Avenue of the Americas 1321 Ridder Park Drive
21st Floor San Jose, California 95131-2306

New York, New York 10036

Telecopier No. (212) 536-1385 Telecopier No. (408) 451-3202

Attention: Senior Vice President/Credit Attention: Vice President - Finance

6. COMMITMENT FEE. CIT acknowledges receipt from Debtor of a commitment fee in
the amount of $10,000.00 (the "Commitment Fee"). CIT agrees to refund to Debtor
after the expiration of the commitment period hereunder and completion by CIT of
all follow-up matters related to the transactions contemplated hereby, as the
refundable portion of the Commitment Fee, the amount determined in accordance
with the following formula:

Refund = $10,000.00 Aggregate principal amount of all Loans made
X hereunder - not to exceed $5,000,000.00

--------------------------------------------
$5,000,000.00

Such refund shall be net, however, of any out-of-pocket fees, costs,
disbursements and expenses incurred by CIT (not to exceed $2,500.00) in
connection with the transactions contemplated hereby. Debtor agrees that the
difference, if any, between the amount of the Commitment Fee and the amount
determined in accordance with the foregoing formula shall be retained by CIT. In
the event no Loan is made hereunder, CIT shall retain the entire Commitment Fee.

THE PROVISIONS SET FORTH IN THIS RIDER A ARE INCORPORATED IN AND MADE A PART OF
THE LOAN AND SECURITY AGREEMENT BETWEEN CIT AND DEBTOR DATED AS OF AUGUST 14,
1995.

CIT: DEBTOR:

THE CIT GROUP/EQUIPMENT MEGATEST CORPORATION,
FINANCING, INC., A NEW YORK CORPORATION A DELAWARE CORPORATION

By: /s/ WALTER IMPEY By: /s/ PAUL W. EMERY, II

------------------------------ -------------------------
Title: Senior Vice President Title: VP Finance & CFO

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

Page 3 of 3

<PAGE> 10

PROMISSORY NOTE

$5,000,000.00 August 15, 1995

FOR VALUE RECEIVED, MEGATEST CORPORATION ("Debtor") promises to pay to
the order of THE CIT GROUP/EQUIPMENT FINANCING, INC. ("CIT"), at such address as
CIT may designate, in lawful money of the United States, the principal sum of
FIVE MILLION AND 00/100 DOLLARS ($5,000,000.00) together with interest in like
money on the principal sum remaining unpaid from time to time from the date of
this Note until due and payable (whether as stated, by acceleration or
otherwise) at the rate of nine and .4735/100 percent (9.4735%) per annum, said
principal and interest to be paid in forty-eight (48) consecutive monthly
installments, commencing on September 15, 1995 with the following installments
on the same day of each month thereafter until payment in full of this Note.
Each such installment shall be a level payment of principal and interest in the
amount of $125,552.42. Each such installment shall be applied first to the
payment of any unpaid interest on the principal sum and then to payment of
principal. Interest shall be calculated on the basis of a 360-day year
consisting of twelve 30-day months. Any amount not paid when due under this Note
shall bear late charges thereon, calculated at the Late Charge Rate, from the
due date thereof until such amount shall be paid in full. Any payment received
after the maturity of any installment of principal shall be applied first to the
payment of unpaid late charges, second to the payment of any unpaid interest on
said principal, and third to the payment of principal.

This Note is one of the Notes referred to in the Loan and Security
Agreement dated as of August 14, 1995 between Debtor and CIT (herein, as the
same may from time to time be amended, supplemented or otherwise modified,
called the "Agreement"), is secured as provided in the Agreement, and is subject
to prepayment only as provided therein, and the holder hereof is entitled to the
benefits thereof.

Terms defined in the Agreement shall have the same meaning when used in
this Note, unless the context shall otherwise require.

Except as provided in the Agreement, Debtor hereby waives presentment,
demand of payment, notice of dishonor, and any and all other notices or demands
in connection with the delivery, acceptance, performance, default or enforcement
of this Note and hereby consents to any extensions of time, renewals, releases
of any party to this Note, waivers or modifications that may be granted or
consented to by the holder of this Note.

Upon the occurrence of any one or more of the Events of Default
specified in the Agreement, the amounts then remaining unpaid on this Note,
together with any interest accrued, may be declared to be (or, with respect to
certain Events of Default, automatically shall become) immediately due and
payable as provided therein.

In the event that any holder shall institute any action for the
enforcement or the collection of this Note, there shall be immediately due and
payable, in addition to the unpaid balance hereof, all late charges and all
costs and expenses of such action, including reasonable attorneys' fees. In
accordance with the provisions of the Agreement, Debtor and CIT waive trial by
jury in any litigation relating to or in connection with this Note in which they
shall be adverse parties, and

Page 1 of 2

<PAGE> 11

Debtor hereby waives the right to interpose any setoff, counterclaim or defense
of any nature or description whatsoever.

Debtor agrees that its liabilities hereunder are absolute and
unconditional without regard to the liability of any other party, and that no
delay on the part of the holder hereof in exercising any power or right
hereunder shall operate a waiver thereof; nor shall any single or partial
exercise of any power or right hereunder preclude other or further exercise
thereof or the exercise of any other power or right.

If at any time this transaction would be usurious under applicable law,
then regardless of any provision contained in the Agreement, in this Note or in
any other agreement made in connection with this transaction, it is agreed that
(a) the total of all consideration which constitutes interest under applicable
law that is contracted for, charged or received upon the Agreement, this Note or
any such other agreement shall under no circumstances exceed the maximum rate of
interest authorized by applicable law and any excess shall be credited to Debtor
and (b) if CIT elects to accelerate the maturity of, or if CIT permits Debtor to
prepay the indebtedness described in, this Note, any amounts which because of
such action would constitute interest may never include more than the maximum
rate of interest authorized by applicable law and any excess interest, if any,
shall be credited to Debtor automatically as of the date of acceleration or
prepayment.

THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK.

MEGATEST CORPORATION

By: /s/ PAUL W. EMERY II

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

Title: VP Finance & CFO

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

Page 2 of 2

<PAGE> 1

EXHIBIT 10.12

RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO:

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.), a Delaware corporation c/o Landels,
Ripley & Diamond 350 Steuart Street

San Francisco, CA 94105-1250
Attn: Bruce W. Hyman, Esq.

DEED OF TRUST, FINANCING STATEMENT, SECURITY AGREEMENT
AND FIXTURE FILING (WITH ASSIGNMENT OF RENTS AND LEASES)

MEGATEST CORPORATION, a Delaware corporation
as Trustor,

CHICAGO TITLE COMPANY, a corporation,
as Trustee,

for the benefit of

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.),

a Delaware Corporation
as Beneficiary

August 25, 1995

<PAGE> 2

TABLE OF CONTENTS

Page

<S> <C> <C>
GRANTING CLAUSE ONE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
GRANTING CLAUSE TWO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
GRANTING CLAUSE THREE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
GRANTING CLAUSE FOUR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
GRANTING CLAUSE FIVE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
GRANTING CLAUSE SIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
GRANTING CLAUSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
GRANTING CLAUSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
GRANTING CLAUSE NINE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
GRANTING CLAUSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
GRANTING CLAUSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

ARTICLE I

COVENANTS AND AGREEMENTS

1.1 Performance by Trustor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.2 Payment of Taxes, Assessments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
A. Impositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
B. Installments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
C. Receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
D. Evidence of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
E. Payment by Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
F. Change in Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
G. Permitted Contest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
H. No Lease Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
I. Joint Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.3 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
A. Extended Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
B. Additional Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
C. Separate Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
D. Insurers; Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
E. Beneficiary's Right to Provide Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
F. Damage or Destruction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
G. Trustor's Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
H. Transfer of Interest in Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
1.4 Escrow Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
1.5 Care and Use of Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
A. Maintenance and Repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
B. Standard of Repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
C. Notice to Trustor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
D. Removal of Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
E. Compliance With Laws and Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
F. Permitted Contests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
G. Compliance With Instruments of Record . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
H. Alteration of Secured Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
I. Parking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>

-i-

<S> <C> <C>
J. Entry on Secured Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
K. No Consent to Alterations or Repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
L. Mechanics Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
M. Use of Secured Property by Trustor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
N. Use of Secured Property by Public . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
1.6 Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
A. Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
B. Right to Inspect Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
1.7 Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
A. Beneficiary's Right to Participate in Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
B. Application of Condemnation Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
C. Reimbursement of Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
D. Existing Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
E. Application of Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
1.8 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
A. Performance of Lessor's Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
B. Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
C. Covenants Regarding Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
D. Application of Rents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
1.9 Assignment of Leases, Rents, Income, and Cash Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . 24
A. Assignment; Discharge of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
B. Entry Onto Secured Property; Lease of Secured Property . . . . . . . . . . . . . . . . . . . . . . . . 25
C. License to Manage Secured Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
D. Delivery of Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
E. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
1.10 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
A. General; Appointment of Attorney-in-Fact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
B. Statement Regarding Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
C. Additional Security Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
D. Security Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
E. Preservation of Trustor's Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
F. Further Indemnities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
G. Absence of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
1.11 Further Sales or Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
A. Continuing Ownership and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
B. Transfer or Encumbrance of Secured Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
C. Acceleration of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
D. Wrap-Around Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
1.12 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

ARTICLE II

WARRANTIES AND REPRESENTATIONS

2.1 Warranty of Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2.2 Ownership Of Improvements And Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2.3 No Pending Material Litigation or Proceeding; No Hazardous Materials . . . . . . . . . . . . . . . . . . . . 35
</TABLE>

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<S> <C> <C>
A. Proceedings Affecting Trustor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
B. Proceedings Affecting Secured Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
C. No Litigation Regarding Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.4 Valid Organization, Good Standing and Qualification of Trustor . . . . . . . . . . . . . . . . . . . . . . . 36
2.5 Authorization; No Legal Restrictions on Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
2.6 Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
2.7 Tax Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
2.8 Absence of Foreign or Enemy Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
2.9 Federal Reserve Board Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
2.10 Investment Company Act and Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . . . . . . 38
2.11 Exempt Status of Transactions Under Securities Act and Representations Relating Thereto . . . . . . . . . . . 38
2.12 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

ARTICLE III

DEFAULTS

3.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

ARTICLE IV

REMEDIES

4.1 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
4.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
4.3 Rights Pertaining to Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
4.4 Application of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
4.5 Prepayment Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
4.6 Environmental Defaults and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

ARTICLE V

MISCELLANEOUS

5.1 Non-Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
5.2 Sole Discretion of Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
5.3 Recovery of Sums Required To Be Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
5.4 Legal Tender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
5.5 No Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
5.6 Discontinuance of Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
5.7 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
5.8 Notice to Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
5.9 Non-Recourse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
5.10 Successors and Assigns Included In Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
5.11 Number and Gender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
5.12 Changes and Modifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
5.13 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
5.14 Invalid Provisions to Affect No Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
5.15 Usury Savings Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
</TABLE>

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<S> <C> <C>
5.16 No Statute of Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
5.17 Late Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
5.18 Continuing Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
</TABLE>

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<PAGE> 6

DEED OF TRUST, FINANCING STATEMENT, SECURITY AGREEMENT
AND FIXTURE FILING (WITH ASSIGNMENT OF RENTS AND LEASES)

THIS DEED OF TRUST, FINANCING STATEMENT, SECURITY AGREEMENT AND FIXTURE
FILING (WITH ASSIGNMENT OF RENTS AND LEASES) (this "Deed of Trust") is made as
of the 25th day of August, 1995 by MEGATEST CORPORATION, a Delaware corporation
("Trustor"), having an office at 1321 Ridder Park Drive, San Jose, California
95131-2306 ("Trustor") in favor of CHICAGO TITLE COMPANY, a Delaware corporation
("Trustee") for the benefit of SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.), a
Delaware corporation ("Beneficiary") having an office at One Sun Life Executive
Park, Wellesley Hills, MA 02181.

W I T N E S S E T H :

WHEREAS, Trustor has executed and delivered to Beneficiary that certain
Promissory Note (the "Note") dated the date hereof made by Trustor and payable
to Beneficiary in the original principal amount of FIVE MILLION FOUR HUNDRED
FIFTY THOUSAND and No/100 Dollars ($5,450,000.00) lawful money of the United
States, which Note is secured by this Deed of Trust and the terms, covenants and
conditions of which Note are hereby incorporated herein and made a part hereof
(the "Loan");

NOW, THEREFORE, in consideration of the sum of One Dollar ($1.00) this
day paid and other good and lawful consideration, the receipt and sufficiency of
which is hereby acknowledged, Trustor does hereby irrevocably bargain, sell,
transfer, grant, convey, assign and warrant to Trustee, the property described
in the Granting Clauses below in order to secure the following obligations
(collectively, the "Obligations"): the full and prompt payment and performance
of all of the indebtedness, obligations, covenants, agreements and liabilities
of Trustor to Beneficiary, together with all interest and other charges thereon,
whether direct or indirect, existing, future, contingent or otherwise, due or to
become due, under or arising out of or in connection with the Note, this Deed of
Trust, the Absolute Assignment of Leases, Rents, Income and Cash Collateral
dated the date hereof from Trustor as assignor, to Beneficiary, as assignee,
(the "Assignment"), the Environmental Agreement and Indemnity (the "Indemnity"),
and any other instrument now or hereafter given to evidence or secure or
guaranty Trustor's obligations hereunder (the Note, this Deed of Trust, the
Assignment, the Indemnity and such other instruments are herein collectively
called the "Loan Documents"); any and all modifications, extensions and renewals
of any of the foregoing; and any and all expenses and costs of collection or
enforcement, including, without limitation, attorneys' fees incurred by <PAGE>
Beneficiary in the collection or enforcement of any of the foregoing, or in the
exercise of any of the rights or remedies under the Loan Documents or applicable
law.

GRANTING CLAUSE ONE

All that tract or parcel of land more particularly described in
Schedule A hereto and made a part hereof (the "Land").

GRANTING CLAUSE TWO

TOGETHER WITH, any and all buildings and real property improvements now
or hereafter located or erected on the Land, including, without limitation, any
and all machinery, apparatus, equipment and fixtures now or hereafter used or
procured for use in connection with the operation of building utilities and/or
maintenance of, any building, structure or other real property improvement
(including, without limitation, all shades, awnings, venetian blinds, screens,
screen doors, storm doors and windows, curtain fixtures, attached floor
coverings, or articles used to supply sprinkler protection and office area
heating, ventilation and cooling equipment, but excluding trade fixtures and
personal property of tenants under Leases (as hereinafter defined) which do not
become the property of Trustor upon expiration or termination of the term of
such Leases), and all renewals and replacements thereof and articles in
substitution therefor used or procured for use in the operation of any and all
such buildings, structures and improvements, provided, in all cases, that,
whether or not any of the foregoing are attached to said buildings, structures
or other improvements in any manner, all such items shall be deemed to be
fixtures, part of the real estate and security for the obligations
(collectively, the "Improvements", and the Land and Improvements are herein
collectively called the "Premises"). Notwithstanding anything to the contrary
herein or in any other Loan Document the term "Improvements" shall not include
and in no event shall Beneficiary have any lien, interest or other right
whatsoever in any item of process heating, ventilating, cooling, plumbing, or
electrical equipment, communications equipment, production machinery or
equipment, moveable partitions, or any other equipment, machinery, inventory,
furniture or fixtures located within the building improvements which may be
removed from the Premises without any material permanent damage to the Premises
or the building systems thereof. Upon request Beneficiary shall executed such
documents as Trustor shall reasonably request to evidence the foregoing to any
prospective purchaser or lender of Trustor of such property. To the extent any
of the Improvements are not deemed real estate under the laws of the State of
California they shall be deemed personal property ("Personal Property") and this
Deed of Trust is and shall be deemed to be a

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<PAGE> 7

Security Agreement for the purposes of creating hereby a security interest under
the California Commercial Code in Beneficiary as Secured Party in the Personal
Property as hereinafter provided.

GRANTING CLAUSE THREE

TOGETHER WITH, all easements, rights-of-way, strips and gores of land,
streets, ways, alleys, passages, sewer rights, waters, water courses, water
rights and powers, and all estates, rights, titles, interests, privileges,
liberties, tenements, hereditaments, air rights, development rights and credits
and appurtenances of any nature whatsoever, in any way belonging, relating or
pertaining to, or above or below the Premises.

GRANTING CLAUSE FOUR

TOGETHER WITH, all right, title and interest of Trustor, now owned or
hereafter acquired, in and to any land lying within the right-of-way of any
street, opened or proposed, adjoining the Premises, and any and all sidewalks,
alleys and strips and gores of land adjacent to or used in connection with the
Premises.

GRANTING CLAUSE FIVE

TOGETHER WITH, all right, title and interest of Trustor in and to all
options to purchase or lease the Premises or any portion thereof or interest
therein, and any greater estate in the Premises owned or hereafter acquired by
Trustor.

GRANTING CLAUSE SIX

TOGETHER WITH, all the estate, interest, right, title and other claim
or demand which Trustor now has or may hereafter acquire in any and all awards
or payments made for the taking by eminent domain, or by any proceeding or
purchase in lieu thereof, of the whole or any part of the Premises, including,
without limitation, any awards resulting from a change or grade of streets and
awards for severance damages to the Secured Property together, in all cases,
with any interest thereon.

GRANTING CLAUSE SEVEN

TOGETHER WITH, all proceeds of and any unearned premiums on any
insurance policies covering the Premises, including, without limitation, the
right to receive and apply the proceeds of any insurance or judgments, or
settlements made in lieu thereof, for damage to the Premises.

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<PAGE> 8

GRANTING CLAUSE EIGHT

TOGETHER WITH, all the estate, interest, right, title and other claim
or demand which Trustor now has or may hereafter acquire against anyone with
respect to any damage to all or any part of the Premises, including, without
limitation, damage arising or resulting from any defect in or with respect to
the design or construction of all or any part of the Improvements.

GRANTING CLAUSE NINE

TOGETHER WITH, all deposits or other security or advance payments,
including rental payments, made by or on behalf of Trustor to others in
connection with the ownership or operation of all or any part of the Premises
including, without limitation, any such deposits or payments made with respect
to (i) insurance policies, (ii) utility service, (iii) cleaning, maintenance,
repair or similar services supplied for the Premises, (iv) refuse removal or
sewer service, (v) rental of equipment, if any, used by or on behalf of Trustor,
and (vi) parking or similar services or rights.

GRANTING CLAUSE TEN

TOGETHER WITH, all remainders, reversions, leasehold estate, other
estate, right, title, interest and other claim or demand of Trustor in and to
all leases or subleases covering the Premises or any portion thereof now or
hereafter existing or entered into, and all right, title and interest of Trustor
thereunder, including, without limitation, all cash or security deposits,
advance rentals and deposits or payments of similar nature (including, without
limitation, termination payments, damages or other payments in lieu thereof).

GRANTING CLAUSE ELEVEN

TOGETHER WITH, absolutely and presently, all rents, issues, profits,
cash collateral, royalties, income and other benefits, including, without
limitation, benefits accruing from all present and future oil, gas and mineral
leases and agreements derived from the Premises (collectively, the "Rents"),
subject to the right, power and authority hereinafter given to Trustor as a
licensee to collect and apply such Rents prior to the occurrence of an Event of
Default. The foregoing Premises, Personal Property and the real property and
personal property rights set forth in Granting Clause Three through Granting
Clause Eleven inclusive, hereinabove described or mentioned are hereinafter
collectively referred to as the "Secured Property".

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<PAGE> 9

TO HAVE AND TO HOLD the Secured Property unto Trustee, its successors
and assigns, in trust, for the benefit of Beneficiary, its successors and
assigns, subject, however, to the terms, covenants and conditions contained
herein.

PROVIDED, HOWEVER, if Trustor shall pay or cause to be paid to
Beneficiary in full the Obligations, at the times and in the manner stipulated
in the Loan Documents, and shall keep, perform and observe all and singular the
covenants and promises of Trustor in the Loan Documents, then this Deed of Trust
and all the properties, interests and rights hereby granted, encumbered,
transferred or assigned shall be released by Trustee and/or Beneficiary in
accordance with the laws of the State of California.

ARTICLE I

COVENANTS AND AGREEMENTS

Trustor hereby covenants and agrees for the benefit of Beneficiary and
Trustee as follows:

1.1 Performance by Trustor. Trustor shall pay the Obligations
evidenced by the Note to Beneficiary and shall keep and perform each and every
other Obligation.

1.2 Payment of Taxes, Assessments, Etc.

A. Impositions. Trustor shall pay when due and payable,
before any fine, penalty, interest or cost for the non-payment thereof may be
added thereto, all taxes, assessments, water and sewer rents, rates and
charges, transit taxes, county taxes, charges for public utilities, excises,
levies, vault and all other license and permit fees and other governmental
charges, general and special, ordinary and extraordinary, unforeseen and
foreseen, of any kind and nature whatsoever which at any time prior to or
during the term of this Deed of Trust may be assessed, levied, confirmed,
imposed upon or become due and payable out of or in respect to, or become a
lien on, the Secured Property or any part thereof or any appurtenance thereto,
prior to or on a parity with the obligations or the lien of this Deed of Trust,
as the case may be (all such taxes, assessments, water and sewer rents, rates
and charges, transit taxes, county taxes, charges for public utilities,
excises, levies, vault and all other license and permit fees and other
governmental charges including all interest, penalties, costs and charges
accrued or accumulated thereon, are herein collectively called "Impositions",
and individually, an "Imposition").

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<PAGE> 10

B. Installments. Notwithstanding anything to the
contrary contained in subsection A of this Section 1.2, if by law any
Impositions may at the option of the taxpayer be paid in installments (whether
or not interest shall accrue on the unpaid balance of such Impositions),
Trustor may exercise the option to pay the same (and any accrued interest on
the unpaid balance of such Impositions) in installments and, in such event,
shall pay such installments as the same respectively become due and before any
fine, penalty, further interest or cost may be added thereto.

C. Receipts. Trustor, upon request of Beneficiary, will
furnish to Beneficiary within five (5) days after the date when any Imposition
would become delinquent, official receipts of the appropriate taxing authority,
or other evidence reasonably satisfactory to Beneficiary evidencing the payment
thereof.

D. Evidence of Payment. The certificate, advice or bill issued
by the appropriate official (designated by law either to make or issue the same
or to receive payment of any Imposition) of non-payment of an Imposition shall
be prima facie evidence that such Imposition is due and unpaid at the time of
the making or issuance of such certificate, advice or bill. Trustor agrees to
pay Beneficiary, on demand, all charges, costs and expenses of every kind
incurred by Beneficiary in connection with obtaining evidence satisfactory to
Beneficiary that the payment of all Impositions is current and that there is no
Imposition due and owing or which has become or given rise to a lien on the
Secured Property or any part thereof or any appurtenance thereto.

E. Payment by Beneficiary. Subject to subsection G of this
Section 1.2, if Trustor shall fail to pay any Imposition in accordance with the
provisions of this Section 1.2, Beneficiary may, at its option (but shall be
under no obligation to do so), pay such Imposition and Trustor will repay to
Beneficiary on demand any amount so paid by Beneficiary, with interest thereon
at the rate of five percent (5%) per annum greater than the interest rate set
forth in the Note (the "Increased Rate") to the date of repayment and all such
amounts shall be secured by this Deed of Trust. In no event shall the Increased
Rate be greater than the highest applicable interest rate permissible by law, if
any.

F. Change in Law. In the event of the passage after the
date of this Deed of Trust of any law of the State of California deducting the
Obligations from the value of the Secured Property or any part thereof for the
purpose of taxation or resulting in any lien thereon, or changing in any way
the laws now in force for the taxation of this Deed of Trust or the Obligations
for state or local purposes, or the manner of the

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<PAGE> 11

operation of any such taxes so as to affect the interest of Beneficiary, then,
and in such event, Trustor shall bear and pay the full amount of such taxes,
provided that if for any reason payment by Trustor of any such new or additional
taxes would be unlawful or if the payment thereof would constitute usury or
render the loan or Obligations wholly or partially usurious under any of the
terms or provisions of the Note, this Deed of Trust or otherwise, Beneficiary
may, at its option, declare the whole sum secured by this Deed of Trust with
interest thereon to be immediately due and payable, or Beneficiary may, at its
option, pay that amount or portion of such taxes as renders the loan or
obligations unlawful or usurious, in which event Trustor shall concurrently
therewith pay the remaining lawful and non-usurious portion or balance of said
taxes.

G. Permitted Contest. Provided that Trustor shall not be in
default under any of the Loan Documents, Trustor shall have the right to contest
the amount or the validity, in whole or in part, of any Imposition by
appropriate proceedings diligently conducted in good faith. Notwithstanding the
provisions of this Section 1.2, but subject to the provisions of subsection
1.2H, Trustor may postpone or defer payment of such Imposition if Trustor, on or
before the due date thereof, shall (1) deposit or cause to be deposited with
Beneficiary a surety bond issued by a surety company of recognized
responsibility acceptable to Beneficiary conditioned upon and securing the
payment in full of such Imposition, pending the determination of such contest,
or (2) deposit or cause to be deposited with Beneficiary an amount equal to one
hundred (100%) percent of such Imposition or any balance thereof remaining
unpaid, and from time to time, but not more frequently than quarterly, deposit
amounts in order to keep in deposit at all such times an amount equal to one
hundred (100%) percent of the Imposition remaining unpaid, or (3) furnish or
cause to be furnished to Beneficiary other security reasonably satisfactory to
Beneficiary. If such deposit is made or such security furnished and Trustor
continues in good faith to contest the validity of such Imposition by
appropriate legal proceedings which shall operate to prevent the collection of
such Imposition so contested and the sale of the Secured Property or any part
thereof to satisfy such Imposition, Trustor shall be under no obligation to pay
such Imposition until such time as it has been finally determined to be a valid
lien on the Secured Property. Upon termination of any such proceedings, Trustor
shall pay in full the amount of such Imposition or part thereof as shall have
been finally determined in such proceedings together with any liabilities in
connection therewith. Beneficiary shall have the full power and authority to
apply or require the application of any amounts that may have been deposited
pursuant to this subsection 1.2G to payment of any unpaid Imposition without
liability, however, for any failure to apply any amount so

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<PAGE> 12

deposited unless Trustor or the person making such deposit had requested in
writing the application of such amount to the payment of the particular
Imposition with respect to which it was deposited in which event Beneficiary
shall apply such amounts in accordance with such request. Any surplus remaining
in the hand of the Beneficiary after the Imposition for which the deposit was
made has been paid in full shall be repaid to Trustor or the person making such
deposit unless Trustor shall be in default under any of the Loan Documents, and
in case of such default such surplus shall be applied to cure such default, and
the remainder of such surplus, if any, shall be repaid to Trustor.

H. No Lease Default. If contesting the validity or
amount of any Imposition shall cause a breach of any of the terms, conditions
or covenants required to be performed by Trustor as lessor under any Lease (as
hereinafter defined), then Trustor shall not have the right to contest the same
as provided in subsection 1.2G, and payment of such Imposition shall be made
pursuant to subsection 1.2A of this Section 1.2.

I. Joint Assessment. Trustor covenants and agrees not to
suffer, permit or initiate the joint assessment of the Premises and Personal
Property, or any other procedure whereby the lien of the personal property
taxes shall be assessed or levied or charged to the Secured Property together
with real property taxes.

1.3 Insurance.

A. Extended Coverage. Trustor, at its sole cost and
expense, shall keep the Personal Property and the Improvements insured during
the term of this Deed of Trust against loss or damage by fire and against loss
or damage by other risks now embraced by "Extended Coverage," so called, in
amounts, forms and substance satisfactory to Beneficiary, but in no event shall
the amounts be less than the greater of (1) 100% of the full replacement cost
of the Personal Property and the Improvements, including work performed for
tenants, without deduction for depreciation; (2) the amounts required to
prevent any insured from becoming a co-insurer; or (3) the amounts required
under any Lease.

B. Additional Coverage. Trustor, at its sole cost and
expense, shall also maintain:

(1) Personal injury and property damage liability

insurance against claims for bodily injury, death or property damage, occurring
on, in or about the Secured Property or in or about the adjoining streets,
sidewalks and passageways; such insurance to afford protection, during the term
of this Deed of

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<PAGE> 13

Trust, in amounts and in form and substance reasonably satisfactory to
Beneficiary;

(2) If there are any Leases, rent or business

interruption insurance in an amount equal to one year's aggregate rentals
(including, without limitation, minimum rentals, escalation charges, percentage
rents, based on sales projections acceptable to Beneficiary, and other
additional rentals, and any other amounts payable by tenants or other occupants
under Leases or otherwise) payable by all tenants and other occupants at the
Premises, which amount shall be increased from time to time upon the leasing of
space at the Premises or upon the increase in aggregate rentals (including the
other items referred to above);

(3) War risk insurance upon the building and other

Improvements as and when such insurance is obtainable from the United States of
America or any agency or instrumentality thereof for the maximum amount of
insurance obtainable;

(4) Such other insurance, including, without

limitation, all risk in such amounts and in form and substance as may from time
to time be reasonably required by Beneficiary against other insurable hazards,
including, but not limited to, malicious mischief, vandalism, windstorm, nuclear
reaction or radioactive contamination, which at the time are commonly insured
against and generally available in the case of premises similarly situated, due
regard being or to be given to the height and type of Improvement, its location,
construction, use and occupancy;

(5) If the Improvements are located in a flood

hazard area, flood insurance on the Improvements in an amount equal to the
lesser of "full replacement cost" thereof or the maximum amount of insurance
obtainable; and

(6) Insurance against loss or damage from (a)

leakage of sprinkler systems and (b) explosion of steam boilers, air
conditioning equipment, pressure vessels or similar apparatus now or hereafter
installed in or on the Premises in such amounts as Beneficiary shall from time
to time require.

(7) Trustor shall pay all premiums and other

charges required to maintain or replace Beneficiary's title insurance policy
insuring the lien of this Deed of Trust in an amount equal to the Obligations.

C. Separate Insurance. Trustor shall not carry separate
insurance, concurrent in kind or form, and contributing, in the event of loss,
with any insurance required hereunder. Trustor may, however, effect for its
own account any insurance not required under the provisions of this Deed of
Trust but any

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<PAGE> 14

such insurance effected by Trustor on the Secured Property whether or not
required under this Section 1.3 shall be for the mutual benefit of Trustor and
Beneficiary, as their respective interests may appear, and shall be subject to
all other provisions of this Section 1.3.

D. Insurers; Policies. All insurance provided for in this
Section 1.3 shall be effected under valid and enforceable policies issued by
financially responsible insurers authorized to do business in the State of
California, which are approved in writing by Beneficiary. All such policies
shall be deposited with and held by Beneficiary. All casualty insurance policies
and rent insurance policies shall be payable to Beneficiary pursuant to a
standard non-contributory mortgage endorsement in favor of Beneficiary, and such
policies shall contain a waiver of subrogation endorsement, all in form and
content satisfactory to Beneficiary. All original policies shall contain a
provision that such policies will not be canceled or materially amended, which
term shall include any reduction in the scope or limits of coverage, without at
least thirty (30) days' prior written notice to Beneficiary. Not less than
thirty (30) days prior to the expiration dates of the policies theretofore
furnished pursuant to this Deed of Trust, originals of the policies bearing
notations evidencing the payment of premiums or accompanied by other evidence
satisfactory to Beneficiary of such payment, shall be delivered by Trustor to
Beneficiary. In the event of a change in ownership of the Secured Property
immediate notice thereof shall be delivered to all insurers by Trustor.

E. Beneficiary's Right to Provide Coverage. In the event Trustor
fails to provide, maintain, keep in force or deliver and furnish to Beneficiary
the original policies of insurance required by this Section 1.3, Beneficiary
may, at its sole option, procure such insurance and Trustor will pay all
premiums thereon promptly upon demand by Beneficiary with interest thereon at
the Increased Rate to the date of repayment and all such amounts shall be
secured by this Deed of Trust.

F. Damage or Destruction. After the happening of any
casualty to the Secured Property or any part thereof, Trustor shall give prompt
written notice thereof to Beneficiary and the following shall apply:

(1) In the event of any damage or destruction of

all or any part of the Secured Property, all proceeds of insurance shall be
payable to Beneficiary, and Trustor hereby authorizes and directs any affected
insurance company to make payment of such proceeds directly to Beneficiary.
Insurance proceeds held by Beneficiary may be commingled with other funds in
Beneficiary's possession, shall constitute additional security

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<PAGE> 15

for the Obligations and Trustor shall not be entitled to the payment of interest
thereon. So long as no Event of Default exists, Trustor is hereby authorized and
empowered by Beneficiary, subject to the approval of Beneficiary, to settle,
adjust or compromise any claims for loss, damage or destruction under any policy
or policies of insurance; provided, however, that Trustor shall give notice to
and consult with Beneficiary prior to any such action.

(2) In the event of any such damage or destruction,

subject to subsection 1.3G Beneficiary shall have the option in its sole and
absolute discretion and without regard to the adequacy of its security
hereunder, of applying all or part of the insurance proceeds (a) to the
repayment of principal, whether or not then due, in the inverse order of
maturity, or (b) to the repair or restoration of the Secured Property, or (c) to
cure any then current default under any of the Loan Documents, or (d) to
reimburse the Beneficiary for its costs and expenses in connection with the
recovery of such insurance proceeds, or (e) any combination of the foregoing.

(3) Nothing herein contained shall be deemed to

excuse Trustor from repairing or maintaining the Secured Property as provided in
Section 1.5 hereof or restoring all damage or destruction to the Secured
Property, regardless of whether there are insurance proceeds available or
whether such proceeds are sufficient in amount; provided, however, if
Beneficiary elects to apply all of the proceeds to repayment of principal as set
forth in subsection (2) above, Trustor shall be excused from such restoration.

G. Trustor's Use of Proceeds.

(1) Notwithstanding the provisions of Section

1.3(F)(2) above (except for any destruction which occurs during the last six (6)
months of the loan term), upon full satisfaction of all of the conditions set
forth below, the insurance proceeds shall be made available to Trustor for
repair and restoration after deducting and payment to Beneficiary of
Beneficiary's costs of collection and disbursement of such proceeds (which costs
shall not include Beneficiary's overhead or the compensation of Beneficiary's
employees), provided:

(a) The proceeds are deposited with
Beneficiary;

(b) No default shall have occurred and be
continuing under the terms of any of the Loan Documents;

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<PAGE> 16

(d) If Beneficiary so requests, Beneficiary is
furnished with an estimate of the cost of restoration
accompanied by a certificate of an architect or
registered engineer approved by Beneficiary
("Beneficiary's Architect") as to such costs;

(e) The value of the Secured Property so
restored or rebuilt shall be at least equal to what was
originally erected;

(f) Trustor furnishes Beneficiary with evidence
reasonably satisfactory to Beneficiary that all
Improvements to be restored and/or reconstructed and
their use shall fully comply with all (i) applicable
easements, covenants, conditions, restrictions or other
private agreements affecting the Premises, (ii) zoning
and building laws, ordinances and regulations and (iii)
all other applicable federal, state and municipal laws,
regulations and requirements;

(g) If the estimated cost of reconstruction
exceeds the proceeds available, at Beneficiary's option,
Trustor shall (i) furnish a bond of completion or
provide such other evidence satisfactory to Beneficiary
of Trustor's ability to meet such excess costs or (ii)
deposit with Beneficiary additional funds equal to such
excess;

(h) If such damage is in excess of $10,000,
Beneficiary shall have received notice of destruction
caused by such fire or other hazard from the Trustor
within ten (10) days from the date thereof, which notice
shall state the date of such fire or other hazard and a
request to Beneficiary to make the insurance proceeds
available to Trustor; and

(i) Beneficiary shall have reasonably determined
that such damage or destruction is fully reparable prior
to the Maturity Date (as defined in the Note).

(2) Disbursement of the proceeds during the course

of reconstruction shall be conditioned upon the certification of Beneficiary's
Architect as to the cost of the

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<PAGE> 17

work done and the conformity of the work to plans and specifications approved by
Beneficiary, and evidence supplied by a title insurance company acceptable to
Beneficiary that there are no liens arising out of the reconstruction or
otherwise. Notwithstanding the above, a portion of the proceeds may be released
prior to the commencement of reconstruction to pay for items approved by
Beneficiary in its sole discretion. Disbursements shall be made within ten (10)
business days after a request by Trustor. No payment made prior to the final
completion of work shall exceed ninety percent (90%) of the value of the work
performed from time to time, and at all times the undisbursed balance of said
proceeds remaining with the Beneficiary must be at least sufficient to pay for
the cost of completion of the work free and clear of liens. Final payment shall
be upon a certification of Beneficiary's Architect as to completion in
accordance with plans and specifications approved by Beneficiary.

(3) At such time as Beneficiary's Architect shall

certify to Beneficiary that the damaged or destroyed portion of the Secured
Property has been put in a state of repair equivalent to or better than that
existing prior to the date of such fire or other casualty, the work shall be
deemed completed. With Beneficiary's prior written consent, which may be granted
or withheld in Beneficiary's sole discretion, any certification required to be
made by an architect or registered engineer may be made by a reputable
contractor approved by Beneficiary. The balance of the insurance proceeds so
deposited with Beneficiary after full disbursement in accordance with subsection
1.3G, at the sole option of Beneficiary, shall be either (a) returned to
Trustor, it being understood that such obligation or reimbursement shall not
exceed the amount of insurance proceeds for such restoration and/or repair, or
(b) applied to the payment of installments of the Obligations in inverse order
of maturity whether or not such installments shall be due and payable.

(4) In all cases where any destruction to the

Secured Property by fire or other casualty occurs during the last six (6) months
of the loan term, or in Beneficiary's reasonable judgment, Trustor is not
proceeding with the repair or restoration in a manner that would entitle Trustor
to have the proceeds disbursed to it, or for any other reason Beneficiary
determines in its reasonable judgment that Trustor shall not be entitled to such
proceeds pursuant to the terms of this Deed of Trust, Beneficiary shall have the
options set forth in subsection F(2) above.

(5) Under no circumstances shall Beneficiary

become personally liable for the fulfillment of the terms,

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<PAGE> 18

covenants and conditions contained in any of the Leases or obligated to take any
action to restore the Secured Property.

H. Transfer of Interest in Policies. In the event of foreclosure
of this Deed of Trust or other transfer of title or assignment of the Secured
Property in extinguishment, in whole or in part, of the Obligations, all right,
title and interest of Trustor in and to all policies of insurance required by
this Section 1.3 shall inure to the benefit of and pass to the successor in
interest to Trustor or the purchaser or grantee of the Secured Property. If any
claim under any insurance policy shall be paid after the extinguishment of the
Obligations, and if such foreclosure of this Deed of Trust, or other transfer of
title to or assignment of the Secured Property, shall have resulted in
extinguishing the Obligations for an amount less than the total of the amount of
the unpaid Obligations, with interest thereon at the Increased Rate, plus
counsel fees, costs and other disbursements incurred by Beneficiary at the time
of the extinguishment of the Obligations, then the portion of the payment in
satisfaction of the claim which is equal to the difference between the total
amount above referred to and the amount theretofore paid to Beneficiary shall
belong to and be the property of Beneficiary and shall be paid to said
Beneficiary, and Trustor hereby assigns, transfers and sets over to Beneficiary
all of Trustor's right, title and interest in and to said sum. The balance, if
any, shall be paid to Trustor. Notwithstanding the above, Trustor shall retain
an interest in the insurance policies above-described during any redemption
period.

1.4 Escrow Deposits. To further secure the payment of the Impositions
and the premiums for the insurance required by this Deed of Trust, Trustor will
deposit with Beneficiary, or its designee, on the due date of each monthly
installment of principal and interest under the Note, a sum which shall be equal
to one-twelfth (1/12) of the annual total of the Impositions and such insurance
premiums required to pay the next installment of Impositions or insurance
premiums, as estimated by Beneficiary, one month prior to the date when such
Impositions and insurance premiums shall become due and payable. Such deposits
shall be held by Beneficiary, or its designee, without obligation for the
payment of interest thereon to Trustor, free of any liens or claims on the part
of creditors of Trustor and as a part of the security of Beneficiary, and shall
be used by Beneficiary, or its designee, to pay current Impositions and
insurance premiums as the same shall become payable. Said deposits shall not be,
nor be deemed to be, trust funds but may, be commingled with general funds of
Beneficiary, or its designee. If at any time and for any reason Beneficiary
determines that said deposits are insufficient to pay the Impositions and
insurance premiums in

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<PAGE> 19

full as they become payable, Trustor will deposit with Beneficiary, or its
designee, within ten (10) days after demand therefor, such additional sum or
sums as may be required in order for Beneficiary, or its designee, to pay such
Impositions and insurance premiums in full. It shall be the responsibility of
Trustor to furnish bills to Beneficiary in sufficient time for Beneficiary to
pay the Impositions and insurance premiums before any penalty attaches and
before the policies lapse. Transfer of legal title to the Secured Property shall
automatically transfer to the new owner of the beneficial interest in all sums
deposited under the provisions of this Section 1.4.

This Section 1.4 is intended to provide additional security for the
payment of all amounts now and in the future payable for the items set forth
above. To that end, Trustor hereby grants, pledges, transfers and assigns to
Beneficiary a continuing security interest in and right of set-off against the
following, whether now existing or hereafter acquired or arising: all right,
title and interest, in, to and under (i) all instruments, securities, documents,
accounts, general intangibles, money, and other property and contents therein
and thereof, and all rights relating thereto and proceeds therefrom and thereof,
including, without limitation, the deposits made into any account from time to
time at any time or from time to time in the possession or control of the agent
of Beneficiary, (ii) all books and records relating to the types and items of
property described in the foregoing clause (i), and (iii) all proceeds (whether
cash or non-cash, and including, without limitation, insurance proceeds) and
products of the property described in the foregoing clause (i), and all
replacements and substitutions therefor and all additions and accessions
thereto.

In addition to all rights and remedies given to Beneficiary by this Deed
of Trust, Beneficiary shall have the rights and remedies of a secured party
under the Uniform Commercial Code and any other applicable law. Upon notice from
Beneficiary, Trustor will promptly execute such financing statements,
continuation statements and other documents as may be necessary or convenient to
perfect, continue or otherwise evidence said security interest and pay all
expenses and fees for the preparation and filing thereof.

Upon occurrence of an Event of Default (as defined herein), all funds
held in any such account shall immediately be paid over to Beneficiary.
Beneficiary and Trustor agree that Beneficiary shall be entitled to apply such
funds to the balance of the Loan in its sole discretion.

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<PAGE> 20

1.5 Care and Use of Premises.

A. Maintenance and Repairs. Trustor, at its sole cost and
expense, will take good care of the Secured Property and the sidewalks and curbs
adjoining the Secured Property and will keep the same in good order and
condition, and make all necessary repairs thereto, interior and exterior,
structural and nonstructural, ordinary and extraordinary, unforeseen and
foreseen, and will not commit or suffer to be committed any waste of the Secured
Property and will not do or suffer to be done anything which will increase the
risk of fire or other hazard to the Secured Property or any part thereof.

B. Standard of Repairs. The necessity for and adequacy of
repairs to the Improvements pursuant to subsection 1.5A shall be measured by the
standard which is appropriate for a office, research and development buildings
containing 121,071 square feet and related facilities of similar construction
and class, provided that Trustor shall in any event make all repairs necessary
to avoid any structural damage to the Improvements and to keep the Improvements
in a proper condition for their intended use. When used in this Section 1.5, the
terms "repair" and "repairs" shall include all necessary renewals and
replacements. All repairs made by Trustor shall be made with first-class
materials and in a good, substantial and workmanlike manner and shall be equal
or better in quality and class to the original work.

C. Notice to Trustor. Trustor will notify Beneficiary
promptly of any damage to the Secured Property in excess of $10,000.00.

D. Removal of Equipment. Trustor shall have the right, at any
time and from time to time, to remove and dispose of equipment which is Secured
Property and which may have become obsolete or unfit for use or which is no
longer useful in the operation of the Secured Property. Trustor will promptly
replace any such equipment so disposed of or removed with other equipment of a
value and serviceability equal to or greater than the original value and
serviceability of the equipment so disposed of or removed, free of superior
title, liens and claims; except that, if by reasons of technological or other
developments in the operation and maintenance of buildings of the general
character of the Improvements, no replacement of the building equipment so
removed or disposed of is necessary or desirable in the proper operation or
maintenance of said Improvements, Trustor shall not be required to replace same.
All such replacements or additional equipment shall be covered by the security
interest herein granted.

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<PAGE> 21

E. Compliance With Laws and Insurance. Trustor shall promptly
comply with all present and future laws, ordinances, orders, rules, regulations
and requirements of all federal, state and municipal governments, courts,
departments, commissions, boards and officers, any national or local Board of
Fire Underwriters, including, without limitation, all zoning, building code,
environmental protection and equal employment opportunity statutes, ordinances,
regulations, orders and restrictions, foreseen or unforeseen, ordinary as well
as extraordinary, which may be applicable to the Secured Property and the
sidewalks and curbs adjoining the Secured Property or to the use or manner of
use of the Secured Property (collectively, "Regulations") whether or not such
Regulations shall necessitate structural changes or improvements. Trustor shall
not bring or keep any article upon any of the Secured Property or cause or
permit any condition to exist thereon which would be prohibited by or could
invalidate any insurance coverage maintained, or required hereunder to be
maintained, by Trustor on or with respect to any part of the Secured Property,
and further shall do all other acts which from the character or use of the
Secured Property may be necessary to protect the security hereof, the specific
enumerations herein not excluding the general.

F. Permitted Contests. Trustor shall have the right,
after prior notice to Beneficiary, to contest by appropriate legal proceedings
diligently conducted in good faith, without cost or expense to Beneficiary, the
validity or application of any Hazardous Materials Law (as defined in the
Indemnity) and any other Regulation, and which does not subject Beneficiary to
any civil or criminal liability, subject to the following:

(1) If by the terms of any such Hazardous

Materials Law (as defined in the Indemnity) or any applicable Regulation,
compliance therewith pending the prosecution of any such proceeding may legally
be delayed without incurring any lien or charge of any kind against the Secured
Property, Trustor may delay compliance therewith until the final determination
of such proceeding.

(2) If any lien or charge against the Secured

Property would be incurred by reason of any such delay, Trustor, may contest as
aforesaid and delay as aforesaid, provided Trustor (a) furnishes to
Beneficiary-security, satisfactory to Beneficiary, against any loss or injury by
reason of such contest or delay, and (b) prosecutes the contest with due
diligence, Anything in subsection 1.5E or this subsection 1.5F to the contrary
notwithstanding, if the contesting of the validity or legality of any such
Hazardous Materials Law (as defined in the Indemnity) or any other Regulation
shall cause a breach of-any of the terms, conditions or covenants of any Lease
on Trustor's

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part, as lessor therein, to be performed, then Trustor shall not have the right
to contest the same as herein provided but compliance therewith must be made
pursuant to subsection 1.5E hereof.

G. Compliance With Instruments of Record. Trustor will promptly
perform and observe, or cause to be performed and observed, all of the terms,
covenants and conditions of all instruments of record affecting the Secured
Property, non-compliance with which may affect the priority of the lien of this
Deed of Trust, or which may impose any duty or obligation upon Trustor or any
lessee or other occupant of the Secured Property or any part thereof, and
Trustor shall do or cause to be done all things necessary to preserve intact and
unimpaired any and all easements, appurtenances and other interests and rights
in favor of or constituting any portion of the Secured Property.

H. Alteration of Secured Property. Trustor will not demolish,
remove, construct, restore, add to or alter any Improvement or any extension
thereof, nor consent to or permit any such demolition, removal, construction,
restoration, addition or alteration without Beneficiary's prior written consent,
except for (1) tenant improvement work and tenant alterations provided for in
any Lease approved by Beneficiary in writing, (2) ordinary, non-structural
maintenance or other work, and (3) structural repairs and restorations having a
cost of less than $100,000.

I. Parking. Trustor will grant no parking rights in the Secured
Property except with Beneficiary's prior written consent. The Secured Property
shall contain at all times not less than 401 on-site parking spaces for
standard-size American automobiles, said parking spaces to be located upon the
Land. if any part of the automobile parking areas included within said Secured
Property is taken by condemnation or said areas are otherwise reduced, Trustor
will provide parking facilities in kind, size and location to comply with all
Leases, and before making any contract therefor will furnish to Beneficiary
satisfactory assurance of completion thereof free of liens and in conformity
with all governmental zoning ordinances and regulations.

J. Entry on Secured Property. Beneficiary or its
representative is hereby authorized to enter upon and inspect the Secured

Property at all reasonable times.

K. No Consent to Alterations or Repairs. Nothing
contained in this Deed of Trust shall be deemed or construed in any way as
constituting the consent or request of Beneficiary, express or implied by

inference or otherwise to any contractor,

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subcontractor, laborer or materialman for the performance of any labor or the
furnishing of any materials for any specific improvement, alteration to or
repair of the Secured Property or any part thereof.

L. Mechanics Liens. Trustor will discharge, pay, or
bond, or cause to be discharged, paid or bonded, from time to time when the
same shall become due, all lawful claims and demands of mechanics, materialmen,
laborers and others which, if unpaid, might result in, or permit the creation
of, a lien on the Secured Property or any part thereof, or on the revenues,
rents, issues, income and profits arising therefrom, and Trustor will do or
cause to be done everything necessary so that the lien of this Deed of Trust
shall be fully preserved, at the cost of Trustor without expense to
Beneficiary.

M. Use of Secured Property by Trustor. Trustor will
use, or cause to be used, the Secured Property principally and continuously as
and for office, research and development and light manufacturing uses. Trustor
shall not use, or permit the use of the Secured Property or any part thereof
for any other principal use without the prior written consent of Beneficiary.

N. Use of Secured Property by Public. Trustor shall not suffer
or permit the Secured Property, or any portion thereof, to be used by the public
as such, without restriction or in such manner as might impair Trustor's title
to the Secured Property or any portion thereof, or in such manner as might make
possible a claim or claims of adverse usage or adverse possession by the public,
or of implied dedication of the Secured Property or any portion thereof.

1.6 Financial Information.

A. Audit. Trustor will keep and maintain complete and accurate
books and records of the earnings and expenses of the Secured Property and,
without expense to Beneficiary, furnish to Beneficiary, within ninety (90) days
after the end of each fiscal year of Trustor, an annual audit prepared and
certified by Trustor reasonably satisfactory to Beneficiary, and prepared by an
independent certified public accountant in accordance with generally accepted
accounting principles relating to real estate consistently applied, which shall
include, with respect to the prior fiscal year: (1) a statement of assets and
liabilities of Trustor with respect to the Secured Property only, (2) a
statement of the source and application of funds by Trustor with respect to the
Secured Property, (3) a detailed profit and loss statement relating to the
ownership and operation of the Secured Property, including, without limitation,
all rents and other income derived therefrom and all expenses paid or incurred
in

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connection therewith, and (4) such interim balance sheets and profit and loss
statements and income and expense reports as may be reasonably required by
Beneficiary. The audit shall also include annual sales figures for all tenants
in the Secured Property who are required by their respective lease to provide
same to Trustor. In addition to and simultaneously with the financial statements
Trustor shall deliver to Beneficiary a statement reflecting the complete rental
status of the Secured Property showing the name of each tenant, the area in
square feet occupied, the remaining term of the lease and the rental being paid.

B. Right to Inspect Books and Records. Beneficiary or its
representative shall have the right to examine and make copies of such books
and records and all supporting vouchers and data at the Premises or at
Trustor's principal place of business at Trustor's expense.

1.7 Condemnation.

A. Beneficiary's Right to Participate in Proceedings. If the
Secured Property, or any part thereof, shall be taken in condemnation
proceedings or by exercise of any right of eminent domain (collectively,
"Condemnation Proceedings"), Beneficiary shall have the right to participate in
any such Condemnation Proceedings and the award or payment that may be made in
any such Condemnation Proceedings is hereby assigned to Beneficiary and shall be
deposited with Beneficiary and disbursed in the manner set forth in this Section
1.7. Trustor will give Beneficiary immediate notice of the actual or threatened
commencement of any Condemnation Proceedings affecting all or any part of the
Secured Property, including severance and consequential damage and change in
grade in streets, and will deliver to Beneficiary copies of any and all papers
served in connection with any such proceedings. Notwithstanding the foregoing,
Beneficiary is hereby authorized, at its option, to commence, appear in and
prosecute in its own or Trustor's name any action or proceeding relating to any
such condemnation and to settle or compromise any claim in connection therewith;
provided however that Beneficiary shall give notice to and consult with Trustor
prior to any action. No settlement for the damages sustained thereby shall be
made by Trustor without Beneficiary's prior written approval thereof. Trustor
agrees to execute any and all further documents that may be required in order to
facilitate the collection of any award or awards and the making of any such
deposit.

B. Application of Condemnation Award. If at any time
title or temporary title to the whole or any part of the Secured Property shall
be taken in Condemnation Proceedings or pursuant to any agreement between
Trustor, Beneficiary and those

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authorized to exercise the right to condemnation, Beneficiary, at its option in
its sole and absolute discretion and without regard to the adequacy of its
security hereunder, shall have the right to apply such award or proceeds which
it receives to payment of the Obligations in inverse order of maturity. In the
event that all or substantially all of the Secured Property is taken and the
amount of the award or proceeds received by Beneficiary shall not be sufficient
to pay the then unpaid balance of the Obligations, then the balance of the
Obligations shall, at the option of Beneficiary, become immediately due and
payable and Trustor shall, within ten (10) days after the application of the
award or proceeds as aforesaid, pay such deficiency to Beneficiary.
"Substantially all of the Secured Property" shall be deemed to have been taken
if the remainder of the Secured Property (1) in the sole opinion of
Beneficiary's Architect, cannot be capable of being restored to a self-contained
and architecturally complete unit or units or (2) in the sole opinion of
Beneficiary, the balance of the Secured Property as restored will not be
economically viable and capable of supporting all carrying charges and operation
and maintenance expenses.

C. Reimbursement of Costs. In the case of any taking covered by
the provisions of this Section 1.7, Beneficiary (to the extent that Beneficiary
has not been reimbursed therefor by Trustor) shall be entitled, as a first
priority, to the reimbursement out of any award or awards for all reasonable
costs, fees, reimbursements to Beneficiary and expenses incurred in the
determination and collection of any such awards.

D. Existing Obligations. Notwithstanding any taking by
Condemnation Proceedings, Trustor shall continue to pay the monthly installments
due under the Note as well as all other sums secured by this Deed of Trust at
the rate provided therein until any such award or payment shall have been
actually received by Beneficiary and applied to the Obligations. Any reduction
in the Obligations resulting from Beneficiary's application of such award or
payment as hereinabove set forth shall be deemed to take effect only on the date
of receipt by Beneficiary. If prior to Beneficiary's receipt of such award or
payment the Secured Property shall have been sold on foreclosure of this Deed of
Trust, Beneficiary shall have the right to receive said award or payment to the
extent of any portion of the Obligations still unpaid after application of the
proceeds of the foreclosure sale, with interest thereon at the Increased Rate,
plus attorneys' fees and other costs and disbursements incurred by Beneficiary
in connection with the collection of such award or payment and in establishing
the deficiency. The application of condemnation proceeds to the obligations
secured by this Deed of Trust, whether or not then due or payable, shall not
postpone, abate or reduce any of the periodic installments of principal and/or

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interest thereafter to become due under this Deed of Trust until the Obligations
are paid in full.

E. Application of Award. Notwithstanding the provisions of
Section 1.7B above (except for a taking which occurs during the last six months
of the loan term), upon full satisfaction of all of the following conditions,
Beneficiary shall, after deducting Beneficiary's costs in connection with the
disbursement of funds, apply the award or payment to the cost to restore, repair
or alter the remaining portion of the Secured Property, subject to the
provisions of subsection 1.3F (which shall apply in all respects except that any
reference therein to insurance proceeds shall be deemed to refer to the award or
payment in the taking), and Trustor will promptly restore, repair or alter the
remaining Secured Property. The provisions of this subsection 1.7E shall not
apply unless (1) the balance of the Improvements shall, in the opinion of
Beneficiary's Architect, be capable of being restored to a self-contained and
architecturally complete unit or units, (2) the balance of the Improvements
after restoration to a self-contained and architecturally complete unit or units
shall, in the opinion of Beneficiary, be economically viable and capable of
supporting all carrying charges and operating and maintenance expenses of the
Secured Property, after reduction, if any, of the Obligations in accordance with
the following sentence, and (3) Trustor shall furnish to Beneficiary evidence
satisfactory to Beneficiary that the Improvements so restored or reconstructed
and their use would fully comply with all zoning and building laws, ordinances
and regulations, and with all other applicable federal, state and municipal laws
and requirements. The balance of the condemnation award or payment so deposited
with Beneficiary, after disbursement in accordance with this subsection 1.7E,
shall be applied to the Obligations in inverse order of maturity, whether or not
the same shall then be due and payable. All awards and payments and other sums
deposited with Beneficiary, until expended or applied as provided in this
subsection 1.7E, may be commingled with the general funds of Beneficiary and
shall constitute additional security for the Obligations and shall not bear
interest. In all cases where a taking occurs during the last six months of the
loan term, or in Beneficiary's sole judgment Trustor is not proceeding with the
repair or restoration in a manner that would entitle Trustor to have the awards
or payments disbursed to it or for any other reason Beneficiary determines in
its sole judgment that Trustor shall not be entitled to such awards or payments
pursuant to the terms of this Deed of Trust, Beneficiary, at its option in its
sole and absolute discretion and without regard to the adequacy of its security
hereunder, shall have the right to apply such award or proceeds which it
receives to payment of the Obligations in the inverse order of maturity, whether
or not the same shall then be due and payable.

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1.8 Leases.

A. Performance of Lessor's Covenants. Trustor, as lessor, may,
in accordance with the Assignment, enter into leases with space tenants, as
lessees, for parts or all of the Secured Property (all such leases for parts or
all of the Secured Property are hereinafter referred to individually as a
"Lease" and collectively as "Leases" and the lessees under such Leases are
hereinafter referred to individually as a "Lessee" and collectively as
"Lessees"). Trustor shall faithfully perform the lessor's covenants under any
subsisting and future Leases affecting the Secured Property or any part thereof,
and neither do, nor neglect to do, nor permit to be done (other than enforce the
terms of such Leases and exercise the lessor's remedies thereunder following a
default or event of default on the part of any Lessee in the performance of its
prescribed obligations), anything which may cause the modification or
termination of any of said Leases, or of the obligations of any Lessee or any
other person claiming through such Lessee, or which may diminish or impair the
value of any Lease or the rents provided for therein, or the interest of the
lessor or of Beneficiary therein or thereunder.

B. Notice of Default. Trustor will give Beneficiary
immediate notice, by certified mail, of any notice of default, event of default

or cancellation given to or received from any Lessee.

C. Covenants Regarding Leases. Except as otherwise
required under any such Lease, Trustor covenants it will not, without the prior
written consent of the Beneficiary obtained in each instance:

(1) lease to any person, firm or corporation,

except for actual occupancy by such person, firm or corporation all or any part
of the space in any of the Improvements;

(2) cancel, terminate or accept a surrender or

suffer or permit any cancellation, termination or surrender of any Lease, except
in accordance with the term of any Lease which as been pre-approved in writing
by Beneficiary;

(3) modify any Lease so as to reduce the term

thereof or the rent payable thereunder, or to change any renewal provision
contained therein;

(4) commence any summary proceeding or other

action to recover possession of any space demised pursuant to any Lease, other
than a proceeding brought in good faith by reason of a default of any Lessee;

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(5) receive or collect or permit the receipt or

collection of any rental payments of more than one monthly installment of rent
under any Lease in advance of the due dates of such rental payments;

(6) take any other action with respect to any

Lease which would tend to impair the security of the Beneficiary under this
Deed of Trust;

(7) extend any present Lease other than in the

manner presently provided for therein, or enter into any future Lease with any
person, firm or corporation, except on the best terms reasonably obtainable,
under Leases which shall in all respects be satisfactory to the Beneficiary as
to the form and substance thereof and the credit standing of the respective
Lessee thereunder;

(8) execute an Agreement or create or permit a

lien which may be or become superior to any existing Leases affecting the

Secured Property; or

(9) sell, assign, transfer, mortgage, pledge or

otherwise dispose of or encumber, whether by operation of law or otherwise, any
Lease or any rentals under any Lease or any rents, income, profits or cash
collateral issuing from the Secured Property.

D. Application of Rents. Trustor shall use and apply all rents,
income and profits from the Secured Property first to the payment of the
Obligations in accordance with the terms of the Loan Documents, and then to the
payment of all Impositions and costs and expenses of management, operation,
repair, maintenance, preservation, reconstruction and restoration of the Secured
Property in accordance with the requirements of this Deed of Trust and the
obligations of Trustor as the lessor under any Lease, and shall not use such
rents, income or profits for purposes unrelated to the Secured Property unless
and until all current payments on the Obligations, Impositions, and such costs
and expenses have been paid or provided for and reasonably adequate cash
reserves have been set aside to ensure the timely payment of all future payments
on such Obligations prior to the maturity thereof, Impositions and such costs
and expenses.

1.9 Assignment of Leases, Rents, Income, and Cash Collateral.

A. Assignment; Discharge of Obligations. Trustor does
hereby absolutely and presently bargain, sell, assign and set over unto
Beneficiary, all Leases, rents, income, profits cancellation fees, damages, or

similar payments in lieu of rents,

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and any and all cash collateral which, whether before or after foreclosure or
during the full period of redemption, shall be made upon or accrue and be owing
for the use or occupation of the Secured Property and of the buildings and
fixtures thereon, or any part thereof. For the aforesaid purpose, Trustor does
hereby constitute and appoint Beneficiary its attorney-in-fact, irrevocably in
its name, to receive, collect and receipt all sums due or owing for such use and
occupation, as the same accrue and, out of the amount so collected, Beneficiary,
its successors and assigns, are hereby authorized (but not obligated) to pay and
discharge all obligations of Trustor hereunder, including, but not being limited
to, the obligation to pay the Obligations (and including any accelerated
Obligations) in such order as Beneficiary, its successors or assigns, may
determine and whether due or not, and to pay the remainder, if any, to Trustor,
but neither this assignment nor any such action shall constitute Beneficiary as
a "mortgagee in possession". The assignments of Leases, rents, income, profits
and any and all cash collateral of the Secured Property in this Section 1.9 is
intended to be an absolute and present assignment from Trustor to Beneficiary
and not merely the passing of a security interest. Trustor shall, at any time or
from time to time, upon request of Beneficiary, execute and deliver any
instrument as may be requested by Beneficiary to further evidence the assignment
and transfer to Beneficiary of Trustor's interest in any Lease. Nothing herein
shall in any way limit Beneficiary's remedies or Trustor's obligations under the
Assignment to Beneficiary.

B. Entry Onto Secured Property; Lease of Secured Property. Upon
the occurrence of an Event of Default (as hereinafter defined); Beneficiary at
its sole option shall have the right to enter and take possession of the Secured
Property and manage and operate the same as further provided in subsection 4.1C,
including, without limitation, the right to enter into Leases and new agreements
extending said termination dates beyond the maturity set forth in the Note and
take any action which, in Beneficiary's judgment, is necessary or proper to
conserve the value of the Secured Property. The expenses (including any
receiver's fees, attorneys' fees, costs and agent's compensation) incurred
pursuant to the powers herein contained shall be secured hereby. Beneficiary
shall not be liable to account to Trustor for any action taken pursuant hereto
other than to account for any rents actually received by Beneficiary.

C. License to Manage Secured Property. Notwithstanding
anything to the contrary contained in subsection A of this Section 1.9, as long
as there shall exist no default hereunder, Trustor shall have the license to
manage and operate the Secured Property, including without limitation, the

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right to enter into Leases, and collect, as they accrue, all such rents, income,
profits and cash collateral.

D. Delivery of Assignments. Trustor will, as requested from time
to time by Beneficiary, execute such additional documents to evidence the
assignment to Beneficiary or its nominee of any Leases now or hereafter made
upon said Secured Property, such assignment documents to be in form and content
acceptable to Beneficiary. For the aforesaid purposes, Trustor agrees to deliver
to Beneficiary within thirty (30) days after Beneficiary's request, a duplicate
original of every Lease which is at the time of such request outstanding upon
the said Secured Property and in addition thereto shall supply Beneficiary at
its request a complete list of each and every Lease certified by (1) an officer
of Trustor, if Trustor is a corporation, or (2) a general partner of Trustor (or
an officer of any such general partner which is a corporation) if Trustor is a
partnership or (3) a trustee of Trustor (or an officer of any such trustee which
is a corporation) if Trustor is a trust, or (4) Trustor if Trustor is an
individual or individuals, showing unit number, type, name of each Lessee,
monthly rental, date to which rents have been paid, term of Lease, date of
occupancy, date of expiration and any and every special provision, concession or
inducement granted to Lessee.

E. Indemnity. Notwithstanding anything to the contrary set forth
in this Section 1.9, Trustor agrees that in the exercise of the rights of
Beneficiary contained in this Section 1.9, no liability shall be asserted
against Beneficiary, all such liability being expressly waived and released by
Trustor. Trustor hereby holds Beneficiary harmless from and against any and all
claims, liabilities and expenses of any kind or nature against or incurred by
Beneficiary arising out of such management, operation or maintenance of the
Secured Property or the collection and disposition of rents, income, profits or
cash collateral therefrom, except for any claim, liability or expense arising
out of Beneficiary's fraud, bad faith, willful misconduct or gross negligence.

1.10 Further Assurances.

A. General; Appointment of Attorney-in-Fact. At any
time, and from time to time, upon request by Beneficiary, Trustor will make,
execute, and deliver or cause to be made, executed and delivered to
Beneficiary, any and all other instruments, certificates and other documents as
may, in the opinion of Beneficiary, be reasonably necessary or desirable in
order to effectuate, complete, perfect or continue and preserve the obligations
of Trustor under the Note and the Loan Documents. Upon any failure by Trustor
to do so, Beneficiary may make,

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execute and record any and all such instruments, certificates and documents for
and in the name of Trustor and Trustor hereby irrevocably appoints Beneficiary
the agent and attorney-in-fact of Trustor for such purposes. Trustor will
reimburse Beneficiary for any sums expended by Beneficiary in making, executing
and recording such instruments, certificates and documents and such sums shall
be secured by this Deed of Trust.

B. Statement Regarding Obligations. Trustor from time to
time, within ten (10) days after request by Beneficiary, shall furnish
Beneficiary with a written statement, duly acknowledged, setting forth the
unpaid principal of, and interest on, the Obligations secured hereby and
whether or not any set-offs or defenses exist against such principal and
interest, and, if so, the particulars thereof.

C. Additional Security Instruments. Trustor shall from time to
time, within fifteen (15) days after request by Beneficiary, execute,
acknowledge and deliver to Beneficiary such chattel mortgages, security
agreements or other similar security instruments, in form and substance
satisfactory to Beneficiary, covering all property of any kind whatsoever owned
by Trustor or in which Trustor may have any interest which in the sole opinion
of Beneficiary, is essential to the operation and maintenance of the Secured
Property. Trustor shall further from time to time within fifteen (15) days after
request by Beneficiary, execute, acknowledge and deliver any financing
statement, renewal, affidavit, certificate, continuation statement or other
document as Beneficiary may request in order to perfect, preserve, continue,
extend or maintain the security interest under, and the priority of, this Deed
of Trust or such chattel Deed of Trust or other security instrument as a first
lien. Trustor further agrees to pay to Beneficiary on demand all costs and
expenses incurred by Beneficiary in connection with the preparation, execution,
recording, filing and refiling of any such instrument or document, including the
charges for examining title and the attorneys' fee for rendering an opinion as
to the priority of this Deed of Trust and of such chattel Deed of Trust or other
security instrument as a valid first and subsisting lien. However, neither a
request so made by Beneficiary nor the failure of Beneficiary to make such a
request shall be construed as a release of such property, or any part thereof,
from the lien of this Deed of Trust, it being understood and agreed that this
covenant and any such chattel Deed of Trust, security agreement or other similar
security instrument, delivered to Beneficiary, are cumulative and given as
additional security. Trustor shall also pay all premiums and related costs in
connection with any title insurance policy or policies in full or partial
replacement of the title policy now insuring or which will insure the lien of
this Deed of Trust.

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D. Security Agreement.

(1) THIS DEED OF TRUST CREATES A LIEN ON THE

SECURED PROPERTY, AND TO THE EXTENT THE PROPERTY IS PERSONAL PROPERTY UNDER
APPLICABLE LAW, THIS DEED OF TRUST CONSTITUTES A SECURITY AGREEMENT UNDER THE
CALIFORNIA UNIFORM COMMERCIAL CODE (THE "U.C.C.") AND ANY OTHER APPLICABLE LAW
AND IS FILED AS A FIXTURE FILING. UPON THE OCCURRENCE OF AN EVENT OF DEFAULT,
BENEFICIARY MAY, AT ITS OPTION, PURSUE ANY AND ALL RIGHTS AND REMEDIES AVAILABLE
TO A SECURED PARTY WITH RESPECT TO ANY PORTION OF THE SECURED PROPERTY, AND/OR
BENEFICIARY MAY, AT ITS OPTION, PROCEED AS TO ALL OR ANY PART OF THE SECURED
PROPERTY IN ACCORDANCE WITH BENEFICIARY'S RIGHTS AND REMEDIES WITH RESPECT TO
THE LIEN CREATED BY THIS DEED OF TRUST.

(2) The grant of a security interest to

Beneficiary in the granting clauses of this Deed of Trust shall not be construed
to derogate from or impair the lien or provisions of or the rights of
Beneficiary under this Deed of Trust with respect to any property described
therein which is real property or which the parties have agreed to treat as real
property. The hereby stated intention of Trustor and Beneficiary is that
everything used in connection with the production of income from such real
property or adapted for use thereon is, and at all times and for all purposes
and in all proceedings, both legal and equitable, shall be regarded as real
property, irrespective of whether or not the same is physically attached to the
Land and/or Improvements.

(3) If reasonably required by Beneficiary, at any

time during the term of this Deed of Trust, Trustor will execute and deliver to
Beneficiary, in form satisfactory to Beneficiary, additional security
agreements, financing statements and/or other instruments covering all Personal
Property included in the Secured Property.

(4) Trustor hereby irrevocably constitutes and

appoints Beneficiary as its attorney-in-fact and such appointment is coupled
with an interest, to execute, deliver and file with the appropriate filing
officer or office such security agreements, financing statements and/or other
instruments as Beneficiary may request or require in order to impose and perfect
the lien and security interest created hereby more specifically on such Personal
Property.

(5) If Trustor enters into a separate security

agreement with Beneficiary relating to any of the Personal Property or fixtures,
the terms of such security agreement shall govern the rights and remedies of
Beneficiary after an Event of Default thereunder.

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(6) It is understood and agreed that, in order to

protect Beneficiary from the effect of U.C.C. Section 9313, as amended from time
to time, in the event that Trustor intends to purchase any goods which may
become Secured Property, or any part thereof, and such goods will be subject to
a purchase money security interest held by a seller or any other party:

(a) Trustor shall, before executing any security

agreement or other document evidencing or perfecting such security interest,
obtain the prior written approval of Beneficiary, and all requests for such
written approval shall be in writing and contain the following information:

(i) a description of the Secured Property

to be replaced, added to, installed or substituted;

(ii) the address at which the Secured

Property will be replaced, added to, installed or substituted; and

(iii) the name and address of the proposed

holder and proposed amount of the security interest.

(b) Trustor's execution of any such security

agreement or other document evidencing or perfecting such security interest
without Beneficiary's prior written approval shall constitute an Event of
Default. No consent by Beneficiary pursuant to this subparagraph shall be deemed
to constitute an agreement to subordinate any right of Beneficiary in property
covered by this Deed of Trust.

(7) If at any time Trustor fails to make any

payment on an obligation secured by a purchase money security interest in the
Personal Property, Beneficiary, at its option, may at any time pay the amount
secured by such security interest. Any money paid by Beneficiary under this
Subparagraph, including any expenses, costs, charges and attorney's fees
incurred by Beneficiary, shall be reimbursed to Beneficiary in accordance with
Section 1.2E hereof. Beneficiary shall be subrogated to the rights of the holder
of any such purchase money security interest in the Personal Property.

(8) Beneficiary shall have the right to acquire by

assignment from the holder of such security interest any and all contract
rights, accounts receivable, negotiable or non-negotiable instruments, or other
evidence of Trustor's indebtedness for such Personal Property, and, upon
acquiring such interest by assignment, shall have the right to enforce the
security interest as assignee thereof, in accordance with the

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terms and provisions of the U.C.C. and in accordance with any other provisions
of law.

(9) Whether or not Beneficiary has paid the

indebtedness secured by, or taken an assignment of, such security interest,
Trustor covenants to pay all sums and perform all obligations secured thereby,
and if Trustor at any time shall be in default under such security agreement, it
shall constitute an Event of Default.

(10) The provisions of this Section 1.10D shall not

apply if the goods which may become fixtures are of at least equivalent value
and quality as any property being replaced and if the rights of the party
holding such security interest have been expressly subordinated, at no cost to
Beneficiary, to the lien and security interest of this Deed of Trust in a manner
satisfactory to Beneficiary, including without limitation, at the option of
Beneficiary, providing to Beneficiary a satisfactory opinion of counsel to the
effect that this Deed of Trust constitutes a valid and subsisting first lien on
such fixtures which is not subordinate to the lien of such security interest
under any applicable law, including without limitation, the provisions of
Section 9313 of the U.C.C.

(11) Trustor hereby warrants, represents and

covenants as follows:

(a) To the best of Trustor's knowledge,

Trustor is the sole owner of the Personal Property free from any lien, security
interest, encumbrance or adverse claim thereon of any kind whatsoever. Trustor
will notify Beneficiary of, and will protect, defend and indemnify Beneficiary
against, all claims and demands of all persons at any time claiming any rights
or interest therein.

(b) The Personal Property is not used or

bought and shall not be used or bought for personal, family, or household
purposes, but shall be bought and used solely for the purpose of the Secured
Property.

the Personal Property is located on the Land and/or Improvements and will be
kept on or at the Land or the Improvements and Trustor will not remove the
Personal Property therefrom without the prior written consent of Beneficiary,
except such portions or items of Personal Property which are consumed or worn
out in ordinary usage, all of which shall be promptly replaced by Trustor with
other Personal Property of value equal to or greater than the value of the
replaced Personal Property when new, and except such portions or items of
Personal Property temporarily stored

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elsewhere to facilitate refurbishing or repair thereof or of the Improvements.

(d) Trustor maintains a place of business

in the State and Trustor will immediately notify Beneficiary in writing of any
change in its principal place of business as set forth in the beginning of this
Deed of Trust.

E. Preservation of Trustor's Existence. If Trustor is a
partnership or a corporation, it shall do all things necessary to preserve and
keep in full force and effect its existence, franchise, rights and privileges
under the laws of the state of its formation or incorporation and the state in
which the Secured Property is located, if required by the laws of such state,
and shall comply with all regulations, rules, ordinances, statutes, orders and
decrees of any governmental or quasi-governmental authority or court applicable
to it.

F. Further Indemnities. In addition to any other indemnifies to
Beneficiary specifically provided for in this Deed of Trust, Trustor hereby
indemnifies and saves Beneficiary harmless from and against any and all losses,
liabilities, suits, obligations, fines, damages, penalties, claims, costs,
charges, and expenses, including, without limitation, reasonable architects',
engineers' and attorneys' fees and all disbursements which may be imposed upon,
incurred or asserted against Beneficiary by reason of: (1) the construction of
the Improvements, (2) any capital improvements, other work or things, done in,
on or about the Secured Property or any part thereof, (3) any use, non-use,
misuse, possession, occupation, alteration, repair, condition, operation,
maintenance or management of the Secured Property or any part thereof or any
street, drive, sidewalk, curb, passageway or space comprising a part thereof or
adjacent thereto, (4) any negligence or wilful act or omission on the part of
Trustor, any Lessee under a Lease or their agents, contractors, servants,
employees, licensees or invitees, (5) any accident, injury (including death) or
damage to any person or property occurring in, on or about the Secured Property
or any part thereof or in, on or about any street, drive, sidewalk, curb,
passageway or space adjacent thereto, (6) any default or Event of Default (as
herein defined), (7) any lien or claim which may be alleged to have arisen on or
against the Secured Property or any part thereof under the laws of the local or
state government or any other governmental or quasi-governmental authority or
any liability asserted against Beneficiary with respect thereto, (8) any tax
attributable to the execution, delivery, filing or recording of this Deed of
Trust, the Note, any Lease, or any other Loan Documents, or (9) any contest
permitted pursuant to the provisions of this Deed of Trust.

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G. Absence of Insurance. The obligations of Trustor under this
Section 1.10 shall not in any way be affected by the absence in any case of
covering insurance, by the amount of the insurance or by the failure or refusal
of any insurance carrier to perform any obligation on its part under insurance
policies affecting the Secured Property. If any claim, action or proceeding is
made or brought against Beneficiary by reason of any event as to which Trustor
is obligated to indemnify Beneficiary, then, upon demand by Beneficiary,
Trustor, at its sole cost and expense, shall resist or defend such claim, action
or proceeding in Beneficiary's name, if necessary, by the attorneys for
Trustor's insurance carrier, if such claim, action or proceeding is covered by
insurance, otherwise by such attorneys as Beneficiary shall reasonably approve.
Notwithstanding the foregoing, Beneficiary may engage its own attorneys in its
reasonable discretion to defend it or to assist in its defense and Trustor shall
pay the reasonable fees and disbursements of such attorneys and such amounts
shall bear interest at the Increased Rate and shall be secured by this Deed of
Trust.

1.11 Further Sales or Encumbrances.

A. Continuing Ownership and Management. Trustor
acknowledges that the continuous ownership of the Secured Property and the
continuous management and/or control of the operation of same by Trustor is of
a material nature to the transaction and the making of the loan evidenced by
the Note and secured by this Deed of Trust.

B. Transfer or Encumbrance of Secured Property. Trustor shall
not, without the prior written consent of Beneficiary being first had and
obtained (which consent may be granted or denied in Beneficiary's sole
discretion), voluntarily or involuntarily, by operation of law or otherwise,
transfer or dispose of, or suffer any third party to transfer or dispose of, all
or any portion of the Secured Property or any interest therein or the management
and/or operation by Trustor of the Secured Property. For purposes of this
Section 1.11, a transfer or disposition of the Secured Property or any part
thereof or interest therein shall include, without limitation, the sale of the
Secured Property or any portion thereof to a residential cooperative
corporation, conversion of all or any part of the Secured Property to a
condominium form of ownership, execution of a contract to sell or option to
purchase all or any portion of the Secured Property or any interest therein, any
transfer of or agreement to transfer air rights, any lease for space in any
Improvements on the Secured Property for purposes other than occupancy by the
tenant, any lease for space in Improvements containing an option to purchase, or
any direct or indirect sale,

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assignment, conveyance, transfer (including a transfer as a result of or in lieu
of condemnation), or other alienation of all or any portion of the Secured
Property or any interest therein, including, but not limited to, the creation of
a lien or other encumbrance on the Secured Property or any part thereof or
interest therein, and further including any assignment, pledge, grant of
security interest in, conditional sale, or the execution of a title retention
agreement with regard to any personalty included in the Secured Property. Any
such action described in this subsection 1.11B is herein called a "Transfer." A
Transfer shall also include, without limitation, any of the following events,
whether made directly or through an intermediary, and whether made in one
transaction or effected in more than one transaction:

(1) If Trustor is or becomes a corporation, a

transfer or disposition of more than 50% of the outstanding voting stock of such
corporation or of any other corporation directly or indirectly owning or
controlling 50% or more of the voting stock of Trustor;

(2) If Trustor is or becomes a partnership, a

transfer or disposition of any interest of any general partner in Trustor; or

(3) If Trustor is a trust or other entity, a

transfer or disposition of more than 50% of the beneficial interests in
Trustor.

For purposes of the foregoing, a "transfer or disposition" of such stock or
interests shall include, without limitation, any direct or indirect sale
thereof, any execution of a contract or other agreement to sell or option to
purchase such stock or interests, or any assignment of such stock or interests,
including any assignment for security purposes.

In no event shall the following be deemed a Transfer or disposition of the
Secured Property in violation of this Section 1.11(B):

(1) The transfer of the Secured Property to any

corporation which controls, is controlled by or is under common control with
Trustor, so long as Trustor continues to be liable for performance of the
Obligations after the transfer,

(2) The merger or consolidation of Trustor with

any other company, so long as the net worth of the combined company after
consummation of the transaction is not less than the net worth of Trustor
immediately prior to the merger or consolidation; or

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(3) The issuance or trading of the stock or debt

securities of Trustor or any parent of Trustor through any public exchange, in
one transaction or a series of transactions.

C. Acceleration of Obligations. In the event of a Transfer
without the prior written consent of Beneficiary, Beneficiary may, without
limiting any other right or remedy available to Beneficiary at law, in equity or
by agreement with Trustor, and in Beneficiary's absolute discretion and without
regard to the adequacy of its security, accelerate the maturity of the Note and
require the payment of the then existing outstanding principal balance and all
other sums due under the Note and under this Deed of Trust, including, but not
limited to, the prepayment charge provided in Section 4.6 herein. The giving of
consent by Beneficiary to a Transfer in any one or more instances shall not
limit or waive the need for such consent in any other or subsequent instances.

D. Wrap-Around Financing. Should the Secured Property at
any time be or become subject to the lien of any agreement, deed of trust or
mortgage or similar instrument in connection with which payments on account of
the obligations secured hereby are to be made directly or indirectly by or
through a mortgagee, grantee or beneficiary thereunder, regardless of whether
or not payment of the obligations secured hereby is assumed by such mortgagee,
grantee or beneficiary, the whole of the principal sum and interest and other
sums hereby secured, at the option of Beneficiary, shall immediately become due
and payable.

1.12 Expenses. Trustor will pay or reimburse Beneficiary for all
reasonable attorneys' fees, costs and expenses incurred by Beneficiary in any
proceedings affecting the Obligations or the Secured Property, (A) involving the
estate of a decedent or an insolvent, or (B) in any action, legal proceeding or
dispute of any kind in which Beneficiary is made a party, or appears as party
plaintiff or defendant, including, but not limited to, any exercise of the power
of sale or judicial foreclosure as set forth in this Deed of Trust, any
condemnation action involving the Secured Property or any action to protect the
security hereof or upon the reasonable concern of Beneficiary with the condition
of the Secured Property, and any such amounts paid by Beneficiary shall be added
to the obligations and secured by this Deed of Trust. If the obligations are
referred to attorneys for collection, foreclosure or for any cause set forth in
Article III hereof, Trustor shall pay all expenses incurred by Beneficiary,
including reasonable attorneys' fees, all costs of collection, litigation costs,
and costs (which may be estimated as to items

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to be expended after entry of the decree) of procuring title insurance policies,
whether or not obtained, Torrens certificates, and similar assurances with
respect to title and value as Beneficiary may deem reasonably necessary together
with all statutory costs, with or without the institution of an action or
proceeding. All such costs and expenses with interest thereon at the Increased
Rate shall be deemed to be secured by this Deed of Trust.

ARTICLE II

WARRANTIES AND REPRESENTATIONS

Trustor makes the following warranties and representations:

2.1 Warranty of Title. Trustor (A) is lawfully seized and possessed of
the Secured Property, in fee simple, subject to no mortgage, lien, charge or
encumbrance, except as specifically set forth in the title insurance policy
issued to Beneficiary upon recordation of this Deed of Trust, (B) has full power
and lawful authority to grant, bargain, sell, convey, assign, transfer and
mortgage the Secured Property in the manner and form hereby mortgaged and
conveyed, (C) is the fee owner of the Improvements, (D) is the owner of the
Personal Property, and (E) does warrant and will defend the title to the Secured
Property against all claims and demands whatsoever.

2.2 Ownership Of Improvements And Personal Property. All Improvements
and Personal Property now or hereafter affixed, placed or used by Trustor are
and will hereafter be owned by Trustor free from any prior liens or
encumbrances, provided, however, that if any of the foregoing Improvements or
Personal Property shall be subject to a conditional bill of sale, chattel
mortgage or other agreement creating a security interest, then all of the right,
title and interest of Trustor in and to such Improvements and Personal Property
together with the benefits of any deposits or payments now or hereafter made
thereon shall be covered by and subject to this Deed of Trust.

2.3 No Pending Material-Litigation or Proceeding; No Hazardous
Materials.

A. Proceedings Affecting Trustor. Except as disclosed in
the Affidavit being delivered concurrently herewith, to the best knowledge and
belief of Trustor, there are no actions, suits or proceedings pending, and,
there are no actions, suits, investigations or proceedings threatened, against
or affecting Trustor, or the business, operations, properties or assets of
Trustor, or before or by any governmental department, commission, board,
regulatory authority, bureau, agency or

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instrumentality, domestic, foreign, federal, state or municipal (collectively,
"Governmental Agency") , or any court, arbitrator or grand jury, which may
result in any material adverse change in the business, operations, properties or
assets or in the condition, financial or otherwise, of Trustor, or in the
ability of Trustor to perform its obligations under the Note or this Deed of
Trust. To the best knowledge and belief of Trustor, Trustor is not in default,
and there is no other default, with respect to any judgment, order, writ,
injunction, decree, demand, rule or regulation of any court, arbitrator, grand
jury or of any Governmental Agency, default under which might have consequences
which would materially and adversely affect the business, operations, properties
or assets or the condition, financial or otherwise, of Trustor or the ability of
Trustor to perform its obligations under the Note or this Deed of Trust.

B. Proceedings Affecting Secured Property. There are no
proceedings of any kind pending, or, to the best of Trustor's knowledge,
threatened against or affecting Trustor, the Secured Property (including any
attempt or threat by any Governmental Agency to condemn or rezone all or any
portion of the Secured Property), any party constituting Trustor in any such
party, or involving the validity, enforceability or priority of this Deed of
Trust, the Note or any of the other Loan Documents or enjoining or preventing
or threatening to enjoin or prevent the use and occupancy of the Secured
Property or the performance by Beneficiary of its obligations hereunder, and
there are no rent controls, governmental moratoria or environmental controls
(other than those generally imposed by federal or state law upon property in
the State of California) presently in existence, or to the best knowledge of
Trustor, threatened, affecting the Secured Property, except as identified in
writing to, and approved by, Beneficiary.

C. No Litigation Regarding Hazardous Materials. No litigation,
administrative enforcement actions or proceedings have been brought, threatened
nor have any settlements been reached by or with any party or parties, public or
private, in disputes in which the presence, disposal, release or threatened
release of any Hazardous Material (as defined in the Indemnity) on, from, or
under any of the Secured Property had been alleged.

2.4 Valid organization, Good Standing and Qualification of Trustor.
Trustor is a duly and validly organized and existing Corporation under the laws
of the State of Delaware and is entitled to own its properties and assets, and
to carry on its business, all as, and in the places where, such properties and
assets are now owned or operated or such business is now conducted or proposed
to be conducted.

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2.5 Authorization; No Legal Restrictions on Performance. The execution
and delivery by Trustor of this Deed of Trust and the other Loan Documents and
its compliance with the terms and conditions hereof and thereof have been duly
and validly authorized by all necessary partnership action, including, without
limitation, all necessary corporate action of all of Trustor's corporate general
partners, if any. The Loan Documents are valid and enforceable obligations of
Trustor in accordance with the terms hereof and thereof. Neither the execution
and delivery by Trustor of this Deed of Trust or any of the other Loan Documents
nor the consummation of the transactions contemplated herein or therein, nor
compliance with the terms and conditions hereof and thereof will, to Trustor's
current and actual knowledge, (A) conflict with or result in a material breach
of, or constitute a default under, any of the terms, obligations, covenants,
conditions or provisions of (1) Trustor's articles of incorporation, bylaws or
any indenture, mortgage, deed of trust, pledge, bank loan or credit agreement,
agreement creating, evidencing or securing any indebtedness of Trustor or any
other agreement or instrument to which Trustor is now a party or by which its
properties may be bound or affected, or (2) any judgment, order, writ,
injunction, decree or demand of any court, arbitrator, grand jury or
Governmental Agency, or (B) result in the creation or imposition of any lien,
charge or encumbrance of any nature whatsoever upon any property or asset of
Trustor under the terms or provisions of any of the foregoing. Trustor is not in
default in the performance, observance or fulfillment of any of the terms,
obligations, covenants, conditions or provisions contained in any indenture or
other agreement creating, evidencing or securing indebtedness of Trustor or
pursuant to which Trustor is a party or by which Trustor or its properties may
be bound or affected, which may result in any material adverse change in the
business, operations, properties, or assets or in the condition, financial or
otherwise, of Trustor, or in the ability of Trustor to perform its obligations
under the Note or this Deed of Trust.

2.6 Compliance With Laws., Trustor has complied, and at all future times
shall comply, with all applicable statutes, rules, regulations, orders and
restrictions of any domestic or foreign government or any instrumentality or
agency thereof, in respect of the conduct of its business and ownership of its
properties (including, without limitation, applicable statutes, rules,
regulations, orders and restrictions relating to equal employment opportunities
or environmental standards or controls). No governmental orders, permissions,
consents, approvals or authorizations are required to be obtained and no
registrations or declarations are required to be filed in connection with the
execution and delivery or performance of this Deed of Trust or any of the other
Loan Documents.

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2.7 Tax Status. Trustor has filed all United States income tax returns
and all state and municipal tax returns which are required to be filed, and has
paid, or made provision for the payment of, all taxes which have become due
pursuant to said returns or pursuant to any assessment received by Trustor,
except such filings and taxes, if any, as are being contested in good faith and
as to which adequate reserves have been provided.

2.8 Absence of Foreign or Enemy Status. Trustor is not a "national" of a
"designated foreign country" (or a person defined as a "designated foreign
country") within the definitions in the Foreign or Cuban Assets Control
Regulations of the United States Treasury Department, 31 CFR, Subtitle B,
Chapter V, as amended, or any regulation or ruling issued thereunder.

2.9 Federal Reserve Board Regulations. Trustor does not own any "margin
security" as such term is defined in Regulation G of the Board of Governors of
the Federal Reserve System (12 CFR Part 207), as amended, except margin
securities owned or which may be acquired by Trustor which do not and would not
in the aggregate constitute a substantial part of the assets of Trustor within
the meaning of Section 207.2(i) of the aforesaid Regulation G, and Trustor will
not use any part of the proceeds from the loans to be made under this Agreement
(A) directly or indirectly, to purchase or carry any such security or to reduce
or retire any indebtedness originally incurred to purchase any such security
within the meaning of such Regulation, (B) so as to involve Trustor in a
violation of Regulation T, U or X of such Board (12 CFR Parts 220, 221 and 224),
or (C) for any other purpose not permitted by Section 7 of the Securities
Exchange Act of 1934, as amended, or any of the rules and regulations respecting
the extension of credit promulgated thereunder.

2.10 Investment Company Act and Public Utility Holding Company Act.
Trustor is not an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended, and Trustor is not a "holding company" or a "subsidiary company" of
a "holding company," or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company," as such terms are defined in the
Public Utility Holding Company Act of 1935, as amended.

2.11 Exempt Status of Transactions Under Securities Act and
Representations Relating Thereto. Trustor has not, either directly or through
any agent, offered all or any part of the loan made or to be made by Beneficiary
and secured by this Deed of Trust to, or solicited any offers to make all or any
part of such loan from, or otherwise approached or negotiated or communicated in
respect of all or any part of such loan with

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anyone other than Beneficiary. Neither Trustor nor any agent on its behalf will
offer to obtain all or any part of such loan from, or solicit any offers to make
all or any part of such loan from, or otherwise approach or negotiate or
communicate in respect of all or any part of such loan with, any person or
persons so as thereby to bring the obtaining of such loan by Trustor and the
delivery of the Note within the registration provisions of the Securities Act of
1933, as amended.

2.12 Employee Benefit Plans.

A. None of the employee benefit plans maintained at any time by
Trustor (herein called "Employee Benefit Plans") or the trusts created
thereunder has engaged in a prohibited transaction which could subject any such
Employee Benefit Plan or trust to a tax or penalty on prohibited transactions
imposed under Internal Revenue Code Section 4975 or the Employee Retirement
Income Security Act of 1974 and the regulations thereunder (herein called
"ERISA").

B. None of the Employee Benefit Plans which are employee pension
benefit plans or the trusts created thereunder has been terminated; nor has any
such Employee Benefit Plan incurred any liability to the Pension Benefit
Guaranty Corporation established pursuant to ERISA which would be material to
Trustor, other than for required insurance premiums which have been paid when
due, or incurred any accumulated funding deficiency which would be material to
Trustor, whether or not waived; nor has there been any reportable event, or
other event or condition, which presents a risk of termination of any such
Employee Benefit Plan by such Pension Benefit Guaranty Corporation which
termination would be material to Trustor.

C. The present value of all benefits vested under the Employee
Benefit Plans which are employee pension benefit plans did not, as of the most
recent valuation date, exceed the then current value of the assets of such
Employee Benefit Plans allocable to such vested benefits by an amount that would
materially affect the financial condition of Trustor or the ability of Trustor
to perform under the Loan Documents.

D. The consummation of the loan from Beneficiary referred to in
this Deed of Trust, and the execution and delivery of the Note hereunder and the
performance by Trustor of its obligations under the Loan Documents, will not
involve any prohibited transaction.

E. As used in this Section 2.12, the terms "employee
benefit plans," "employee pension benefit plans," "accumulated funding
deficiency," "reportable event," "accrued benefits,"

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"separate account" and "multiemployer plan" shall have the respective meanings
assigned to them in ERISA, and the term "prohibited transaction" shall have the
meaning assigned to it in Internal Revenue Code Section 4975 and ERISA.

ARTICLE III

DEFAULTS

3.1 Events of Default. Any of the following events shall be deemed
an Event of Default or a default hereunder:

A. if default shall be made in the payment of any
installment of the principal of, or interest on the Obligations or any other
sum which is payable hereunder as and when the same shall become due and

payable as in the Note or herein provided; or

B. if Trustor fails to perform or observe any material term,
provision, covenant or agreement in the Note, this Deed of Trust or in any other
Loan Documents; provided, however in the event of any default other than a
default which can be cured by the payment of money (a "non-monetary default"),
the Beneficiary shall be entitled to enforce the remedies therefor provided
herein only after giving notice thereof to Trustor and such default shall have
continued uncorrected for thirty (30) days, unless such non-monetary default is
of such a character as to require more than thirty (30) days to cure and the
Trustor shall, prior to the expiration of said thirty (30) days, promptly
commence and diligently and continuously proceed with due diligence to cure such
default, in which event such period shall be extended for a reasonable time
necessary to cure such default, but in no event more than ninety (90) days after
such default; provided, however, that the foregoing opportunity to cure shall
not apply to (a) any default under any letter of credit agreement made by the
Beneficiary and the Trustor, if any, or the Beneficiary's rights under the
letter(s) of credit delivered to the Beneficiary in connection therewith; (b)
any sale, assignment, transfer, encumbrance, or lien in violation of this Note
or the Deed of Trust; or (c) the Beneficiary's right to (i) charge interest at
the Default Rate as provided herein, (ii) impose a late charge as provided
herein, or (iii) make payments and cure defaults of the Trustor under the Note
as provided therein, all of which amounts shall be immediately due and payable
without any obligation on the part of the Beneficiary to notify any party and
whether or not such default is cured; or

C. if any warranty, representation, certification,
financial statement or other information made or furnished at any time pursuant

to the terms of this Deed of Trust or otherwise, by

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Trustor, or by any person or entity liable for the Obligations in connection
with the loan transaction, shall prove to be materially false and to have been
made or furnished with knowledge of the false nature thereof; or

D. if Trustor shall:

(1) apply for, consent to or acquiesce in the

appointment of a receiver, trustee or liquidator of it or of all or a
substantial part of its assets, or the Secured Property or any interest in any
part thereof (the term "acquiesce" includes, but is not limited to, the failure
to file a petition or motion to vacate or discharge any order, judgment or
decree providing for such appointment within ten (10) days after the
appointment); or

(2) commence a voluntary case or other proceeding

in bankruptcy, or admit in writing its inability to pay its debts as they come
due; or

(3) make a general assignment for the benefit of

creditors; or

(4) file a petition or an answer seeking

reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief for itself under the present or any future
federal bankruptcy act or any other statute or law relative to bankruptcy,
insolvency, or other relief for debtors; or

(5) file an answer admitting the material

allegations of, or consent to, or default in answering, a petition filed
against it in any bankruptcy, reorganization or insolvency case or proceeding;
or

E. if an order for relief shall be entered against
Trustor by a court of competent jurisdiction under any present or future
bankruptcy law, which order shall continue unstayed and in effect for any
period of forty-five (45) consecutive days; or

F. if an order, judgment or decree shall be entered by any court
of competent jurisdiction, adjudicating Trustor insolvent, approving a petition
seeking reorganization or arrangement of Trustor or appointing a receiver,
trustee or liquidator of it or of all or a substantial part of its assets, and
such order, judgment or decree shall continue unstayed and in effect for any
period of forty-five (45) consecutive days; or

G. if Trustor has assigned or purports to assign the
whole or any part of the rents, income or profits arising from

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the Secured Property, without the prior written consent of Beneficiary; or

H. if a Transfer not consented to by Beneficiary shall
have occurred; or

I. if Trustor shall enter into a mortgage or other
security instrument with respect to the Secured Property which does not comply
with the requirements of Section 1.11; or

J. if Trustor shall be in default beyond any applicable
grace period under any other mortgage or security instrument affecting all or

any part of the Secured Property; or

K. if any mechanic's, laborer's or materialman's lien, federal
tax lien, broker's lien or other lien not permitted hereunder and affecting the
Secured Property or any part thereof is not discharged, by payment, bonding,
order of a court of competent jurisdiction or otherwise, within twenty (20) days
after Trustor receives notice thereof from the lienor or from Beneficiary.

ARTICLE IV

REMEDIES

4.1 Remedies. Upon the occurrence of any one or more Events of Default,
Trustee and/or Beneficiary may (but shall not be obligated), in addition to any
rights or remedies available to them hereunder or under the other Loan
Documents, take such action personally or by their agents or attorneys, with or
without entry, and without notice, demand, presentment or protest (each and all
of which are hereby waived to the extent permitted by law) as they deem
necessary or advisable to protect and enforce Beneficiary's rights and remedies
against Trustor and Secured Property, including the following actions, each of
which may be pursued concurrently or otherwise, at such time and in such order
as Trustee and/or Beneficiary may determine, in their sole discretion, without
impairing or otherwise affecting its or their other rights or remedies:

(a) declare the entire balance of the Obligations (including the
entire principal balance thereof, all accrued and unpaid interest and any
premium thereon and all other such sums secured hereby) to be immediately due
and payable and upon any such declaration the entire unpaid balance of the
Obligations shall become and be immediately due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by Trustor anything in the Loan Documents to the
contrary notwithstanding; or

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(b) institute a proceeding or proceedings, judicial or
otherwise, for the complete foreclosure of this Deed of Trust under any
applicable provision of law; or

(c) institute a proceeding or proceedings for the partial
foreclosure of this Deed of Trust under any applicable provision of law for the
portion of the Obligations then due and payable, subject to the lien of this
Deed of Trust continuing unimpaired and without loss of priority so as to secure
the balance of the Obligations not then due and payable; or

(d) cause any or all of the Secured Property to be sold under
the power of sale granted by this Deed of Trust or any of the other Loan
Documents in any manner permitted by applicable law. For any sale under the
power of sale granted by this Deed of Trust, Trustee or Beneficiary must record
and give all notices required by law and then, upon the expiration of such time
as is required by law, may sell the Secured Property, and all estate, right,
title, interest, claim and demand of Trustor therein, and all rights of
redemption thereof, at one or more sales, as an entirety or in parcels, with
such elements of real and/or personal property (and, to the extent permitted by
applicable law, may elect to deem all of the Secured Property to be real
property for purposes thereof), and at such time or place and upon such terms as
Trustee and Beneficiary may determine and shall execute and deliver to the
purchaser or purchasers thereof a deed or deeds conveying the property sold, but
without any covenant or warranty, express or implied, and the recitals in the
deed or deeds of any facts affecting the regularity or validity of the sale will
be conclusive against all persons. In the event of a sale, by foreclosure or
otherwise, of less than all of the Secured Property, this Deed of Trust shall
continue as a lien and security interest on the remaining portion of the Secured
Property; or

(e) institute an action, suit or proceeding in equity for
the specific performance of any of the provisions contained in the Loan
Documents; or

(f) apply for the appointment of a receiver custodian, trustee,
liquidator or conservator of the Secured Property, to be vested with the fullest
powers permitted under applicable law, as a matter of right and without regard
to or the necessity to disprove the adequacy of the security for the Obligations
or the solvency of Trustor or any other person liable for the payment of the
Obligations, and Trustor and each other person so liable waives or shall be
deemed to have waived such necessity and consents or shall be deemed to have
consented to such appointment; or

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(g) subject to the provisions and restrictions of any applicable
law, enter upon the Premises, and exclude Trustor and its agents and servants
wholly therefrom, without liability for trespass, damages or otherwise, and take
possession of all books, records and accounts relating thereto and all other
Secured Property, and Trustor agrees to surrender possession of the Secured
Property and of such books, records and accounts to Trustor or Beneficiary on
demand after the happening of any Event of Default; and having and holding the
same may use, operate, manage, preserve, control and otherwise deal therewith
and conduct the business thereof, either personally or by its superintendents,
managers, agents, servants, attorneys or receivers, without interference from
Trustor; and upon each such entry and from time to time thereafter may, at the
expense of Trustor and the Secured Property, without interference by Trustor and
as Beneficiary may deem advisable, (i) either by purchase, repair or
construction, maintain and restore the Premises, (ii) insure or reinsure the
same, (iii) make all necessary or proper repairs, renewals, replacements,
alterations, additions, betterments and improvements thereto and thereon, (iv)
complete the construction of the Improvements and, in the course of such
completion, may make such changes in the contemplated or completed Improvements
as it may deem advisable, (v) in every such case in connection with the
foregoing have the right to exercise all rights and powers of Trustee with
respect to the Secured Property, either in Trustor's name or otherwise,
including the right to make, terminate, cancel, enforce or modify Leases, obtain
and evict Lessees and sublessees on such terms as Beneficiary shall deem
advisable and to take any actions described in subsection (i) of this Section
4.1; or

(h) subject to the provisions and restrictions of any applicable
law, may, with or without the entrance upon the Premises, collect, receive, sue
for and recover in its own name all Rents and cash collateral derived from the
Premises, and after deducting therefrom all costs, expenses and liabilities of
every character incurred by Trustee and/or Beneficiary in collecting the same
and in using, operating, managing, preserving and controlling the Premises, and
otherwise in exercising Trustee's and/or Beneficiary's rights under subsection
(g) of this Section 4.1, including all amounts necessary to pay Impositions,
insurance premiums and other charges in connection with the Premises, as well as
compensation for the services of Trustee and Beneficiary and their respective
attorneys, agents and employees, to apply the remainder as provided in Section
4.5; or

(i) release any portion of the Secured Property for such
consideration as Beneficiary may require without, as to the remainder of the

Secured Property, in any way impairing or

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affecting the lien or priority of this Deed of Trust, or improving the position
of any subordinate lienholder with respect thereto, except to the extent that
the Obligations shall have been reduced by the actual monetary consideration, if
any, received by Trustee and/or Beneficiary for such release, and may accept by
assignment, pledge or otherwise any other property in place thereof as Trustee
and/or Beneficiary may require without being accountable for so doing to any
other lienholder; or

(j) may take all actions permitted under the Uniform
Commercial Code of the State of California; or

(k) may take any other action, or pursue any other right or
remedy, as Trustee and/or Beneficiary may have under applicable law, and Trustor
does hereby grant the same to Trustee and Beneficiary.

In the event that Trustee and/or Beneficiary shall exercise any of the
rights or remedies set forth in subsections (g) and (h) of this Section 4.1,
neither Trustee nor Beneficiary shall be deemed to have entered upon or taken
possession of the Secured Property except upon the exercise of its option to do
so, evidenced by its demand and overt act for such purpose, nor shall it be
deemed a beneficiary or mortgagee in possession by reason of such entry or
taking possession, unless applicable law requires that it be deemed to be a
beneficiary or mortgagee in possession. Neither Trustee nor Beneficiary shall be
liable to account for any action taken pursuant to any such exercise other than
for rents actually received by such party, nor liable for any loss sustained by
Trustor resulting from any failure to let the Premises, or from any other act or
omission of Trustee and/or Beneficiary, except to the extent such loss is caused
by the willful misconduct or bad faith of such party or such liability may not
be waived under applicable law. Trustor hereby consents to, ratifies and
confirms the exercise by Trustee and/or Beneficiary of said rights and remedies.

4.2 Expenses. If any action is commenced to foreclose this Deed of
Trust, or to enforce any other remedy of Trustee and/or Beneficiary under any of
the Loan Documents, whether such action is judicial or pursuant to the power of
sale contained herein or otherwise, there shall be added to the Obligations
secured by this Deed of Trust all costs and expenses, including attorney's fees,
plus interest thereon at the Default Rate (as defined in the Note) until paid,
in the commencement and prosecution of such action, whether or not such action
results in a foreclosure sale, foreclosure or other judicial decree or judgment.

4.3 Rights Pertaining to Sales. Subject to the provisions or other
requirements of law, the following provisions shall

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apply to any sale or sales of the Secured Property under or by virtue of this
Article IV, whether made under the power of sale herein granted or by virtue of
judicial proceedings or of a judgment or decree of foreclosure and sale:

(a) Trustee, at the request of Beneficiary, may conduct any
number of sales from time to time. The power of sale set forth in Section 4.1(d)
hereof shall not be exhausted by any one or more such sales as to any part of
the Secured Property which shall not have been sold, nor by any sale which is
not completed or is defective in Trustee's or Beneficiary's opinion, until the
Obligations shall have been paid in full.

(b) Any sale may be postponed or adjourned by public
announcement at the time and place appointed for such sale or for such postponed
or adjourned sale without further notice.

(c) After each sale, Trustee, or an officer of any court
empowered to do so, shall execute and deliver to the purchaser or purchasers at
such sale a good and sufficient instrument or instruments granting, conveying,
assigning and transferring all right, title and interest of Trustor in and to
the property and rights sold and shall receive the proceeds of said sale or
sales and apply the same as herein provided. Trustee is hereby appointed the
true and lawful attorney-in-fact of Trustor, which appointment is irrevocable
and shall be deemed to be coupled with an interest, in Trustor's name and stead,
to make all necessary conveyances, assignments, transfers and deliveries of the
property and rights so sold, and for that purpose Trustee may execute all
necessary instruments of conveyance, assignment, transfer and delivery, and may
substitute one or more persons with like power, Trustor hereby ratifying and
confirming all that said attorney or such substitute or substitutes shall
lawfully do by virtue thereof. Nevertheless, Trustor, if requested by Trustee or
Beneficiary, shall ratify and confirm any such sale or sales by executing and
delivering to Trustee or such purchaser or purchasers all such instruments as
may be advisable, in Trustee's or Beneficiary's judgment, for the purposes as
may be designated in such request.

(d) Any and all statements of fact or other recitals made in any
of the instruments referred to in subsection (c) of this Section 4.3 given by
Trustee and/or Beneficiary as to nonpayment of the Obligations, or as to the
occurrence of any Event of Default, or as to Beneficiary having declared all or
any of the Obligations to be due and payable, or as to the request to sell, or
as to notice of time, place and terms of sale and of the property or rights to
be sold having been duly given, or as to the refusal, failure or inability to
act of Trustee, or as to the

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appointment of any substitute or successor Trustee, or as to any other act or
thing having been duly done by Trustor, Beneficiary, or by such Trustee, shall
be taken as conclusive and binding against all persons as to evidence of the
truth of the facts so stated and recited. Trustee and/or Beneficiary may appoint
or delegate any one or more persons as agent to perform any act or acts
necessary or incident to any sale so held, including the posting of notices and
the conduct of sale, but in the name and behalf of Trustee or Beneficiary, as
applicable.

(e) receipt of Trustee for the purchase money paid at any such
sale, or the receipt of any other person authorized to receive the same, shall
be sufficient discharge therefor to any purchaser of any property or rights sold
as aforesaid, and no such purchaser, or its representatives, grantees or
assigns, after paying such purchase price and receiving such receipt, shall be
bound to see to the application of such purchase price of any part thereof upon
or for any trust or purpose of this Deed of Trust or, in any manner whatsoever,
be answerable for any loss, misapplication or non-application of any such
purchase money, or part thereof, or be bound to inquire as to the authorization,
necessity, expediency or regularity of any such sale.

(f) Any such sale or sales shall operate to divest all of the
estate, right, title, interest, claim and demand whatsoever, whether at law or
in equity, of Trustor in and to the properties and rights so sold, and shall be
a perpetual bar both at law and in equity against Trustor and any and all
persons claiming or who may claim the same, or any part thereof or any interest
therein, by, through or under Trustor to the fullest extent permitted by
applicable law.

(g) Upon any such sale or sales, Beneficiary may bid for and
acquire the Secured Property and, in lieu of paying cash therefor, may make
settlement for the purchase price by crediting against the Obligations the
amount of the bid made therefor, after deducting therefrom the expenses of the
sale, the cost of any enforcement proceeding hereunder and any other sums which
Trustee or Beneficiary is authorized to deduct under the terms hereof, to the
extent necessary to satisfy such bid.

(h) In the event that Trustor, or any person claiming by,
through or under Trustor, shall transfer or refuse or fail to surrender
possession of the Secured Property after any sale thereof, then Trustor, or such
person shall be deemed a tenant at sufferance of the purchaser at such sale,
subject to eviction by means of forcible entry and detainer proceedings, or
subject to any other right or remedy available hereunder or under applicable
law.

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(i) Upon any such sale, it shall not be necessary for Trustee,
Beneficiary or any public officer acting under execution or order of court to
have present or constructively in its possession any of the Secured Property.

(j) In the event a foreclosure hereunder shall be commenced by
Trustee at the request of Beneficiary, Trustee or Beneficiary may at any time
before the sale of the Secured Property abandon the sale, and may institute suit
for the collection of the Obligations and for the foreclosure of this Deed of
Trust, or in the event that Trustee or Beneficiary should institute a suit for
collection of the Obligations, and for the foreclosure of this Deed of Trust,
Beneficiary may at any time before the entry of final judgment in said suit
dismiss the same and sell or require Trustee to sell the Secured Property in
accordance with the provisions of this Deed of Trust.

4.4 Application of Proceeds. The purchase money, proceeds or avails of
any sale referred to in Section 4.3, together with any other sums which may be
held by Trustee or Beneficiary hereunder, whether under the provisions of this
Article IV or otherwise, shall, except as herein expressly provided to the
contrary, be applied as follows:

First: To the payment of the costs and expenses of any such
sale, including compensation to Trustee and/or Beneficiary, their agents
and counsel, and of any judicial proceeding wherein the same may be
made, and of all expenses, liabilities and advances made or incurred by
Trustee and/or Beneficiary hereunder, together with interest thereon as
provided herein, and all taxes, assessments and other charges, except
any taxes, assessments or other charges subject to which the Secured
Property shall have been sold.

Second: To the payment in full of the Obligations (including
principal, interest, premium and fees) in such order as Beneficiary

may elect.

Third: To the payment of any other sums secured hereunder or
required to be paid by Trustor pursuant to any provision of the

Loan Documents.

Fourth: To the payment of the surplus, if any, to whomsoever
may be lawfully entitled to receive the same.

4.5 Prepayment Charge. Trustor hereby agrees to pay the charge
provided in the Note for prepayment of the Obligations, if for any reason any
of said Obligations shall be paid prior to the stated maturity date thereof,
even if and notwithstanding that an

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Event of Default shall have occurred and Beneficiary, by reason thereof, shall
have declared said Obligations due and payable, and whether or not said payment
is made prior to or at any sale held under or by virtue of this Article IV.
Trustor acknowledges that Beneficiary, in making the loan evidenced by the Note
and entering into this Deed of Trust, is relying on Trustor's credit worthiness
and its agreement to repay the Obligations in strict accordance with the terms
set forth in the Note. Trustor acknowledges that Beneficiary would not make the
loan without full and complete assurance by Trustor of its agreement to make
regular payments of principal and interest under the Note and its further
agreement not to prepay all or any part of the principal of the Note prior to
the final maturity date thereof, except on the terms expressly set forth herein
and in the Note. Therefore, any prepayment of the Note, whether occurring as a
voluntary prepayment by Trustor or occurring upon an acceleration of the
principal balance of the Note by Beneficiary on account of any default by
Trustor (including, but not limited to, the making or suffering by Trustor, of
any transfer or disposition of all or any portion of the Secured Property or any
interest therein as prohibited by Section 1.11 of this Deed of Trust) will
prejudice Beneficiary's ability to meet its obligations and to earn the return
on the funds advanced to Trustor, which Beneficiary intended and expected to
earn when it agreed to make the subject loan and will also result in other loss
and additional expenses to Beneficiary. Accordingly, in recognition of the
foregoing and in consideration of Beneficiary making the loan secured by this
Deed of Trust at the interest rate and for the term set forth in the Note,
Trustor hereby expressly (A) waives any and all rights it may have under
applicable law to prepay without charge or premium all or any part of the Note,
either voluntarily or upon an acceleration of the maturity date of the Note on
account of any default of Trustor (including, but not limited to, the making or
suffering by Trustor of any transfer or disposition prohibited by Section 1.11
of this Deed of Trust) and (B) agrees that if, for any reason, whether due to
the voluntary acceptance by Beneficiary of a prepayment tendered by Trustor or
the acceleration by Beneficiary of the maturity date of the Note, as aforesaid,
on account of any such default by Trustor, a prepayment of all or any part of
the principal of the Note is made by or on behalf of Trustor, or is otherwise
made or occurs in connection with any reinstatement of the Loan Documents under
any foreclosure proceedings, or any right of redemption exercised by Trustor or
any other party having the right to redeem or to prevent any foreclosure of this
Deed of Trust, or upon the consummation of any foreclosure sale, then Trustor or
any other party making any such prepayment shall be obligated to pay,
concurrently therewith, the prepayment charge set forth in the Note, and the
payment of such premium shall be a condition to the making of such prepayment
and shall be secured by this Deed of

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Trust. Such prepayment charge shall be paid without prejudice to the right of
Beneficiary to collect any other amounts provided to be paid or to declare a
default hereunder. Nothing herein shall be construed as permitting any partial
prepayment except with Beneficiary's prior written consent thereto obtained in
each instance.

4.6 Environmental Defaults and Remedies. In the event that any portion
of the Secured Property is determined to be "environmentally impaired" (as
"environmentally impaired" is defined in California Code of Civil Procedure
Section 726.5(e)(3)) or to be an "affected parcel" (as "affected parcel is
defined California Code of Civil Procedure Section 726.5(e)(1)), then, without
otherwise limiting or in any way affecting Beneficiary's or Trustee's rights and
remedies under this Deed of Trust, Beneficiary may elect to exercise its right
under California Code of Civil Procedure Section 726.5(a) to (1) waive its lien
on such environmentally impaired or affected parcel portion of the Secured
Property and (2) exercise (i) the rights and remedies of an unsecured creditor,
including reduction of its claim against Trustor to judgment, and (ii) any other
rights and remedies permitted by law. All costs and expenses, including, but not
limited to, attorneys' fees, incurred by Beneficiary in connection with any
action commenced under this Section 4.6, including any action required by
California Code of Civil Procedure Section 726.5(b) to determine the degree to
which the Secured Property is environmentally impaired, plus interest thereon at
the Default Rate (as defined in the Note) until paid, shall be added to the
Obligations secured by this Deed of Trust and shall be due and payable to
Beneficiary upon its demand made at any time following the conclusion of such
action.

ARTICLE V

MISCELLANEOUS

5.1 Non-Waiver. The failure of Beneficiary to insist upon strict
performance of any term of this Deed of Trust shall not be deemed to be a waiver
of any term of this Deed of Trust. Trustor shall not be relieved of its
obligation to pay the Obligations at any time and in the manner provided for its
payment in the Note and this Deed of Trust by reason of (A) a failure by
Beneficiary to comply with any request of Trustor to take any action to
foreclose this Deed of Trust or otherwise enforce any of the provisions of this
Deed of Trust or of the Note or any other Loan Document, (B) the release,
regardless of consideration, of the whole or any part of the Secured Property or
any other security for the Obligations, or (C) any agreement or stipulation
between Beneficiary and any subsequent owner or owners of the Secured

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Property or other person extending the time of payment or otherwise modifying or
supplementing the terms of the Note, this Deed of Trust or any Loan Document
securing or guaranteeing the Obligations or any portion thereof, without first
having obtained the consent of Trustor and, in the latter event, Trustor shall
continue to be obligated to pay the Obligations at the time and in the manner
provided in the Note and this Deed of Trust, as so extended, modified and
supplemented, unless expressly released and discharged by Beneficiary.
Regardless of consideration, and without the necessity for any notice to or
consent by the holder of any subordinate lien, encumbrance, right, title or
interest in or to the Secured Property, Beneficiary may release any person at
any time liable for the payment of the Obligations or any portion thereof or any
part of the security held for the Obligations and may extend the time of payment
or otherwise modify the terms of any Loan Documents, including, without
limitation, a modification of the interest rate payable on the principal balance
of the Note, without in any manner impairing or affecting any of the Loan
Documents or the lien thereof or the priority of this Deed of Trust, as so
extended and modified, as security for the Obligations over any such subordinate
lien, encumbrance, right, title or interest. Beneficiary may resort for the
payment of the Obligations to any other security held by Beneficiary in such
order and manner as Beneficiary, in its discretion, may elect. Beneficiary may
take action to recover the Obligations, or any portion thereof, or to enforce
any covenant of this Deed of Trust without prejudice to the right of Beneficiary
thereafter to foreclose this Deed of Trust. Beneficiary shall not be limited
exclusively to the rights and remedies stated in this Deed of Trust but shall be
entitled to every additional right and remedy now or hereafter afforded by law.
The rights of Beneficiary under this Deed of Trust shall be separate, distinct
and cumulative and none shall be given effect to the exclusion of the others. No
act of Beneficiary shall be construed as an election to proceed under any one
provision of this Deed of Trust to the exclusion of any other provision.

5.2 Sole Discretion of Beneficiary. Wherever, pursuant to this Deed of
Trust, Beneficiary's consent or approval is required, the decision as to whether
or not to consent or approve shall be in the sole discretion of Beneficiary and
Beneficiary's decision shall be final and conclusive, except where this Deed of
Trust expressly provides to the contrary. If Trustor shall seek the approval by
or consent of Beneficiary under this Deed of Trust and Beneficiary shall fail or
refuse to give such consent or approval, Trustor shall not be entitled to any
damages for any withholding of such approval or consent by Beneficiary, it being
intended that Trustor's sole remedy shall be an action for injunctive or
declaratory relief, which remedy shall be available

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only in those cases where Beneficiary has expressly agreed not to unreasonably
withhold its consent or approval.

5.3 Recovery of Sums Required To Be Paid. Beneficiary shall have the
right from time to time to take action to recover any sum or sums which
constitute a part of the Obligations as such sums shall become due, without
regard to whether or not the balance of the Obligations shall be due, and
without prejudice to the right of Beneficiary thereafter to bring an action of
foreclosure or any other action for a default or defaults by Trustor existing at
the time such earlier action was commenced.

5.4 Legal Tender. All payments of principal, interest and any and all
other payments required or provided herein shall be paid in lawful money of the
United States of America which shall be legal tender in payment of all debts and
dues, public and private, at the time of payment, at the office of Beneficiary
or at such other place either within or without the State of California as
Beneficiary may from time to time designate.

5.5 No Merger. If both the lessor's and lessee's estates under any lease
or any portion thereof which constitutes a part of the Secured Property shall at
any time become vested in one owner, this Deed of Trust and the lien created
hereby shall not be destroyed or terminated by the application of the doctrine
of merger and in such event, Beneficiary shall continue to have and enjoy all of
the rights and privileges of Beneficiary as to the separate estates. In
addition, upon the foreclosure of the lien created by this Deed of Trust on the
Secured Property pursuant to the provisions hereof, any leases or subleases then
existing and created by Trustor shall not be destroyed or terminated by
application of the law of merger or as a matter of law or as a result of such
foreclosure unless Beneficiary or any purchaser at any such foreclosure sale
shall so elect. No act by or on behalf of Beneficiary or any such purchaser
shall constitute a termination of any lease or sublease unless Beneficiary or
such purchaser shall give written notice thereof to such lessee or sublessee.

5.6 Discontinuance of Actions. In case Beneficiary shall have proceeded
to enforce any right under this Deed of Trust by foreclosure, sale or entry or
otherwise, and such proceedings shall have been discontinued or abandoned for
any reason or shall have been determined adversely, then, in every such case,
Trustor and Beneficiary shall be restored to their former positions and rights
hereunder with respect to the Secured Property which shall remain subject to the
lien of this Deed of Trust.

5.7 Headings. The headings of the sections, paragraphs and
subdivisions of this Deed of Trust are for the convenience of

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reference only, are not to be considered a part hereof and shall not limit or
otherwise affect any of the terms hereof.

5.8 Notice to Parties. All notices and demands hereunder shall be in
writing and shall be deemed to have been sufficiently given or served for all
purposes when presented personally or sent by certified or registered mail with
return receipt requested or generally recognized overnight delivery service,
addressed to the parties at the addresses stated below, or at such other address
as either party may hereafter notify the other in writing as aforesaid:

Trustor: Megatest Corporation
1321 Ridder Park Drive
San Jose, California 95131-2306
Attn: Patrick J. Ryan

with a copy to: Halgrimson, McNichols, et. al.
40 South Market Street, Suite 700
San Jose, California 95113
Attn: Eric Wong, Esq.

Beneficiary: SUN LIFE ASSURANCE COMPANY OF CANADA

(U.S.), a Delaware corporation

One Sun Life Executive Park
Wellesley Hills, MA 02181
Attn: Property Investments

with a copy to: Landels, Ripley & Diamond
350 Steuart Street
San Francisco, CA 94105
Attn: Bruce W. Hyman, Esq.

Service of any such notice or demand so made shall be deemed effective on the
day of actual delivery as shown by the addressee's return receipt or the
expiration of forty-eight (48) hours after the date sent by generally recognized
overnight delivery service or mailed, whichever is the earlier in time, except
that service of any notice of default or notice of sale provided or required by
law shall, if mailed, be deemed effective on the date of mailing.

5.9 Non-Recourse. If an Event of Default has occurred, Beneficiary shall
have all rights reserved in the Note, this Deed of Trust and every other Loan
Document and shall have full recourse to the Secured Property and to the other
collateral given by Trustor to secure the Note, provided, however, that any
judgment obtained by Beneficiary in any proceeding to enforce such rights shall
be enforced only against the Secured Property and such other collateral.

Notwithstanding the foregoing,

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Beneficiary shall not in any way be prohibited from naming Trustor or any of its
successors or assigns or any person holding under or through them as parties to
any actions, suits or other proceedings initiated by Beneficiary to enforce such
rights or to foreclose its mortgage lien or otherwise realize upon any other
lien or security interest created in any other collateral given to secure the
payment of the Obligations. The foregoing restriction shall not apply to, and
Trustor shall be personally liable for, any losses, damages, costs and expenses
incurred by Beneficiary as a result of (A) any material misstatement of fact (1)
made by Trustor or any person or entity constituting Trustor to induce
Beneficiary to advance the principal amount evidenced hereby or (2) contained in
any Loan Document, (B) fraud committed by Trustor or any person or entity
constituting Trustor, (C) misapplication of rents, income, insurance proceeds,
condemnation awards or trust funds, (D) any loss, damage, expense or liability
on the part of Beneficiary (including, without limitations, attorneys fees and
disbursements) not reimbursable to Beneficiary pursuant to the Indemnity
executed on even date herewith including, but not limited to the diminution in
value of the Secured Property due to the existence of Hazardous Substances (as
defined in the Indemnity), or if required in the reasonable judgment of
Beneficiary, the preparation of an environmental audit on the Secured Property,
whether conducted or authorized by Trustor, Beneficiary or a third party or the
implementation of any environmental audit's recommendations, (E) all losses,
damages or liability suffered by Beneficiary arising from any acts of commission
or omission by Trustor that result in waste upon the Secured Property, (F)
failure to pay real property taxes when due, (G) taking of any rents prepaid for
more than one month in advance, (H) cost of any property repair as a result of a
casualty not reimbursed by insurance to the extent insurance is required
pursuant to this Deed of Trust, or (I) failure to fully comply with the
provisions of the Americans With Disabilities Act.

5.10 Successors and Assigns Included In Parties. Subject to the
provisions of Section 1.11, whenever in this Deed of Trust one of the parties
hereto is named or referred to, the heirs, legal representatives, successors and
assigns of such party shall be included and all covenants and agreements
contained in this Deed of Trust by or on behalf of Trustor or by or on behalf of
Beneficiary shall bind and inure to the benefit of their respective heirs, legal
representatives, successors and assigns, whether so expressed or not.

5.11 Number and Gender. Whenever the singular or plural number,
masculine or feminine or neuter gender is used herein, it shall equally include
the other.

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5.12 Changes and Modifications. This Deed of Trust cannot be changed
except by an agreement in writing, signed by the party against whom enforcement
of any change or modification is sought.

5.13 Applicable Law. This Deed of Trust shall be construed and
enforced according to the laws of the State of California.

5.14 Invalid Provisions to Affect No Others. The unenforceability or
invalidity of any provision or provisions of this Deed of Trust as to any
persons or circumstances shall not render that provision or those provisions
unenforceable or invalid as to any other persons or circumstances, and all
provisions hereof, in all other respects, shall remain valid and enforceable.

5.15 Usury Savings Clause. It is the intention of Trustor and
Beneficiary to conform strictly to the usury laws now or hereafter in force in
the State of California and any interest payable under the Note, this Deed of
Trust, or any of the other Loan Documents executed by Trustor, to the extent
that any sums secured hereby or the advancing of such sums by Beneficiary shall
not be exempt from such laws, shall be subject to reduction to the amount equal
to the maximum non-usurious amount allowed under the usury laws of California as
now or hereafter construed by the courts having jurisdiction over such matters.
In the event the maturity of the Note is accelerated by reason of any provision
of this Deed of Trust including, without limitation, an election by Beneficiary
resulting from an Event of Default (or an event permitting acceleration) under
this Deed of Trust or any other Loan Documents, voluntary prepayment of the
Note, or otherwise, then earned interest may never include more than the maximum
amount permitted by law, computed from the dates of each advance of the
Obligations until payment, and any interest in excess of the maximum amount
permitted by law shall be canceled automatically and, if theretofore paid, shall
at the option of Beneficiary either be rebated to Trustor or credited on the
principal amount of the Note or if all principal has been repaid, then the
excess shall be rebated to Trustor. The aggregate of all interest (whether
designated as interest, service charges, points or otherwise) contracted for,
chargeable, or receivable under the Note, this Deed of Trust, or any other Loan
Document shall under no circumstances exceed the maximum legal rates upon the
unpaid principal balance of the Note remaining unpaid from time to time. In the
event such interest does exceed the maximum legal rate, it shall be deemed a
mistake and such excess shall be canceled automatically and if theretofore paid,
rebated to Trustor or credited on the principal amount of the Note, or if the
Note has been repaid, then such excess shall be rebated to Trustor.

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5.16 No Statute of Limitations. The pleadings of any statute of
limitations as a defense to any and all obligations secured by this Deed of
Trust are hereby waived to the full extent permissible by law.

5.17 Late Charges. In the event that any installment of principal,
interest or escrow deposit shall become overdue, a "late charge" of four cents
($.04) for each dollar ($1.00), or part thereof so overdue, may be charged to
Trustor by Beneficiary for the purpose of defraying Beneficiary's expenses
incident to handling such delinquent payment. This charge shall be in addition
to, and not in lieu of, any other remedy Beneficiary may have and is in addition
to any reasonable fees and charges of any agents or attorneys which Beneficiary
is entitled to employ on any default hereunder whether authorized herein or by
law. Such "late charges", if not previously paid, shall, at the option of
Beneficiary, be added to and become part of the succeeding monthly payment to be
made under the Note and secured by this Deed of Trust.

5.18 Continuing Effectiveness. This Deed of Trust shall cover any and
all advances made pursuant to the Loan Documents, rearrangements and renewals of
the Obligations and all extensions in the time of payment thereof, whether such
advances extensions or renewals are evidenced by new promissory notes or other
instruments hereafter executed and irrespective of whether filed or recorded.
Likewise, the execution of this Deed of Trust shall not impair or affect any
other security which may be given to secure the payment of the Obligations, and
all such additional security shall be considered as cumulative. The taking of
additional security, execution of partial releases of the

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security, or any extension of time of payment of the Obligations shall not
diminish the force, effect or lien of this Deed of Trust and shall not affect or
impair the liability of any maker, surety or endorser for the payment of the
Obligations.

IN WITNESS WHEREOF, Trustor has executed this Deed of Trust as of the
date and year first above written.

Trustor

MEGATEST CORPORATION, a Delaware

corporation

By: /s/ PAUL W. EMERY, II

--------------------------------
Its: VP FIN & CFO

By:

--------------------------------
Its:

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

[ALL SIGNATURES MUST BE ACKNOWLEDGED]

[IMPRINT OF NOTORIAL SEAL AND ACKNOWLEDGEMENT APPEAR HERE]

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PROMISSORY NOTE

$5,450,000.00 San Jose, California
August 25, 1995

FOR VALUE RECEIVED, MEGATEST CORPORATION, a Delaware corporation
("Maker"), having an office at 1321 Ridder Park Drive, San Jose, CA 95131-2306
promises to pay to SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.), a Delaware
corporation ("Holder") having its principal office address, at One Sun Life
Executive Park, Wellesley Hills, MA 02181, or order, at its principal office in
Wellesley Hills, MA or at such other place as may be designated in writing by
Holder, the principal sum of FIVE MILLION FOUR HUNDRED FIFTY THOUSAND and NO/100
Dollars ($5,450,000.00) (the "Principal Indebtedness"), in lawful money of the
United States, together with interest thereon at the rate of eight and one
eighth percent (8.125%) per annum, payable in monthly installments of principal
and interest in the sum of Forty Nine Thousand Three Hundred Sixty-One and
76/100 Dollars ($49,361.76), commencing October 1, 1995 and payable on the first
day (1st) of each month for fifty-nine (59) months with the last installment
being due and payable on August 31, 2000 (the "Maturity Date"), at which time
the entire unpaid balance together with accrued interest shall be due and
payable. Interest accrued from the date Holder initially disburses funds to the
first (1st) day of the month following the month during which Holder initially
disburses funds, shall be due and payable at the time of closing.

This Note is secured by, among other things, (i) a Deed of Trust,
Financing Statement, Security Agreement and Fixture Filing (with Assignment of
Rents and Leases) (the "Deed of Trust") dated as of the date hereof made by
Maker for the benefit of Holder and encumbering certain premises situate in the
City of San Jose, County of Santa Clara and the improvements thereon, along with
other property more particularly described in the Deed of Trust (collectively,
the "Secured Property"), and (ii) an Absolute Assignment of Leases, Rents,
Income and Cash Collateral dated as of the date hereof from Maker to Holder.
Each of the documents mentioned in this paragraph and all other documents either
evidencing or further securing the Principal Indebtedness are collectively
referred to herein as the "Loan Documents".

Upon the occurrence of an Event of Default (as such term is defined in
the Deed of Trust) (including, without limitation, the failure of Maker to pay
any sum herein specified when due regardless of whether or not there has been an
acceleration), all delinquent payments and all accrued and unpaid interest
thereon,

<PAGE> 63

and all other delinquent sums evidenced and/or secured by the Loan Documents
shall bear interest from the date of delinquency at a rate per annum (the
"Default Rate") equal to the lesser of: (i) the highest rate of interest
permitted to be contracted for under the laws of the State of California, if
any, or (ii) twelve and one eighth percent (12.125%) per annum. The Default Rate
shall be in lieu of any other interest rate otherwise applicable and shall
commence, without notice, immediately upon and from the occurrence of such Event
of Default and shall continue until all defaults are cured and all sums then due
and payable under the Loan Documents are paid in full.

No privilege is reserved to prepay the Principal Indebtedness either in
whole or in part prior to September 1, 1997 (the "Closed Period"). Thereafter,
beginning on September 1, 1997, and except as provided hereinafter, the
privilege is reserved by Maker to prepay the entire principal balance hereunder
together with accrued interest thereon to the date of payment on such date or
any subsequent monthly installment date, upon not less than ninety (90) days'
prior written notice to Holder of Maker's intention to make such prepayment,
provided there is paid, in addition to interest accrued to the date of such
prepayment, a prepayment fee which shall be equal to the greater of (a) two
percent (2%) of the then outstanding balance of the Principal Indebtedness, or
(b) a Discounted Yield Maintenance Prepayment Fee computed as follows: the
proceeds of the prepayment will be assumed to be immediately reinvested in a
United States Treasury Security having a coupon interest rate and maturity most
closely equivalent to that of this Note. If the yield (the "Treasury Yield") on
that certain United States Treasury Security, as published in the "Wall Street
Journal" on the fifth business day prior to the date of prepayment, is:

1. less than the interest rate of this Note, Maker will pay to
Holder a fee equal to the positive difference between the two
interest rates, divided by 12 and multiplied by the then
outstanding balance of the Principal Indebtedness to arrive
at the monthly payment differential. Holder shall then
determine the present value of the series of monthly payment
differentials for the number of whole and partial months from
the prepayment date to the maturity date using the Treasury
Yield as the discount rate compounding monthly. The
resulting sum of the discounted monthly payment differentials
will be the Discounted Yield Maintenance Prepayment Fee, or,

2. greater than or equal to the interest rate on this Note, then
the prepayment fee shall be 2% of the then outstanding
balance of the Principal Indebtedness.

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In the event the outstanding balance of the Principal Indebtedness
shall become due and payable as a result of (a) an Event of Default (as such
term is defined in the Deed of Trust) causing acceleration under this Note,
which Event of Default shall be conclusively deemed to be a willful default for
purposes of avoiding the prepayment charges to which Holder is entitled; (b) the
exercise by Maker of any right of redemption or other action to prevent a
foreclosure of the Secured Property; or (c) an acceleration by Holder as a
result of the sale or further encumbrance of the Secured Property in violation
of the applicable provisions of the Deed of Trust; then, in such event, Maker
shall pay the prepayment charge which would otherwise be applicable hereunder;
or if at that time there is no such privilege of prepayment (e.g., during the
Closed Period), then, to the extent permitted by law, and except as provided
hereinafter, such prepayment fee shall be equal to the greater of (a) three
percent (3%) of the then outstanding balance of the Principal Indebtedness, or
(b) a Discounted Acceleration Premium amount calculated as follows: the proceeds
of the prepayment will be assumed to be immediately reinvested in a United
States Treasury Security having a coupon interest rate and maturity most closely
equivalent to that of this Note. If the yield on that certain United States
Treasury Security, as published in the Wall Street Journal on the fifth business
day prior to the date of prepayment, is:

1. less than the interest of this Note, Maker will pay to
Holder a fee equal to the positive difference between the two
interest rates, divided by 12 and multiplied by the then
outstanding balance of the Principal Indebtedness to arrive
at the monthly payment differential. Holder shall then
determine the present value of the series of monthly payment
differentials for the number of whole and partial months from
the prepayment date to the maturity date using the Treasury
Yield as the discount rate compounding monthly. The
resulting sum of the discounted monthly payment differential
will be the Discounted Acceleration Premium, or,

2. greater than or equal to the interest rate on this Note,
then the prepayment fee shall be 3% of the then outstanding
balance of the Principal Indebtedness.

MAKER HEREBY EXPRESSLY (A) WAIVES ANY RIGHTS IT MAY HAVE UNDER
CALIFORNIA CIVIL CODE SECTION 2954.10 TO PREPAY THIS NOTE, IN WHOLE OR IN PART,
WITHOUT PENALTY, UPON ACCELERATION OF THE MATURITY DATE OF THE NOTE, AND (B)
AGREES THAT IF, FOR ANY REASON, A PREPAYMENT OF ANY OR ALL OF THIS NOTE IS MADE,
WHETHER VOLUNTARY OR INVOLUNTARY, OR UPON OR FOLLOWING ANY ACCELERATION

-3-

<PAGE> 65

OF THE MATURITY DATE OF THE NOTE BY HOLDER ON ACCOUNT OF ANY DEFAULT BY MAKER
UNDER ANY LOAN DOCUMENT, INCLUDING BUT NOT LIMITED TO ANY TRANSFER OR
DISPOSITION AS PROHIBITED OR RESTRICTED BY SECTION 1.11 OF THE DEED OF TRUST,
THEN MAKER SHALL BE OBLIGATED TO PAY, CONCURRENTLY THEREWITH, AS A PREPAYMENT
FEE, THE APPLICABLE SUM SPECIFIED IN THE PRECEDING PARAGRAPH. BY SIGNING THIS
PROVISION IN THE SPACE PROVIDED BELOW, MAKER AGREES THAT HOLDER'S AGREEMENT TO
MAKE THE LOAN EVIDENCED BY THIS NOTE AT THE INTEREST RATE AND FOR THE TERM SET
FORTH IN THE NOTE CONSTITUTES ADEQUATE CONSIDERATION, GIVEN INDIVIDUAL WEIGHT BY
MAKER FOR THIS WAIVER AND AGREEMENT.

MEGATEST CORPORATION, a Delaware

corporation

By: /s/ PAUL W. EMERY, II

-----------------------------
Its: VP, FIN & CFO

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

By:

-----------------------------
Its:

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

Notwithstanding the foregoing, no prepayment fee shall be payable in
connection with any voluntary or involuntary prepayment made on or after June 1,
2000, or any payment as a result of casualty or condemnation.

Upon the occurrence of any other Event of Default, then and in any such
events, Holder may, at its option, declare this Note and the entire Principal
Indebtedness to be immediately due and payable and collectible then or
thereafter as Holder may elect, regardless of the stated Maturity Date.

Should the Principal Indebtedness or any part thereof be collected at
law or in equity, or in bankruptcy, receivership, or any other court proceeding
(whether at the trial or appellate level), or should this Note be placed in the
hands of attorneys for collection upon default, Maker agrees to pay, in addition
to the principal, prepayment charge, interest and any other outstanding amounts
due and payable hereon, all costs of collecting or attempting to collect this
Note and enforcing Holder's remedies under the Loan Documents, including
reasonable attorneys' fees and expenses, and the same shall constitute
additional indebtedness secured by the Deed of Trust.

Maker recognizes that any default in the payment of any installment of
principal and/or interest due hereunder on the date the same is due will result
in loss and additional expense

-4-

<PAGE> 66

to Holder in servicing the Principal Indebtedness, handling such delinquent
payments and meeting its other financial obligations, and that the extent of
such loss and additional expenses is extremely difficult and impractical to
ascertain. Maker therefore agrees that in the event any installment of principal
and/or interest due hereunder is not paid on the date the same is due and
payable, without regard to any grace periods, a late charge of four percent (4%)
of the overdue installment of principal and/or interest shall be paid by Maker
and that such amount is a reasonable estimate of such loss and expense and may
be charged by Holder, at its option, for the purpose of defraying such loss and
expenses, unless applicable law requires a lesser such charge, in which event
the maximum rate permitted by such law may be charged by Holder for said
purposes.

The failure of Holder to exercise the option for acceleration of
maturity, foreclosure or any other remedies provided in the Loan Documents
following any default as aforesaid or to exercise any other option granted to it
hereunder, under the Deed of Trust or under any of the other Loan Documents, in
any one or more instances, or the acceptance by Holder of partial payments or
partial performance, shall not constitute a waiver of any such default, but such
option shall remain continuously in force. Acceleration of maturity, once
claimed hereunder by Holder, may at its option be rescinded by written
acknowledgement to such effect, but the tender and acceptance of partial payment
or partial performance alone shall not in any way affect or rescind such
acceleration of maturity.

Maker hereby covenants and agrees that, together with and in addition
to the monthly payments of principal and/or interest payable under the terms of
this Note, Maker will deposit with Holder of this Note or its agent, as directed
by Holder, until this Note is fully paid, installments of insurance premiums and
Impositions (as defined and required in the Deed of Trust). Amounts held
hereunder shall not be deemed to be trust funds, but may be commingled with the
general funds of Holder.

It is the intention of Maker and Holder to conform strictly to the
usury laws now or hereafter in force in the State of California, and any
interest payable under this Note, the Deed of Trust, the other Loan Documents,
and/or any of the other documents or instruments executed by Maker in connection
with the loan made or to be made hereunder shall be subject to reduction to the
amount not in excess of the maximum non-usurious amount allowed under the usury
laws of the State of California as now or hereafter construed by the courts
having jurisdiction over such matters. If the aggregate of all interest (whether
designated as interest, service charges, points or otherwise) contracted for,
chargeable or receivable under this Note, the Deed of Trust and

-5-

<PAGE> 67

any other Loan Document should exceed the maximum legal rate, it shall be deemed
a mistake and such excess shall be canceled automatically and, if theretofore
paid, shall at the option of Holder either be rebated to Maker or credited on
the principal amount of this Note, or, if the Note has been repaid, such excess
shall be rebated to Maker. In the event the Maturity Date is accelerated by
reason of any provision of this Note or by reason of an election by Holder
resulting from an Event of Default under the Loan Documents, voluntary
prepayment by Maker, or otherwise, then earned interest may never include more
than the maximum amount permitted by law, computed from the dates of each
advance of loan proceeds hereunder until payment, and any interest in excess of
the maximum amount permitted by law shall be canceled automatically and, if
theretofore paid, shall at the option of Holder either be rebated to Maker or
credited on the principal amount of this Note or, if the Note has been repaid,
the excess shall be rebated to the Maker. This provision shall control every
other provision of all agreements between Maker and Holder.

Maker hereby waives presentment, protest, notice of protest, notice of
dishonor and diligence in collection, and any and all other notices and matters
of a like nature, except for those expressly required by the Deed of Trust or
this Note. Maker consents to any extension of time (whether one or more) of
payment hereof, release of all or any part of the security for the payment of
this obligation or release of any person or entity liable for payment of this
Note. Any such extension or release may be made without notice to any such party
and without discharging said party's liability hereunder.

This Note may not be changed orally, but only by an agreement in
writing, signed by the party against whom enforcement of any waiver, change,
modification or discharge is sought.

No failure or delay on the part of Holder in exercising any right,
power or privilege under this Note and no course of dealing between Maker and
Holder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein expressly provided are cumulative and not
exclusive of any rights or remedies which Holder would otherwise have at law or
equity. No notice to or demand on Maker in any case shall entitle Maker to any
other or further notice or demand in similar or other circumstances or
constitute a waiver of the right of Holder to any other or further action in any
circumstances without notice or demand.

-6-

<PAGE> 68

Maker acknowledges that the ownership (and the continuation thereof) of
the Secured Property by Maker is of a material nature to the loan and the making
of the loan evidenced by this Note. Therefore, Maker agrees that in the event of
any transfer that is prohibited by the terms of Section 1.11 of the Deed of
Trust or other Loan Document, howsoever evidenced or occasioned, then, at the
option of Holder, the entire Principal Indebtedness along with all accrued
interest thereon shall immediately become due and payable.

Whenever in this Note one of the parties hereto is named or referred
to, the heirs, legal representatives, successors and assigns of such party shall
be included and all covenants and agreements contained in this Note by or on
behalf of Maker or by or on behalf of Holder shall bind and inure to the benefit
of such party's heirs, legal representatives, successors and assigns, whether so
expressed or not.

The obligations of each person and entity comprising Maker (if more
than one) shall be joint and several.

The unenforceability or invalidity of any provision or provisions of
this Note as to any persons or entities or circumstances shall not render that
provision or those provisions unenforceable or invalid as to any other persons
or entities or circumstances, and all provisions hereof, in all other respects,
shall remain valid and enforceable.

In the event of any default by Maker under this Note, the Deed of Trust
or any other Loan Document, Holder shall have all rights reserved in this Note,
the Deed of Trust and every other Loan Document and shall have full recourse to
the Secured Property and to the other collateral given by Maker to secure this
Note, provided, however, that any judgment obtained by Holder in any proceeding
to enforce such rights shall be enforced only against the Secured Property and
such other collateral. Notwithstanding the foregoing, Holder shall not in any
way be prohibited from naming Maker or any of its successors or assigns or any
person holding under or through them as parties to any actions, suits or other
proceedings initiated by Holder to enforce such rights or to foreclose its
mortgage lien or otherwise realize upon any other lien or security interest
created in any other collateral given to secure the payment of this Note. The
foregoing restriction shall not apply to, and Maker shall be personally liable
for, any losses, damages, costs and expenses incurred by Holder as a result of
(i) any material misstatement of fact (A) by Maker or any person or entity
constituting Maker to induce Holder to advance the principal amount evidenced
hereby or (B) contained in any Loan Document, (ii) fraud committed by Maker or
any person or entity

-7-

<PAGE> 69

constituting Maker, (iii) misapplication of rents, security deposits, income,
insurance proceeds, condemnation awards or trust funds, (iv) any loss, damage,
expense or liability on the part of Holder (including, without limitation,
attorneys' fees and disbursements) not reimbursable to Holder pursuant to the
Environmental Agreement and Indemnity (the "Indemnity") executed on even date
herewith including, but not limited to the diminution in value of the Secured
Property due to the existence of Hazardous Substances (as defined in the
Indemnity), or if required in the reasonable judgment of Holder, the preparation
of an environmental audit on the Secured Property, whether conducted or
authorized by Maker, Holder or a third party or the implementation of any
environmental audit's recommendations, (v) all losses, damages or liability
suffered by Holder arising from any acts of commission or omission by Maker that
result in waste upon the Secured Property, (vi) failure to pay real property
taxes when due, (vii) taking of any rents prepaid for more than one (1) month in
advance, (viii) cost of any property repair as a result of a casualty not
reimbursed by insurance to the extent insurance is required pursuant to the Deed
of Trust, or (ix) failure to fully comply with the provisions of the Americans
With Disabilities Act.

Whenever used, the words "Maker" and "Holder" shall be deemed to
include the respective heirs, successors, assigns and legal representatives of
Maker and Holder.

This Note is to be construed and enforced according to and governed by
the laws of the State of California.

IN WITNESS WHEREOF, Maker has executed this Note as of the date first
above written.

MAKER

MEGATEST CORPORATION, a Delaware

corporation

By: /s/ PAUL W. EMERY, II

-------------------------------------
Its: VP, FIN & CFO

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

By:

-------------------------------------
Its:

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

-8-

<PAGE> 1
EXHIBIT 22.1

PRESENT SUBSIDIARIES

<TABLE>
<CAPTION>
PERCENTAGE
STATE OR OF VOTING
JURISDICTION SECURITIES
INCORPORATION OWNED
------------- -----
<S> <C> <C>
Teradyne Benelux, Inc. (Ltd.) ................... Delaware 100%
Teradyne Canada Limited ......................... Canada 100%
Teradyne GmbH ................................... Germany 100%
Teradyne Holdings Limited ....................... United Kingdom 100%
Teradyne Limited ............................ United Kingdom 100%
Teradyne Hong Kong, Ltd. ........................ Delaware 100%
Teradyne International, Ltd. .................... U.S. Virgin Islands 100%
Teradyne Ireland Limited ........................ Ireland 100%
Teradyne Italia S.r.L. .......................... Italy 100%
Teradyne Japan, Ltd. ............................ Delaware 100%
Teradyne K.K. ............................... Japan 100%
Teradyne Korea, Ltd. ............................ Delaware 100%
Teradyne Leasing, Inc. .......................... Massachusetts 100%
Teradyne Malaysia, Ltd. ......................... Delaware 100%
Teradyne Netherlands B.V. ....................... Netherlands 100%
Teradyne Netherlands, Ltd. ...................... Delaware 100%
Teradyne Realty, Inc. ........................... Massachusetts 100%
Teradyne S.A. ................................... France 100%
Teradyne Scandinavia, Inc. ...................... Delaware 100%
Teradyne Singapore, Ltd. ........................ Delaware 100%
Teradyne Software and Systems Test, Inc. ........ Delaware 100%
Teradyne Taiwan, Ltd. ........................... Delaware 100%
Hammer Technologies, Inc. ....................... Massachusetts 100%
Megatest Corporation ............................ Delaware 100%
Megatest Limited ............................ United Kingdom 100%
Megatest SARL ............................... France 100%
Megatest GmbH ............................... Germany 100%
Megatest H.K. Ltd. .......................... Hong Kong 100%
Megatest International ...................... California 100%
Megatest International Sales Corporation .... Barbados 100%
Megatest Asia Pte. Ltd. ..................... Singapore 100%
Zehntel Holdings, Inc. .......................... California 100%
1000 Washington, Inc. ........................... Massachusetts 100%
</TABLE>

<PAGE> 1
EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the registration
statements of Teradyne, Inc. on Form S-8 (File Nos. 33-25868; 33-16077;
33-42352; 33-38251; and 33-64683) and Form S-3 (File No. 33-44347) of our report
dated January 18, 1996, except as to the third paragraph of Note E, for which
the date is January 31, 1996, on our audits of the consolidated financial
statements of Teradyne, Inc. as of December 31, 1995 and 1994, and for each of
the three years in the period ended December 31, 1995, which report is included
in this Annual Report on Form 10-K.

COOPERS & LYBRAND L.L.P.

Boston, Massachusetts
March 25, 1996

<PAGE> 1
EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-64683; 33-25868; 33-16077; 33-42352; and
33-38251) of Teradyne, Inc. of our report dated September 20, 1995 relating to
the consolidated financial statements of Megatest Corporation and its
subsidiaries as of and for the year ended August 31, 1994, which report is
included in this Annual Report on Form 10-K.

PRICE WATERHOUSE LLP

San Jose, California
March 21, 1996

<PAGE> 1
EXHIBIT 23.3

CONSENT OF DELOITTE & TOUCHE LLP

We consent to the incorporation by reference in the registration statements of
Teradyne, Inc. on Form S-8 (File Nos. 33-16077, 33-25868, 33-38251, and
33-64683) and Form S-3 (File No. 33-44347) of our report dated September 21,
1993 on the consolidated financial statements of Megatest Corporation and its
subsidiaries for the year ended August 31, 1993 appearing in this Annual
Report on Form 10-K of Teradyne, Inc.

DELOITTE & TOUCHE LLP

San Jose, California
March 22, 1996

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1995 AND THE CONSOLIDATED STATEMENT
OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000097210
<NAME> TERADYNE, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1.00
<CASH> 182,165
<SECURITIES> 93,662
<RECEIVABLES> 257,089
<ALLOWANCES> 2,269
<INVENTORY> 176,851
<CURRENT-ASSETS> 740,145
<PP&E> 512,986
<DEPRECIATION> 255,968
<TOTAL-ASSETS> 1,023,831
<CURRENT-LIABILITIES> 229,591
<BONDS> 18,679
0
0
<COMMON> 10,329
<OTHER-SE> 749,521
<TOTAL-LIABILITY-AND-EQUITY> 1,023,831
<SALES> 1,191,022
<TOTAL-REVENUES> 1,191,022
<CGS> 646,382
<TOTAL-COSTS> 946,666
<OTHER-EXPENSES> 5,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,040
<INCOME-PRETAX> 249,925
<INCOME-TAX> 90,641
<INCOME-CONTINUING> 159,284
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 159,284
<EPS-PRIMARY> 1.89
<EPS-DILUTED> 1.89

</TABLE>